UNIVERSITY OF CANTERBURY V THE INSURANCE COUNCIL OF NEW ZEALAND INCORPORATED CA127/2013 [2013] NZCA 471

DRAFTUNIVERSITY OF CANTERBURY V THE INSURANCE COUNCIL OF NEW ZEALAND INCORPORATED CA127/2013 [2013] NZCA 471 [8 October 2013]IN THE COURT OF APPEAL OF NEW ZEALANDCA127/2013[2013] NZCA 471BETWEEN UNIVERSITY OF CANTERBURYAppellantANDANDANDTHE INSURANCE COUNCIL OF NEWZEALAND INCORPORATEDFirst RespondentCHRISTCHURCH CITY COUNCILSecond RespondentBODY CORPORATE 423446 (OXFORDBODY CORPORATE)Third RespondentHearing: 8 August 2013Court: Harrison, White and Asher JJCounsel: T C Weston QC, D A Webb and D McBeath for AppellantD J Goddard QC and T A Spinka for First RespondentD J S Laing for Second RespondentC A McVeigh QC and S T Cottrell for Third RespondentJudgment: 8 October 2013 at 2.30 pmJUDGMENT OF THE COURTA The appeal is dismissed.B The cross-appeal is allowed and declaration two is quashed.C The appellant is to pay costs to the first respondent for a standardappeal on a band A basis together with usual disbursements. We certifyfor two counsel.____________________________________________________________________REASONS OF THE COURT(Given by Asher J)Introduction[1] In 2010, after the first Christchurch earthquake, the Christchurch City Council (the City Council) decided on a policy that enabled it to require buildingowners to strengthen existing buildings to a capacity of up to 67 per cent of thecurrent building code requirements. The Insurance Council of New Zealand Inc(ICNZ) brought judicial review proceedings questioning the lawfulness of the policy.By a judgment delivered on 4 February 2013, Panckhurst J declared that the CityCouncil could not require a building owner to take steps to strengthen a building tothat extent.1 Parts of the policy were struck out. That decision is not appealed by theCity Council, but is challenged on appeal by the appellant, the University ofCanterbury, a significant building owner in the Christchurch area, and anotherbuilding owner, the Oxford Body Corporate. There is also a cross-appeal by ICNZwhich relates to a second declaration that was made.Background[2] The policy challenged in the proceedings was adopted by the City Council inaccordance with the obligation placed on territorial authorities under s 131 of theBuilding Act 2004 (the Act) to adopt a policy on dangerous, earthquake-prone andinsanitary buildings within its district. Under s 131(2)(a) of the Act, the policy muststate the approach that the territorial authority will take in performing its functionsunder the part of the Act relating to dangerous, earthquake-prone and insanitarybuildings. Section 132 of the Act requires the City Council to review its s 131 policyat intervals of not more than five years.[3] The policy was adopted at an extraordinary meeting of the City Council on10 September 2010. The meeting followed the first Canterbury earthquake on4 September 2010. There was a detailed consideration of the legality of requiringstrengthening beyond 33 per cent of the new building standard (the NBS) issued in1 Insurance Council of NZ Inc v Christchurch City Council [2013] NZHC 51, [2013] NZRMA 113 [High Court judgment].accordance with the building code.2 In the policy ultimately adopted by the City Council it was noted that the City Council would be guided by the recommendationsof the New Zealand Society of Earthquake Engineers that 67 per cent of "full code levels" was a reasonable level of strengthening to reduce the risk posed by existingbuildings. The City Council decided to use that level of strengthening to reduce or remove the danger posed by specific buildings.[4] In its document "Guidance on exempted consented building works forearthquake damaged buildings", the City Council recorded that the policy increasedthe strengthening level for earthquake-prone commercial buildings from 33 per centof the building code to a target of 67 per cent. This would mean that some buildingswould need to undergo further strengthening to reach the highest standard ofcompliance with the building code. It was stated that the 67 per cent earthquakestrengthening standard was a target and not fixed, and that an assessment of whetherthe 67 per cent standard would be required would be done by the City Council on acase by case basis. For convenience we refer to the 2010 policy and guidancedocument as "the policy".[5] In the High Court ICNZ was concerned that the new policy would increasethe cost of earthquake repairs for building owners who would in turn seek to claimthe cost of those repairs from their insurers. If a 67 per cent requirement was to beimposed, the estimated increase to the repair bill of insurers could run into hundredsof millions of dollars.[6] ICNZ's statement of claim asserted that the City Council's decisions underss 131 and 132 of the Act to adopt the policy were unlawful and invalid. It referredto the City Council's power under s 124 of the Act to give notice requiring work tobe carried out if a building is dangerous, earthquake-prone or insanitary. It waspleaded that the policy provides for the City Council to issue s 124 notices thatimpose requirements on property owners that are not authorised by and areinconsistent with the Act. It was stated that the policy is invalid.2 Building Regulations 1992, sch 1.[7] Declarations were sought that the City Council's decision to adopt the policywas unlawful and invalid. Orders were applied for setting aside the 2010 policy inwhole or in part, and a declaration was sought that the City Council could not, byissuing a s 124 notice, require a building owner to increase the seismic strength of anexisting building above 33 per cent of the NBS.[8] The question is whether the Act conferred on councils such as the CityCouncil the power to require strengthening work beyond one-third and up to67 per cent of the NBS. If it did the policy was lawful. If not it was unlawful.Panckhurst J approached the application, rightly in our view, as raising an issue ofstatutory interpretation. What power was conferred by the Act to require works to aparticular standard? Panckhurst J concluded that the City Council in enacting apolicy whereby it could require earthquake strengthening beyond 34 per cent hadacted unlawfully and gone beyond the authority conferred on it by the Act.[9] The appellant submits that in doing so he made an error of law, and that theproper interpretation of the Act is that strengthening up to the 67 per cent level canbe required by the City Council.[10] There was affidavit evidence filed on behalf of the parties recording thebackground, the history of the 2010 policy, the efficacy of the standard and the CityCouncil's approach. There were also affidavits filed as to the impacts upon theparties and the effects on individual building owners. However, none of this factualmaterial was the subject of detailed oral submissions before us, and like Panckhurst Jwe see no need to refer to the detailed history or the practical merits of the policy. IfParliament has clearly imposed a standard, it is not for the courts to second-guess themerits of that standard.[11] The statement of claim in the High Court also raised issues as to theCity Council's power to impose requirements on the issue of building consents.However, the City Council has accepted it cannot impose the requirements inrelation to a building consent, and that issue has not been argued before us.The Building Act 2004[12] It is a purpose of the Act to provide for the setting of performance standardsfor buildings to ensure that people who use buildings can do so safely and withoutendangering their health.3 Under s 12(2) a territorial authority, such as the CityCouncil, grants waivers and modifications of the Building Code,4 and performsfunctions relating to dangerous, earthquake-prone or insanitary buildings.5[13] The relevant part of the Act is subpt 6 of pt 2 which is headed "Specialprovisions for certain categories of buildings". That subpart sets out meanings forthe phrases "dangerous building", "earthquake-prone building", "insanitarybuilding" and the powers of territorial authorities in respect of such buildings. Wehave already referred to ss 131 and 132 of this subpart to the Act, which requireterritorial authorities to adopt policies on such buildings and review that policy. It isthe provisions in this part of the Act that the City Council has relied on in passing the2010 policy and it is necessary to consider them in detail.[14] Section 121 defines a dangerous building:121 Meaning of dangerous building(1) A building is dangerous for the purposes of this Act if,—(a) in the ordinary course of events (excluding the occurrence of an earthquake), the building is likely to cause—(i) injury or death (whether by collapse or otherwise) to any persons in it or to persons on other property; or(ii) damage to other property; or(b) in the event of fire, injury or death to any persons in the building or to persons on other property is likely. (Emphasis added.)[15] Section 121 was temporarily amended in 2011 to add amongst other things afurther definition of the word "dangerous". However, the additions only applied to16 September 2013 when they ceased to have effect, and the parties have not sought3 Building Act 2004, s 3(a)(i).4 Section 12(2)(d).5 Section 12(2)(j).to rely on this short term amendment which, given its expiry, can be regarded as irrelevant.[16] Section 122(1) provides:122 Meaning of earthquake-prone building(1) A building is earthquake prone for the purposes of this Act if, having regard to its condition and to the ground on which it is built, and because of its construction, the building—(a) will have its ultimate capacity exceeded in a moderate earthquake (as defined in the regulations); and(b) would be likely to collapse causing—(i) injury or death to persons in the building or to persons on any other property; or(ii) damage to any other property.(Emphasis added.)Subsection (2) provides that residential buildings are not earthquake-prone unlessthey are two or more storeys high and contain three or more household units.[17] A "moderate" earthquake as referred to in s 122(1)(a) is defined in reg 7 ofthe Building (Specified Systems, Change the Use, and Earthquake-prone Buildings) Regulations 2005 (the Regulations):7 Earthquake-prone buildings: moderate earthquake definedFor the purposes of section 122 (meaning of earthquake-prone building) of the Act, moderate earthquake means, in relation to a building, an earthquake that would generate shaking at the site of the building that is of the same duration as, but that is one-third as strong as, the earthquake shaking (determined by normal measures of acceleration, velocity, and displacement) that would be used to design a new building at that site.(Emphasis added.)[18] It can be seen that moderate earthquake shaking is defined as shaking that is"one-third as strong" but of the same duration as the shaking that would be used totest the design of a new building on the particular site. This formulation was referredto in the High Court judgment as 34 per cent of the NBS, and the two-thirds asstrong level as 67 per cent of the NBS. We will adopt that formulation. Newbuildings are required to achieve a seismic strength expressed at 100 per cent of theNBS.[19] Section 123 defines an insanitary building, and is not of relevance.Section 124(1)(a)–(c) provides:124 Powers of territorial authorities in respect of dangerous, earthquake-prone, or insanitary buildings(1) If a territorial authority is satisfied that a building is dangerous,earthquake prone, or insanitary, the territorial authority may—(a) put up a hoarding or fence to prevent people from approaching the building nearer than is safe:(b) attach in a prominent place on, or adjacent to, the building a notice that warns people not to approach the building:(c) give written notice requiring work to be carried out on the building, within a time stated in the notice (which must not be less than 10 days after the notice is given under section 125), to—(i) reduce or remove the danger; or(ii) prevent the building from remaining insanitary.(Emphasis added.)[20] The question is whether the powers conferred by these sections on the CityCouncil are sufficient for it to adopt under ss 131 and 132 a policy on buildingsenabling it to require repairs under s 124 that exceed the level of 34 per cent of theNBS. Panckhurst J's two key conclusions, based on his analysis of the sections thatare in contention, were as follows:6The primary focus in requiring work on earthquake-prone buildings is upon managing the likely risk of collapse causing injury or death, or damage to other property; but in the context that collapse is defined with reference to buildings with an ultimate capacity under 34% of the NBS.Accordingly, territorial authorities may not use s 124 notices to advance a policy of increasing building capacity to a level above 34% of the NBS. However, they are not prevented from requiring work to reduce or remove specific vulnerabilities capable of causing injury, death or6 High Court judgment, above n 1, at [35].property damage where the subject building is also under 34% of the NBS.[21] Panckhurst J did not declare the policy unlawful, but made a declarationrestricting the City Council's s 124 notices in these terms:The Court grants a declaration that in issuing a notice in respect of an earthquake prone building under s 124 of the Building Act 2004 theChristchurch City Council cannot require a building owner to take steps toincrease the seismic strength of the building to a greater extent than isnecessary to ensure that the building will not have its ultimate capacityexceeded in a moderate earthquake as defined in clause 7 of the Building(Specified Systems Change the Use, and Earthquake-prone Buildings)Regulations 2005.As observed, the standard imposed in reg 7 of the Regulations was effectively34 per cent of the NBS.The dispute[22] The effect of ss 121, 122 and 124 is to give defined powers to territorialauthorities to adopt policies and issue notices in respect of dangerous,earthquake-prone or insanitary buildings. There is no need to dwell on the definitionof dangerous building in s 121, as under s 121(1)(a) the occurrence of an earthquakeis excluded as a relevant event. This is because s 122 deals specifically withearthquake-prone buildings and governs the position of whether or not they areearthquake-prone. Nor is there any need to consider insanitary buildings unders 123, as such buildings are not relevant to the issue.[23] The real focus of argument was the interpretation of s 122, specifically therelationship between s 122(1)(a), which provides as a criterion of beingearthquake-prone that a building will have its ultimate capacity exceeded in amoderate earthquake as defined in the Regulations, and s 122(1)(b), which providesas another criterion that a building will be likely to collapse causing injury or deathor damage to any other property. Should s 122(1)(a) be read conjunctively withs 122(1)(b) by virtue of the arrangement of the subsections and the use of the word"and"? Or is a disjunctive interpretation appropriate whereby even if a building willnot have its ultimate capacity exceeded in the event of an earthquake as defined inthe Regulations in accordance with the first criterion, it may still be so likely tocollapse that it falls within the definition of "earthquake-prone" in the second criterion? Mr Weston QC for the University of Canterbury and Mr McVeigh QC for Oxford Body Corporate submitted that the latter interpretation was correct, andMr Goddard QC for ICNZ the former.7Our analysisSection 122[24] It is apparent that the purpose of s 122 was to set a test for determining whether, for the purposes of the Act, a building is earthquake-prone. Parliamentchose not to leave the issue to the unfettered discretion of territorial authorities. Itset down a standard and also referred to the likelihood of collapse. The standard wasa moderate earthquake as defined in the Regulations.[25] As we read s 122(1)(a) and (b), the word "and" linking paras (a) and (b)naturally imports a conjunctive meaning. Each subparagraph contains a requiredcriterion, and only if both criteria exist is the building "earthquake-prone". This isthe way in which a section in a statute containing two gateway criteria each linkedby "and" would be usually read.[26] The alternative interpretation of "and" meaning "or" and each paragraphstanding alone would have the result that a building could be earthquake-prone if itdid not meet the standard, even if it was established that it was not likely to collapsein a moderate earthquake. It would also mean that any likelihood of collapse,whatever the level of excess of ultimate capacity as defined by the Regulations,could make the building earthquake-prone. It is unlikely that such consequenceswere intended.[27] It is more likely that the paragraphs contain two requirements; the thresholdtest in (a), which is an absolute requirement, and then the evaluative ("would belikely to") test in (b). Both must be fulfilled. To be earthquake-prone it must be7 The recent Royal Commission of Inquiry into Building Failures Caused by the CanterburyEarthquakes considered this issue, and expressed the view that the ICNZ's approach should bepreferred: Royal Commission of Inquiry into Building Failures Caused by the CanterburyEarthquakes Final Report: Earthquake Prone Buildings (vol 4, 8 October 2012) at section 7.5.both a building that will have its ultimate capacity exceeded in a moderateearthquake, and also a building that would be likely to collapse in the mannerdefined.[28] Section 122(1)(b) only refers to danger of collapse and does not refer to the cause. If it could be read alone, as the appellant suggests, then any likelihood of collapse, whether or not it had any connection to an earthquake, would mean that thebuilding was earthquake-prone. A likelihood of collapse caused by a sink hole or rotwould mean that the building met the definition of earthquake-prone in terms of theAct. That cannot have been the intention of the legislature, which specificallyinserted in the preceding s 121 a definition for buildings that were a danger forreasons other than the occurrence of an earthquake.[29] It is significant that the legislature appears to have exercised care in choosingwhether to use the word "and" or "or" in this part of the Act. The word "or" is used to link the criteria in s 121(1). The word "and" is used to link them in s 122(1). Then in s 123(a) the word "or" is used again, as it is in s 124(1)(c).[30] As was observed by Tipping J in Waitemata Health v Attorney-General theword "and" although occasionally capable of bearing the meaning "or", does notnormally take that meaning.8 Given the context, if those drafting the legislation hadmeant "or" they could be expected to have said so.[31] In support of the disjunctive interpretation that he proposed, Mr Westonrelied on the statement in the purpose provision at s 3(a)(i) of the Act. This providesthat a purpose of the Act is to ensure that people who use buildings can do so safelywithout endangering their health. He also relied on the statutory functions andpowers of the City Council which include performing functions which relate todangerous earthquake-prone or insanitary buildings at s 12(2)(j). He suggested thatit was inconsistent with these provisions for everything to revolve around a34 per cent NBS threshold alone. The purpose and function of reducing dangermust, he argued, lead to danger in the first limb of s 122(1), s 122(1)(a) alone beingsufficient.8 Waitemata Health v Attorney-General [2001] NZFLR 1122 (CA) at [122].[32] However, the legislature has chosen in subpt 6 to set out specific definitionsof dangerous, earthquake-prone and insanitary buildings. Section 122 defines anearthquake-prone building in a precise way, and the section contemplates that therewill be regulations stating what will be a moderate earthquake. It has taken thisprecise course, rather than leaving the definition of "dangerous" and"earthquake-prone" undefined. There is no inconsistency with the purpose ofenabling people to safely use buildings, in treating s 122(1)(a) and (b) as conjunctiverequirements setting out a clear and predictable test.[33] We are satisfied that the natural meaning of "and", and the unsatisfactorypractical consequences of ignoring that meaning and treating both (a) and (b) asstandalone requirements, indicate that s 122(1)(b) must be read with s 122(1)(a) asone of two criteria. Section 122(1)(b) qualifies the requirement that the ultimatecapacity must be exceeded in a moderate earthquake. It provides that as well ashaving that susceptibility, the building must in any event be likely to collapsecausing the defined consequences.[34] Thus, we conclude that "and" means "and" and not "or". The tworequirements in s 122(1)(a) and (b) are mutually dependent.Section 124[35] It was submitted for the University that s 124,9 which gives territorial authorities their powers in relation to earthquake-prone buildings, could beinterpreted as empowering a territorial authority to issue a written notice in relationto a building that was dangerous in an earthquake, whether or not it met thedefinition of earthquake-prone. It was noted that s 124(1)(c)(i) refers to a notice toreduce or remove "the danger". Thus, if a building was dangerous unders 124(1)(c)(i) whether or not it was earthquake-prone as defined, a notice could issueunder s 124.[36] This submission overlooks the overarching requirement under s 124(1) thatthe territorial authority must be satisfied that a building is " dangerous,9 Set out at [19] above.earthquake-prone, or insanitary " and the separate definitions of those wordsprovided at ss 121, 122 and 123 of each of these types of building. The words ofs 124(1)(c)(i) enabling the territorial authority to give written notice to reduce orremove "the danger" refer back to those initial words "... dangerous,earthquake-prone ...". The words "the danger" are a compression referring to theconcepts of both "dangerous" and "earthquake-prone".[37] Any other interpretation would mean that a territorial authority could issue anotice even if a building did not fall within the definition of dangerous (whichexcludes the occurrence of an earthquake), earthquake-prone or insanitary. We donot think this likely given that the section requires a territorial authority to besatisfied that a building falls within one of those three definitions. It would meanthat ss 121–123 setting out the definitions were unnecessary, as it would be enough ifthe building was a danger.[38] We note that s 124(1)(c)(ii) refers to issuing a notice to prevent a buildingfrom remaining insanitary but there is no reference in s 124(1)(c) to preventing abuilding from being earthquake-prone. However, in our view this is because thewords "the danger" include the danger of the building being earthquake-prone.Conclusion on the appeal[39] We conclude that the standard set out in reg 7 must be applied to anyearthquake policy and a failure to meet that standard must be shown before a s 124notice requiring work on a building can issue. A building is therefore onlyearthquake-prone and susceptible to any such policy or notice if it will have itsultimate capacity exceeded in a moderate earthquake that is of the same duration but34 per cent as strong as the NBS, and in addition be likely to collapse. There are twos 122(1) linked gateways that must be passed. The City Council is not given thepower to require work to a higher standard than 34 per cent of the NBS. It followsthat we agree with the decision of Panckhurst J on the primary issue and will dismissthe appeal.Cross-appeal – background[40] ICNZ cross-appeals against declaration two, which was granted by the Court in the following terms:The Christchurch City Council in issuing a notice in respect of an earthquake-prone building under section 124 of the Building Act 2004 canrequire a building owner to carry out work on a building to reduce or removespecific vulnerabilities capable of causing injury, death or property damagethat arises in or from the building.[41] This was not a declaration ever sought by ICNZ or indeed in any counterclaim by the City Council or other parties. A declaration in these terms was not addressed in evidence by ICNZ or the City Council's officers or University inany specific way, and it was not directly addressed in the written or oral submissionsof the parties at the hearing in the High Court.[42] The request for declaration two was made after Panckhurst J had released hisinitial judgment on 4 February 2013. He had reserved the terms of relief to allow forconsultation and the submission of a draft order. Further submissions were filed bythe parties. Declaration two was sought by the City Council and opposed by ICNZ.[43] Panckhurst J considered that the declaration had been the subject of evidenceand submissions at the hearing before him. He stated that the submission identified a"significant counterpoint to the limitation upon the power conferred under s 124, thesubject of declaration 1, in relation to earthquake-prone buildings".10 The Judgeappears to have accepted a submission, reiterated before us, that declaration tworeflected the last bullet point of that part of the High Court decision already quoted.11[44] Before this Court there was a difference in the interpretation of declarationtwo as adopted by the City Council on the one hand and the University ofCanterbury and Oxford Body Corporate on the other hand. The City Councilaccepted that the 34 per cent limit of the NBS applied to declaration two, whereasthe University and Oxford Body Corporate considered the declaration had to beinterpreted to allow the strengthening beyond the 34 per cent margin. Mr McVeigh's10 Insurance Council of NZ Inc v Christchurch City Council [2013] NZHC 1638 at [9].11 See [20] above.submission for Oxford Body Corporate was that the Judge, by ordering declarationtwo, was intending to have a "bob each way".Cross-appeal – our analysis[45] We do not interpret declaration two as permitting work that would entailstrengthening beyond the 34 per cent of the NBS margin. If it did have this meaning,it would contradict declaration one, and be inconsistent with what Panckhurst J saidin his second to last bullet point12 that "collapse is defined with reference tobuildings with an ultimate capacity under 34% of the NBS".[46] Against the background of the Judge's finding, declaration two does notappear to us to have any particular point other than to address the question that ariseswhen parts only of buildings are below the 34 per cent margin. However, declarationtwo is confusing in that in itself (as distinct from declaration one) it contains noexplicit reference to a limit of 34 per cent of the NBS. Moreover, the phrase"specific vulnerabilities" is used and the judgment and declaration do not provide adefinition of "specific vulnerability". There is uncertainty as to what declaration twoempowers the City Council to do.[47] We also accept Mr Goddard's submission that the lead up to the Courtgranting declaration two was procedurally unfair. The sole issue raised by theapplication for review was whether the City Council could adopt a policy thatenabled it to require building work in excess of 34 per cent of the NBS. Declarationtwo, relating as it appears to do to specific failings in part of a building, may not beat all controversial. It may well be that there is in the end no objection from ICNZ tothe City Council requiring building owners to conduct work in relation to specificvulnerable parts of buildings up to 34 per cent of the NBS. However, that was not anissue addressed in the pleadings. There was only one passing reference to "specificvulnerabilities" in the evidence of Mr Hare, and that reference was made in thecontext of seeking an improvement beyond 34 per cent of the NBS.12 At [35].[48] Section 124 notices can have significant consequences for property ownersand their insurers, and there should be a considered process before there is adeclaration made. We consider that declaration two provided relief that was notsought in the pleadings and did not relate to a matter directly at issue. Further, thedeclaration was on its terms confusing and quite possibly added nothing.[49] These factors lead us to the conclusion that the City Council's applicationafter the hearing for an order in terms of declaration two should have been declined.Result[50] The appeal is dismissed.[51] The cross-appeal is allowed, and declaration two is quashed.Costs[52] ICNZ has been wholly successful and is entitled to costs on both the appeal and the cross-appeal. The first and third respondents have agreed that costs betweenthem will lie where they fall. Therefore, the appellant is to pay costs to the firstrespondent for a standard appeal on a band A basis together with usualdisbursements. We certify for two counsel.[53] The City Council did not support the appeal and in the end did not oppose thecross-appeal and there is no order for costs against it.Solicitors:MDS Law, Auckland for AppellantJones Fee, Auckland for First RespondentSimpson Grierson, Wellington for Second RespondentGCA Lawyers, Christchurch for Third Respondent