Publicly Speaking

12 Jun 2009

Council Decision-Making

Council decision-making has been under the spotlight recently, with the High Court reviewing decisions on the relocation of Council headquarters (in Whakatane) and social housing rents (in Christchurch). Unhelpfully for Councils, the Court has issued two markedly different interpretations of the procedural requirements for Council decision-making under the Local Government Act 2002. This FYI summarises the two decisions and explains what they mean for Councils.

Whakatane District Council v The Bay of Plenty Regional Council (Relocation case)

Facts - The headquarters of the Bay of Plenty Regional Council (EBoP) are located in Whakatane. In early 2006, EBoP decided to carry out an accommodation and location review and asked Deloitte to prepare a report. In late 2006, Deloitte recommended that EBoP's headquarters shift to Tauranga. 

In December 2006, EBoP decided "in principle" that its head office should be relocated to Tauranga, subject to further work. In March 2007, EBoP issued a statement of proposal to amend its 10 year plan to provide for the relocation. The decision to relocate was effectively taken on 1 June 2007 when EBoP resolved to amend its 10 year plan as proposed.  Whakatane District Council (WDC) sought judicial review of EBoP's decision.

Issues - The key issues were whether:

1. EBoP was required to expressly state how it would identify options and consider community views as part of the decision-making process: s79 LGA 02;
2. EBoP was required to have identified all reasonably practicable options once it decided to adopt the Deloitte report "in principle" in December 2006;
3. at the identification of problem/objectives stage, EBoP had only focussed on relocating their headquarters: s77 LGA 02;
4. EBoP had properly considered community views: s78 LGA 02; and
5. Councillors who did not attend all or substantial parts of the hearing could vote on the relocation decision.

Decision - The Court rejected WDC's application:

• EBoP had complied with the decision-making provisions in the LGA 02 - a Council could implicitly decide how it would identify options and consider community views without expressly recording the process;
• EBoP was not required to have identified all reasonably practicable options in December 2006 - it had only been gathering information at that stage;
• EBoP had implicitly determined that the only two reasonably practicable options to consider for its headquarters' location were Whakatane or Tauranga. The choice of reasonably practicable options available was for EBoP to make;
• EBoP had given proper consideration to community views on the location of its head office by inference from the reports that it received; and
• the Councillors who did not attend all or substantial parts of the hearing could still vote on the relocation decision. Further, there was no reliable evidence that Councillors came to the hearing and deliberations with closed minds.

The Court expressly disagreed with the previous High Court interpretation of decision-making requirements in the Housing case.

Council of Social Services in Christchurch v Christchurch City Council (Housing Case)

Facts - In early 2008 Christchurch City Council (CCC) made two decisions to increase city housing rents by 24% per week after a long and complex history concerning CCC's housing portfolio.

In 2003 an asset management plan for the city housing portfolio was developed. From 2003 to 2006, the Council decided on various occasions to adjust rents in accordance with the consumer price index. However, by 2008 Council modelling identified an expenditure spike in 2015, leading to an officer recommendation for a 24% rent increase if the housing portfolio was to operate on a sustainable basis. While there had been consultation with interested and affected parties including tenants at various times, CCC did not consult specifically with tenants the 24% rent increase.

Issues - The key issues were:

1. whether CCC complied with its significance policy;
2. whether CCC failed to identify and assess all reasonably practicable options: s77 LGA 02;
3. whether CCC failed to obtain / consider the views and preferences of persons likely to be affected by the decision: s78 LGA 02.

Decision - The Court found that CCC:

• had not properly assessed the significance of its decision to increase rents by 24%;
• had not properly considered the implications of the government funding option; and
• had not given proper consideration to the views and preferences of the tenants at two of the four stages in the decision-making process.

Discussion

The Relocation and Housing decisions differ in four key respects: the approach to significance in decision-making; the extent to which options must be assessed under section 77; when community views must be considered under section 78; and the consequence of non-compliance with the Part 6 decision-making provisions.

Significance

Subject to s79, the LGA 02 requires Councils to consider, identify and assess all reasonably practicable options and consider the views of persons likely to be affected. The more significant a decision, the more consideration required from a Council. The Councils' decisions in both cases were treated as "significant" - EBoP's decision to move its headquarters would have a considerable impact on residents / ratepayers and CCC's decision dealt with significant assets, impacted on tenants and was controversial. (Importantly, it was the Court, and not CCC, which determined that the CCC decision was significant, and that CCC had not complied with its own significance policy.) 

The Court in the Relocation case took a pragmatic approach, holding that it was for EBoP to determine the extent to which it must comply with the LGA 02 decision-making requirements. The Court described the process as EBoP "creating a procedural template for the substantive decision to be made". This was on the basis that the LGA 02 itself did not expressly set out how compliance was to be achieved, nor did the LGA 02 impose an obligation on EBoP to record in writing how it would comply with the LGA 02. 

The Court in the Housing case took a far more stringent approach saying that CCC was required to:

• identify and assess all reasonably practicable options; and
• consider the views of persons likely to be affected at all four stages of decision-making.

The Court treated the LGA 02 decision-making requirements as mandatory for significant decisions. Further, the Court considered that whether a decision was significant or whether all reasonable options had been identified could be determined on an objective basis. 

Identification and assessment of all reasonably practicable options

In the Relocation case, the Court held that the choice of reasonably practicable options available was for EBoP to make. It was not for WDC (or the Court) to point to additional reasonably practicable options and assert that EBoP had omitted to identify them. Further, the decision-making requirements would apply after EBoP had formalised the question to be decided - they did not apply while EBoP was still formalising the question or gathering information.

By comparison, in the Housing case the Court applied the LGA 02 requirements to the very start of the decision-making process - the problem identification and objective setting process stage. The Court concluded that because the matter was significant, it was not open to CCC to undertake a rudimentary assessment of the options. Instead, a thorough analysis was required so that all options must be identified and assessed before the decision was made.  

The Court said that the problem to be determined was defined too narrowly by CCC officers. Rather than the issue being inadequate rental income, the real problem was insufficient funding for maintenance and other costs associated with the housing portfolio. Based on that expanded problem, the Court said that CCC should have pursued the option of central government assistance. CCC's evidence was that it had considered the option in earlier processes and, as a result of informal verbal feedback from the Prime Minister and government officials, concluded that it was not a practicable option. However, the Court concluded that this was not sufficient and that the option of government funding was "a live option" which required thorough analysis. 

This stringent approach to Council decision-making involves the Court effectively "standing in the shoes" of CCC to identify the problem and the options for that problem, even where CCC itself had already disregarded the option.

Consideration of views and preferences

In the Relocation case, the Court noted that it was for EBoP to decide how community views were considered. The Court was satisfied that EBoP had done this by: holding a workshop with WDC; meeting with community and local authority members; and considering reports prepared by Deloitte. The Court accepted that assessment of community views and preferences could occur at officer level, and in this case, by consultant engagement (Deloitte). 

By contrast, the Court in the Housing case stressed that the statutory scheme of the LGA 02 specified that views and preferences were to be considered at all four discrete stages. The Court was particularly concerned that when CCC came to its 2008 rental review the reports used "exactly the same wording in relation to the views and preferences of affected or interested persons as had been used in 2005 and 2006 reports".

Further, CCC could not rely on views and preferences that had previously been gathered without attempting to update those views. The Court considered that a "significant change in circumstances" had occurred including new modelling, a rental increase in the intervening years, an increase in the cost of living, and a local body election. In essence, the Court found that CCC should have sought the views and preferences of affected tenants when it was considering an increase of 24%.

This strict approach would appear to require repeated contact and consultation, notwithstanding that a Council may consider it already has an adequate grasp of the views of affected parties. This contrasts with the Relocation decision where the community views could be inferred by EBoP from the reports it received.

Effect of non-compliance

In the Relocation case, the Court provided general comments on what may occur if a Council had not complied with s76 of the LGA 02. Because the LGA 02 does not expressly set out how compliance is to be achieved nor what occurs in the event of non-compliance, the Court held that non-compliance would not in itself invalidate EBoP's decision. By contrast, in the Housing case, the Court held that CCC's decision was invalid for breach of the mandatory requirements of the LGA 02.

This creates uncertainty for Councils. Further clarification on this matter from the Court will hopefully be provided by the appeal on the Relocation case. In the meantime, it is open for Councils to argue that the approach in the Relocation case is to be preferred.

Bias and predetermination

In the Relocation case, the Court also considered allegations of "closed minds" and the "failure to consult" against EBoP. These matters did not arise in the Housing case. 

The allegations were that the absence of certain Councillors from public hearings meant that the EBoP did not properly discharge its obligations to consult; and that Councillors had already closed their minds to the outcome, making the outcome invalid on the grounds of bias.

The Court noted that the applicant was required to prove actual predetermination or bias, with evidence capable of objective assessment. It was not enough that Councillors had expressed "in principle" views on decisions, provided that "when it comes to making the actual decision, they do so with minds open to other alternatives". Further, there was nothing which required members of a local authority to have attended all the public consultation hearings: "it is in the nature of local body work that members of local authorities will need to absent themselves from deliberation hearings from time to time". 

This recognition of the realities of being a Councillor is refreshing to see in a Court decision, and provides some useful guidance in this area. However, we do not interpret the case as giving carte blanche to Councillors for regular or extended non-attendance.

What do these conflicting cases mean for Councils?

The two cases give conflicting messages to Councils. On one hand, the Housing case raises the bar for compliance by treating the LGA 02 decision-making process as mandatory and able to be second guessed by the Courts on the merits. On the other hand, the Relocation case emphasises Councils' discretion as to how and when to comply with the LGA 02 decision-making requirements and recognises a high threshold for Court intervention. 

Councils are likely to prefer the Relocation case, as it acknowledges that it is up to a Council to determine what the appropriate decision-making requirements are in each case. Plaintiffs are likely to prefer the Housing case as it allows an "objective" assessment by the Court of the decision.

The best approach for Councils will depend on a Council's appetite for risk - the least risk position is to assume that the stricter Housing case will be validated by the Court of Appeal when hearing the Relocation appeal. However, such a strict approach has potentially significant consequences for Councils in terms of compliance costs.

A more practical approach is likely to be a middle way between the two cases. Councils can continue to exercise their own discretion on how to meet the decision-making requirements of the LGA 02, but should ensure that they provide a clear paper trail in doing so, especially to document any discussion on whether or not a decision is significant. The paper trail should document the problem; the reasonably practicable options; and the views of those affected by a decision, but not necessarily at each and every stage of the decision-making process. Finally, Council decision makers should ensure that they have at least read all written submissions if they have been unable to attend all hearings, to avoid allegations of bias. 

Authors

Duncan Laing

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Bill Loutit

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Padraig McNamara

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Jonathan Salter

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Vivienne Wilson

Senior Associate - Public Sector

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Graeme Palmer

Senior Associate - Public Sector

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