The Crown says it would not be a good use of taxpayer money if it offered Christchurch land owners 100% of their properties' rateable value.
In August this year, the High Court ruled that an offer of 50% of the rateable value to 46 red zone owners of uninsured or vacant land was not legal.
The Crown is appealing and its lawyer, David Goddard, QC, told the Court of Appeal on Thursday that the Crown had to strike the right balance to meet earthquake recovery obligations.
A group of owners calling themselves the "Quake Outcasts" want to be paid 100% of rateable value.
A lawyer for the group, Francis Cooke, QC, says a key argument is whether the deals should have been determined within the powers of the Canterbury Earthquake Recovery Act.
Mr Cooke says it is unclear whether ministers who made decisions went through proper statutory options.
Justices O'Regan, France and Stevens have reserved their decision.