University of Canterbury v The Insurance Council of New Zealand Inc

This case was about who gets to set the compulsory minimum for earthquake strengthening of existing buildings. After the Christchurch earthquakes, Christchurch City Council adopted a 2010 policy dealing with earthquake-prone, dangerous and insanitary buildings. Part of that policy said the council would assess strengthening on a building-by-building basis, guided by a benchmark of 67 per cent of the new building standard drawn from NZSEE recommendations.

The Insurance Council challenged parts of that policy in judicial review proceedings. The University of Canterbury and an apartment body corporate joined the case because they owned substantial Christchurch properties damaged in the earthquakes and had a significant economic interest in the answer.

The financial consequences were serious. The High Court recorded that, for the University alone, the difference in insurance cover between the competing strengthening positions was about $140 million. The Insurance Council also said the policy would affect repair and reinstatement costs, the level of cover available under material damage policies, and reinsurers’ willingness to invest in the New Zealand market.

So this was not just a technical argument about engineering language. It was a dispute about the legal boundary between Parliament’s statutory threshold and a council policy that aimed for a higher strengthening outcome. That boundary matters to owners, tenants, insurers, lenders and buyers because it can change project scope, timing and cost.

The legal issue was narrow but commercially important. The Supreme Court had to decide whether, once a building met the Building Act definition of an earthquake-prone building, a council could issue a notice under section 124 requiring strengthening beyond what was necessary to ensure the building would not have its ultimate capacity exceeded in a moderate earthquake as defined in the regulations.

That question turned on how sections 122 and 124 worked together.

Section 122 set the definition of an earthquake-prone building. Section 124 gave territorial authorities powers, including the power to issue a notice requiring work to be carried out to reduce or remove the danger.

The University argued that this wording let a council require more extensive strengthening if that better addressed collapse risk and promoted safety. The Insurance Council argued that the power was narrower. On that view, once Parliament had defined the threshold for earthquake-prone status, the council could only require enough work to take the building out of that category.

This was not an abstract interpretation exercise. If the University’s approach were right, a council could potentially require much more expensive strengthening under its notice power. If the Insurance Council’s approach were right, the compulsory legal minimum would stop at the statutory threshold, even if engineers or policymakers preferred a higher target.

For businesses, that difference can affect:

The Supreme Court approached the case in two stages. First, it looked at section 122, which defines an earthquake-prone building. Secondly, it considered what section 124 means when it allows a council to require work to reduce or remove the danger.

The Court said section 122 has two linked limbs. A building is earthquake-prone if, because of its construction, condition and ground, it will have its ultimate capacity exceeded in a moderate earthquake and would be likely to collapse causing injury, death or damage to other property.

The majority rejected the argument that the collapse limb should be read as referring to collapse in any earthquake. Instead, it treated section 122 as one complete sentence directed to the consequences of a moderate earthquake.

That reading mattered because it shaped the scope of the remedial power. The majority considered that once Parliament chose that threshold, the council’s section 124 power had to be read consistently with it. In other words, the work required under a notice should be work that ensures the building ceases to be earthquake-prone under the statutory definition.

The Court also looked at the wider Building Act context. It accepted that public safety is an important purpose of the Act, but not the only one. The judgment pointed to other provisions showing that territorial authorities do not generally set their own building performance standards over and above the statutory framework. That broader context supported a restrained reading of the council’s notice power rather than one that allowed councils to impose a significantly higher benchmark through policy.

The Supreme Court dismissed the University’s appeal. It answered the leave question with “No”. In practical terms, that meant a council was not entitled under section 124 to require an earthquake-prone building to be strengthened to an extent greater than necessary to ensure the building would not have its ultimate capacity exceeded in a moderate earthquake as defined in the regulations.

The majority held that the better interpretation was that the “danger” referred to in section 124 was the set of characteristics that made the building earthquake-prone under section 122. So, for an earthquake-prone building, the required work is work that ensures the building ceases to be earthquake-prone.

The Court thought it unlikely Parliament intended councils to compel a jump from, for example, 30 per cent to 67 per cent of the new building standard while a building at 35 per cent could avoid compulsory remedial action altogether. That comparison was one reason the majority rejected the broader interpretation argued for by the University.

The Court did not say stronger buildings are a bad idea. It accepted evidence that strengthening to 67 per cent of the new building standard may provide a safer option. But it said that policy preference could not expand the legal power Parliament had actually given councils.

Two judges wrote separately. They disagreed with the majority on one point of interpretation, taking the view that the relevant “danger” was the likelihood of collapse in a moderate earthquake. Even so, they agreed the appeal should still be dismissed. They also said that if reducing or removing that danger in a particular case required work taking the building above 34 per cent of the new building standard, a council could require that work.

The majority did not adopt that approach, but the Court was unanimous that the University’s broader argument failed.

If you own or occupy an older commercial building, this case is a reminder that legal minimums, engineering recommendations and commercial expectations are not always the same thing. A statute may set the floor for compulsory work, while your insurer, lender, tenant, buyer or board may still expect a higher standard for commercial or risk reasons.

That distinction matters in negotiations. A landlord may say strengthening is legally required. A tenant may want evidence of the actual statutory threshold and whether the work is mandatory or elective. An insurer may assess cover or reinstatement by reference to policy wording that responds differently depending on whether work is legally required, reasonably necessary, or chosen as a betterment measure.

A buyer may price the deal differently if future strengthening above the legal minimum is likely to be needed to satisfy lenders or tenants. A contractor or project manager may also need a clear scope that separates compliance work from optional upgrades.

The case also shows why businesses should not rely only on council policy language or industry guidance. Those documents may be influential and commercially sensible, but they do not automatically expand statutory powers.

Before committing to major strengthening, check:

For a business dealing with an older or damaged building, the safest approach is to document each decision point carefully. This case shows that very large amounts of money can turn on whether a strengthening step is legally required, technically recommended, or commercially chosen.

Start by identifying the legal basis for any proposed works. Is there a formal council notice? If so, what does it actually require? Does the notice track the statutory threshold, or is someone informally referring to a broader policy target?

Then compare that legal position with the engineering advice. An engineer may recommend a stronger outcome than the minimum legal requirement. That may still be sensible, but it should be labelled correctly so everyone understands whether it is compulsory compliance work or a broader risk-management decision.

Next, review the contracts around the building. In a lease, who pays for earthquake strengthening and does the clause distinguish between legally required work and capital improvement? In a sale agreement, is there a warranty, disclosure or price adjustment issue? In an insurance claim, does the policy respond to reinstatement required by law, or is there a dispute about betterment? In a construction contract, is the scope fixed by the legal minimum or by a higher performance target?

Finally, keep the paper trail consistent. Council communications, engineering reports, insurer correspondence and board approvals should all describe the same categories of work in the same way. That reduces the risk of later disputes about whether a cost was mandatory, optional or outside cover.