IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY CIV Plaintiffs. Defendant

Transcription

1 IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY CIV UNDER the Judicature Amendment Act 1972 AND UNDER the Declaratory Judgments Act 1908 IN THE MATTER OF the Local Government Act 2002 BETWEEN NEIL CONSTRUCTION LIMITED, CORNERSTONE GROUP LIMITED, LANDCO LIMITED, UNIVERSAL HOMES LIMITED, SYMPHONY PROJECTS LIMITED AND BAYSWATER APARTMENTS LIMITED Plaintiffs AND THE NORTH SHORE CITY COUNCIL Defendant Hearing: September 2006 Appearances: A R Galbraith QC, S J Simons and A M Cowperthwaite for plaintiffs D A Kirkpatrick and L J Blomfield for defendant Judgment: 21 March 2007 JUDGMENT OF POTTER J In accordance with r 540(4) High Court Rules I direct the Registrar to endorse this judgment with a delivery time of 4 p.m. on 21 March 2007 Solicitors: Copy to: Ellis Gould, P.O. Box 1509, Shortland Street, Auckland Simpson Grierson, Private Bag 92518, Wellesley Street, Auckland A R Galbraith QC, P.O. Box 4338, Shortland Street, Auckland D A Kirkpatrick, P.O. Box 5844, Wellesley Street, Auckland NEIL CONSTRUCTION LIMITED, CORNERSTONE GROUP LIMITED, LANDCO LIMITED, UNIVERSAL HOMES LIMITED, SYMPHONY PROJECTS LIMITED AND BAYSWATER APARTMENTS LIMITED V THE NORTH SHORE CITY COUNCIL HC AK CIV March 2007

2 TABLE OF CONTENTS Introduction [1] Parties [3] The parties positions [5] Threshold for review [11] Local Government Act 2002 : background [17] Local Government Act 2002 : statutory framework and material provisions [21] Development contributions : overview and background [45] Development contributions : statutory framework [57] Development Contributions Policy [62] The Council s 2004 Long-Term Community Plan [73] Alleged failure to comply with statutory obligations [97] Discussion [108] Conclusion [120] Economic Efficiency : Causation versus Benefits [121] Busway Project [150] Evidence [164] Graham Nielsen [167] Kieran Murray [176] Ian Clark [184] John Bolland [189] Gregory Akehurst [190] Dr John Small [199] Associate Professor Basil Sharp [201] Graham Tuohey [203] Discussion [206] Conclusion [220] Discussion Busway Project [221] Other examples [228] Reserves [229] Evidence [238] Martin van Jaarsveld [238] Graham Nielsen [246] Neil Donnelly [249]

3 Gregory Akehurst [252] Dr John Small [253] Discussion [254] Conclusion [277] Adequacy of information [283] Summary of Conclusions [289] Concluding observations [293] Leave granted [294] Costs [296]

4 Introduction [1] These proceedings for judicial review challenge the decision-making process followed by the defendant, The North Shore City Council ( the Council ) in determining its 2004 development contributions policy which forms part of the Council s 2004 Long-Term Council Community Plan ( LTCCP ). [2] While the plaintiffs amended statement of claim seeks by way of relief various orders and declarations, it was agreed by counsel for the parties during the hearing of these proceedings, that the Court s judgment should determine the principles in issue and the parties would then seek to negotiate separately any matters of relief or remedy, if necessary with further recourse to the Court. This agreed position was taken against the background that while the plaintiffs challenge relates to the 2004 development contributions policy of the Council, the Council s 2006 LTCCP is now on foot including the 2006 development contributions policy, which in turn will be subject to review on a three yearly basis. Thus, review is an ongoing process. Parties [3] The plaintiffs are all parties who claim they have or will be adversely affected by the imposition of the Council s development contributions policy and requirements. They have significant land holdings in North Shore City which are being developed for residential and/or commercial purposes. [4] The defendant Council is a territorial authority and a local authority as defined by the Local Government Act 2002 ( the Act ). (By definition in s 5 of the Act, a local authority includes both regional councils and territorial authorities; territorial authorities include city councils and district councils named in Schedule 2 to the Act). The Council has adopted a development contributions policy as part of the LTCCP which became operative on 1 July 2004 and covers a period of ten years ( ).

5 The parties positions [5] It is common ground that in making decisions in relation to the LTCCP and development contributions policy and in formulating or adopting these, the Council was exercising or purporting to exercise statutory powers of decision under the Act, as defined in the Judicature Amendment Act [6] The plaintiffs say, in determining its development contributions policy the Council has failed to apply the decision-making process and criteria stipulated by the Act which has led to the development contributions policy being fundamentally flawed and the application of it leading to unfair, arbitrary and distorted outcomes which lie beyond the parameters of the Act. [7] The plaintiffs do not contest the Council s decision to use development contributions as a source of funding but they allege the Council has made errors of law in: a) Failing to ensure its development contributions policy complies with the fundamental statutory obligations to only assess the contributions against a development that generates a demand for reserves, network infrastructure or community infrastructure; b) Applying a narrow concept of economic efficiency as governing its approach and failing appropriately to consider distribution of benefits and equitable and proportionate allocation. They allege those considerations have been excluded by the causative approach adopted by the Council; c) Arbitrarily adopting an inappropriate reserves standard and the maximum rate of contribution; d) Failing sufficiently to justify its choice of funding options and the mandatory requirements of s 106(2)(c) of the Act.

6 (An allegation concerning access to information was not pressed at the hearing). (Refer [282]). [8] The plaintiffs claim the Council s failure properly to apply the criteria in the Act in relation to its development contributions policy has resulted in a policy which unfairly loads a disproportionate amount of the cost of the infrastructure onto growth with the consequence that those who are required to pay development contributions are unfairly subsidising other funding sources, in particular general rates. They say this is not a case where the decisions of Council in issue involve high policy content so as to bring it within the principles articulated in Wellington City Council v Woolworths NZ Limited (No 2) [1996] 2 NZLR 537. Rather, it concerns issues of principle and compliance under the Act. [9] The Council maintains the decisions taken in relation to its development contributions policy are within its discretion and that it has considered and applied the relevant decision-making process and criteria of the Act. It contends the adoption of a causative approach in relation to development contributions was open to it, and other relevant criteria and factors were properly considered as required by the Act. The weight to be applied to those factors is a matter for Council in the exercise of its judgment. [10] The Council says the Court can only interfere on an application for judicial review if the decisions taken were irrational and unreasonable (in the Wednesbury sense) and this is not the case here. But even if the Court were to find any of the grounds of review made out, it should exercise its discretion not to grant relief as any alleged defects are minor and not material. Threshold for review [11] The principles that apply on an application for judicial review of the exercise or purported exercise of statutory powers and statutory powers of decision, as defined by the Judicature Amendment Act 1972, are well established.

7 [12] Mr Kirkpatrick for the Council referred to Pring v Wanganui District Council [1999] NZRMA 519 at 523: It is well established that in judicial review [proceedings] the Court does not substitute its own factual conclusions for that of the consent authority. It merely determines, as a matter of law, whether proper procedures were followed, whether all relevant, and no irrelevant considerations were taken into account, and whether the decision was one which, upon the basis of the material available to it, a reasonable decision-maker could have made. Unless the statute otherwise directs, the weight to be given to particular relevant matters is one for the consent authority, not the Court, to determine, but of course, there must be some material capable of supporting the decision. [13] Likewise in Isaac v Minister of Consumer Affairs [1990] 2 NZLR 606, Tipping J said at 635: In most circumstances it is trite to say that the question of weight as between competing considerations is entirely for the decisionmaker and not for the Court on review. I accept that there could be instances where the weight of considerations one way is so much stronger than the weight of considerations the other way as to lead to the conclusion that the decisionmaker has acted unreasonably. [14] Mr Kirkpatrick referred to Wellington City Council v Woolworths NZ Limited at 546 for authority that when the decision under challenge contains a high level of policy and is made by an elected body, the threshold for review is high: Finally, there are constitutional and democratic constraints on judicial involvement in wide public policy issues. There comes a point where public policies are so significant and appropriate for weighing by those elected by the community for that purpose that the Courts should defer to their decision except in clear and extreme cases. The larger the policy content and the more the decision making is within the customary sphere of those entrusted with the decision, the less well equipped the Courts are to reweigh considerations involved and the less inclined they must be to intervene. [15] The legal test was summarised by Richardson P at 545 of that case: In summary, judicial review of the exercise of local authority power, in essence, is a question of statutory interpretation. The local authority must act within the powers conferred on it by Parliament and its rate fixing decisions are amenable to review on the familiar Wednesbury grounds. Rating authorities must observe the purposes and criteria specified in the legislation. So they must call their attention to matters they are bound by the statute to consider and they must exclude considerations which on the same test are extraneous. They act outside the scope of the power if their decision is made for a purpose not contemplated by the legislation. And discretion is not absolute or unfettered. It is to be exercised to promote the policy and

8 objectives of the statute. Even though the decision maker has seemingly considered all relevant factors and closed its mind to the irrelevant, if the outcome of the exercise of discretion is irrational or such that no reasonable body of persons could have arrived at the decision, the only proper inference is that the power itself has been misused. To prove a case of that kind requires something overwhelming (Associated Provincial Picture Houses Ltd v Wednesbury Corporation [1948] 1 KB 223, 230 per Lord Greene MR). In Council of Civil Service Unions v Minister for the Civil Service [1985] AC 374, 410 Lord Diplock said in respect of unreasonableness, or irrationality as he preferred to call it: It applies to a decision which is so outrageous in its defiance of logic or of accepted moral standards that no sensible person who had applied his mind to the question to be decided could have arrived at it. Similarly, in Nottinghamshire County Council v Secretary of State for the Environment [1986] AC 240, 247, 248 Lord Scarman used expressions such as so absurd that he must have taken leave of his senses and a pattern of perversity as setting the standard; and in Webster v Auckland Harbour Board [1987] 2 NZLR 129, 131 Cooke P spoke of an unreasonable decision as one outside the limits of reason. Clearly, the test is a stringent one. [16] Mr Galbraith QC for the plaintiffs, while accepting those as the principles that apply on judicial review, submitted that in this case the issue is statutory interpretation. The relevant provisions of the Act have to be applied by the Council; this is the issue with which the Court must be concerned. Local Government Act 2002 : background [17] The Act received the Royal Assent on 24 December Under s 2(1) much of the Act came into force on the following day and the remainder, which includes Part 8 and Subpart 5 relating to development contributions, came into force on 1 July [18] In contrast to the Local Government Act 1974 which was prescriptive of the activities that could be undertaken by local authorities, the Act allows local authorities discretion with regard to the activities they undertake and with regard to policy development and implementation. This broad discretion is vested by s 12(2) which provides a general power of competence in the following terms: (2) For the purpose of performing its role, a local authority has

9 (a) (b) full capacity to carry on or undertake any activity or business, do any act, or enter into any transaction; and for the purposes of paragraph (a), full rights, powers, and privileges. [19] The greater flexibility provided to local authorities by the broad discretion in s 12(2) is balanced by comprehensive provisions in the Act which require transparency and accountability in the decision-making process of local authorities. There is an emphasis placed on community consultation and local authorities are required by the Act to promote the social, economic, environmental and cultural well-being of communities in the present and for the future. [20] In Reid v Tararua District Council HC Wellington CIV November 2005, Ellen France J observed at [142]: The objectives of the 2002 Act include giving local authorities greater flexibility in their activities, but balancing that are requirements to ensure openness in their decision-making processes (see s 3 of the 2002 Act; the Local Government Bill as reported back, Explanatory Note pp 3, 5 and 9, and see p 14 which notes many submissions on the Bill from individuals which showed a mistrust of the decision-making processes of local authorities; Hon S Lee, Minister for Local Government in the first reading debate on the Bill (2001) 597 NZPD ; and Hon C Carter, Minister for Local Government on the second reading of the Bill (2002) 13 Weekly Hansard 2804; and Local Government Law in New Zealand (eds Henwood and others, LG 76.01ff). Local Government Act 2002 : statutory framework and material provisions [21] Section 5 of the Interpretation Act 1999 provides the starting point for interpreting the Act: Ascertaining meaning of legislation (1) The meaning of an enactment must be ascertained from its text and in the light of its purpose. [22] The purpose of the Act is set out in s 3:

10 Purpose The purpose of this Act is to provide for democratic and effective local government that recognises the diversity of New Zealand communities; and, to that end, this Act (a) (b) states the purpose of local government; provides a framework and powers for local authorities to decide which activities they undertake and the manner in which they will undertake them; and (c) promotes the accountability of local authorities to their communities; and (d) provides for local authorities to play a broad role in promoting the social, economic, environmental, and cultural well-being of their communities, taking a sustainable development approach. [23] The purpose of the Act as stated in s 3, is carried through into s 10 which states the purpose of local government: Purpose of local government The purpose of local government is (a) (b) to enable democratic local decision-making and action by, and on behalf of, communities; and to promote the social, economic, environmental, and cultural wellbeing of communities, in the present and for the future. [24] Thus, the purpose of the Act and the purpose of local government are directed to promoting what have been described as the four well-beings the social, economic, environmental and cultural well-being of communities, in the present and for the future. [25] By s 11 the role of a local authority is to: (a) (b) give effect, in relation to its district or region, to the purpose of local government stated in section 10; and perform the duties, and exercise the rights, conferred on it by or under this Act and any other enactment. [26] For the purpose of performing its role as defined by s 11, a local authority has the power of general competence in s 12(2) (refer [18]). But the exercise of the s 12(2) discretion is necessarily constrained by the stated purpose of local

11 government in s 10 and the rights and powers conferred on a local authority by the Act or any other enactment. Section 12(3) expressly states that the general power of competence in subsection (2) is subject to the Act, any other enactment and the general law. [27] Section 14 requires local authorities to act in accordance with stated principles. It provides: Principles relating to local authorities (1) In performing its role, a local authority must act in accordance with the following principles: (a) a local authority should - (i) (ii) conduct its business in an open, transparent, and democratically accountable manner; and give effect to its identified priorities and desired outcomes in an efficient and effective manner. (b) (c) a local authority should make itself aware of, and should have regard to, the views of all its communities; and when making a decision, a local authority should take account of- (i) (ii) (iii) the diversity of the community, and the community s interests, within its district or region; and the interests of future as well as current communities; and the likely impact of any decision on each aspect of wellbeing referred to in section 10: (d) (e) (f) (g) (h) a local authority should provide opportunities for Maori to contribute to its decision-making processes: a local authority should collaborate and co-operate with other local authorities and bodies as it considers appropriate to promote or achieve its priorities and desired outcomes, and make efficient use of resources; and a local authority should undertake any commercial transactions in accordance with sound business practices; and a local authority should ensure prudent stewardship and the efficient and effective use of its resources in the interests of its district or region; and in taking a sustainable development approach, a local authority should take into account

12 (i) (ii) (iii) the social, economic, and cultural well-being of people and communities; and the need to maintain and enhance the quality of the environment; and the reasonably foreseeable needs of future generations. (2) If any of these principles, or any aspects of well-being referred to in section 10, are in conflict in any particular case, the local authority should resolve the conflict in accordance with the principle in subsection (1)(a)(i). [28] Part 6 of the Act deals with Planning, decision-making and accountability. [29] Subpart 1 relates to Planning and decision-making. Section 76 requires that every decision made by a local authority must be made in accordance with such of the provisions of ss 77, 78, 80, 81 and 82 as are applicable. Sections 77 and 78 are subject to s 79 which provides a compliance tolerance. [30] Section 77, which is subject to s 79, provides: Requirements in relation to decisions (1) A local authority must, in the course of the decision-making process,- (a) seek to identify all reasonably practicable options for the achievement of the objective of a decision; and (b) assess these options by considering (i) (ii) (iii) (iv) the benefits and costs of each option in terms of the present and future social, economic, environmental, and cultural well-being of the district or region; and the extent to which community outcomes would be promoted or achieved in an integrated and efficient manner by each option; and the impact of each option on the local authority s capacity to meet present and future needs in relation to any statutory responsibility of the local authority; and any other matters that, in the opinion of the local authority, are relevant; and (c) if any of the options identified under paragraph (a) involves a significant decision in relation to land or a body of water, take into account the relationship of Maori and their culture and traditions

13 with their ancestral land, water, wites, waahi tapu, valued flora and fauna, and other taonga. [31] Section 78, which is also subject to s 79, provides: Community views in relation to decisions (1) A local authority must, in the course of its decision-making process in relation to a matter, give consideration to the views and preferences of persons likely to be affected, by, or to have an interest in, the matter. (2) That consideration must be given at- (a) (b) (c) (d) the stage at which the problems and objectives related to the matter are defined: the stage at which the options that may be reasonably practicable options of achieving an objective are identified: the stage at which reasonably practicable options are assessed and proposals developed: the stage at which proposals of the kind described in paragraph (c) are adopted. (3) A local authority is not required by this section alone to undertake any consultation process or procedure. [32] Section 79 provides the important compliance tolerance, recognising that local authorities in the exercise of their discretion must make judgments about how to achieve compliance with ss 77 and 78 and such judgments must reflect proportionality to the significance (which is defined in s 5) of the matters affected by the decisions: Compliance with procedures in relation to decisions (1) It is the responsibility of a local authority to make, in its discretion, judgments- (a) about how to achieve compliance with sections 77 and 78 that is largely in proportion to the significance of the matters affected by the decision; and (b) about, in particular,- (i) (ii) the extent to which different options are to be identified and assessed; and the degree to which benefits and costs are to be quantified; and

14 (iii) (iv) the extent and detail of the information to be considered; and the extent and nature of any written record to be kept of the manner in which it has complied with those sections. (2) In making judgments under subsection (1), a local authority must have regard to the significance of all relevant matters and, in addition, to- (a) (b) (c) the principles set out in section 14; and the extent of the local authority s resources; and the extent to which the nature of a decision, or the circumstances in which a decision is taken, allow the local authority scope and opportunity to consider a range of options or the views and preferences of other persons. (3) The nature and circumstances of a decision referred to in subsection (2)(c) include the extent to which the requirements for such decision-making are prescribed in or under any other enactment (for example, the Resource Mangement Act 1991). (4) Subsection (3) is for the avoidance of doubt. [33] In Reid v Tararua District Council Ellen France J said of these provisions: [133] Section 78 requires the Council in the course of its decision-making process in relation to a matter, [to] give consideration to the views and preferences of persons likely to be affected by, or to have an interest in, the matter. Section 78(2) sets out when the consideration must be given. [134] Accordingly, s 77 requires the Council to try to identify all reasonably practicable options for achieving the object in a particular case. In support of that, the Council is required to undertake a costbenefit analysis considering a broad range of factors. Then, in terms of s 78 the Council is required to consider the views and preferences of, amongst other matters, persons having an interest in the matter. [135] It is clear from s 79 that the Council has to make a judgment about what ss 77 and 78 require in a particular case so that the decisionmaking process is in proportion to the significance of the decision. Further, in making this judgment, the Council is to have regard to matters such as the principles in s 14 of this Act. Those principles include conducting business in an open, transparent, and democratically accountable manner (s 14(1)(a)(i)), and having regard to the views of all of its communities (s 14(1)(b)). [136] Significance is defined as the degree of importance of the issue, proposal etc as assessed by the local authority in terms of its likely impact on, and likely consequences for, a number of factors, namely:

15 (a) (b) (c) The current and future social, economic, environmental, or cultural wellbeing of the district or region: Any persons who are likely to be particularly affected by, or interested in, the issue, The capacity of the local authority to perform its role, and the financial and other costs of doing so. At [148] Her Honour observed: It is expected that the new Act will bring about changes in a Council s decision-making processes with, presumably, express reference to the ss 77, 78 and 79 factors. [34] Section 80 seeks consistency in a local authority s decision-making, requiring a local authority to identify any decision that will be significantly inconsistent with any policy adopted by the local authority or any plan required by the Act. Section 81 requires processes to provide opportunities for Maori to contribute to decisionmaking processes. [35] Section 82 sets out principles of consultation, requiring local authorities to consult with persons who will or may be affected or have an interest in the decision or matter undertaken by a local authority and to provide such persons with reasonable access to relevant information in a manner and format that is appropriate to the preferences and needs of those persons. [36] Section 93 provides for a local authority s LTCCP. By s 93(1) all local authorities are required to have at all times an LTCCP. (Transitional provisions in the Act required the Council to adopt its first LTCCP for either the period beginning 1 July 2003 or 1 July The Council adopted its first LTCCP for the period It has subsequently, in accordance with the requirements of the Act, adopted an LTCCP for the period which has superseded the first LTCCP, the currency of which was therefore two years from ). [37] Subpart 3 of Part 6 relates to Financial management. [38] Section 100 requires a local authority to balance its budget on an annual basis:

16 (1) A local authority must ensure that each year s projected operating revenues are set at a level sufficient to meet that year s projected operating expenses. [39] Section 101 provides: Financial management (1) A local authority must manage its revenues, expenses, assets, liabilities, investments, and general financial dealings prudently and in a manner that promotes the current and future interests of the community. (2) A local authority must make adequate and effective provision in its long-term council community plan and in its annual plan (where applicable) to meet the expenditure needs of the local authority identified in that long-term council community plan and annual plan. (3) The funding needs of the local authority must be met from those sources that the local authority determines to be appropriate, following consideration of,- (a) in relation to each activity to be funded - (i) (ii) (iii) (iv) (v) the community outcomes to which the activity primarily contributes; and the distribution of benefits between the community as a whole, any identifiable part of the community, and individuals; and the period in or over which those benefits are expected to occur; and the extent to which the actions or inaction of particular individuals or a group contribute to the need to undertake the activity; and the costs and benefits, including consequences for transparency and accountability, of funding the activity distinctly from other activities; and (b) the overall impact of any allocation of liability for revenue needs on the current and future social, economic, environmental, and cultural well-being of the community. [40] Activity is defined in s 5: Activity means a good or service provided by, or on behalf of, a local authority or a council controlled organisation; and includes (a) the provision of facilities and amenities; and

17 (b) (c) the making of grants; and the performance of regulatory and other governmental functions. [41] By s 102, in order to provide predictability and certainty about sources and levels of funding, a local authority must, after appropriate consultation, adopt funding and financial policies as set out in subsection (4). These include: (a) (b) (c) (d) (e) (f) a revenue and financing policy; and a liability management policy; and an investment policy; and a policy on development contributions or financial contributions; and a policy on partnerships between the local authority and the private sector; and a policy on the remission and postponement of rates on Maori freehold land. Of these policies, those required by (a) a revenue and financing policy, and (d) a policy on development contributions, are of particular relevance in this case. [42] Section 103 states what a revenue and financing policy adopted under s 102(4)(a) must include. It must include the local authority s policies in respect of the funding of operating expenses and capital expenditure from the sources listed in subsection (2). The listed sources include general rates and targeted rates, fees and charges, interest and dividends from investments, borrowing, proceeds from asset sales, development contributions, financial contributions under the Resource Management Act 1991, grants and subsidies, and any other source. [43] By s 103(3) a local authority is required to show how, in relation to the sources of funding identified in its revenue and financing policy, it has complied with s 101(3). Thus, in identifying sources of funding in its revenue and financing policy, the local authority is taken back to the principles which must be considered under s 101(3), and it must show how it has complied with that section.

18 [44] Further, when development contributions are identified as a source of funding, a local authority is required by s 106(2)(c) to explain in terms of the s 101(3) principles why funding should be from this source (refer [63]). Development contributions : overview and background [45] Funding will be required by a local authority for operating expenses and capital expenditure, which may relate to renewal works or new works. Development contributions are one of the sources of funding upon which a local authority is authorised to draw to fund its capital works. Other sources of funding are listed in s 103 (refer [42]). [46] Like general rates, development contributions provide a funding tool for local authorities. But unlike rates, development contributions are not a revenue tax which may be imposed to balance a council s budget. They are more in the nature of a charge, tied to the expenditure required of a council for capital works to support infrastructure incurred by a development or developments, although they fall short of specific cost recovery as in the case of user charges. [47] However, whether viewed as a tax or a charge or a hybrid, a development contribution involves: A compulsory exaction of money by a public authority for public purposes, enforceable by law not a payment for services rendered - as Latham CJ described a tax in Matthews v Chicory Marketing Board (Vic) (1938) 60 CLR 263 at 276. Accordingly, as counsel for both parties accepted, a development contribution can only be imposed pursuant to clear and express words contained in a statute, and in accordance with the statutory powers and requirements: Carter Holt Harvey Ltd v North Shore City Council & Ors; Waste Management NZ Limited v Rodney District Council & Ors [2006] 2 NZLR 787 and cases referred to in that judgment. [48] The Act provides expressly for local authorities to require and impose development contributions. But a development contributions policy and the

19 processes in relation to it, must comply strictly with the relevant provisions of the Act which are the sole source of a council s power to exact development contributions. [49] Because a local authority is required by s 100 to balance its budget on an annual basis, short of reducing expenditure, a local authority will be obliged to increase revenue from a particular source or sources if projected revenue from another source is not available. The Act does not permit deficit budgeting. By way of example with relevance to this case, if a certain amount of the projected capital expenditure is recoverable from development contributions then general rates can be struck at a level that reflects that alternative source of revenue. If recovery from development contributions is less than estimated, higher recovery will be required by way of general rates in order that the local authority may balance its budget. [50] Prior to the Act coming into force, a local authority was empowered to impose conditions of a resource consent issued under the Resource Management Act 1991 requiring a developer to pay a financial contribution to the local authority. These provisions in the Resource Management Act were carried over from the Local Government Act 1974 on a transitional basis. A financial contribution condition could only be imposed if its purpose was to remedy or mitigate adverse effects on the environment arising from the particular development authorised by the resource consent. Typically, local authorities imposed conditions requiring financial contributions to meet the additional demand for infrastructure generated by a development. The conditions had fairly and reasonably to relate to the development permitted by the consent to which the conditions attached. There had to be a clear causal nexus between the particular development for which consent was being granted and the demand on the infrastructure created by the development for which the financial contribution was required. [51] Financial contribution conditions could be the subject of an objection or an appeal to the Environment Court. The appeal process and the uncertainty of outcome created uncertainties for local authorities as to the amount they could expect to receive from financial contributions and the timing of the receipt of such contributions. During the process of the legislative review that led to the Act, there

20 was significant impetus by local authorities for provision of a funding tool other than financial contributions under the Resource Management Act, to fund the capital expenditure required to service new development. [52] A number of local authorities formed a Development Contributions Working Group to make submissions to central Government on this issue. As stated by Mr Graham Nielsen, Asset Planning Manager for the Council, in his affidavit sworn 10 April 2006, the Council led the initiatives on behalf of the group. [53] As a result of these initiatives Subpart 5 of Part 8 relating to development contributions was enacted in the Act. [54] It is a consequence of this change that where local authorities operate a development contributions policy and require development contributions, appeal rights which operated under the Resource Management Act in respect of financial contributions, do not exist. This has now been confirmed by sections 198(3) and (4) inserted by the 2006 amendment to the Act which provide that a requirement for a development contribution is not a condition of a resource consent that gives rise to any right of objection or appeal, or a matter that gives rise to any right to apply for a determination under the Building Act [55] Development contributions imposed by local authorities to fund capital expenditure for infrastructure required to service new development, invariably will be passed on by the developers liable for them, to the purchasers of property in the development. The purchasers will become future ratepayers in the district of the relevant local authority, but in relation to any development contribution required, they have no say through the ballot box and the developer who must meet the development contributions in the first place, has no right of appeal against the local authority s assessment. [56] The assessments by local authorities of development contributions can be challenged only by way of judicial review. That is the context in which the plaintiffs bring these judicial review proceedings.

21 Development contributions : statutory framework [57] Subpart 5 of Part 8 of the Act relates to development contributions. [58] The starting point is the interpretation section, s 197: Development means (a) (b) any subdivision or other development that generates a demand for reserves, network infrastructure, or community infrastructure; but does not include the pipes or lines of a network utility operator. Development contribution means a contribution (a) (b) provided for in a development contribution policy included in the long-term council community plan of a territorial authority; and calculated in accordance with the methodology; and (c) comprising (i) (ii) (iii) money; or land, including a reserve or esplanade reserve (other than in relation to a subdivision consent), but excluding Maori land within the meaning of Te Ture Whenua Maori Act 1993, unless that Act provides otherwise; or both. Development contribution policy means the policy on development contributions included in the long-term council community plan of the territorial authority under section 102(4)(d). Methodology means the methodology for calculating development contributions set out in Schedule 13. Community infrastructure means (a) (b) land, or development assets on land, owned or controlled by the territorial authority to provide public amenities; and includes land that the territorial authority will acquire for that purpose. Network infrastructure means the provision of roads and other transport, water, wastewater, and stormwater collection and management. Community facilities means reserves, network infrastructure, or community infrastructure for which development contributions may be required in accordance with section 199.

22 [59] Section 198 provides the power to require development contributions and stipulates when they may be required. Before a development contribution may be required councils must have a development contributions policy under s 102(4)(d). Section 198 provides: Power to require contributions for developments (1) A territorial authority may require a development contribution to be made to the territorial authority when granting - (a) a resource consent under the Resource Management Act 1991 for a development; (b) a building consent under the Building Act 1991; (c) an authorisation for a service connection. (2) A territorial authority may only require a development contribution as provided for in a policy adopted under s 102(4)(d) that is consistent with s 201. [60] Section 199 prescribes the basis on which development contributions may be required: Basis on which development contributions may be required (1) Development contributions may be required in relation to developments if the effect of the developments is to require new or additional assets or assets of increased capacity and, as a consequence, the territorial authority incurs capital expenditure to provide appropriately for - (a) (b) (c) reserves; network infrastructure; community infrastructure. (2) This section does not prevent a territorial authority from requiring a development contribution that is to be used to pay, in full or in part, for capital expenditure already incurred by the territorial authority in anticipation of the development. (3) In subsection (1), effect includes the cumulative effects that a development may have in combination with another development. [61] Section 200 provides a safeguard against double dipping. A development contribution may not be required if the capital expenditure is otherwise funded by a financial contribution under the Resource Management Act, or if the developer will

23 otherwise fund or provide for the same reserve or infrastructure, or funding will be derived by the territorial authority from a third party. Development Contributions Policy [62] Before development contributions may be imposed a territorial authority is required by s 198(2) to have a policy on development contributions adopted under s 102(4)(d) that is consistent with s 201. [63] Under s 106(2) a policy on development contributions (or financial contributions) must in relation to the purposes for which the contributions are required a) summarise and explain the capital expenditure identified in the LTCCP that the local authority expects to incur to meet increased demand for community facilities resulting from growth; b) state the proportion of that capital expenditure that will be funded by - i) development contributions; ii) financial contributions; iii) other funding sources. c) explain in terms of s 101(3) why the local authority has determined to use these funding sources to meet the expected capital expenditure. (The local authority is referred back to the s 101(3) principles that apply in determining funding sources and refer [43] and [44]); d) identify separately each activity or group of activities for which contributions will be required and specify the total amount of contributions to be sought in relation to each activity or group of activities;

24 e) comply with sections 201 and 202. [64] The local authority must keep available for public inspection the full methodology that demonstrates how the development contributions were calculated. [65] Section 201 provides: Contents of development contributions policy (1) If a territorial authority has determined to seek funding for community facilities under this subpart, the policy required by section 102(4)(d) must include, in summary form, in addition to the matters set out in section 106,- (a) (b) (c) (d) an explanation of, and justification for, the way each development contribution in the schedule required by subsection (2) is calculated; and the significant assumptions underlying the calculation of the schedule of development contributions, including an estimate of the potential effects, if there is a significant level of uncertainty as to the scope and nature of the effects; and the conditions and criteria (if any) that will apply in relation to the remission, postponement, or refund of development contributions, or the return of land; and the basis on which the value of additional allotments or land is assessed for the purposes of section 203(1). (2) A development contributions policy must contain a schedule in accordance with section 202. [66] The use of the word effects in s 201(1)(b) links back to that word in s 199 (refer [60]). Section 199 provides as a basis for requiring development contributions, that the effect of the developments is to require additional assets or increased capacity which will incur capital expenditure. Under s 201(1)(b), if there is a significant level of uncertainty as to the scope and nature of the potential effects, the significant assumptions underlying the calculation of development contributions must be stated, including an estimate of the potential effects. [67] Section 202 provides:

25 Contents of schedule to development contributions policy (1) The schedule of development contributions required by section 201(2) must specify (a) the development contributions payable in each district, calculated, in each case, in accordance with the methodology in respect of - (i) (ii) (iii) reserves; and network infrastructure; and community infrastructure; and (b) the event that will give rise to a requirement for a development contribution under section 198, whether upon granting (i) (ii) (iii) a resource consent under the Resource Management Act 1991; or a building consent under the Building Act 2004; or an authorisation for a service connection. (2) If different development contributions are payable in different parts of the district, subsection (1) applies in relation to the parts of the district. (3) The specifications required under subsection (1) or subsection (2) must be given separately in relation to each activity or group of activities for which separate development contributions are required. (In the LTCCP, the different parts of the Council s district are referred to as catchments ). [68] The reference in s 202(1) to methodology refers, by the definition in s 197, to the methodology for calculating development contributions set out in Schedule 13 to the Act: Methodology for Calculating Development Contributions (1) Methodology for relating cost of community facilities to units of demand - In order to calculate the maximum development contribution in respect of a community facility or an activity or group of activities for which a separate development contribution is to be required, a territorial authority must first

26 (a) (b) identify the total cost of the capital expenditure that the local authority expects to incur in respect of the community facility, or activity or group of activities, to meet increased demand resulting from growth within the district, or part of the district, as the case may be, as set out in the long-term council community plan in accordance with section 106(2)(a); and identify the share of that expenditure attributable to each unit of demand, using the units of demand for the community facility or for separate activities or groups of activities, as the case may be, by which the impact of growth has been assessed. (2) Attribution of units of demand to developments For the purpose of determining in accordance with section 203(2) the maximum development contributions that may be required for a particular development or type of development, a territorial authority must demonstrate in its methodology that it has attributed units of demand to particular developments or types of development on a consistent and equitable basis. [69] Section 203 prescribes maximum development contributions. Under s 203(1) the maximum development contributions for reserves is the greater of a) 7.5% of the value of the additional allotments created by the subdivision; and b) the value equivalent of 20 square metres of land for each additional household unit created by the development. [70] Under s 203(2) - Development contributions for network infrastructure or community infrastructure must not exceed the amount calculated by multiplying the cost of the relevant unit of demand calculated under clause 1 of Schedule 13 by the number of units of demand assessed for a development or type of development, as provided for in clause 2 of Schedule 13. [71] The unit of demand to be adopted is not specified. Thus councils have a discretion in relation to the unit of demand they adopt, subject to the overriding requirement in paragraph (2) of Schedule 13 that they must attribute units of demand to particular developments or types of development on a consistent and equitable

27 basis. The Council has adopted as its unit of demand a Household Unit Equivalent ( HUE ), equivalent to 2.6 persons. [72] Section 204 states that development contributions must be used towards the capital expenditure of the reserve, network infrastructure, or community infrastructure for which the contribution was required, and must not be used for maintenance. The Council s 2004 Long-Term Council Community Plan [73] The requirement for local authorities to have an LTCCP is new in the Act and reflects the long term (ten years) planning focus the Act requires of local authorities. The Council s LTCCP is an attractively presented, readable document which covers the period It is the Council s first LTCCP required by s 93 of the Act (now superseded by the 2006 LTCCP). It describes the Council s proposed activities in the period, identifies the funding sources to fund those activities and introduces the Council s developments contribution policy. [74] The LTCCP sets out a capital works programme to the value of $1.04b in that period. It anticipates the capital works programme would be funded from the following sources: a) $152m from development contributions (15% of the overall capital works programme); b) $346m from rates (33% of the overall capital works programme); c) $336m from loans (32% of the overall capital works programme); and d) $206m from subsidies and other income (20% of the overall capital works programme). [75] Under the heading Proposal Decisions the LTCCP summarises a range of proposals upon which the Council has consulted the community. These include

28 Funding Growth. The LTCCP states that development contributions have been introduced as a fairer way to fund the costs of growth in the city: so those who cause the demand for facilities pay rather than the wider community. [76] Under Funding Growth the LTCCP refers to the decision of the Council to adopt Option 1 development contributions, in preference to Option 2, financial contributions and Option 3, rates fund growth, because: It was the most supported option; It is specifically allowed for in the Local Government Act 2002; It (the Council) believes that the causation methodology is best suited to the allocation of growth costs to those who generate the demand. [77] It is stated that the Council has been a strong advocate for legislative change to enable development contributions to be collected under the Local Government Act, and that - The Council believes that development contributions must be fair and reasonable, and part of a consistent, integrated and equitable approach to planning for the City Any resource consent, building consent or service connection granted after 1 July 2004 would be assessed for its effect on or demand for infrastructure, and an appropriate contribution required. [78] The Development Contributions Policy ( the policy ) states that it has been prepared in accordance with ss 102(4)(d) and 106 of the Act to be effective as of 1 July 2004, and will apply to any application for resource consent, building consent or service connection lodged after 24 March 2003 and granted on or after 1 July [79] It states that a detailed methodology and large amounts of data are used to calculate the development contributions and the full methodology, procedures and guidelines are detailed in the Development Contributions Information Set available for inspection at the Council s head office and at each area office.