The government's offer to pay half the 2007 rateable value to uninsured properties and bare land in Christchurch's 'red zone' has been declared unlawful and the Crown has been asked to reconsider, in a split decision by the Supreme Court.

In a judgment released today, Justices John McGrath, Susan Glazebrook and Terence Arnold upheld decisions in the lower courts, saying the government circumvented the appropriate response by not developing a recovery plan, and that the purchases couldn't lawfully be made without one, which would have demanded community input. A delay in the final decision exacerbated things for the house owners as the area deteriorated over that period.

"In making the decision as to any differential treatment of the uninsured and uninsurable, the recovery purpose of the act which, among other things, is to restore the 'social, economic, cultural, and environmental well-being' of Christchurch's communities, was not property considered," the judgment, delivered by Justice Glazebrook, said. "We therefore consider that we should make a declaration that the decisions relating to the uninsured and uninsurable in September 2012 were not lawfully made. The Minister and the chief executive should be directed to reconsider the decisions in light of this judgment."

The 46 property owners of uninsured properties or vacant land, known as the Quake Outcasts, and developer Fowler Developments challenged the lawfulness of the Crown's offers, saying they weren't in accordance with the act and breached their human rights. At the heart of the dispute was that insured property owners were offered 100 percent of the 2007 value, something not open to bare land owners which can't be insured, or the uninsured property owners who fell outside the net for various reasons.

The Human Rights Commission made a submission as an intervener, saying there wasn't a rational justification for the differential treatment.

While the insurance status of properties was relevant, the judges said there were a number of other factors that also should have been taken into account in determining whether there should have been differential treatment.

"The plight of those left behind in the red zones has thus been exacerbated by the actions of the Crown in making purchase offers to insured red zone property owners," the judgment said. "The remaining individuals in the red zone have been effectively left in a dilapidated urban area that will worsen as it is further abandoned. This cannot enhance their recovery from the earthquakes."

The judges accepted the Quake Outcasts' submission that the red zoning decision was designed to encourage people to leave the area, even if they didn't use compulsory acquisition powers granted to the Crown under the Canterbury Earthquake Recovery Act.

"It is unrealistic to describe the transactions that occurred as voluntary," the judgment said. "The inhabitants of the red zones had no realistic alternative but to leave, given the damage to infrastructure and the clear message from the government that new infrastructure would not be installed and that existing infrastructure may not be maintained and that compulsory powers of acquisition could be used."

By not using a recovery plan, the judges said the Crown's decisions "undermined the safeguards, community participation and reviews mandated by the act."

The judges declined to make a declaration on the unlawfulness of not using a recovery plan, saying it wouldn't serve any useful purpose.

Chief Justice Sian Elias and Justice William Young dissented, and both would have dismissed the appeal. The Chief Justice considered it too much of a stretch to say that a recovery plan was needed and would have declined making the declaration, while Justice Young's view was that the order was lawfully made.

In a statement, Earthquake Recovery Minister Gerry Brownlee said Crown Law and the Canterbury Earthquake Recovery Authority are reviewing the decision and will assess what steps need to be taken in response to the ruling.