On 14 March 2024, Local Government New Zealand issued a media release projecting an average rise in rates of 15per cent according to draft long-term plans across 48 councils.[1] The release of draft long-term plans also resulted in a flurry of news articles referencing unprecedented rate hikes. This raises the spectre of legal challenges to rating decisions. This article considers the impact of the recent decision of New Zealand Forest Owners Association Inc v Wairoa District Council (Wairoa)[2]  on the courts’ treatment of the decisions made by local authorities when setting rates.

Background

In Wairoa, the New Zealand Forest Owners Association (NZFOA) judicially reviewed the decision made by the Wairoa District Council (WDC) to adopt a new rating scheme. A new general rate was formed, which was calculated on capital value, with a differential value being attributed to ratepayers who owned more than 100 ha of plantation forest. Under the new scheme, large-scale commercial forestry ratepayers are required to pay four times that paid by residential ratepayers per dollar of capital value.

NZFOA alleged WDC had acted unlawfully or unreasonably in respect of the rating decision. The linchpin of NZFOA’s appeal was that forestry cost WDC little but was being asked to contribute a disproportionate amount — therefore there was no rational connection between the benefits it enjoyed as a ratepayer and the amount it was being asked to pay. 

Wairoa Decision

The Court of Appeal dismissed the appeal, relying on the 2023 decision of the Supreme Court in C P Group, which confirmed that:

• rate-setting is an exercise in participatory democracy;
• rating legislation affords local authorities a substantial measure of flexibility;
• there need not be a close correlation between an activity and the rate set in respect of it; and
• a local authority which has followed proper process enjoys a margin of appreciation on judicial review.[3]

The Court of Appeal stated that a challenge to a rating decision does not involve weighing the benefit enjoyed by the ratepayer versus the rates they pay, but instead concerns whether the decision reached is justified by the mandatory considerations under rating legislation. As such, local authorities are permitted to allocate rates towards industries better able to absorb the cost. In fact, the Court explained that local authority rating powers explicitly contemplate differential rating within a district.

A rating decision may also take into account the relative benefits and drawbacks of an industry on the community in question. Part of the rationale for WDC’s decision was due to forestry’s negative effect on local employment - this was a permissible consideration and is arguably mandated by rating legislation.

Comment

The decision further cements the general powers of competence given to local authorities. It also clarified that there was no fiduciary duty owed by local authorities to ratepayers in the rates setting process.

However, the decision in Wairoa should not be taken to mean local authorities may act in a punitive manner. Key to the Court’s finding was that WDC had need of funding and forestry was one of the few significant funding sources. A decision calculated solely to deter a particular industry, not connected to a local authority’s funding requirements, may be exposed to challenge.[4]

If you have any questions or need advice about this or any other local government law issues, please contact Wynn Williams Partner Philip Maw (philip.maw@wynnwilliams.co.nz or +64 3 379 7622).

[1]               Local Government New Zealand “Drivers behind rates rises across the country laid bare" (14 March 2024) https://www.lgnz.co.nz/news/media-releases/drivers-behind-rates-rises-across-the-country-laid-bare/#:~:text=Homeowners%20are%20facing%20average%20rates,cost%20pressures%20councils%20are%20under.

[2]               New Zealand Forest Owners Association Inc v Wairoa District Council [2023] NZCA 398, [2023] 3 NZLR 476.

[3]               At [7], citing Auckland Council v C P Group Ltd [2023] NZSC 53, [2023] 1 NZLR 35, which adopted the long-standing principles articulated in Wellington City Council v Woolworths New Zealand (No 2) [1996] 2 NZLR 537 (CA).

[4]               See also McKenzie District Council v Electricity Corp of New Zealand [1992] 3 NZLR 41 (CA).