The judgment is not sealed because he intends to hear further submissions from counsel about the orders he proposes to make.
In summary, however, he has declared that the decisions to enter into both Ecocare contracts were illegal. He has also awarded the MRRA indemnity costs (without being clear what that actually means). The judge is having a conference with the parties on 20 June when he expects to consider submissions about orders he might make to finalise his judgment.
The judgment is lengthy but is a good read. In my assessment the key features are:
- that KDC did not properly consider reasonable options for addressing Council's huge debt problem, instead going ahead with hefty rate increases as its only option (submissions are now sought from parties on what orders might be made regarding this matter.)
- that Parliament was constitutionally entitled to bring in the Validation Bill (which validated many prior decisions which have been acknowledged as "unlawful"), and that the timing of the Bill could not be seen (in terms of the Bill of Rights) to be deemed an unconstitutional attack on MRRA's right to judicial review.
- that KDC decisions in respect of the Ecocare Scheme agreement, and its modification, were both illegal in terms of the Local Govt Act
- that the loans entered into by KDC are “protected transactions” for the purposes of the Local Government Act, in respect of which the creditor is entitled to take enforcement action if the Council were to default on its obligations.
[7] At an institutional level, this proceeding has exposed a high degree of incompetence among those who were elected to serve on the Council, and also their executive officers. At a human level, it has caused a great deal of stress, anxiety and financial hardship to many ratepayers who will now be required to pay rates at a significantly higher level than they might reasonably have expected. They might also be at risk of a significant capital loss, if they were to sell their properties in an endeavour to avoid continuing costs to meet (potentially) increasingly higher rates.
[21] (Ed: In terms of modification 1 and increased costs of the EcoCare proposal....) The Auditor-General said that this increase “was not appropriate”. That is a gross understatement. I find it incomprehensible that a democratically elected Council (in conjunction with its executive team) could decide to increase the cost of a major infrastructure project by approximately $22.1 million without consulting with its constituents; namely, the ratepayers who were to pay for it. It must have been blindingly obvious to the Mayor and Councillors that while ratepayers might (given that the project did not enjoy universal approval) have been prepared to pay increased rates to meet a cost of $35.6 million, it could not be said confidently that they would agree to pay $57.7 million for a similar facility.
[43] I am satisfied that the Association has made out a case for a declaration that the EcoCare agreements were entered into in breach of Part 6 of the Local Government Act and, therefore, unlawfully.
[45] Having reviewed the evidence on which the Association relies, I am satisfied that the decision made to proceed with Modification 1 agreements failed to comply with Part 6 and that a declaration to that effect should be made. That finding leaves to one side the question whether the financing agreements fall within the “protected transaction” regime, a point to which I now turn.
[52] Under the protected transaction regime, even if the Council’s decision to borrow was unlawful, the creditor is left with a valid and enforceable debt owing from the Council. If the Council falls into default of its obligations under the loan, the creditor is entitled to bring proceedings to recover the amount payable. If judgment were obtained, enforcement processes are available.
[59] The Council is not under a duty to levy rates to meet the debt. It should consider all available options in an endeavour to ascertain what approach to repayment will be in the best interests of its ratepayers. That includes evaluating the advantages and disadvantages of negotiating with existing creditors to ascertain whether there are means of restructuring debt arrangements that would place less of a burden on its ratepayers. The possibility of recovering some of the costs from third parties should also be considered. That type of analysis should enable the Commissioners to make more informed decisions about its options.
[61] In summary, while the creditor has an enforceable debt, the Council has a number of options available to it. In determining which option to take, it is necessary to have regard to the best interests of its ratepayers. Just like any other entity, the Council has the ability to negotiate to restructure the loan arrangements. If negotiations were unsuccessful, it could legitimately leave its creditors to exercise what remedies are available to it at law, or levy rates to pay the debt.
[62] In this case, there is no evidence that such an assessment was undertaken by the Council at the time it struck the rates. For that reason, the Association has not advanced any challenge on any administrative law unreasonableness ground. Nevertheless, in relation to future rates that might be struck, it will be necessary for the Council to give proper consideration to these issues before making its rating decisions.
[114] The Association has succeeded in obtaining declarations in relation to the unlawfulness of the EcoCare and Modification 1 agreements entered into by the Council in 2005 and 2006. It also has the benefit of reasoning that suggests that a more nuanced approach must be taken by the Council to the way in which it should deal with creditors, given the Council’s current parlous state, and the effect that significant rises in the levels of rates are likely to have on its ratepayers. Other factors in favour of the Association’s claim for costs are the usefulness of the declarations I will make in respect of potential third party liability and the need for the ratepayers who comprise the Association to contribute to the costs incurred by the Council through their rates.
An interesting decision indeed.
We will await with interest the orders that appear in the sealed judgment.
1 comment:
The MRRA are to be congratulated upon their "success" at Court ... except for the fact that it is by no means certain that they have aimed at the right target("as yet" ... it is not too late! read on).
The MRRA going up against their own Council and winning in Court is a bit like paying off your overdraft ... with your own personal cheque.
What is hugely important now is that the MRRA and other interests focus on the parties with financial resources, that is those who are responsible for this fiasco, the most obvious of which are the Council's Auditors.
Now therein! lies the prospect of gaining recompense from the auditor's insurers or from the state ... or both.
At the telephone conference mid June (Judge/The Parties) it is to be hoped that the Heath J is firmly but politely asked to be sure to include the OAG/AuditNZ's self- confessed culpability within those parties who should now be called to account (to pay up) ... prior to his final sealing of the judgement.
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