16/05/2023·3 mins to read
Historic Supreme Court win for Auckland Council
Last Friday’s Supreme Court judgment in Auckland Council v CP Group Ltd, in which the Court restored the Council’s decision to set a targeted rate on accommodation providers in Auckland, is confirmation from our highest Court of the high bar to successfully challenge local authority rating decisions.
Simpson Grierson Litigation Partner, Jania Baigent and Special Counsel, Graeme Palmer acted for Auckland Council in these proceedings.
In this article we discuss the decision, the background and its broader implications for local government.
The Supreme Court held that the approach to judicial review of rating decisions in the long-standing Court of Appeal judgment of Wellington City Council v Woolworths NZ Ltd (No 2) - namely, that the courts should give latitude to the council, as the democratically elected decision-maker, to make policy choices based on a range of matters - continues to be appropriate, despite changes in local government and rating legislation since Woolworths was decided in 1996.
This comes only a week after another Supreme Court decision (where Simpson Grierson also successfully acted for Auckland Council) drawing on similar principles of participatory democracy, to limit the scope for challenge to council decision-making discretion in another important area, namely regulation of the sale of alcohol: Woolworths New Zealand Ltd v Auckland Council.
Auckland Council v CP Group Ltd related to a targeted rate assessed by Auckland Council on a relatively small group of properties (hotels, motels and other accommodation providers) to fund 50% of Auckland visitor attraction expenditure by the council-controlled organisation, which was then known as Auckland Tourism Events & Economic Development (ATEED).
Several hotels sought judicial review of the rate, alleging the Council failed to comply with the requirements of section 101(3) of the Local Government Act 2002 (LGA), which sets out the matters to be considered when making funding decisions, and that it acted unreasonably. The focus of the challenge was on an alleged disparity between the amount of the rate and the benefits received by the accommodation providers from the activities which the rate funded.
There was some evidence that visitors spend less on accommodation than on other activities such as retail. The Council appreciated this but targeted the rate to accommodation providers because only this sector received its primary revenue from visitors, and it was reasonably capable of being rated. At issue in the proceedings were the legal consequences of the alleged benefit disparity and, as well, the extent to which accommodation providers could pass the cost of the rate on to visitors, as this had been part of the Council’s rationale for the rate.
The Court confirmed that local authority rating, including targeted rates, is primarily a taxation system, not one inherently based on a principle of user pays. Therefore, while the distribution of benefits from an activity is a relevant consideration in deciding how to fund it, neither that consideration nor the requirement of reasonableness requires a close correlation between the activity and the benefits received. It is sufficient if there is some rational connection between the imposition of the rate and the benefits. In this case, the Court held, there was a close nexus between the rate and the activity it funded.
In reaching these conclusions the Court addressed the statutory flexibilities afforded to local authorities by both the LGA and the Local Government (Rating) Act 2002, the expression of the statutory mandatory considerations in section 101(3) of the LGA, and the “imponderables” of benefit.
The argument for the accommodation providers included a direct challenge to Wellington City Council v Woolworths NZ Ltd (No 2), which has been the legal touchstone in this area for 25 years. However, the Court refused the claimants’ invitation to read down or distinguish that decision. The Court said that, if anything, statutory changes since Woolworths have made the principles on which it was decided more consistent with the current statutory scheme, and there was no reason to depart from this “settled position”.
The Court therefore concluded that the Council properly considered the relevant matters, in particular the distribution of benefits, and made a decision that was not unreasonable in the Woolworths sense of being illogical. In doing so, it overturned the Court of Appeal decision in these proceedings and reinstated the High Court judgment which had upheld the Council decision to set the rate.
Auckland Council had paused the accommodation providers’ targeted rate - first because of the effects of Covid-19 on the accommodation sector, and then because of the Court of Appeal decision which had ruled the rate unlawful. It remains to be seen whether the rate, or something similar, will now be reintroduced. If it is, the Council’s decision, and rating decisions by other Councils throughout Aotearoa New Zealand, can be made with the security of knowing that the guiding principles in Woolworths as now restated in Auckland Council, which recognise and protect a broad council discretion and set a high bar for legal challenge, continue to apply.
If you would like to talk to us about any matters raised in this article, or about how the Supreme Court decision may impact your local government authority, please get in touch with one of our experts.