Public Sector

Legal Aftershocks from Christchurch Earthquake

The Christchurch earthquake raises a myriad of legal issues, some of which will undoubtedly give rise in time, or more urgently, to new or altered law.

The Christchurch earthquake has left a multitude of legal aftershocks in its wake, and we are not talking just about those practitioners displaced from their offices by the damage to buildings and the evacuation of the CBD.

As in any natural disaster the clean up involves not only physical repairs and reconstruction, but also the reconstruction of those social, economic and cultural networks that allow communities to exist and thrive. Not least of these is the legal framework that allows competing interests to be resolved harmoniously and productively, and which balances individual rights and freedoms against those of society as a whole. It is in the nature of an event such as the Christchurch earthquake that some of those rights and freedoms are suspended or interfered with in order to meet extraordinary circumstances.

The law can be changed extremely quickly, sometimes temporarily and sometimes permanently. But some areas of law cope very well with extraordinary circumstances; because that is the purpose they have evolved to address. So, for example, our building laws cannot cope quickly enough with the need to re-house those whose homes or businesses are damaged or destroyed, but insurance law can cope with a large number of urgent claims subject only to the availability of logistical back-up.

The scale of the disaster in Christchurch may pale against the more recent earthquake, tsunami and nuclear reactor failure in Japan, but it is unquestionably a major event that will fully stretch our recovery resources. At the same time it raises a myriad of legal issues, some of which will undoubtedly give rise in time, or more urgently, to new or altered law. This article discusses just some of those issues and the emerging responses to them.

Special legislation

The use of existing legislation to adequately deal with the response to the Canterbury earthquake has been provided for in the Canterbury Earthquake Response and Recovery Act 2010. That Act enables the Government to "grant an exemption from, or modify, or extend any provision of any enactment..." which gives the Government extremely wide powers, provided those powers are exercised for the purposes set out in the Act, which are generally to facilitate the response to the Canterbury earthquake. A number of Orders in Council that modify the application of existing laws for a generally limited period have already been made. When the Act was passed and Orders first made after the initial Christchurch earthquake in September last year there was much concerned comment as to the propriety of using subordinate legislation in this manner. This time, possibly in view of the magnitude of the disaster and the recovery and reconstruction process, the response has been minimal.

Public Works Act

There has been considerable comment and speculation as to what the rebuilding of Christchurch will entail and this has included the possibility of not rebuilding in parts of the central business district and relocating to some other area of Christchurch. If such a course were taken, and whether it was the Government or the Christchurch City Council which took responsibility for such a step, it is likely to be necessary to consider the application of the Public Works Act 1981 for the purposes of first acquiring land in the CBD and second the granting of land elsewhere as compensation in order to effect multiple relocations.

The ability to grant land in exchange is provided for under section 106 of the Public Works Act (section 105 deals with residential dwellings). Section 107 of the Act sets out detailed machinery provisions to effect such exchanges. In order to operate, sections 105 and 106 require the agreement of the landowner. It remains to be seen whether, in the circumstances of any proposed wholesale relocation of the Christchurch CBD, the obtaining of the consent of landowners is practicable.

The use of the Canterbury Earthquake Response and Recovery Act 2010 to modify the provisions of the Public Works Act, one possible modification being the removal of the absolute need for consent under sections 105 and 106 so as to bring about a relocation of the Christchurch CBD, would pave the way for the most significant application of the Public Works Act ever undertaken in New Zealand.

Re-building

Throughout the coming period it will be critical that the predicted $20-30 billion of rebuilding required in Christchurch is undertaken promptly, to an appropriate standard, and adequately documented.

Following the September earthquake the Canterbury Earthquake (Building Act) Order 2010 was enacted. This remains in effect until 16 September 2011 and therefore provides an existing framework for fast tracking processes under the Building Act 2004 (BA'04). For example it is the Order that provides for the red and yellow cards that are attached to damaged buildings to be deemed to be dangerous building notices under section 124 of the BA'04. The Order also confirms Councils' powers under the BA'04 to undertake works where the owner fails to do so, but removes the need for notice to be given and requires that any objections by owners to the cost of those works, for which they are liable, must be lodged with the District Court within 5 days of the completion of the works.

Unfortunately the provisions of the Order that modified Schedule 1 of the BA'04 so as to enable additional repair work to be undertaken without building consent were revoked in December 2010. Although the Councils retain their usual discretion to grant exemptions to the requirement to obtain a building consent (under clause (k) of Schedule 1) the Order may need to be revisited so as to ensure that relatively minor repair works can be swiftly undertaken. Prudently the Christchurch City Council is advising owners to advise it when repair works are undertaken without consent so that it is recorded with the Council and will appear on any LIM issued to potential purchasers in the future.

As to the standard of repairs and rebuilding, all new works must comply with the Building Code. However, The Christchurch City Council's Earthquake-Prone Dangerous and Insanitary Buildings Policy 2010, adopted after the September earthquake, requires upgrading of "earthquake-prone" buildings. Any application to repair such a building damaged by earthquake must provide for structural strengthening, ideally to 67% or more of Full Code Levels. Earthquake-prone buildings that do not require repair must still be strengthened, but within a 15 to 30 year timeframe prescribed by the Policy. The Policy specifically discusses heritage buildings, many of which will be earthquake prone, and confirms that the Council will take into account heritage values when determining possible courses of action and will seek to avoid demolition wherever possible.

Reconstruction or demolition of heritage buildings

The future of damaged or earthquake-prone buildings is causing particular anguish, with two clear schools of thought on the matter.

Gerry Brownlee, Minister for Canterbury Earthquake Recovery, is reported as wanting severely damaged heritage buildings bulldozed. The New Zealand Historic Places Trust, as an advocate for the protection of heritage, considers that heritage buildings are no different to any other buildings and should not be demolished where necessary repairs can be made.

Mr Brownlee appears concerned that efforts to preserve heritage buildings, following the September quake, exacerbated the loss of life and injury. The Governmental inquiry will likely consider his view on this point and what other measures could have been taken to prevent the devastating toll of the earthquake. In the meantime legal protection of heritage remains an issue.

Regulatory protection of heritage is predominantly under the Resource Management Act 1991 (RMA) and the Historic Places Act 1993 (HPA). Where buildings are scheduled in the District Plan resource consent would be required for demolition except in the case of the emergency works under the Civil Defence Emergency Management Act 2002. In such cases retrospective application for consent is required within 60 working days. The consent of NZHPT could be required if the building is subject to a heritage order, was scheduled as an historic place, or defined as an archaeological site.

Relevant Orders issued to date allow the Council to demolish buildings without resource consent where, under the BA'04, the building is considered to be in a state of immediate danger to the safety of people, such as imminent collapse. Instead the Council may simply consult with any person likely to be, or whose property is likely to be, adversely affected. Consultation allows 10 working days to provide comments but there is no right of appeal or objection in relation to the Council's ultimate decision. The timeframe for applicants to receive archaeological consents from NZHPT is reduced to only 3 days.

These amendments may appear to make preservation of heritage buildings precarious. However, where a building is entered in the NZHPT register or scheduled in the District Plan, notice is given to NZHPT of resource consent applications. That factor should lead the Council to consult with NZHPT about resource consents affecting heritage buildings and provide an opportunity for input as to whether a building can be repaired.

Effect on the RMA and District/Regional Plans

The RMA requires local authorities in New Zealand to regulate activities that may have an effect on the environment through district and regional plans. Such plans are comprehensive documents which set a level of permitted activities (such as for earthworks) and require resource consents for work which would exceed those limits, or would go against rules made in those plans which discourage, for example, changes to heritage buildings.

In the days following the February earthquake immediate works were needed which would not have been permitted by the rules in those plans. There was no time to obtain resource consents, as that process can take months or more, and there were buildings posing immediate danger all over the city of Christchurch.

As it did in September 2010, the Government reacted by making the Canterbury Earthquake (Civil Defence Emergency Management Act) Order 2011 and the Canterbury Earthquake (Resource Management Act) Order 2011, allowing the Councils that administer and enforce plans in the region to waive some of that bureaucracy. The Orders allow resource consents to be granted for activities contrary to the objectives and polices of the plans in some cases, provide for consent to be granted without the public being notified, and pave the way for land remediation without cumbersome paperwork. There is also an Order providing for temporary accommodation, depots and storage facilities to be treated as permitted activities to allow the provision of such urgently needed facilities.

In addition, the RMA itself has inbuilt allowances for emergency work, which include protection from prosecution for breaking a plan rule where someone takes action to protect life, health or property and remedies the effects of that action after the fact.

It is important to note, however, that the majority of the plan rules will still apply, obviously in areas that have not been affected by the earthquake, but also in all circumstances not involving emergency work. Other applications for resource consent, not directly impacted by the earthquake may also be affected. For example the Hurunui District Council has put on hold an application to establish a wind farm near Greta Valley because of the impact of the earthquake on the ability of Canterbury Regional Council to give it the required attention within the necessary RMA timeframes.

Looking to the future, the plans may well include rules designed to limit exposure to similar events, for example by restricting building in some areas. They will probably also reflect new concepts and ideas for the repair, rehabilitation and reconstruction of Christchurch and its surrounds - hopefully in a way that recreates those places with more strength and even more vibrancy and quality than they had before.

Effects on families

The devastation caused by the Christchurch earthquake will be felt for many years to come. Families are under enormous pressure due to the loss of life, loss of homes and loss of livelihoods. That strain on families and relationships has led to an increase of abuse in rocky relationships.

The Women's Refuge stated that in Christchurch they are dealing with an extra 25 women per day and the police report that domestic violence has increased by 50%. The police have also reported a general increase in crime due to anxiety with people losing their jobs, having no money and having no home.

There is help for families under stress through the Family Court system, which offers counselling to families under pressure and protection orders to those victims of domestic violence. There are lawyers available in Christchurch and from other centres to assist Christchurch people with any family related matter.

In addition minor amendments have been made to the application of provisions in the Social Security Act 1964 and to regulations made under it for temporary additional support and to ensure beneficiaries are not disadvantaged.

Privacy and information

In some cases statutory provisions that are highly desirable in normal circumstances can become an obstacle in a disaster. Such is the case with some aspects of the Privacy Act 1983 and the requirement on territorial authorities to provide Land Information Memoranda, commonly known as LIMs, under the Local Government Official Information and Meetings Act 1987. Accordingly the Privacy Commissioner has issued an urgent Code to help emergency services and others dealing with the emergency to share personal information as necessary to assist victims of the earthquake and their families. Similarly an Order in Council has been made to assist the affected Councils by allowing them to produce LIMs within more limited parameters than would normally apply.

Insurance

Insurance companies have all but stopped writing new cover in Christchurch in the wake of the 22 February earthquake. It is likely to take them some months to resume writing new cover. When that does happen, some older buildings will still be uninsurable or there will be significantly increased premiums and claim deductibles.

Insurers are following the same pattern as after the September earthquake in suspending new cover. After a few months, they began writing new policies. The insurers, and more particularly the overseas reinsurers, are likely to be extremely wary about writing new business this time around.

Generally, existing policies are being honoured. However, there are simply too few assessors and building professionals on the ground to process the claims quickly.

Where existing policies are being renewed, insurers are increasing premiums substantially and lifting deductibles (the excess). Some insurers are amending terms so that deductibles apply to the total sum insured rather than the amount of loss or damage. This means for example that the owner of a $10 million building with $1 million of damage would have to come up with 5% of the total ($500,000), compared to a mere $50,000 deductible under the old terms.

However, even with renewals and particularly for older buildings in or around the CBD, there is a real risk that those buildings will be uninsurable for the foreseeable future. Whilst some existing customers of insurance companies and brokers are able to increase or buy new cover by making a special case, they will typically need to be armed with engineers' and geotechnical reports.

The lack of availability of new cover has also thrown some Christchurch residents into limbo, especially where a property is changing hands or is a new build. Construction firms hold builders insurance, which typically expires on completion of a project. Where a house has just finished and the builder's risk has ended, some homeowners cannot get cover.

The only certainty is that the existing state of inevitable delays in processing claims, the general unattainability of new cover and the probable imposition of onerous terms for renewals is likely to continue for some time.

Employment

Employment continuity, loss of jobs, relocations and business and personal income losses are all issues that have to be addressed as employers struggle to restore business or come to grips with permanent closures. At the time of the earthquake 28% of all Canterbury employees worked in the CBD. The frustration of business owners trying to re-enter or collect essential items from premises within the CBD cordon has been well documented, but the Government did move swiftly to provide an Earthquake Employment Support Package.

The package is in two parts. The Earthquake Support Subsidy is a payment to assist employers to pay their employees, and is also for the self-employed or business owners who draw a wage. It amounts to $500 per week to be paid to each fulltime employee and applies when employers are unable to operate because of earthquake damage, or in the case of a small business that can operate but is experiencing significant loss of trade. Earthquake Job Loss Cover is a weekly payment of $400 paid to employees displaced from their jobs by the earthquake. The package will remain in place until 18 April followed by a second round of assistance with tighter application criteria. It excludes national employers who can continue to operate and meet their obligations to pay their employees, those receiving weekly compensation from the Accident Compensation Commission, and employers already receiving insurance payments that cover lost wages.

The Department of Labour website (www.dol.govt.nz) contains information about a variety of employment related issues arising from the business disruption caused by the earthquake. However it seems certain that the uncertainty about business continuation for many employers will lead to disputes and hardship that extend well beyond the timeframe that the Government has in place for short term relief.

Private property issues

As was the case following the September earthquake there are problems for those in the process of property and business sales and purchases. In the current REINZ/ADLS sale and purchase forms, a property is at the risk of a vendor until possession is given and taken. If prior to possession the property is destroyed or damaged and not made good, the outcome depends on whether or not the property is tenantable. If untenantable the purchaser has a choice to complete the purchase at a price adjusted for any insurance payable to the vendor, or to cancel the agreement. If tenantable the purchaser must complete the purchase at a price reduced by any diminution in value as a result of the damage. In respect of business sales and purchases, the test is whether the ability to operate the business is materially affected but otherwise the same criteria as those set out in the real estate agreement apply.

The related insurance issues are addressed elsewhere in this article, but of course the issue for purchasers is the difficulty in obtaining insurance cover for the purchased property, and the consequent refusal of banks to settle mortgages on uninsured properties.

Similar difficulties arise in respect of leasehold properties. If a lease has not been cancelled because of the severity of property damage, the obligations between landlord and tenant may be disrupted or ongoing, but in any case likely to be difficult to meet if either party is not fully insured for the risk and unable to cope with the financial toll of business disruption or loss of income.

At some stage there may also be issues arising from property owners who have simply abandoned properties in the worst hit areas with no intention of returning. Mortgage obligations, rates payments, and the requirement to maintain buildings and properties in a safe and sanitary condition all continue to apply, and it is likely that these and other issues arising from abandonment may need to be addressed in further legislation if this proves to be a significant problem.

Other issues

These are just some of the legal issues, and others we should mention include:

  • Funding and planning replacement infrastructure, which is a job for both the Council and the Government. In Japan we have seen news items about ruptured roads in the worst hit areas being fully restored in under a week. Christchurch citizens will expect swift responses.
  • What, if any, liability may accrue to public agencies, the Council, and private sector consultants and suppliers? Everyone wants answers as to why certain buildings and infrastructure performed well and others did not, and the answers may lead to blame and litigation.
  • The Auckland Plan and the 2011 National Infrastructure Plan are currently going through development stages including consultation. How will the funding squeeze for both public and private infrastructure arising from the earthquake impact on these and other regional planning initiatives?
  • What are the lessons to be learnt in terms of urban planning, infrastructure design and the legal structures needed for the replacement, restoration or redevelopment of the urban landscape?

CERA

The Government has announced a new standalone government department will be set up to deal with rebuilding Christchurch. The Canterbury Earthquake Recovery Authority (CERA) will have wide powers, including the power to relax, suspend or extend laws for earthquake recovery, and to direct or prohibit certain local authority actions. No doubt the Council will welcome all the help it can get from the Government, but is this really the way to go? Christchurch is certain to suffer some level of depopulation, at least in the short term. Those who opt to stay, whether out of necessity or choice, are surely the best drivers of the future of the city, and unlikely to want top down bureaucracy imposed upon them as the price of funding. John Key says the government is going to play a leading role because no city council in New Zealand has the capability and bureaucratic support to do what needs to be done in the next 2 to 5 years. But it is not clear that capability and bureaucratic support should come at such a price to the integrity of the region. It may be, in fact, that a more acceptable and efficient approach would be to examine the governance and legal framework in which recovery will take place and clear any road blocks so that the region can lead the way itself. Something other than a new Government department seems called for.

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The contents of this publication are general in nature and are not intended to serve as a substitute for legal advice on a specific matter. In the absence of such advice no responsibility is accepted by Brookfields for reliance on any of the information provided in this publication.

 

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