However it said Cera could make new offers that still distinguished between owners on the basis of insurance.
Quake Outcasts and Fowler Developments went to the Supreme Court to appeal against that decision, and to argue that establishment of the red zone was unlawful.
By majority decision, the Supreme Court found that while insurance was a relevant factor, it should not have been determinative.
The failure of process and consultation in June 2011, and the very difficult living conditions faced by those living in the red zones should have been taken into account.
The appeal was partly upheld by Justices McGrath, Glazebrook and Arnold.
It would have been dismissed by Justices Elias and William Young.
A Cera spokeswoman said: "The Supreme Court decision is being reviewed by the Canterbury Earthquake Recovery Authority. A more substantive statement will be made once the implications of the decision have been considered."
In June 2011 the Government offered to buy red zone land at 100 per cent of the value of land and improvements, as at the most recent valuation in 2007.
However, the offer to owners of uninsured red zone property, made in September 2012, was at 50 per cent of the 2007 land value only.
Quake Outcasts represents 46 owners or joint-owners of homes and vacant land in the red zone.
Fowler Developments owns 11 residential sections in Brooklands, which was red-zoned in November 2011.
Their judicial review largely succeeded in the High Court, with the court finding that creating the red zone and the September 2012 offers were unlawful.
The Crown overturned the decision that the red zone was unlawful, but the decision in relation to the September offers was upheld.
The Supreme Court judgement agreed the 50 per cent offers were not consistent with the act, which aims to provide for the recovery of the wider Christchurch community.
"There is no doubt that the offer of 50 per cent of the land valuation provides limited support for those affected to start up again, hindering economic recovery for most individuals affected, many of whom have limited access to other resources."
The Crown had argued that those in the red zone could choose not to sell and instead remain.
However the justices found that in reality, the red zone was uninhabitable.
"We accept the Human Rights Commission's argument that the red zone decisions meant that residents in the red zone were faced with either leaving their homes or remaining in what were to be effectively abandoned communities, with degenerating services and infrastructure."
The court also found that the delay in making the offers until September 2012 could not be justified, and those in the red zone by then faced very difficult living conditions.
"The situation in the red zones had deteriorated. Many of the June 2011 offers had been accepted and the properties vacated.
"The fact that the September 2012 decisions were being taken against a totally different backdrop to that pertaining in June 2011 should have been considered."
Human Rights Commissioner David Rutherford said the Government should now act swiftly and take an individual approach to each remaining red zone family.
"These people have suffered long enough, the Government must act quickly to enable these people to move on with their lives," he said.
"I am pleased that the Supreme Court found that although insurance status was one relevant consideration, other relevant considerations such as the social, economic, cultural and environmental well being of communities, weighed against it being a determinative factor in the Government's offer in relation to owners of uninsured properties and vacant land.
"The Government has an opportunity to put things right now. It must ensure that it takes into account all its human rights obligations in reconsidering these and future decisions."
Earthquake Recovery Minister Gerry Brownlee said he wouldn't be making any detailed comment until the judgement has been considered and advice is received.
