Day 1: Judicial Review. Kaipara District Council

Friday 16th August 2013. The first "day in court" (Whangarei High Court) has been had of the judicial review sought by Mangawhai Ratepayers and Residents Association (MRRA) Vs Kaipara District Council (KDC) - essentially over the Council's funding decisions and agreements it made for the EcoCare wastewater system built at Mangawhai Heads. It was an interesting day. The first of several, in all likelihood.

Many residents attended day 1. So many in fact that the main court-room of the Whangarei High Court would have been filled to over-flowing. It is note-worthy, that Court staff were permitted to open a second court room to hold additional ratepayers and residents, and to allow MRRA to set up a closed-circuit TV, so that the proceedings could be seen by all.

Most residents had no idea what would happen. In fact, day 1 was NOT used for the judicial review. This is because Kaipara District Council applied to the High Court, to have MRRA's main cause of legal action "struck out". This sort of jousting is allowed in the Courts. It permits parties (in this case KDC) to get rid of causes of action from the judicial review. But the judge needs to be satisfied that there are good legal reasons before deciding to strike out any cause of action.

Cutting to the chase, the MRRA causes of the court action are stated in MRRA's application documents, and have been summarised as follows in Kaipara District Council submissions to the High Court:

(a) the Council's decisions to enter into these agreements were not made in
accordance with Local Government Act 2002 ("LGA") so were unlawful,
and as a result decisions made by the Council to set rates which recover
the cost of meeting the Council's commitments under the EcoCare
financing agreements were also unlawful, and should be set aside;

(b) certain decisions of the Council made between 2006 and 2012 setting and
assessing general and targeted rates were not made in accordance with
the LGA and the Local Government (Rating) Act 2002 ("LGRA"), and
should be set aside. They say the rates paid from 2006 onwards should
be refunded by the Council;

(c) the Council's 2009 decision to adopt its current Development
Contribution Policy ("DC Policy") was not made in accordance with the
LGA and should be set aside, and all payments made under the policy
should be refunded by the Council.

So. You can see there are 3 main causes of action, 3 main causes for MRRA seeking a judicial review of KDC's decisions. The first of them refers to the agreements that KDC made with banks and with contractors to go ahead with EcoCare.

MRRA's Statement of Claim, lodged with the High Court several months ago, provides this detail about "the agreements":

FIRST SET OF REVIEWED DECISIONS ECOCARE

12. On 24 August 2005 the respondent resolved to:  (a) Accept an offer from EarthTech Consulting Limited (EarthTech) to design, construct and operate EcoCare; (b) Accept an offer of a borrowing facility from ABN Amro New Zealand Limited (ABN) to a maximum of $31,000,000 to fund the capital costs of development of EcoCare.
13. On 24 October 2005 the respondent resolved to confirm the direction of a draft statement of proposal for the purposes of s 83(1) LGA for EcoCare.
14. On 26 October 2005 the respondent executed a Project Deed agreement with EarthTech to design, construct and operate the Ecocare facilities (EcoCare Agreement). The EcoCare Agreement was conditional on the necessary resource consents being obtained under the Resource Management Act 1991 for the construction and operation of EcoCare.
15. The respondent’s decision to proceed with EcoCare and execute the EcoCare Agreement was a decision: (a) to which s 97(1) LGA applied;(b) that required prior compliance with s 97(2) LGA;(c) not explicitly provided for in the respondent’s last adopted long term council community plan.
16. On 22 February 2006 the respondent resolved to adopt a statement of proposal for the purposes of s 83(1) LGA for EcoCare and to notify it for consultation under the LGA as part of its proposed Long Term Council Community Plan 2006-2016 (LTCCP 06-16).
17. On 21 March 2006 the respondent notified the statement of proposal for EcoCare (EcoCare SoP) and LTCCP 06-16 for consultation under s 83 LGA.
18. The EcoCare SoP indicated that the capital cost for EcoCare was estimated as $35,600,000, but otherwise did not include the information required under s 84(3) LGA.
19. On 24 May 2006 the respondent resolved to:(a) Adopt a proposal from Beca Limited (Beca) to manage the implementation of EcoCare;(b) Approve, in principle, the purchase of land to be used for wastewater disposal as part of EcoCare.
20. On 7 June 2006 the respondent resolved to adopt the LTCCP 06-16, incorporating the EcoCare SoP and its funding impact statement, as from 1 July 2006.
EcoCare Modification and Increased Borrowing
21. On 25 October 2006 the respondent resolved to endorse an amendment to the EcoCare Agreement (Modification 1) and authorise the Chief Executive and Mayor to execute the document. Modification 1 doubled the scope of EcoCare, increased its capital cost of development and required changes to the funding arrangements previously committed to by the respondent for EcoCare.
22. On 26 September 2007 the respondent:(a) received a report from its Chief Executive that the conditions on the EcoCare Agreement had been satisfied and resource consents obtained for EcoCare;(b) resolved to adopt Modification 1, confirm the EcoCare Agreement and conclude negotiations with EarthTech and ABN to activate the necessary funding arrangements.
23. On 28 November 2007 the respondent authorised the execution of the EcoCare project documentation between it and EarthTech to give effect to the EcoCare Agreement incorporating Modification 1.24. On 7 December 2007 the respondent executed the Amended and Restated Project Deed to give effect to Modification 1. It also executed a term loan facility agreement with ABN for the amount of $53,000,000, which agreement increased the capital funding sought to construct EcoCare over and above the amount originally budgeted for EcoCare as recorded in the EcoCare Agreement and as disclosed in the EcoCare SoP.
25. The respondent subsequently borrowed $57,978,000.00 from ABN to fund EcoCare in accordance with the EcoCare Agreement incorporating Modification 1 (EcoCare Borrowings).
26. The decision to proceed with Modification 1 to EcoCare and to take on the EcoCare Borrowings were decisions:(a) to which s 97(1) LGA applied;(b) that required prior compliance with s 97(2) LGA;(c) not explicitly provided for in the respondent’s last adopted long term council community plan.
27. Modification 1 and the increased capital costs for EcoCare (represented by the EcoCare Borrowings) were never included within a statement of proposal under s 84 LGA for consultation in accordance with the special consultative procedure under s 83 LGA. 

Issues with Decision Making in Relation to EcoCare
28. The decisions by the respondent to enter into the EcoCare Agreement and Modification 1 and to take on the EcoCare Borrowings were each made:(a) inconsistently with democratic local decision-making, which is at the heart of the purpose of the LGA and the role of every local authority, and with the principles relating to local authorities in sections 14 and 101 LGA; and(b) prior to:(i) being explicitly provided for in the respondent’s long term plan, contrary to s 97(2)(a) LGA;(ii) being included in a statement of proposal under s 84 LGA, contrary to s 97(2)(b) LGA;(iii) consultation with the community in accordance with the special consultative procedure, contrary to s 84 LGA.(c) contrary to the respondent’s own adopted and operative policies in relation to financial management, including its Treasury, Revenue and Financing Policies.....

I provide this detail, so you can see how important to MRRA, the first cause of action is, in its application for judicial review. So it was very important to MRRA that it vigorously defend its application to have these specific KDC decisions judicially reviewed.

The reasons provided by KDC's legal counsel for striking out this main MRRA cause of action are: 

(a) the EcoCare financing agreements are protected transactions for the
purposes of s 117 of the Local Government Act 2002 (LGA), and by
virtue of s 117 are valid and enforceable despite any failure. to comply
with the requirements of the LGA;
(b) the EcoCare financing agreements are also the subject of certificates
given under s 11.8 of the LGA, which are conclusive proof for all

purposes that the Council has complied with the LGA in connection with
those transactions;
(c) in these circumstances, there can be no challenge to the EcoCare
financing agreements, or to the existence and validity of the Council's
liabilities under those agreements. The Council is required to meet those
liabilities, and is able to set general and targeted rates to recover the cost
of doing: so;
(d) the MRRA's challenge to the rates set. by the Council based on its
argument that rates cannot be set to recover the cost of meeting
commitments under the EcoCare financing agreements cannot succeed;
(e) the MRRA's challenge to the legality and validity of the Council's
decisions to enter into the EcoCare agreements in 2005-2007c
(i) has been brought so long after the decisions were made that it
serves no practical purpose;
(ii) serves no practical purpose in any event, in circumstances where
the EcoCare financing agreements, and the Council's obligations
under those agreements, cannot be challenged;
(iii) will involve substantial cost to the Council and to the community it
serves, and diversion of scarce resources. In particular, responding
to the challenge will involve extensive research. and review of
documents in relation to events occurring over an extended period
some 6 to 8 years ago, in circumstances where the Council officers
primarily responsible for those matters are no longer with the
Council, and the elected members responsible for the .decisions no
longer hold that office; and
(iv) is in all the circumstances contrary to the interests of justice,
contrary to the purposes of judicial review as a relatively simple,
untechnical and prompt procedure, and thus likely to cause
prejudice and delay, vexatious, or otherwise an abuse of the process
of the Court.

You can see here the weight given to s.117 by KDC, and to other matters such as how long it has taken MRRA to actually get this stuff in front of a judge. (On this, as was pointed out to the judge on the day, Mangawhai ratepayers only got wind of the size of the debt and the loans in 2011 - which was when KDC issued a draft Long Term Plan for 2012-2022 where - for the first time - the bank debt was shown.)

Now I'm not going to go into the whys and wherefores of all this, or to go into length what happened. Partly because I'm not a lawyer, partly because the matter is before the courts, and partly because it's complicated. However it is a very interesting situation. As far as I am aware, this is the first time many of these fundamental provisions of the Local Government Act have been in front of a High Court judge. So there is the potential for new case law. As an interested layperson, with an interest in public policy, it is of considerable interest to follow this, and to learn how the judge interprets and weighs what is put in front of him.

His decision on the strike-out application is expected in about a week.

MRRA's defence against KDC's application to strike out this fundamental cause of judicial review action, was painstakingly prepared by MRRA's legal advisers: Kitt Littlejohn and Matthew Palmer, who have drawn together the work and investigations of a number of individuals.

This is my pithy summary of MRRA's defence against KDC's strike out application, which had four main legs (this is a summary only, I apologise for omission):

1)  The first leg is based on a "black letter of the law" interpretation of what is in the legislation. s117 of the LGA is enforceable - but that does not mean it can be enforced on ratepayers. It only means that loans can be enforced on Council. Further, the LGA provides a receivership framework whereby a receiver can gain access to rates - but only if these are for a lawful purpose. These submissions essentially say that the law - as it is written - could have allowed KDC/Commissioners to not presume they had to get rates from ratepayers, and forced the lenders to take receivership action - which is envisaged by the LGA.

2)   The second leg is that the Purpose of both the LGA and the Local Government Rating Act are all about democratic decision-making and transparency. That the fundamental purposes of both of these Acts are in conflict with the idea that it is somehow legal or lawful for KDC to borrow money from a bank - without consulting - and then be legally allowed to force ratepayers to cough up and pay it back.

3)   The third leg is that there are a number of constitutional fundamentals and rights at issue. These include the constitutional right to challenge taxes (or rates), and the fundamental right to judicial review of decisions made by public institutions, as set out in New Zealand's Bill of Rights.

4)   The fourth leg relates to where and how the protected transactions legislation came from, what it means, and how it should be interpreted in the Local Government Act. This relies on Hansard and matters that I covered in postings here and here. 

And just for a bit of "belt and braces", I include here the key Local Govt Act provisions, so you can stare at them closely. First of all the purpose of the LGA:

3.   Purpose

• The purpose of this Act is to provide for democratic and effective local government that recognises the diversity of New Zealand communities; and, to that end, this Act—

  • (a) states the purpose of local government; and

  • (b) provides a framework and powers for local authorities to decide which activities they undertake and the manner in which they will undertake them; and

  • (c) promotes the accountability of local authorities to their communities; and

  • (d) provides for local authorities to play a broad role in meeting the current and future needs of their communities for good-quality local infrastructure, local public services, and performance of regulatory functions.

Next you have the Purpose of Local Government:

  

10 Purpose of local government

 (1) The purpose of local government is—

• (a) to enable democratic local decision-making and action by, and on behalf of, communities; and

• (b) to meet the current and future needs of communities for good-quality local infrastructure, local public services, and performance of regulatory functions in a way that is most cost-effective for households and businesses.

And then you have the Role of a local authority (ie KDC):

11 Role of local authority

• The role of a local authority is to—

  • (a) give effect, in relation to its district or region, to the purpose of local government stated in section 10; and

  • (b) perform the duties, and exercise the rights, conferred on it by or under this Act and any other enactment.

And, importantly, you then have principles of local authority, and these are very significant, look at 1(a) i, and then look at (2)....:  

14 Principles relating to local authorities

 (1) In performing its role, a local authority must act in accordance with the following principles:

• (a) a local authority should—
  • (i) conduct its business in an open, transparent, and democratically accountable manner; and
  • (ii) give effect to its identified priorities and desired outcomes in an efficient and effective manner:

• (b) a local authority should make itself aware of, and should have regard to, the views of all of its communities; and

• (c) when making a decision, a local authority should take account of—
  • (i) the diversity of the community, and the community's interests, within its district or region; and
  • (ii) the interests of future as well as current communities; and
  • (iii) the likely impact of any decision on the interests referred to in subparagraphs (i) and (ii):

• (d) a local authority should provide opportunities for Māori to contribute to its decision-making processes:

• (e) a local authority should collaborate and co-operate with other local authorities and bodies as it considers appropriate to promote or achieve its priorities and desired outcomes, and make efficient use of resources; and

• (f) a local authority should undertake any commercial transactions in accordance with sound business practices; and

• (fa) a local authority should periodically—
  • (i) assess the expected returns to the authority from investing in, or undertaking, a commercial activity; and
  • (ii) satisfy itself that the expected returns are likely to outweigh the risks inherent in the investment or activity; and

• (g) a local authority should ensure prudent stewardship and the efficient and effective use of its resources in the interests of its district or region; and

• (h) in taking a sustainable development approach, a local authority should take into account—
  • (i) the social, economic, and cultural interests of people and communities; and
  • (ii) the need to maintain and enhance the quality of the environment; and
  • (iii) the reasonably foreseeable needs of future generations.

(2) If any of these principles conflict in any particular case, the local authority should resolve the conflict in accordance with the principle in subsection (1)(a)(i).

There's a number of principles in this section, but the one that is paramount is that: a local authority should—(i) conduct its business in an open, transparent, and democratically accountable manner

I rest MRRA's case for now. We await thejudge's decision on the strike-out application, so that we can get on with the main argument....