The test case final determination: “I see nothiiinng”

Reading the final determination we were reminded of sergeant Schultz, the incompetent P.O.W. camp guard in the television comedy Hogan’s Heroes. Confronted with the most obvious breeches of the rules Shultz’s response is always “I see nothiiinng”.

In the test case the MBIE Manager of determinations, John Gardiner, was faced with a compelling case that the Wellington City Council did not apply the correct legal test when designating the test case buildings as earthquake prone, and did not even follow its own policies.  But repeatedly Mr. Gardiner saw nothing.

In the case of the property that is the subject of the first determination there were three strands to the applicants’ argument.

  • The Council applied the NZSEE Guidelines to designate the building as earthquake prone, but these guidelines do not apply the legal test to identify earthquake prone buildings.
  • Even if the Guidelines were robust, the Council could not have satisfied itself that the building was earthquake prone on the solely on the basis of the initial evaluation procedure (IEP) assessment.
  • The Council did not follow its own policies in assessing the building and did not review its own files, which showed that building had previously been strengthened.
  1. The NZSEE guidelines

The applicants’ case is straightforward.

An earthquake prone building is defined in the Building Act as follows:

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–

The requirements for a building to be considered earthquake prone under section 122(1) of the Act have been the subject of the recent Supreme Court decision in University of Canterbury v Insurance Council of New Zealand Incorporated [2014] NZSC 193. The Court confirmed that the definition of an ‘earthquake-prone building’ in section 122(1) has two limbs and that a building will not be earthquake prone in terms of the section unless both limbs apply to it. The Court also found that Councils could not apply a standard that was higher than the earthquake prone building threshold.

Compliance with the first limb: Will have its ultimate capacity exceeded in a moderate earthquake

The issue here is that the NZSEE Guidelines switch the words ‘ultimate limit state’ for the words ‘ultimate capacity’ in the Act.  The two terms have distinct meanings and the effect of the switch is to apply a higher standard than permitted by the Act. Ultimate capacity is the point where a building is at the point of collapse. Ultimate limit state is at engineering design construct where a building has a low risk of collapse.

Mr. Gardiner gets around this difficulty by claiming that the 34%NBS trigger point meets this test on the basis of a comment from the Supreme Court in the recent decision. He says the Supreme Court commented “that there was no dispute about the meaning of the ‘first limb’; that if a building is below the 34% NBS benchmark (using this term as a shorthand to describe the requirement in the Regulations), this element of the definition is met.”

The use of this comment is misleading.  The applicants explained in their submission that the Supreme Court simply noted that the parties had not disputed the meaning of the first limb.  The Court was not required to, and did not, reach a view on whether the 34% NBS was equivalent to ‘will have is ultimate capacity exceeded in a moderate earthquake’.

Without any discussion on the point Mr. Gardiner has concluded that the legal issue is settled.  It is not.

Compliance with the second limb: Likely to collapse (in a moderate earthquake)

The applicants’ case is:

  • The NZSEE guidelines explicitly state that likely to collapse is not part of the standard.
  • The Council has presented no evidence that it considered the likelihood of collapse when designating the building.
  • The Council’s engineer stated in the meeting that the Council had not considered the likelihood of collapse.
  • The onus of proof that the building is likely to collapse lies with the Council.
  • The evidence that the building is not likely to collapse in a moderate earthquake is extremely strong.

In the determination Mr. Gardiner states:

In light of this recent (Supreme Court) decision, I consider authorities must consider the second limb of the legal test when assessing buildings to be earthquake prone under the current legislation.”

But all of the evidence that the Council did not consider the second limb is ignored.

Mr. Gardiner simply does not consider the applicants arguments on this matter as part of his determination. His discussion of the matters raised is just intended “to assist the building owners and applicant in the event they wish to commission an engineer to undertake a DSA of their building and wish to ensure that this will be carried out consistently with the requirements of the definition of an earthquake-prone building in section 122(1) of the Act.”

His reasoning is as follows:

  • The applicant’s challenge to the NZSEE guidelines is an issue over which I have no jurisdiction, because a determination cannot endorse or overturn these guidelines.
  • Gardner is not being ask to endorse or overturn the guidelines. The NZSEE can say what they like. The fact is that the Council relied on the guidelines on making the determination and Mr. Gardiner must necessarily apply himself to the legal question of whether the Guidelines are consistent with section 122 of the Act.
  • Gardiner says that:

“If the applicant had provided engineering evidence that concerned the way the NZSEE guidelines were applied in the IEP process relied on by the authority, the determination could consider whether the application of the NZSEE guidelines in that particular case was consistent with the requirements of section 122 of the Act. …..However, as the owners have not provided any such evidence related to the way the IEP relied on by the authority has been carried out, the determination is unable to consider whether the way the NZSEE guidelines have been applied to this building are consistent with section 122 of the Act.”

This ‘engineering evidence’ requirement rules out any legal reasoning, logical arguments, empirical analysis, engineering analysis that somehow does not meet Mr. Gardiner’s unstated definition of ‘engineering evidence’, analysis of the Guidelines and so on.

We disagree that the provision of ‘engineering evidence ‘ is a necessary precondition for a consideration of the legal question, but the fact is that engineering evidence on the building was provided.

  • The draft detailed seismic assessment (DSA) of the building showed there were no ‘critical structural weaknesses’. The Council’s initial evaluation procedure (IEP) relied heavily on what it identified as critical structural weaknesses. This discrepancy was discussed at the meeting. The Council’s engineer said that when there is a difference between the IEP and the DSA assessments the latter should be regarded as authoritative.
  • The applicants extensively critiqued the use of the IEP using engineering and other evidence. Engineering evidence was also provided that showed that the building had been seismically strengthened when it was refurbished in 1995.
  • The DSA showed that the building was structural joined to a non-earthquake prone building. The IEP did not take this into account.

Mr. Gardiner’s argument that he cannot consider issues with the NZSEE Guidelines only appears in the final determination. There is no mention of he argument in the first draft document and the draft final. Nor was the matter raised in the hearing on the first draft.  No opportunity was given to the applicants to contest Mr. Gardiners approach; to clarify what he meant by ‘engineering evidence’, and to provide such evidence if that were possible.

Evidence on the likelihood of collapse

The applicants presented evidence, which was accepted as authoritative by Mr. Gardiner at the hearing, that the probability that the building would collapse in a moderate earthquake was 1:40,000.  Odds of 1:40,000 are obviously not likely.

Mr. Gardiner says that this and other evidence presented on the likelihood of collapse cannot be considered.

“ There may be situations when evidence of past performance can be a consideration to be taken into account when exercising a decision as to whether the building is earthquake prone. However, in this case, neither the Act nor the authority’s EQPB policy make any provision for such an assessment to be taken into account when considering whether a building is earthquake prone”(our emphasis).

We found this statement to be extraordinary.  If there are situations where past performance can be taken into account what is it about the applicants’ buildings in particular that the Act and the Council’s policies preclude evidence on likely performance being relevant?

The fact that the Council’s policy does not take evidence of likely to collapse into account is precisely the problem. The point at issue is that they should have.

The Act does not have to make explicit provision for the consideration of evidence on the likelihood of collapse.  It does not exclude it and it is implicit in the likelihood test that all relevant evidence should be considered.

Again the argument only appears in the final determination so it could not be subject to scrutiny, and the applicants had no opportunity to make a response.

But even if Mr. Gardiner could consider the evidence he says he would discount it.

First, he says that the applicants did not take the duration of an earthquake into account.“ A comparison would have some validity only if it matched or exceeded a moderate earthquake event in relation to both the strength and duration of shaking.”

The ‘duration’ issue is a red herring, the 1:40,000 chance of collapse estimate is robust to a consideration of duration, but the applicants more that met Mr. Gardiner’s requirement. They produced numbers for a design strength earthquake (three times as strong and of the same duration as a moderate earthquake). The numbers were presented in the determination.  Even then the odds of collapse were still 1:500. Mr. Gardiner simply ignored this evidence.

Second Mr. Gardiner says “The evidence is helpful and generally supports the applicant’s concerns about the apparent incongruence between the requirements in section 122(1) that an earthquake-prone building would be likely to collapse and the way the NZSEE guidelines have been applied in the past. However, I am not satisfied that the evidence is sufficiently reliable or accurate when applied to this particular building to enable a conclusion to be drawn that the building is not earthquake prone”

What Mr. Gardiner does not tell us that if the evidence is generally robust then what is it about the applicants’ building that the evidence cannot be applied to it. In the hearing the methodology that linked the particular building to the probability modelling was explained to him and he had no issues with the approach nor with any other element in the modelling.

Mr. Gardiner agrees that the onus of proof lies with the Council. But in practice he applies an impossible burden of proof on the applicants. There is nothing that could satisfy him. The Council provided no evidence on the likelihood of collapse, or even considered the question, but is considered to a have passed the onus of proof test.

  1. Council’s Reliance on the IEP

The Council’s policy was to make an assessment that buildings are potentially earthquake prone on the basis of an IEP assessment and to give building owners time to produce a DSA to contest the Councils preliminary assessment.  If no such evidence is provided then the building is assessed as earthquake prone.

The Council, Mr. Gardiner and the applicants all agreed that the onus of proof lay with the Council.  It also understood by the parties that the IEP was just a screening device intended to identify buildings that required further investigation and did not provide an accurate measure of the %NBS of a building.

The applicant’s submitted evidence that the Council had a legal opinion that it could not require owners to provide evidence on the seismic strength of their buildings  (a significant fact that was omitted from the determination document).  The Council did not dispute this evidence.

The applicants argued that the effect of the Council’s policy was to reverse the onus of proof. Owners were not told that they did not have to provide the Council with a DSA, and were induced to provide a full report at their own expense. Owners were given a reply form that provided owners the choice of agreeing that the building was earthquake prone; or that an engineer had or was about to complete an assessment.

The Council’s engineer admitted at the meeting that the objective of the Council’s approach was to save the Council money. This was one of several significant statements made by the Council that were omitted from the summary of the hearing in the draft final determination. Mr. Gardiner’s response to the applicant’s criticisms of these omissions was:

“However, I note that the summary of the hearing is not a transcript and not all material presented at the hearing can be summarised. I further note this was a report of what someone else said and I consider it more appropriate for the authority to provide direct evidence on its approach than for the determination to rely on second-hand reports of what authority employees or contractors might have said”

The applicants were reporting what was said at the meeting. Mr. Gardiner heard the statements and the hearing were recorded.  The Council Engineer had authority to speak on behalf of the Council and was familiar with the Council’s policies. What was said was evidence that should have been considered.

Mr. Gardiner does not address the fundamental point at issue here. Does the lack of contrary evidence from the building owner, when the onus of proof lies with the Council, constitutes evidence that the building is earthquake prone?

What he does say is:

“With respect to the authority’s citation of the NZSEE guidelines in its EQPB policy, as stated above (paragraph 10.6.6), I consider that these guidelines reflected best practice at the time of issue and it was reasonable for the authority to use these guidelines to inform its decision-making in relation to the legal test to determine whether a building is earthquake prone.”

This is at odds with his statements that he cannot endorse the NZSEE guidelines and ignores his own statement “In light of this recent (Supreme Court) decision, I consider authorities must consider the second limb of the legal test when assessing buildings to be earthquake prone under the current legislation.”

The NZSEE Guidelines explicitly state that the second limb is not part of the Guidelines EPB standard.

  1. The application of the policy to the applicants’ building

On this matter Mr. Gardiner concludes:

“From a review of the documents provided, I consider the authority correctly followed its EQPB policy in relation to the applicant’s building.”

Mr. Gardiner’s assessment is wrong in the following respects.

Failure to review the building records

The Council’s policy requires it to review its files and this was confirmed by the Council’s engineer at the hearing.  After first saying, in the draft final determination, that there was no evidence that the Council had not followed its policy, Mr. Gardiner concedes in the final determination that:

“It is apparent from information provided by the authority to its engineers that the full property file for the building was not provided by the authority prior to the IEP being carried out”.

This statement obviously contradicts Mr. Gardiner’s conclusion that the authority correctly followed its own policy.

It is also noted in the determination that:

“3.12 The check sheet noted that no information had been received from the building owners, the information had been reviewed by comparison with the authority’s records, and there had been no further dialogue with the owners (apart from the completed reply form).

On face of it, it appears that the check sheet statement that the information had been reviewed by comparison with the authorities records was false.

We regard this as a serious matter and it may result in a complaint to the engineers’ disciplinary authority.

Failure to treat the building as structural joined to the next building

At the hearing the Council’s engineer said that when buildings are structurally joined their seismic capacities are considered together.  In this case this was not done, we presume because the Council failed to identify that the building was joined to the next building.

Failure to perform any sense test

While the Council’s policy did not explicitly provide for any sense test of their assessments it is important that this be done if the IEP is to be the basis of a final assessment.  The %NBS rating is in the public domain and can have significant impact on the owners’ and the public’s understanding of the building’s risk.

The building was rated at 2.8% by the Council IEP. A building rated at 2.8% is considered to have the same likelihood of collapse, when subject to a force that is 2.8% as strong as a design earthquake (that is 2.8% of 0.40 g or 0.012g) as a new building in a design earthquake.  A force of 0.012g according to the US Geological survey equates to MM3 on the Modified Mercalli Index (a measure of felt intensity).  The New Zealand version of the index rates the effect of an MM3 quake as Felt indoors; hanging objects may swing, vibration similar to passing of light trucks, duration may be estimated, may not be recognised as an earthquake”

The 2.8 %NBS assessment of a reinforced concrete building would be absurd in any circumstances. These buildings do not collapse when hit by quakes that have vibrations as strong as a passing light truck. The assessment is doubly absurd in this case. If the Council’s engineers had bothered to look at their own files they would have known that the building had been strengthening in 1995.

Mr. Gardiner’s response on these issues was as follows:

“there is a tension between the amount of information the authority can consider during the IEP process and the nature of the IEP process which is a ‘coarse screening involving as few resources as reasonably possible’. The IEP process is simply not set up to consider detailed information about a building: such information can only be considered under the detailed assessment provisions of the NZSEE guidelines. Further, it is my view that even if some of the information had been able to be considered as part of the IEP process it would likely not have changed the outcome of the IEP in this case: additional details or features of a building (for example in this case the common wall) considered during an IEP are more likely to result in a lower score as assumptions cannot be made about the strength or performance of such features without proper investigation.”

We don’t think actually checking the files, in line with policy, constitutes an unreasonable use of resources. More importantly Mr. Gardiner does not seem to grasp the more basic point.  If the IEP is generating inaccurate (indeed nonsensical) results, or is not fit for purpose, then the onus is on the Council to use a better methodology.  The Council could have, but did not, made its own detailed engineering assessment.

Mr. Gardiner’s  comment on the possible IEP result is simply wrong. Information that the building has been strengthened and is attached to a stronger building will not result in a lower %NBS assessment.

The determination has been appealed. The Court will be asked to cancel the earthquake prone building designation. The applicants think that they have a very strong case.

A judicial review of the Council’s policies is also being considered.

Wider implications

A favorable Court decision could have far reaching implications.

  • Owners of buildings that have been designated as earthquake prone on the basis of the NZSEE Guidelines methodology may have their designations cancelled.
  • Owners of buildings that have been designated on the basis of just a Council IEP may have their designations cancelled.
  • Owners who were induced, by what we think was the Wellington City Council’s misrepresentation of the Council’s obligations, to obtain a full engineering report at their own expense may have a claim against the Council for that expense.