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A return of some clarity to offer backs

October 14, 2015

Contacts

Partners Michael Wood, Nick Wilson
Special Counsel Duncan Laing
Consultants Phillip Merfield
Senior Associates Donna Hurley

In a recent Court of Appeal decision (Williams v Auckland Council  [2015] NZCA 479), the Court has dismissed an appeal by descendants of the owners of 70 hectares of waterfront land at Te Atatu Peninsula in Auckland.

A cross-appeal by Auckland Council was also dismissed. Although both the appeal and cross appeal were unsuccessful, the grounds were different in part from the grounds adopted in the High Court and see a return of clarity for some aspects of section 40 of the Public Works Act 1981 (PWA). 

Conclusions

This decision clarifies some important points. In particular:

  • the Courts will not accept artificial distinctions on the meaning and extent of public works to limit their application and exclude ancillary and adjacent land that forms part of a public work project;
  • the focus is on whether land is held for a public work at the relevant time, not whether it is required;
  • land does not need to be compulsorily acquired for section 40(2) of the PWA to apply;
  • a decision that an exception to the offer back obligation applies must be made in a timely manner, or the ability to rely on it will be lost;
  • the term successor is limited to one level of succession only;
  • even though a plaintiff may be able to establish that their rights have been breached, they may not ultimately be successful if the facts indicate that there are strong reasons not to grant any remedy, including delay and a lack of attachment to the land, with the primary focus being the possibility of a financial windfall.

Brief facts

Between 1951 and 1959 the Auckland Harbour Board (AHB) purchased various parcels of land on the Te Atatu Peninsula for “Upper Harbour development”. The development never proceeded and by the 1970s the AHB favoured using the land for an industrial estate. 

In 1983 the Auckland Harbour Board and Waitemata City Council (Te Atatu) Empowering Act 1983 (Empowering Act) was passed to facilitate aspects of commercial development and permit the grant of leases and licences. Ultimately the commercial development did not proceed. Today a large part of the land is the site of residential housing, with the remainder being a public park and reserve owned by Auckland Council, with an estimated value of up to $70 million.

Under section 40 of the PWA 1981, where land is held for a public work, but is no longer needed for that or another public work, then (with some exceptions), it must be offered back to the person from whom it was acquired, or their successor.

The Appellants in the Court of Appeal are the descendants of the former owners of seven separate properties acquired in the 1950s. They all entered into arrangements with a litigation funder to fund the offer back proceedings. If the proceedings were successful, subject to payments to each of the descendants, the company would acquire the land at 1983 prices, and therefore be the principal beneficiary of the success.
In Robertson v Auckland Council [2014] NZHC 765 the High Court considered whether successors to former owners of the land were entitled to have the land offered back to them at historic value. The Court upheld all of the owners’ substantive claims, but in considering a discrete issue of statutory interpretation, it determined that the Empowering Act, a 1983 local Act (which came into force nearly two years after the PWA was enacted) was inconsistent with and ultimately cancelled the offer back obligation contained in the PWA (see our recent FYI here). 

The decision

The Court of Appeal addressed three main questions:

  • Was there a duty to offer the land back? Yes.
  • Did the subsequent Empowering Act extinguish the offer back duty? No.
  • Should the Court exercise its discretion to grant declaratory relief? No.

Was there a duty to offer the land back?

The Court of Appeal agreed with Fogarty J that:

  • All of the land, including associated and ancillary land, was acquired for a public work. It rejected the distinction that the Counsel for Auckland Council attempted to make that there were a mixture of public and non-public purposes and confirmed that it was artificial to restrict the meaning of a “harbour” to the immediate physical configuration, on the basis that the harbour itself would be of limited practical use and would be unable to operate efficiently and effectively unless adjacent land was available to service it;
  • While the land was not required for a public work when the PWA 1981 came into force, it was still held for that purpose at that time;
  • It is not necessary to establish that land was acquired compulsorily for section 40(2) of the PWA 1981 to apply and the owners did not lose their section 40 rights because they entered into agreements with the AHB. The trigger is the requirement for land for a public work and it is irrelevant whether an owner chooses to participate voluntarily where failure to cooperate would inevitably result in the Council using its powers of compulsory acquisition. Further, in the present circumstances, registration of a gazette notice giving notice of a fifteen year designation for harbour works affecting the land was evidence of the element of compulsion;
  • A Council resolution in 1996 to exercise its power of exemption in section 40(2)(a) of the PWA 1981 that it would be impracticable, unreasonable or unfair to offer some of the land back did not absolve the Council from its offer back obligations. Exercise of a discretion to rely on an exception must be carried out within a reasonable period (in this case 18 months from enactment of the PWA 1981). The Council was not able to rely on circumstances that had arisen in the 13 years between when the AHB should have considered whether an exception applied (in 1983) to the date of the Council resolution (in 1996) to determine that an exception applied. 

Clarification on meaning of “successor” in section 40(5)

The Robertson decision applied a particularly broad interpretation to the meaning of “successor” as that term is defined in section 40(5) of the PWA, and potentially extended the meaning of the “immediate beneficiaries” test established in earlier case law in a manner that could have widened the class of claimants to persons further down the chain of inheritance.[1]

The Court of Appeal held that in Robertson Fogarty J erred in his formulation and that the test is whether a person would have been entitled to the land under the will or intestacy of the person who owned the land at the time of acquisition had that person owned it at the date of his or her death. This assumes that ownership has not changed between the date of acquisition and death of the owner, and means that Parliament intended only one level of succession.

Three of the Appellants failed in their claim on the basis that they lacked standing as successors. 

However, the Court concluded that there was a duty from 1 August 1983 to offer the land back to the remaining four Appellants, leaving the Court to determine whether (as concluded in the High Court) that duty was extinguished by the Empowering Act 1983, even though it came into effect on 2 December 1983, nearly two years after the PWA, and after the offer back duty had crystallised.

Did the subsequent Empowering Act extinguish the offer back duty?

Contrary to the High Court, the Court of Appeal determined that the Empowering Act did not excuse the Council from offering the land back to the descendants. It merely empowered the AHB to use the land in certain ways, and free it from some former restrictions. It did not authorise the sale of the land, or its use for anything other than a public work. While the Court accepted that an express power to sell the land or use it for non-public work purposes would have been inconsistent with section 40, it considered that the powers in the Empowering Act (to promote the development of the land, and grant leases and licences) are not proprietary, and the Council could still offer land that is subject to a lease or a licence back to a former owner under section 40.

Should the Court exercise its discretion to grant declaratory relief?

Despite the fact that some of the Appellants satisfied the Court of Appeal that the Council’s predecessors had breached the duty to offer the land back to them by 1 August 1983, ultimately they were not successful as the Court declined to exercise its discretion to grant the owners a declaration of breach.

The Court was careful to point out that a plaintiff who proves that his or her rights have been breached is entitled to a declaration unless there are special considerations to the contrary or extremely strong reasons for refusal. It also emphasised that section 40 of the PWA 1981 is remedial and restorative in nature, and was introduced to compensate for a personal loss rather than an economic interest.

Delay

In declining to grant a declaration, the Court considered the delay of the descendants in bringing proceedings, and on this point determined that by October 1995 at the latest, the owners ought to have known of the Council’s intention to use the land for a purpose other than construction and development of a harbour or other public work, but the proceedings were not filed until 10 years later, in 2005. The Court also noted that previous authority (Mark v Attorney General [2011] NZLR 538) suggested that the relevant date should be 1 August 1983 (being the date by which the land was no longer required for a public work and by which an offer should have been made), which would be a delay of 22 years. In either event, whether the delay was 10 years, or 22 years, the Court considered the delay to be prolonged.

Balancing the effect of the delay

The Court noted the land was developed into residential housing and a public park funded by ratepayers with a special rate. It also noted that the principal beneficiary of success in the proceedings would not be the descendants of the former owners, but the private litigation funder. The Court ultimately held that allowing the descendants (and more particularly their litigation funder) to take the windfall profits would be contrary to the policy underlying section 40. The delay was prolonged and asserting their rights now would be adverse to the Council and the ratepayers and the predominant interest was of a solely financial nature.

[1]      See Port Gisborne Limited v Smiler  [1999] 2 NZLR 695.