Local Government Act 2002 – Rating Valuations Act 1998 – Local Government Rating Act 2002 – Auckland Council v CP Group Ltd [2023] NZSC 53 – Wellington City Council v Woolworths New Zealand Ltd (No 2) [1996] 2NZLR 537– fiduciary duty of councils – rating differentials – general rates – targeted rates

New Zealand Forest Owners Association Incorporated v Wairoa District Council [2023] NZCA 398.

Note: Councils set standard rates and often categorise properties. A factor (the differential) can be applied to the general rate, depending on a property’s category. The factor may increase or decrease the rates for a category of property. Differentials are used to spread the rates burden in accordance with the local authority’s rating policy.

This is an unsuccessful appeal by New Zealand Forest Owners Association (NZFOA) after the High Court dismissed its application to review the Wairoa District Council’s decision to set a higher differential for the general rate for forestry land in its district.

NZFOA represents commercial plantation forest owners. Within the council’s district, it represented nine owners. In January 2021, the council decided to adopt a new rating scheme to address the inequalities in its previous system, to simplify the scheme, and to provide for the district’s wellbeing.

Under the previous scheme, rates for many low-income households exceeded affordability thresholds and these householders were possibly subsidising others.

The new scheme used capital value for rating purposes and the standard rate figure absorbed various other rates and charges, including a differential set for roading on forestry land of more than 100ha.

The council created a differential on the standard rate for forestry land that was four times higher for every dollar of value than the residential rate. The differential meant the extra roading costs created by forestry were covered, rates were more affordable, and rating relativity between different land uses was preserved and took account of the impact forestry had on community wellbeing.

Unlike valuations of kiwifruit orchards where the value of the vines is included in the capital value, the value of forestry land for rating purposes, by legislation, excludes the value of the trees.

The judgment in paragraph [14] includes a useful summary of the types of rates a local authority can set.

The council’s decision meant the rates for forestry properties of more than 100 ha increased by $15.60 per ha. NZFOA sought review of the council’s decision. It initially included the claim that the council had failed to follow statutory processes in making the decision, but it was eventually dropped. NZFOA’s appeal was based on five grounds:

• The amount of the forestry differential was not justifiable under s 101 (3)(a) of Local Government Act 2002 (LGA) and the council attributed an incorrect figure to forestry when fixing the differential;
• while s 101 (3)(b) enables the council to consider a broad range of issues, it cannot introduce a differential simply because the community is concerned about an activity. The differential must relate to the amenities provided or the demands of the class of property;
• by considering the value of trees is not included in the capital value of forestry properties, the council was ultra vires;
• the council’s decision went beyond the legislated flexibility afforded to councils because its inconsistent treatment of forestry properties amounted to unfairness; and
• the decision was unreasonable.

The council said the statement of proposal for the change in the rating regime satisfied the requirements of s 101 of the LGA.

In the court’s view, the key appeal issue was whether a rating differential must bear a “rational connection” to the activity and benefits accruing to those involved in the activity. The court also had to determine whether the council had an improper purpose of deterring commercial forestry, had discriminated unfairly against forestry interests, and made an unreasonable decision.

Applicable principles: Creation and implementation of differentials governed by legislation – whether differential must be justified by expense or benefit – whether impact of rates allocation on community wellbeing relevant – rates are not user-pays but taxes – whether councils entitled to discriminate between groups – whether consultation results dictate council decisions – whether fiduciary duty to ratepayers still exists – whether categorising property for differential limited to value – whether law requires close connection between costs and activity – whether degree of unfairness acceptable with rating categories – whether simple unfairness sufficient to establish discrimination – whether some unfairness is tolerated in judicial review – whether Woolworths is good law.

Held: Appeal dismissed.

• Section 101 (3)(a) does not require a general rate to be determined by a cost-benefit calculation and the differential amount was justifiable.
• Section 101(3)(b) of the LGA allows more than modest adjustments to a cost-benefit calculation.
• The council was not ultra vires when it took into account that trees are not included in capital valuations of forestry properties because value is only one factor in setting a rate.
• The different treatment of farm forestry was not so unfair as to justify the court’s intervention in judicial review.
• The evidence does not support the premise that the council’s purpose was to deter forestry in the district. Rather, the evidence supports the view of a council trying to make rates affordable and fund its activities.
• Section 101(3) decision-making criteria applies to both general and targeted rates.
• Woolworths is still good law.

After 14 years as general counsel for a local authority, Andrea Hilton is now a sole practitioner practising local government law.

New Zealand Forest Owners Association Incorporated v Wairoa District Council [2023] NZCA 398.