Request to inquire into various matters relating to the Crown’s offer to purchase properties in the Christchurch ‘red zone’

17 May 2013

On 12 February 2013, the Hon Lianne Dalziel wrote to the Office of the Auditor-General and released that letter publicly. Below is the reply that we have sent to her today.

Ms Lianne Dalziel
Private Bag 18 888
Parliament Buildings
Wellington 6011

Dear Ms Dalziel

I refer to your letter of 12 February 2013 in which you asked us to inquire into various matters relating to the Crown’s offer to purchase properties in the Christchurch ‘red zone’.

I understand Nicola White and Liz Colley met with you in March to discuss our initial thoughts on your letter, and to explain why we were not able to take any action before the 31 March deadline for accepting the Crown’s offer expired. 

The issues raised in your letter are complex and obviously of serious concern to property owners affected by the earthquake.  It was therefore important that we took the necessary time to consider them thoroughly before responding.   We also wanted to consult with other agencies involved in monitoring the response of government agencies to the earthquake (Office of the Ombudsman and the Human Rights Commission) to ensure that they were aware of your concerns, and to understand what response, if any, they were planning to make.

There were three main issues you asked us to inquire into:

  1. The Crown’s method of acquiring properties in the residential ‘red zone’ areas;
  2. The decision to offer uninsured property owners only 50% of the 2007 rating valuation for their land, whereas insured property owners were offered 100% of the 2007 rating valuation.
  3. Whether the Crown is recovering the maximum possible from insurers for properties purchased by the Crown in the red zone.

For reasons explained in more detail below, we have decided not to inquire further into the first two issues.  However, we do intend to look further into the arrangements between the Crown and insurance companies for the recovery of insurance proceeds from properties acquired by the Crown in the red zone.

Acquisition of red zone properties/Crown offer to uninsured property owners

The concerns you have raised about the Crown’s method of acquiring properties in the red zone and the terms of the offer made to uninsured property owners are, in essence, legal questions which can only be determined by the courts.

As discussed with you, although the Auditor-General’s mandate under the Public Audit Act is reasonably broad, there are limits to our role, in particular when it comes to scrutiny of legal matters.  Although we may be called on to consider legal questions in the course of our audit or inquiries work, we cannot make binding judgments about the legality of a public entity’s actions.  Nor can we take on the judicial review function of the courts, by acting as a forum for detailed assessment of the legality of decision-making processes.

Since you wrote to us, CERA has included a notice on its website advising property owners in the red zone that, if they accept the Crown’s offer for their property, they would not be prevented from bringing judicial review proceedings against the Chief Executive of CERA or the Minister for Canterbury Earthquake Recovery and/or arguing that they should have been paid 100% of the 2007 Rating Valuation.

Judicial review proceedings have since been filed - one by a commercial property owner in the red zone (Fowler Development Limited); the other (which you made us aware of) by Grant Cameron on behalf of forty red zone property owners.

Staff at the Office of the Ombudsmen told us that the Chief Ombudsman was planning to monitor the judicial review proceedings, and that, although she did not intend to get involved whilst the proceedings were underway, Dame Beverley has not ruled out the possibility of investigating further if the Court declines to review the application made to it, or it does not make a determination on the issue of the advice given by CERA in relation to the red zone offer.

Recovery of insurance proceeds for properties purchased by the Crown in the red zone

We have decided to investigate further the issue you have raised with respect to the recovery of insurance proceeds for properties purchased by the Crown in the red zone.

We will be asking the appointed auditor of CERA to undertake work to provide assurance that the insurance recovery process for residential red zone properties is being managed appropriately. We are in the process of defining the terms of reference for this work. Once we have confirmed terms of reference we will communicate them to you.  Thank you for writing to us and for your patience in waiting for a response.

Yours faithfully

Signature - LP

Lyn Provost
Controller and Auditor-General