CP Group Ltd v Auckland Council
[2020] NZHC 89
•5 February 2020
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2018-404-000841
[2020] NZHC 89
BETWEEN CP GROUP LIMITED
First Applicant
MILLENNIUM & COPTHORNE HOTELS NEW ZEALAND LIMITED
Second ApplicantMLC SCENIC LIMITED
Third ApplicantT & T CLARRY’S HOLDINGS LIMITED
Fourth Applicant
AND
AUCKLAND COUNCIL
Respondent
Hearing: 27 to 31 May 2019 and 4 June 2019 Appearances:
A R Galbraith QC, G S A Morrison and T B Fitzgerald for the Applicants
J A Farmer QC, J W S Baigent and L Wiessing for the Respondent
Judgment:
5 February 2020
JUDGMENT OF MOORE J
This judgment was delivered by me on 5 February 2020 at 3:00 pm pursuant to Rule 11.5 of the High Court Rules.
Registrar/ Deputy Registrar Date:
CP GROUP LIMITED & ORS v AUCKLAND COUNCIL [2020] NZHC 89 [5 February 2020]
Contents
Paragraph Number
Introduction.............................................................................................................. [1]
The applicants.......................................................................................................... [4]
The first applicant: CP Group Limited................................................................. [5]
The second applicant: Millennium and Copthorne Hotels New Zealand
Limited (“MCK”)................................................................................................ [6]
The third applicant: MLC Scenic Limited............................................................ [7]
The fourth applicant: T&T Clarry’s Holdings Limited (“T&T”)........................ [8]
The commercial accommodation market in Auckland........................................ [9]
Operating and Management Models................................................................... [12]
Owner/operators.................................................................................................. [13]
Management contract.......................................................................................... [14]
Leased property................................................................................................... [15]
Management rights via strata titles..................................................................... [16]
Chronological background and context............................................................... [17]
Organisational constitution and functions structure........................................... [19]
ATEED................................................................................................................ [23]
The Finance and Performance Committee.......................................................... [29]
Council’s financial planning processes
(a)The Long Term Plan.............................................................................. [32]
(b)Annual Plan [37]
Events leading to 2017/2018 annual budget....................................................... [42]
“Pre-election Report” and an APTR.................................................................. [45]
The Mayoral Office and the Mayor’s Proposal................................................... [47]
How the concept of an APTR was introduced..................................................... [51]
The first Mayoral Proposal................................................................................. [57]
Council’s adoption of the Proposal for consultation........................................... [59]
APTR Steering Group......................................................................................... [62]
Other engagement............................................................................................... [68]
The Consultation Documents................................................................................ [71]
Consultation document........................................................................................ [72]
Supporting Document.......................................................................................... [78]
Public consultation phase................................................................................... [84]
Results and analysis of feedback......................................................................... [86]
Feedback analysis and the “Staff Report”.......................................................... [87]
Council consideration of Staff Report................................................................. [93]
FPC meeting on 1 June 2017.............................................................................. [94]
Mayor’s report to the FPC and revised Proposal............................................... [97]
Rates remission for the APTR........................................................................... [101]
The 2018/2019 APTR........................................................................................... [110]
A more targeted remissions scheme................................................................... [112]
The inclusion of informal accommodation providers........................................ [116]
The application..................................................................................................... [121]
Approach to review.............................................................................................. [128]
The Local Government Act 2002........................................................................ [130]
Decision-making................................................................................................ [132]
The Local Government (Rating) Act 2002........................................................ [135]
First ground of review: the standard of unreasonableness
General legal principles.................................................................................... [140]
The applicants’ position..................................................................................... [143]
Council’s position.............................................................................................. [155]
Analysis.............................................................................................................. [157]
(a)First consideration – pass-through....................................................... [173]
(i)Economic viability.................................................................... [174]
(ii)The relevance of pass-through to the Council’s decision [182]
(iii)Discussion [194]
(b) Second consideration – contributions by accommodation providers to
tourism................................................................................................. [203]
Discussion.................................................................................. [211]
(c)Third consideration – benefits provided by ATEED [216]
Discussion................................................................................. [234]
(d)Fourth consideration – horizontal inequity [245]
Discussion................................................................................. [265]
(e)Fifth consideration – a less discriminatory regime [281]
Discussion................................................................................. [284]
Concluding remarks on unreasonableness........................................................ [286]
Second ground of review: failure to comply with s 101(3) of the LGA [288]
Legal principles................................................................................................. [289]
Third ground of review: breach of s 82 of the LGA; failure to consult [298]
Legal principles................................................................................................. [300]
Discussion.......................................................................................................... [308]
Conclusion............................................................................................................ [314]
Appendix 1
Introduction
[1] This is an application for the judicial review of decisions by Auckland Council (“the Council”) imposing an Accommodation Provider Targeted Rate (“APTR”) on properties used for the purposes of commercial accommodation in the 2017/2018 and 2018/2019 rating years.
[2] The stated purpose of the APTR was to cap general rate increases by adopting a “user-pays” rates regime to fund the activities of the Auckland Tourism, Events and Economic Development Limited (“ATEED”), a Council Controlled Organisation (“CCO”) owned and operated by the Council for the purpose of promoting Auckland as a tourist destination.
[3] The applicants claim the Council’s decision to impose the APTR was unreasonable. They also claim it breached its statutory financial planning and consultation obligations.
The applicants
[4] The application is brought by four ratepayers who are subject to the APTR. They range from those who operate large tourist hotels to relatively small, owner- operated accommodation businesses.
The first applicant: CP Group Limited
[5] CP Group Limited (“CP Group”) is part of the CP Group which owns or manages commercial accommodation in Auckland and elsewhere in New Zealand. It operates the Pullman and Sofitel (Auckland) hotels amongst others. Through its entities, the CP Group is:
(a)an owner/operator of hotels and motels;
(b)an owner contracting with third parties to operate accommodation businesses; and
(c)an owner/facilitator of strata titles, owning some units and acting as a facilitator of others who own such units managed by third parties.
The second applicant: Millennium and Copthorne Hotels New Zealand Limited (“MCK”)
[6] MCK and associate subsidiaries own and/or operate 21 hotels across New Zealand. In Auckland these include the Millennium Hotel, the Copthorne Hotel and the Grand Millennium. Some of the hotels it operates are owned by unrelated third parties.
The third applicant: MLC Scenic Limited
[7] The third applicant is part of the Scenic Group. It operates 18 hotels throughout New Zealand and the South Pacific. It operates two hotels in Auckland; Heartland Hotel Airport and the Scenic Hotel.
The fourth applicant: T&T Clarry’s Holdings Limited (“T&T”)
[8] The fourth applicant is an owner and operator of a North Shore motel, the Whangaparaoa Lodge. This is a 14-room motel on Little Manly Beach. T&T is owned by Mr and Mrs Clarry. Mr Clarry is the Chair of the Auckland Accommodation Sector of Hospitality New Zealand and since 2017 has sat on ATEED’s destination committee.
The commercial accommodation market in Auckland
[9] A total of 28 affidavits (in chief and in reply) were filed by and on behalf of the four applicants. In addition to those directly connected to the applicants, evidence was received from other Auckland commercial accommodation providers and from experts such as economists, consultants with experience in the local tourism and hospitality sector and Tourism Industry Aotearoa (“TIA”) which is the membership organisation representing businesses and other entities in the New Zealand tourism accommodation market.
[10] According to Steven Hamilton,1 a business consultant specialising in the hotel, tourism and leisure sector, the commercial accommodation market in Auckland is substantial, diversified and highly competitive. It is geographically concentrated around the CBD (71 per cent) and the airport (17 per cent). Citing Statistics New Zealand,2 Mr Hamilton records that, as at the end of December 2017, there were 19,387 available commercial accommodation “stay units” in Auckland in 300 establishments. This included 9,410 rooms in 77 hotels and 3,517 units in 165 motels and serviced apartments. This may be compared with the 13,366 rooms available in 8,717 Airbnb rentals in the Auckland region as at 18 April 2018. Mr Hamilton’s evidence is that the online informal accommodation sector continues to grow. For example, as at 15 December 2017, the Airbnb rooms available in Auckland exceeded the available hotel rooms by approximately 29 per cent. On 15 March 2018, a tourism industry daily news website reported that there had been a 71 per cent year on year growth in Airbnb listings in Auckland.
[11] Figures from TIA had 42 members linked to its hotel division. These included hotels and serviced apartments. Out of a total of 6,215 hotel rooms and 815 units and serviced apartments, there were:
(a)1,755 rooms in 5-star hotels all located in the CBD;
(b)2,764 rooms in 4-star+ hotels and 518 units in serviced apartments; and
(c)1,190 rooms in 4-star hotels and 255 units in serviced apartments.
Operating and Management Models
[12] Mr Hamilton described the four ownership and management models operating in Auckland. These are:
1 Affidavit sworn on 7 May 2018.
2 december-2017/download-data/accommodation-survey-december-2017-rto-and-
accommodation-type-pivot-table.xlsx
Owner/operators
[13] This is the simplest ownership structure. It involves a single entity owning the relevant property and operating the commercial accommodation business from it. Examples given include the CP Group’s mid-size hotels such as the Hotel Grand Windsor on Queen Street, the Greenlane Suites on Great South Road, the Station Backpackers on Anzac Avenue and T&T’s Whangaparaoa Lodge.
Management contract
[14] This is the most common model for the larger tourist hotels in Auckland. It involves the owner of the property entering into a contract with a third party for the management of the hotel. Typically, the owner has little influence over the management of the accommodation business. Examples include the Hilton and Crowne Plaza. The CP Group’s Grand Mercure, Pullman, Novotel and Ibis Ellerslie are also examples.
Leased property
[15] This common model involves the owner leasing the property to a third party who runs the hotel. Again, the property owner (or lessor) generally has little control over the lessee’s business. The hotel operates under a management agreement with a third party which is responsible for setting room prices. Examples include Haka which leases and operates Haka Hotels in Newmarket and Karangahape Road. Another is the Russell Group which, through a subsidiary, leases 162 units in the Adina Hotel.
Management rights via strata titles
[16] This is a variation on the leased property model. The owners of strata title units arrange for a third party to operate an accommodation business in respect of a property. Often this involves a large number of small investors each of whom owns one or more properties which are included in a pool of units used for the collective accommodation business. Examples include the Waldorf Apartment complexes and the Accor group.
Chronological background and context
[17] Before examining the Council’s decisions which are under review, it is necessary to set out in some detail the background and context in which the decisions were made.
[18] This section draws heavily on the evidence of Mr Walker, Group Chief Financial Officer of the Council and Mr Wood, the Director of Finance and Policy with the Mayoral Office. However, where necessary, it is supplemented by aspects of the applicants’ evidence.
Organisational constitution and functions structure
[19] The Council was established on 1 November 2010 under the Local Government (Auckland Council) Act 2009 (“the LGACA”) following the amalgamation of seven territorial authorities3 and the Auckland Regional Council in 2010. Under that bespoke legislation the Council’s jurisdiction covers the Auckland region which extends to Te Hana to the north, Pukekohe to the south, Kawakawa Bay to the east and Piha to the west.4 The LGACA sets out the Council’s structure, functions, duties and powers. These differ from the general provisions which apply to other local authorities operating under the Local Government Act 2002 (“the LGA”) and other enactments.
[20]The Council’s shared governance structure consists of:
(a)the Governing Body (consisting of the Mayor elected by all Aucklanders and 20 Councillors elected on a Ward basis);5 and
(b)21 local boards, which are responsible for local decision-making, comprising 149 elected members.
3 Auckland City Council, Franklin District Council, Manukau City Council, North Shore City Council, Papakura District Council, Rodney District Council and Waitākere City Council.
4 As defined in the Local Government (Auckland Boundaries) Determination of 2010.
5 As defined in ss 4 and 8 of the LGACA as the entity comprising of the members of the Council being the Mayor and Council members elected in accordance with the Local Electoral Act 2001.
[21]Under the LGACA the Governing Body is responsible for:
(a)the financial management of the Council, including preparing and adopting the Long Term Plan (“LTP”) once every three years or an Annual Plan (“AP”) for each financial year. It is also responsible for the annual budget and annual report;
(b)setting rates;
(c)governance of all CCOs; and
(d)consulting with and considering the views of local boards before making a decision which affects communities in the local board.
[22] The Council has five substantive CCOs. It is the sole shareholder of each. One is ATEED.
ATEED
[23] ATEED was established by Order in Council. Its objectives are to lift Auckland’s well-being, to support and enhance the city’s performance as a key contributor to the New Zealand economy and to support and enhance Auckland’s ability to compete internationally as a desirable place to live, work, invest and do business.
[24] It supports the economic development of Auckland. This includes the sustainable growth of visitor numbers and marketing Auckland as a visitor destination. To meet its purposes ATEED undertakes various projects and programmes. It partners with agencies such as Tourism New Zealand (“TNZ”), Auckland International Airport, airlines, travel companies and the like. It markets Auckland both internationally and domestically. It sponsors major events and provides operational support for cultural activities and festivals. It partners with the education sector to attract international students to the city.
[25]ATEED is funded by the Council. For the 2016/2017 year it received
$54,285,142 of which $33,178,283 was spent on promoting the visitor economy.
[26] Options for funding ATEED, other than by the Council, have been discussed since ATEED was established. In 2016, at the Council’s direction, ATEED identified three possible options for sustainable long term funding:
(a)a compulsory levy such as a bed tax;
(b)a targeted rate (on all tourist accommodation businesses); or
(c)funding via an industry opt-in or membership-based fee.
[27] In April 2016 it resolved that the preferred option was a bed tax. However, because this could only be imposed by central government, it was not pursued.
[28] The question of voluntary contributions from commercial accommodation providers was then examined with discussions across the sector. However, this initiative was not explored further following the re-election of the Hon Phil Goff to the mayoralty.
The Finance and Performance Committee
[29] Some of the Governing Body’s powers and responsibilities are delegated to committees. One is the Finance and Performance Committee (“the FPC”). The membership of the FPC includes the Mayor and all Councillors. The FPC’s delegated authority includes, amongst other things, advising on and supporting the Mayor with the development of the LTP and annual budget, financial policy relating to the LTP, the annual budget and the setting of rates.
[30] The Governing Body and FPC meet regularly. Decisions are recorded in Minutes. Agenda items are distributed to members in advance of each meeting.
[31] The Governing Body and FPC also hold workshops. These involve members of both entities meeting with relevant Council staff. It is a reasonably informal forum
designed to educate and inform elected members on issues requiring Governing Body decisions. These are not formal Council meetings. Neither are they open to the public.
Council’s financial planning processes
(a)The Long Term Plan
[32] The Council’s planning, decision-making and accountability obligations are set out in Part 6 of the LGA.
[33] The LGA requires every local authority to consult on and adopt an LTP every three years.6 An LTP must cover a period of at least 10 consecutive financial years.7
[34]The LTP sets the local authority’s long term strategic direction.
[35] In preparing and adopting the LTP, the local authority must include in the plan such detail as it reasonably considers to be appropriate.8 However, it must include the Council’s revenue and financing policy (“RFP”).9 This is to provide predictability and certainty around sources and levels of funding.10 The RFP contains the local authority’s policies for funding the operating and capital expenditure. The revenue sources to fund this expenditure include rates (both general and targeted), charges and fees. The RFP also sets out how policy decisions have been arrived at by reference to the financial management considerations set out in s 101(3) of the LGA. Before adopting or amending an RFP, the Council must engage in consultation.11
[36] The LTP must also include a funding impact statement (“FIS”) in relation to each year covered by the plan.12 This identifies the sources of funding to be used by the local authority, the amount of funds expected to be produced and how they are to be applied.
6 Local Government Act 2002, s 93(1).
7 Section 93(7(a).
8 Section 93(8).
9 Section 93(7)(b); see also sch 10, cl 10.
10 Section 102(1).
11 Section 102(4)(a).
12 Schedule 10, cl 15.
(b)Annual Plan
[37]Each year, local authorities must adopt an AP.13
[38] With limited exceptions which do not apply in this case, the community must be consulted before the adoption of an AP.14 This includes changes to the rating system.
[39] The effect of an LTP and AP is to provide a formal and public statement of the local authority’s intentions.15 Their adoption does not, in itself, constitute a decision.
[40] The LGA requires the local authority to run a sustainable and prudent budget. The local authority must balance its projected operating expenses with its projected operating revenue.16
[41] Each year, following the adoption of its annual budget or LTP, the local authority sets its rates for the relevant financial year in the accordance with the LTP and the FIS for that financial year.
Events leading to 2017/2018 annual budget
[42] In 2015 the Council adopted its LTP. This was for the 10-year period 2015-2025. Auckland’s significant population growth was projected to continue for the next 30 years. This would place pressure on the city’s infrastructure including roads, public transport, water, sewerage and public amenities such as parks and community centres. The LTP revealed an operating deficit in the order of $12 billion.
[43] The Council’s Financial Strategy contained in the 2015 LTP set out the approach to achieve a balance between Auckland’s aspirations and their affordability. Central to this approach was the importance of maintaining the Council’s AA Standard & Poor’s credit rating and thus its ability to access international credit markets at competitive rates.
13 Section 95(1).
14 Section 95(2) and (2A).
15 Section 96(1).
16 Section 100(1).
[44] In November 2016 work began on preparing the annual budget for 2017/2018. After estimating the capital and operating expenditure, the revenue from rates (including a projected rate rise of between 2.5 and 3.5 per cent), closing borrowings and a group debt to revenue ratio of 256 to 257 per cent, it became clear that the Council had limited headroom, particularly given that operating expenditure was projected to increase by 1.1 per cent per annum.
“Pre-election Report” and an APTR
[45] Prior to the October 2016 Auckland local body election, the Council prepared and published a “Pre-Election Report” (“the Report”). This is required by the LGA.17 Its purpose is to provide information to the electorate to inform and promote public discussion in the leadup to an election.
[46] The Report drew on the LTP. It referred, in some detail, to the continuing growth of the city and the population projections for the next 30 years. It pointed out that with growth of the magnitude predicted there would be increasing demands on the city’s infrastructure. It noted that the Council’s revenue was derived from a combination of rates, user charges, borrowings and central government subsidies. It acknowledged that ratepayers had expressed a preference for low debt and minimal rate increases but that the Council was reaching the limits of responsible borrowing. In order to maintain rates at an affordable level and keep borrowings at or below current levels, alternative funding sources needed to be identified. The Council’s financial policy team began to examine what these might be. Amongst the options considered were fuel taxes, road tolls and targeted rates.
The Mayoral Office and the Mayor’s Proposal
[47] Under the LGACA the role of the Mayor is to articulate and promote a vision for Auckland, to provide leadership for the purpose of achieving objectives to contribute to that vision, to lead the development of Council plans, policies and budgets (including the LTP and AP) and to ensure there is effective engagement between the Council and the people of Auckland.18
17 Section 99A(1).
18 Section 9(1) and (2).
[48] The Mayor maintains a separate entity known as the Mayoral Office.19 The Mayoral Office has its own budget.20 Unlike Council officers whose role requires them to be politically neutral, staff in the Mayoral Office are appointed by the Mayor, through the Chief Executive. They have a political focus in assisting the Mayor to achieve his or her political objectives for the city.
[49] Each year the Mayoral Office, with Council officers, is required to present a Mayoral Proposal (“the Proposal”). It is published in or around November. The Proposal sets out the Mayor’s priorities, strategies and significant budgetary and financial policy changes recommended for the draft annual budget or LTP. These may include increases in or changes to the way rates are levied.
[50] Once developed, the Proposal is considered by the FPC and the Governing Body. Depending on their particular significance, some proposals such as changes to rating processes require consultation. Following consultation the Proposal may be modified to reflect feedback. The Proposal will then be presented to the FPC which will make recommendations to the Governing Body before it makes the final decision.
How the concept of an APTR was introduced
[51] During the Hon Phil Goff’s 2016 Mayoral campaign he made two particular pledges relevant to these proceedings. The first was to limit rate increases to 2.5 per cent. The second was to “investigate a fair level of user-pays where there are demonstrable private benefits generated from CCO operations”.
[52] On 8 October 2016 he was elected the second Mayor of Auckland. Almost immediately he began to examine an APTR.
[53] On 26 October 2016 the Mayor and his staff were briefed by Council officers on the Council’s capital programme. This included the multi-billion dollar infrastructure funding gap, the operating budget and the limited headroom to maintain revenue growth. Unsurprisingly, the need to consider alternative funding sources was discussed.
19 Section 9(3)(e).
20 Section 9(4)(b).
[54] According to Mr Walker, the Mayor expressed a clear preference to maintain general rate increases below the 3.5 per cent forecast in the LTP. He asked how rating liability could be apportioned more fairly across the community. He promised to extract cost savings from inside the Council. In a Radio New Zealand interview he spoke of cutting the duplication of work done by the Council and its subsidiaries such as the “economic agency ATEED”. He asked that targeted rates be explored. This initiative became part of the Proposal for the 2017/2018 Annual Budget.
[55] Mr Wood led the preparation for the Proposal. In this task he received assistance from Council staff.
[56] During his first month of office, the Mayor met with the CCOs, including ATEED. According to Mr Wood, ATEED advised him that the tourism and hospitality sector was backing away from any commitment to a voluntary or “opt-in” funding option to support ATEED’s activities. This claim, however, is not accepted by the applicants. Mr Wood says the Mayor expressed an interest in pursuing a targeted rate and asked ATEED to provide data on its spending on attracting visitors and major events to Auckland. Early estimates indicated that $20 to $30 million of ATEED’s spending could be funded through the imposition of a targeted rate on a “user-pays” basis.
The first Mayoral Proposal
[57] The Proposal for the 2017/2018 annual budget was first published on 28 November 2016 in the Council’s monthly publication “Our Auckland”.
[58]In its discussion on the targeted rate, the Proposal stated:
“Targeted Rates
32.The use of targeted rates provide the Council with an opportunity to better align the sources of revenue with the beneficiaries of specific expenditure. A range of targeted rates are set out in the rating policy. Possible additional targeted rate initiatives are discussed below.
Visitor levy
33.The number of commercial guest nights in Auckland rose from 6 million in the year ending July 2011 to 7.3 million in the year ending
July 2016. This growth is partly attributable to the visitor attraction and major events activities of [ATEED] and has placed additional demands on the city’s infrastructure and services. In light of the benefits visitors derive from council activities, ATEED has been exploring with the commercial accommodation sector the available options for indirectly funding some or all of ATEED’s visitor-related expenditure from visitors rather than Auckland ratepayers.
34.The council cannot set a bed tax, but may be able to achieve a similar outcome through a targeted rate on accommodation providers. We would expect, but not require, the financial impact of the targeted rate to be passed onto guests through an additional charge on their bills. The revenue captured through a levy is expected to be $20 million to
$30 million per annum. Indicative council analysis suggests the levy would translate into a three to four per cent surcharge on a typical tariff for a four to five star hotel; in the order of $6 to $10 per night. Municipal charges of this nature are common practice in OECD countries.
35.Staff will engage with the tourism and accommodation sector on the design of the levy and include their perspectives in a report back to the Council in the New Year. In the event the levy is implemented, the tourism and accommodation sector will be invited to participate on a governance body that will advise ATEED on the allocation of levy revenues.”
Council’s adoption of the Proposal for consultation
[59] The first decision-making on releasing the Proposal for public consultation took place at the FPC’s meeting on 30 November 2016. Attached to the agenda was a draft of the Proposal. The FPC recommended that the Governing Body endorse the 2017/18 annual budget consultation documents.
[60] On 15 December 2016, the Governing Body resolved to accept the FPC’s recommendations. However, it should be noted these documents were already familiar to the Governing Body. They had come before the FPC as part of the proposed annual budget discussions and had been considered by the Governing Body. The resolution, adopting the FPC’s recommendations is reproduced below:
“That the Governing Body:
(a)agree that the Annual Plan 2017/2018 public consultation document include the following items:
Rating policy changes
(i)that the general rates increase be capped at 2.5%;
….
(iv)introduction of a visitor levy (via a targeted rate) to fund visitor related expenditure of [ATEED].”
[61] Mr Wood says the term “visitor levy” was deliberately chosen for the purposes of public communication relative to the APTR. On this point he said:
“The term “visitor levy” in the Mayoral Proposal was chosen as the best way to communicate to the wider public the intent of the targeted rate, rather than purporting to be a technical description of the revenue mechanism. This approach has a precedent. The Interim Transport Levy that was in place at the time was, in fact, a targeted rate. The Mayoral Proposal stated that Council could not set a bed tax, but may be able to achieve a similar outcome through a targeted rate on accommodation providers. …
… the announcement, media and Mayoral Proposal all referred to the targeted rate on accommodation providers as a ‘visitor levy’. By this we meant a rate to fund activities aimed at attracting visitors, that would be ultimately borne by visitors staying in hotels and the like.”
APTR Steering Group
[62] The Council set up a Steering Group to provide pre-consultation engagement with the accommodation sector to advise on the contents of the consultation documents. In particular, its task was to provide industry feedback on the design of a possible APTR.
[63] The Steering Group was chaired by Cr Desley Simpson, the Deputy Chair of the FPC. Five representatives from the accommodation sector were invited to participate.21
[64] The Steering Group met three times before the Proposal was adopted by the Governing Body. Unsurprisingly, the sector appointees were described by Mr Wood as having a genuinely negative reaction to any proposed APTR. They claimed it was hurried and had been drafted without input from the industry. They expressed scepticism over the benefits of ATEED’s spending and its focus. Alternative rating options were discussed, such as rating the CBD business sector or targeting the wider tourism sector. Options for differentiating by location or provider were also discussed.
21 Hospitality New Zealand, Sky City, Novotel Auckland Airport, Tourism Industry Aotearoa and Whangaparaoa Lodge.
[65] At the last meeting before the Governing Body’s decision, the documents for public consultation were circulated and discussed.
[66] It was through the engagement of the Steering Group that a number of particular criticisms on an APTR were raised.
[67] Mr Wood is of the view that the sector engagement through the Steering Group was constructive. For example, it was through this vehicle that issues around forward bookings, strata titles and hotels where there is a contractual separation between the owners of the property and the operators of the business and the risk posed by the owners of unit titles within hotel pools leaving the pool to avoid commercial classification were identified. Other issues ventilated included the geographical concentration of the benefits derived from ATEED’s visitor and events-related expenditure, whether there was a basis to apply a differential rating system based on the type of accommodation provider and their location and the need to differentiate between ATEED’s visitor and events-related expenditure.
Other engagement
[68] According to Mr Wood there were other forms of industry engagement. For example, the Mayor met with a group of Auckland hoteliers on 24 January 2017 at the Crowne Plaza. Various issues were raised including the marginal profitability of the hotel sector in recent years, the “head winds” the rate might create for new hotel development, why the rate was being imposed on hotels and not on the informal accommodation sector and whether the rate could, in practice, be passed on. Other issues including those identified by the Steering Group were discussed.
[69] On 13 February 2017 Mr Wood and the Mayor attended a Hospitality New Zealand national board meeting to discuss the proposed APTR. Cr Newman organised a visit to the Crowne Plaza and Base Backpackers which was attended by a staff member from the Mayoral Office.
[70] Cr Newman also organised an informal meeting with members of the hotel industry on 15 March 2017. In April and May Mr Wood and the Mayor met individually with major providers such as the CP Group, Rydges, The Heritage and Fu
Wah. The Mayor met with the TIA. Other meetings occurred between interested and potentially affected parties in April and May, hosted by staff of the Mayoral Office, including Mr Hamilton. The meeting with Mr Hamilton apparently focused on the business models used within the sector and how those models might operate relative to an APTR.
The Consultation Documents
[71] These are the documents which the Governing Body resolved to adopt. They reflect the LGA’s duty to publicly consult. In practice, and as occurred in the present case, this ordinarily means two documents are prepared; a consultation document and another, “the Supporting Document”, containing the information supporting the first. It was these documents which the Steering Group commented on at its last meeting.
Consultation document
[72] The consultation document for the 2017/2018 annual budget ran to 34 pages. It commenced with a “Message from the Mayor” in which he said:
“I want to keep rate increases low and reasonable. In this budget, I want to share the cost of growth more fairly across those who benefit from it. In my view rate rises should be no higher than 2.5%. I am working to broaden our revenue base through measures such as a targeted rate on accommodation providers …”
[73] Under Part Two was a section headed, “What we want your feedback on”. Below this were listed six issues:
(a)rates increases;
(b)rating stability;
(c)paying for tourist promotion;
(d)paying for housing infrastructure;
(e)paying Council staff a living wage; and
(f)priorities in your local area for 2017/2018.
[74] The document then proceeded to discuss each issue. In the section headed “Rates Increases”, it stated:
“… We had previously projected that an average increase of 3.5% would be needed for 2017/2018 to deliver our planned investments and services. The latest review of our budgets has identified additional savings … that will allow us to deliver the same things for about $15m less. The $15m of savings could be used to reduce the rates increase for 2017/2018 from 3.5% to 2.5%. Any further revenue reductions would put our AA Standard & Poor’s credit rating at risk …”
In the section headed “Rating Stability” it stated:
“We consider that businesses should pay a greater share of rates than residential properties but that the present share is too high and should be reduced gradually over time. …”
In the section headed “Paying for Tourism Promotion” it stated:
“The Council currently spends $20-$30m of general rates money each year on tourist promotion and major events which provide significant benefits to accommodation providers such as hotels and motels. To continue to support Auckland’s rapid tourism growth while keeping rates fair and affordable, we need to consider new ways to pay for this spending.”
[75]Then, two options were proffered:
(a)Option A was to maintain the status quo by continuing to fund ATEED’s activities across the whole taxpayer base through general rates. This was said to be at a cost of $46.22
(b)Option B was to fund tourist promotion using a targeted rate on accommodation providers. Accommodation providers were described as hotels and motels which would pay a rate equating to approximately four per cent of their revenue. It was claimed that if charges were passed on to visitors the average hotel room rate would increase by about $6 to $10 per night. The Council would use the “freed up general
22 Presumably per annum per ratepayer.
rates” to invest $250 to $300 million in transport infrastructure over the following 10 years.
[76]The consultation document went on to record:
“Our preference is to fund tourism promotion costs from a targeted rate on accommodation providers as the connection between visitor attraction and their customer base is strongest. This would allow the rates currently collected for this purpose to be invested in urgently needed infrastructure for the city, such as transport improvements – benefiting residents and visitors alike. If this new approach is approved, we would create a new group including industry representatives to provide direction on how the money is spent.”
[77] The background to the Council’s preference was then explained in the following way:
“We explored a range of other possible funders for the proposed rates. While businesses such as a restaurants, café and taxis also benefit from visitors, the majority of their revenue come from Auckland residents. A targeted rate on accommodation providers ensures that very little of the costs of visitor attraction falls on Auckland residents, as nearly all sectors revenue is from visitors. Discussion of all the options considered can be found in s 2.3 of the supporting information for this consultation document.”
Supporting Document
[78] The Supporting Document was a good deal more substantial and detailed. It ran to just under 150 pages. It dealt with the same issues as the consultation document but in much greater depth. It included tables and appendices. It introduced the topic of an APTR by observing that through ATEED the Council had spent $27.8 million on visitor attraction and major events funded by general rates. This represented approximately two per cent of rates. The proposal was “to free up general rates” by funding visitor attraction and major events with a targeted rate on accommodation providers, allowing the $27.8 million to support capital expenditure of $180 million over five years extending to a total of $250 to $300 million over 10 years.
[79]The document said:
“Funding visitor attraction and major events expenditure from a targeted rate on accommodation providers establishes a clear link between the sector that is the most immediate direct beneficiary of expenditure to raise visitor numbers and those who are paying. While other sectors benefit from visitor expenditure they also have a substantial local customer base. As the Council
does not wish to add further costs to Auckland residents it considers a rate on accommodation providers to be the best funding option.”
[80]And later:
“A rate set to raise $27.8 million would represent around 4 per cent of the estimated commercial accommodation sector revenue for 2017 of
$706 million. If they wish, the accommodation sector can pass through the costs of the rate by adding an Auckland Council accommodation sector targeted rate surcharge of around 4 per cent to guests’ bills. Charges on the accommodation sector are widely used overseas to fund visitor attraction (most often as a bed night tax) ranging up to 17 per cent. At present the accommodation sector pays total rates of $18.5 million.”
[81] After discussing the various options as to how and on what basis the APTR might be levied, the Council explained why it favoured capital value:
“The Council considers that capital value is the most equitable rating tool to distribute the revenue requirement across accommodation providers. Capital value provides for factors that reflect the variations between providers in terms of both benefit received and affordability. Capital value differentiates between central city hotels, suburban motels and backpacker hostels. Capital value is also consistent with how other rates are applied to these and other properties in the CBD and elsewhere such as the general rate, City-Centre Targeted Rate and Half of the City BID Targeted Rate.
The measures that are based on potential volume (bed numbers, room numbers and floor area) differentiate on potential but not actual volume and therefore revenue. They also do not distinguish between widely varying accommodation types. As a result they are less equitable in terms of distributing the rate burden in relation to the benefits received or relative affordability.
Land value has no relationship to the number of visitors and does not distribute the rates burden equitably between providers in relation to the benefits received or relative affordability.”
[82] The Supporting Document then turned to consider the options for differentiating between the various types of accommodation provider. It recognised that those offering premium properties have less price sensitive clientele. This would make it easier to pass on the costs of the proposed rate to visitors. However, motels, backpackers, camp grounds and less centrally-located providers were likely to have more cost sensitive clientele making it more difficult to pass on any additional costs.
[83] The report also observed that the Council could apply an APTR differentially based on the type of provider and location. This would have hotels and serviced apartments treated differently from motels and backpacker hostels.
Public consultation phase
[84] As noted, public consultation on the 2017/2018 budget and the Proposal (including the APTR) took place between 27 February 2017 and 27 March 2017.
[85] According to Mr Walker, the principal mechanisms for facilitating consultation were:
(a)a household summary of the proposals delivered to 540,000 Auckland letterboxes in the March edition of “OurAuckland”;
(b)advertisements appearing in local and regional newspapers, online banner advertisements, media releases and targeted stakeholder communications;
(c)the Council’s website: “ShapeAuckland”;
(d)the hosting of 70 public events, including 25 “Have your Say” meetings;
(e)offers by the Council to speak on particular issues on request; and
(f)engagement on social media.
Results and analysis of feedback
[86] As feedback was received it was analysed. Mr Walker said that as a consequence, Council officers reviewed and re-considered aspects of the consultation documents. In some cases, officers followed up on submitters, seeking further information. Council members engaged with staff seeking further information about the impact of an APTR on providers in their ward. He described the process as “iterative … between Council officers, the Mayor, his staff and elected members”.
This was mostly through FPC workshops. FPC workshops were held in March, April and May 2017. Additionally, Local Boards communicated their views including at an FPC workshop on 9 May 2017.
Feedback analysis and the “Staff Report”
[87] The analysis of the submissions and feedback was contained in a detailed paper, known as the Staff Report.
[88] According to Mr Walker, the community engagement on the proposed APTR was “very high”. 5,626 responses were received. Of these, 68 per cent supported the Proposal. A significant minority (21 per cent), apparently mostly from the commercial accommodation provider sector, did not. 11 per cent said they were not sure.
[89]The key reasons given by supporters of the APTR were:
(a)many international cities have a “similar tax”;
(b)accommodation providers benefit from tourism and often increase room rates for major events; it is only fair they pay costs;
(c)residential ratepayers receive no benefit from tourism and events so should not be paying towards the promotion of these;
(d)general rates revenue should be spent on improving Auckland for the people who live here, rather than on encouraging visitors;
(e)user-pays is the fairest option;
(f)targeted rates should also include other accommodation providers such as Airbnb and Bookabach;
(g)the mode of recovery should not be a bed tax and should not apply to Auckland residents; and
(h)cruise ships and international students should also help fund the costs.
[90]Those opposed to an APTR submitted:
(a)it is inequitable to rate only accommodation providers when less than 10 per cent of the visitor spend is on accommodation and four other sectors receive a larger share;
(b)only 26 per cent of visitors stay in commercial accommodation;
(c)businesses already pay high rates;
(d)the proposed APTR is unaffordable;
(e)ATEED’s spend is also on events that benefit Auckland residents;
(f)accommodation providers on the outskirts of Auckland have few overseas visitors;
(g)informal accommodation providers such as Airbnb should be included;
(h)the APTR will encourage many short-term accommodation providers to become long-term accommodation providers to avoid the extra rates charge which would increase accommodation costs, thus discouraging overseas visitors;
(i)many serviced apartments are owned by individual investors and leased to a hotel group for a fixed return; current contracts mean the owner would pay the targeted rate, not the hotel;
(j)an APTR will de-value existing businesses and investments; and
(k)an APTR will discourage much-needed new hotel developments.
[91] Unsurprisingly, in contrast to Mr Walker’s comments on the level of community engagement, the applicants hold a very different view of the consultative process. Their evidence is highly critical of how the Council approached and managed this task. For example Cr Newman, a member of the Governing Body, made an affidavit in support of the applicants. His view was that the consultation process was wholly inadequate, particularly because it did not provide appropriate opportunities for the accommodation sector to present their views to the Governing Body as a whole. He said the closest the Council came to a hearing with the accommodation sector was on 20 March 2017 at the “Have your Say” meeting. However, that was not attended by all Council members, was open only to certain invited accommodation providers and took place before the written submissions were made. As a consequence, the ability of Councillors to meaningfully engage on the issues which particularly concerned commercial accommodation providers was limited. Cr Newman was also critical that the Mayor and many of the Councillors were unwilling to undertake the investigations necessary to understand the APTR or what it meant for the industry. He said that the Mayor was politically committed to the APTR and was not interested in discussing alternatives.
[92] The essence of the applicants’ complaint is that the Council ought not to have proceeded with the APTR with such haste. Given its importance to accommodation providers the Council should have allowed more time for a more detailed analysis to be completed.
Council consideration of Staff Report
[93] On 17 May 2017, the FPC held a full-day workshop in anticipation of the Governing Body’s decision on the APTR. Mr Walker provided an overview of the budget process. This was followed by an overview of the consultation feedback and a discussion about the key issues and options for responding to the feedback. This included reviewing the amount proposed to be funded by the targeted rate, options for differentiating categories of accommodation provider and geographic location, the possible use of a remissions policy for those who would incur the rate but could not pass on the cost and developing a solution to consider the informal accommodation
sector the following year. The option of a voluntary contributions scheme was also discussed.
FPC meeting on 1 June 2017
[94] On 1 June 2017, the FPC met to discuss the annual budget in light of the feedback received and to make decisions on the Proposal. At this meeting, the Mayor presented a report setting out his revised proposal for the budget following public consultation. It attached the Staff Report, the recommendations of which were accepted by and incorporated into the Mayor’s report.
[95]In relation to the APTR, the Staff Report stated:
“(e) That a targeted rate on commercial accommodation providers be established to fund a proportion of the visitor attraction and major events expenditure of ATEED as follows:
(i)the amount of the targeted rate is set at a level materially less than the $27.8 million proposed by Council in the consultation material with the balance continuing to be funded by general rates.
(ii) consideration be given to a differential to recognise different categories of commercial accommodation provider:
Hotels and serviced apartments.
Motels, lodges and motel-like accommodation in camp grounds.
Other accommodation providers such as backpackers, camp grounds and hostels.
(iii) consideration be given to a geographic differential to recognise feedback that there are variations in the distribution of benefits between properties in the CBD and airport precincts and other areas, with a differential recognising two categories:
CBD and airport. Others.
(iv) for the 2017/2018 year, the Council consider applications for remission under existing rates remission scheme (remission of rates for miscellaneous purposes), for example where the owner/ratepayer is separate from the accommodation operator and the nature of the relationship between the parties means the owner/ratepayer does not have the option of passing on the increased costs to the accommodation operator.
(v) staff report back on the development of a more targeted scheme, along with the LTP 2018-2028.
(vi) staff report back on a proposal for 2018/2019 for inclusion of informal accommodation providers currently being rated as residential properties.
(vii) staff report back on a proposal for the introduction of alternative governance arrangements of ATEED, including a greater role for commercial accommodation providers appropriate to their level of funding of ATEED’s activities.
(viii) the Council’s RFP be amended to provide four targeted rates to be used to fund visitor and external relations, destination and marketing and major events in the economic growth and visitor economic activity.”
[96] The foundation for these recommendations was set out in considerable detail across the nine following pages. It then summarised the feedback before turning directly to the requirements of s 101(3) of the LGA. After setting out the statutory criteria, the Staff Report turned to consider each. These are set out in Appendix 1 to this judgment.
Mayor’s report to the FPC and revised Proposal
[97] The Mayor’s report covered the key issues identified in the consultation document.
[98] In respect of the APTR, the Mayor recorded that as a result of the feedback, he had decided to revise his Proposal in five ways (“the Revised Mayoral Proposal”):
(a)the APTR would fund only a part of the cost of ATEED’s operation. A significant proportion of ATEED’s visitor attraction and major events expenditure would continue to be funded from general rates. Instead, the $26.9 million would be split evenly between the APTR and general rates. As a consequence, the APTR would recover $13.45 million. This 50/50 apportionment, the Mayor said, represented a political judgement applying a “stand-back” evaluation of the factors set out in the Staff Report;
(b)the APTR would distinguish accommodation provider types and locations. This recognised the differences in the distribution of benefits and affordability within the commercial accommodation sector. It also recognised the geographical differences. Thus it was proposed that three geographical zones would be created, each with three provider types or tiers. The rate would differ depending on which category applied to the property. The zones generally reflected distance from the CBD with the exception of accommodation at or near the International Airport at Māngere:
(i)Zone A – Mt Eden, Devonport/Takapuna, Māngere/Ōtāhuhu, Maungakiekie/Tāmaki, Ōrākei and Waitematā;
(ii)Zone B – Henderson/Massey, Hibiscus and Bays, Howick, Kaipātiki, Manurewa, Ōtara/Papatoetoe, Puketāpapa, Upper Harbour, Waiheke, Whau; and
(iii)Zone C – Franklin, Great Barrier, Papakura, Rodney, Waitākere Ranges;
(c)the proposed provider types were:
(i)Tier 1 – hotels and serviced apartments;
(ii)Tier 2 – motels and lodges (including motel-like accommodation at camp grounds); and
(iii)Tier 3 – other (backpackers, camp grounds, hostels);
(d)a rates remission scheme would be applied to consider applications for the remission of rates where the ratepayer could not pass on the rate to the operator. Staff would develop and report back on proposals for a bespoke rate remissions scheme the following year; and
(e)Council staff should consider and report back on whether the informal accommodation sector should be included in the APTR from 2018/19. This was in direct response to submissions from the commercial sector.
[99] The Mayor’s report also recommended that Council staff report back on alternative governance arrangements for ATEED, including greater participation by commercial accommodation providers.
[100] All the recommendations were carried by the FPC. The resolution was then passed by the Governing Body on 1 June 2017.
Rates remission for the APTR
[101] Before moving to consider how matters developed throughout the following year, and in particular the 2018/2019 APTR, it is convenient at this point to discuss more fully the issue of rates remissions.
[102] A local authority may adopt a rates remission policy (“RRP”).23 Before doing so, it must consult with the community.24 Further, the RRP adopted must state:25
(a)the objective sought to be achieved by the remission of rates; and
(b)the conditions and criteria to be met in order for rates to be remitted.
[103] If an RRP is adopted, a local authority may remit all or part of the rates on a rating unit if it is satisfied that the conditions and criteria in the RRP are met.26 It must also give notice to the ratepayer identifying the remitted rates.27
[104] As previously noted, the Council passed the FPC’s recommendation that staff report back on the development of a more targeted remissions scheme as part of the LTP for 2018-2028.
23 Local Government Act 2002, s 102(3)(a).
24 Section 102(4)(a).
25 Section 109(1).
26 Local Government (Rating) Act 2002, s 85(1).
27 Section 85(2)
[105] This directly reflected concerns which emerged from the consultation process. As previously discussed, two particular examples were identified:
(a)where the ratepayer was not the accommodation provider, but owned the property; and
(b)where the ratepayer was the accommodation provider with forward contracts fixing room tariffs.
[106] However, in the meantime, the Council considered how any unfairness might be mitigated by the existing Miscellaneous Remissions Scheme.
[107] Following the setting of the APTR for the 2017/2018 year the Council advertised the availability of the APTR remission on its website. This explained how to apply for remission and the need to meet the conditions and criteria. It gave examples of the circumstances which might attract eligibility:
“For example:
Where you have a contract agreed before 1 June 2017 to use the rating unit as commercial accommodation, and you have no means of managing the cost of the rate. Some serviced apartment rating units may fall into this category:
Where you operate a commercial accommodation business, and can show that the substantial proportion of your capacity as at 1 June 2017 was contracted forward under business-to- business agreements.
Where you have contracted some or all of your commercial accommodation capacity to Work and Income New Zealand (WINZ) to use as emergency housing.”
[108] While each of these examples emerged from submissions received during the consultation phase the Council did not consult on the criteria nor adopt them as a new policy. This was because it did not need to. The Miscellaneous Remissions Scheme was already in place to deal with any unfairness or inequity suffered by ratepayers, general or targeted.
[109] The remission policy was conveyed by letter to all ratepayers identified as liable to pay the APTR. The letter, dated 11 July 2017, provided information not only on how much the APTR would be, but also how a remission of rates might be obtained.
The 2018/2019 APTR
[110] As previously noted, the Governing Body’s resolution to impose an APTR required Council staff to report back on three matters:
(a)a more targeted remissions scheme;
(b)the inclusion of informal accommodation providers; and
(c)a proposal for the introduction of alternative governance arrangements for ATEED, including greater participation of commercial accommodation providers.
[111]I turn now to discuss the first two of these matters.
A more targeted remissions scheme
[112] On 27 September 2018 the FPC resolved to consult on an APTR-specific remission scheme. It was proposed that this would be available for rating units used as serviced apartments where the ratepayer owned no more than two rating units and had a contract with an accommodation provider which, amongst other conditions, did not allow the ratepayer to pass on the cost of the rate. The proposed scheme was graduated in the sense that the quantum of remission would decline to zero in equal steps over a 10-year period.
[113] During the consultation phase the Council had said that the granting of remissions would assist those owning one or two serviced apartments who are unable to pass on the cost of the APTR. Its stated rationale for not extending the scheme to large investors, that is those owning more than two units, was that it would represent a significant risk to APTR funding.
[114] On 31 May 2018 the Governing Body resolved to adopt the FPC’s recommendation.
[115] Mr Walker described the remissions scheme as striking what he referred to as “an appropriate balance”, recognising that some owners liable to pay the APTR were unable to pass on the cost of the rate and might, as a consequence, suffer financial hardship. He said that ownership of a serviced apartment was a choice; investors should bear the risk. The reason for limiting the remissions scheme to those with no more than two apartments recognised that those who owned large numbers of apartments were generally considered to be more capable of negotiating their lease arrangements and managing potential risks.
The inclusion of informal accommodation providers
[116] As for the second issue, in 2018/2019 the Council determined to assess properties used for informal accommodation using online platforms, such as Airbnb and Bookabach. The formula for calculating liability was linked to the property’s level of occupancy for business purposes.
[117] This was an issue which had been identified during the 2017/2018 consultation phase. Submitters had pointed to the sharp increase in the popularity and number of informal or online accommodation providers. They pointed to the inequity and unfairness of an APTR which did not include such providers.
[118] The Council consulted on this issue as part of the LTP consultation process. It said:
“Growth of the online accommodation sector such as Airbnb and Bookabach has been significant, with Airbnb properties alone exceeding 10% market share in the last year. There is an equity issue in terms of a rating classification of these properties, many of which are operating as businesses but are paying lower, residential rates and are not paying the APTR. Our proposals (explained below) seek to address this inequity and some providers may have significant rate increases as a result.”
[119] The consultation document for the LTP proposed that the APTR would be applied to informal accommodation providers:
(a)within zones A and B (as created for the purpose of the APTR in 2017); and
(b)calculated by reference to occupancy rates classified as follows:
(i)residential (booked up to 28 days a year) – the APTR does not apply;
(ii)medium-occupancy online accommodation provider (booked for between 29 and 135 days a year) – 75 per cent residential and 25 per cent business (i.e. 25 per cent of the APTR applies); and
(iii)business (booked for more than 136 days a year) – 100 per cent of the APTR will apply.
[120] Having set out the background to how the APTR was set for 2017/2018 and 2018/2019 I now turn to consider the applicants’ claim.
The application
[121] The applicants seek to review the Council’s decision to impose the APTR for both periods on three grounds.
[122] First, they say that the decision to impose the APTR was unreasonable. That is because:
(a)the Council wrongly assumed that accommodation providers could pass-through the costs of the rate to their guests;
(b)the Council failed to inform itself of the contributions accommodation providers already make to promoting New Zealand as a tourist destination;
(c)the Council overstated the benefits ATEED’s expenditure would provide accommodation providers;
(d)the imposition of the APTR resulted in significant horizontal inequity between ratepayers; and
(e)the Council did not consider a less discriminatory regime.
[123] Individually or in combination, these considerations mean the decision to impose the APTR was unreasonable.
[124] The second ground of review focuses on s 101(3) of the LGA. The applicants say the Council failed to comply with its obligations under this provision. It paid them only lip service. Specifically the applicants say the Council:
(a)failed to adequately consider the distribution of benefits between the community as a whole, any identifiable part of the community, and individuals. The Council did not properly inform itself of the extent to which ATEED’s spending would benefit the accommodation sector; and
(b)failed to properly consider the costs and benefits, including consequences for transparency and accountability, of funding the activity distinctly from other activities. The Council proceeded on the incorrect pass-through assumption and did not take into account the extent to which accommodation funders already promote New Zealand as a tourist destination.
[125] In the third ground of review the applicants say the Council breached its statutory consulting obligations under s 82 of the LGA. They acknowledge that the Council undertook a consulting process. But they say that the Council did not seek
the views of affected ratepayers about two aspects of the APTR which only arose after
the initial consulting process:
(a)that it would be geographically differentiated; and
(b)that it would be covered by the Miscellaneous Remissions Scheme.
[126] A fourth ground of review, alleging a failure by the Council to follow its LTP in breach of s 23 of the LGRA and s 93 of the LGA, was abandoned at the hearing before me.
[127]In terms of remedy, the applicants seek:
(a)a declaration that the decision to impose the APTR was invalid;
(b)an order that the decision to impose the APTR be quashed or set aside, such that it has no effect; and
(c)an order that the Council make restitution of any amounts paid pursuant to a demand for payment of the APTR.
Approach to review
[128] The first step in reviewing the exercise of local authority powers is to examine the scheme of the legislation and determine the nature and scope of the powers and the statutory processes governing their exercise.28
[129] Following that, I shall review the relevant facts, including the processes followed by the Council and the decisions in question, to determine whether it discharged its legal responsibilities. In this case, that exercise involves asking whether the Council acted reasonably in imposing the APTR. There is some disagreement between the parties as to what actually constitutes an “unreasonable” decision in this
28 Wellington City Council v Woolworths New Zealand Ltd [1996] 2 NZLR 537 (CA) at 540; see also
Waitakere City Council v Lovelock [1997] 2 NZLR 385 (CA) at 390.
context. I am required to determine that issue. But first, it is helpful to set out in some detail the relevant legislation to the extent that it has not already been discussed.
The Local Government Act 2002
[130] The purpose of local government is to enable democratic local decision- making by communities and to meet their needs for good-quality infrastructure, public services and performance of regulatory functions in a way that is most cost-effective for households and businesses.29 One of the roles of a local authority is to give effect to this purpose.30
[131] In performing this function, a local authority has full capacity to undertake any activity, business, act or transaction and has full rights, powers and privileges to do so.31 It must also act in accordance with various principles.32 Amongst others, a local authority is obliged to:
(a)conduct its business in an open, transparent and democratically accountable manner;
(b)give effect to its identified priorities and desired outcomes in an efficient and cost-effective manner;
(c)make itself aware of and have regard to the views of all its communities; and
(d)when making a decision, take account of the likely impact on the diversity and interests of its communities, both current and future.
Decision-making
[132] Section 77 of the LGA provides that a local authority must, in the course of its decision-making process:33
29 Section 10(1).
30 Section 11(a).
31 Section 12(2).
32 Section 14.
33 Section 77(1)(a) and (b).
(a)seek to identify all reasonably practicable options for the achievement of the objective of a decision; and
(b)assess the options in terms of their advantages and disadvantages.
[133] Under s 78, it must also give consideration to the views and preferences of persons likely to be affected by or have an interest in the matter.34 But that does not, in and of itself, generate an obligation to consult or adopt any particular consultation procedure.35 Rather, it is the responsibility of a local authority to make, in its discretion, judgements about how to achieve compliance with ss 77 and 78 in a way which is “largely in proportion to the significance of the matters affected by the decision” as determined in accordance with its significance and engagement policy.36 In particular, it is the Council’s responsibility to make judgements about:37
(a)the extent to which different options are to be identified and assessed;
(b)the degree to which benefits and costs are to be quantified;
(c)the extent of the detail of the information to be considered; and
(d)the extent and nature of any written record to be kept of the manner in which it has complied with ss 77 and 78.
[134] However, in making its judgements, a local authority must have regard to “the significance of all relevant matters” and to:38
(a)the principles relating to local authorities contained in s 14;
(b)the extent of its resources; and
34 Section 78(1).
35 Section 78(3); see also Wellington City Council v Minotaur Custodians Ltd [2017] NZCA 302, [2017] 3 NZLR 464 at [36].
36 Section 79(1)(a).
37 Section 79(1)(b).
38 Section 79(2).
(c)the extent to which the nature of a decision, or the circumstances in which a decision is taken, allow the local authority scope and opportunity to consider a range of options or the views and preferences of other persons.
The Local Government (Rating) Act 2002
[135] The purposes of the LGRA are to promote the purpose of local government set out in the LGA by:39
(a)providing local authorities with flexible powers to set, assess and collect rates to fund local government;
(b)ensuring that rates are set in accordance with decisions made in a transparent and consultative manner; and
(c)providing for processes and information to enable ratepayers to identify and understand their liability for rates.
[136] Rates must be set by a resolution of the local authority.40 They must relate to a financial year (or part thereof) and be set in accordance with the relevant provisions of the LTP and FIS for the applicable year.41 The relevant FIS is therefore the one contained in the AP, not the LTP.
[137] The APTR is a targeted rate. The power of a local authority to set a targeted rate is set out in s 16 of the LGRA:
“16 Targeted rates
(1) A local authority may set a targeted rate for 1 or more activities or groups of activities if those activities or groups of activities are identified in its funding impact statement as the activities or groups of activities for which the targeted rate is to be set.
…
39 Section 3.
40 Section 23(1).
41 Section 23(2).
(3)A targeted rate may be set in relation to—
(a)all rateable land within the local authority’s district; or
(b)1 or more categories of rateable land under section 17.
(4)A targeted rate may be set—
(a) on a uniform basis for all rateable land in respect of which the rate is set; or
(b) differentially for different categories of rateable land under section 17.”
[138] Section 17 of the LGRA states that a category of rateable land is one which is identified in the local authority’s FIS and defined in terms of one or more of the matters listed in sch 2 of the LGRA. Those matters include the use to which the land is put and where the land is situated.
[139] When assessing a rate, the relevant rating unit, values or factors are those which have been corrected as at the end of the financial year immediately before the financial year for which the rates are set.42 The rates are not affected by a change in the rateable value or factors of a rating unit during the financial year in which the rates are set.43 Once a rate has been assessed, a local authority must then deliver a rates assessment to a ratepayer to give notice of their liability for rates on a rating unit.44
First ground of review: the standard of unreasonableness
General legal principles
[140] The starting point under this heading is the Court of Appeal’s judgment in Wellington City Council v Woolworths New Zealand Ltd (No 2).45 This is a seminal decision in New Zealand administrative law. The facts require only brief rehearsal. A coalition of commercial ratepayers sought to challenge rates fixed by the Wellington City Council (“the WCC”). The previous year the differential of the rates as between commercial to residential was 68:32. The WCC then adjusted this to 67:33. The
42 Section 43(2).
43 Section 43(3).
44 Section 44(1).
45 Wellington City Council v Woolworths New Zealand Limited (No 2) [1996] 2 NZLR 537.
essence of the ratepayers’ challenge was that the WCC had breached its statutory duties in not making a larger alteration to the differential and in striking the rates. At first instance Ellis J agreed. The Court of Appeal did not. Importantly for present purposes, it framed the enquiry this way:46
“…[J]udicial review of the exercise of local authority power, in essence, is a question of statutory interpretation. The local authority must act within the powers conferred on it by Parliament and its rate fixing decisions are amenable to review on the familiar Wednesbury grounds. Rating authorities must observe the purposes and criteria specified in the legislation. So they must call their attention to matters they are bound by the statute to consider and they must exclude considerations which on the same test are extraneous. They act outside the scope of the power if their decision is made for a purpose not contemplated by the legislation. And discretion is not absolute or unfettered. It is to be exercised to promote the policy and objectives of the statute. Even though the decision maker has seemingly considered all relevant factors and closed its mind to the irrelevant, if the outcome of the exercise of discretion is irrational or such that no reasonable body of persons could have arrived at the decision, the only proper inference is that the power itself has been misused.”
[141] Echoing the now familiar words of Lorde Greene MR in Wednesbury, the Court went on to say that proving a case of that kind required “something overwhelming”.47 It then listed various articulations of that standard. These included:
(a)“A decision which is so outrageous in its defiance of logic or of accepted moral standards that no sensible person who had applied his mind to the question could have arrived at it”;48
(b)a conclusion “so absurd that [the decision-maker] must have taken leave of his senses” and engaged in “a pattern of perversity”;49 and
(c)a decision which is “outside the limits of reason”.50
46 At 545.
47 At 545; Associated Provincial Picture Houses Ltd v Wednesbury Corporation [1948] 1 KB 223 (EWCA) at 230.
48 Council of Civil Service Unions v Minister for the Civil Service [1985] AC 374 (HL) at 410 per Lord Diplock.
49 Nottinghamshire County Council v Secretary of State for Environment [1986] AC 240 (HL) at 240 and 247-248 per Lord Scarman.
50 Webster v Auckland Harbour Board [1987] 2 NZLR 129 (CA) at 131 per Cooke P.
[142] Whatever the formulation, the Court of Appeal labelled the test “a stringent one”.51
The applicants’ position
[143] For the applicants, Mr Galbraith QC invites the Court to adopt a less rigorous standard of review than the traditional notion of Wednesbury unreasonableness. He recognises that, in the years prior to the Court of Appeal’s decision in Woolworths, a number of successful challenges to rating decisions were mounted off the back of Wednesbury.52 But he says the landscape of administrative law has changed. The standard of review to be applied is more contextual and nuanced than the “narrow” Wednesbury approach; the level of scrutiny will depend on the decision.
[144]In support, he cites the comments of Wild J in Wolf v Minister of Immigration:53
“[47] I consider the time has come to state – or really to clarify - that the tests as laid down in GCHQ and Woolworths respectively are not, or should no longer be, the invariable or universal tests of "unreasonableness" applied in New Zealand public law. Whether a reviewing Court considers a decision reasonable and therefore lawful, or unreasonable and therefore unlawful and invalid, depends on the nature of the decision: upon who made it; by what process; what the decision involves (i.e. its subject matter and the level of policy content in it) and the importance of the decision to those affected by it, in terms of its potential impact upon, or consequences for, them. This is a rather long-winded way of saying, as Lord Steyn so succinctly did in Daly:
‘In administrative law context is everything.’” (Citations omitted)
[145] These comments were recently endorsed by the Court of Appeal in Quake Outcasts v Minister of Canterbury Earthquake Recovery.54 There the Court noted that “the standard of review for unreasonableness may vary with context”.55
94 At 544-545.
95 At 545.
the powers granted to the Council under the legislation. Something more is required than simply apparent unfairness.
[269] In this regard, I do not think the differential treatment of informal accommodation providers under the APTR can be impugned as unreasonable. I agree with Mr Farmer that the way in which informal accommodation was eventually captured within the APTR demonstrates the Council was responding to the consultation process as it should.
[270] The principled basis for differential treatment was set out in the Supporting Document during the consultation process. At that time the Council’s position was that such “mixed-use” properties should not be subject to the APTR. When a significant proportion of the submissions challenged this, the Council modified its view. It responded to the complaints. It amended the APTR for 2018/2019. From that point informal accommodation providers were rated as “business” depending on commercial use. I agree with Mr Farmer that this change in approach demonstrates the Council’s willingness to adapt in response to the consultation process.
[271] It is apparent that initially the Council did not have sufficient information to include informal accommodation providers. But the Council might rightly have been criticised for being hasty, premature and potentially imprudent had it included this group without further analysis. Nor do I think it can be said that, given the need to defer including informal accommodation, it was unreasonable to “plough on ahead” and impose the APTR for 2017/2018 solely on formal accommodation providers. It is clear that the decision to impose the APTR was an evolving process. The version of the rate imposed for 2017/2018 was never intended to be the finished product. There must be a certain practical fluidity and flexibility in local government decision- making. This is reflected in the power to amend rates. To require the Council to delay imposing the APTR on accommodation providers while it undertook more detailed research and analysis on the informal sector would risk eroding that principle.
[272] I also agree with Mr Farmer that the way the informal accommodation was eventually assessed under the rate (for 2018/2019) was a justified exercise of its judgement as to the appropriate incidence of liability. The decision to categorise
informal accommodation providers depending on how many nights a year their properties are occupied was both rational and principled. There are clear differences between these providers and others, such as hotels. One group has a residential use. The other does not.
[273] Much of the applicants’ submissions on this topic focussed on the claimed competitive advantage given to the informal accommodation sector through its supposedly more lenient treatment under the APTR. These complaints are not well founded. Any competitive edge exists regardless. The APTR merely reflects the status quo as between the sectors. Those who rent their property on Airbnb or Bookabach will be able to operate with more agility and lower costs than hotels and motels. Further, they are able to exploit periods of high demand. Logically, informal accommodation providers will attract a broad cohort of clients; local and international visitors.
[274] The APTR did not create these commercial advantages. They existed before the APTR was set. Imposing a graduated version of the APTR on informal accommodation was plainly necessary given the commercial reality of the sector. Rating informal accommodation providers on the same basis as commercial operators would have been unfair given the extent to which they also have a residential use. It is not helpful to speculate that those in the informal accommodation sector will manage their bookings to maximise their returns at the upper limits of the accommodation grades. And even if that was the case it would serve to limit the supply of informal accommodation, thereby increasing demand in other sectors including those in which the applicants operate.
[275] That the Council has experienced some difficulties in identifying those in the informal accommodation sector is also of little moment. The process of identification was always going to be a continuing and evolving process. In any event, difficulties of that sort do not mean the decision to impose the APTR on informal providers was unreasonable.
[276] In a similar vein, I do not accept the decision to exclude backpackers from the APTR may be impugned as unreasonable. There was a clear, logical commercial basis
for this decision. Backpackers generally attract “low budget” clients who tend to be more price sensitive. While the Council’s weighing of economic factors might be questioned, its decision cannot be impugned as unreasonable. The decision reflects a balancing of obvious competing commercial imperatives, well within the exercise of its discretion as a local body.
[277] It follows I have reached the view that none of the inequities claimed to result from the APTR renders the Council’s decision unreasonable. But it does not follow I agree with Mr Farmer that the issue of remissions should be excluded from my analysis. The availability of remissions under the remissions policy clearly formed part of the Council’s decision-making process. It was anticipated that ratepayers under the APTR would make claims for remissions. Initially the Council relied upon the availability of the Miscellaneous Scheme to address aspects of the APTR which led to unfairness; specifically property owners who were locked into leases or were not involved in the accommodation business operating within their premises. After that it intended to replace the Miscellaneous Scheme with a more tailored and focused remissions scheme for the APTR.
[278] It follows there is a certain artificiality to claim that the availability of the various remissions policies was not an operative factor when the Council chose to adopt the APTR. It is something which goes to the reasonableness of the decision. If the relevant remissions policies were patently not fit for purpose, and this was something known to the Council, that would suggest that the decision to impose the APTR was unreasonable given the potential for the rate to impose an unfair burden on property owners unconnected to the accommodation sector.
[279] But that is not the case here. I am not satisfied that the various APTR remissions policies adopted by the Council were generally deficient nor fit for purpose. It is difficult to place much weight on the applicants’ anecdotal evidence. They are isolated cases. What is unknown is the proportion of claims accepted. The fact that 35 per cent of ratepayers were granted APTR remissions in 2017/2018 suggests that the Council did not adopt an unduly conservative or restrictive approach when considering applications. But I am reluctant to examine the detail of particular cases. Not only would that exercise encourage a certain narrowness of approach, but
it would also focus on whether particular remissions should have been granted in individual cases. That would risk engaging in the detail of local government decision- making. As Mr Farmer pointed out, the remissions policies themselves are not subject to review. They are relevant only so far as their availability to mitigate any unfairness on adversely affected ratepayers bears on the reasonableness of the decision to impose the APTR.
[280] Furthermore, as I have already observed, I do not accept that the number of remissions granted by the Council demonstrates that APTR itself was unreasonable. How can it be said that the number of remissions reveals the unfairness of the APTR when those same remissions were implemented to cure the unfairness complained of? And as the rate continued to evolve, the policy was tailored appropriately. Additionally, it cannot be overlooked that with time the burden of the APTR will ease. Accommodation providers will adapt their business models, adjust their contractual relationships and learn to operate within the new APTR paradigm. Any perceived unfairness, in that sense, might properly be viewed as the sort of inevitable teething problems often experienced with regulatory initiatives which carry a cost burden.
(e)Fifth consideration – a less discriminatory regime
[281] Mr Galbraith says that the Council should have considered a less discriminatory rating regime before imposing the APTR. Specifically, he refers to a sector wide, voluntary funding option. According to Mr Armitage and Mr Roberts, ATEED was considering such a model before Mr Goff was elected. As earlier noted there was some consultation with the sector in September and October 2016. But once Mr Goff was elected, the applicants say any consultation ended. The prospect of a voluntary model was abandoned by the Council.
[282] Under a voluntary model, the applicants say they would have paid a “fraction” of what they now pay under the APTR. Had the Council been willing to engage in a genuinely consultative and collaborative process with accommodation providers, it would have been possible to reach a more workable and acceptable solution. The Council’s failure to explore this possibility is therefore said to be unreasonable.
[283] Mr Farmer disputes that the Council was obliged to consider an opt-in funding model for ATEED. The rating powers of local authorities have obvious advantages. Almost always, raising revenue through rates will be the preferable funding option. Mr Farmer repeats his submission that the decision to set a rate is quintessentially political. At the relevant time, voluntary funding from the tourism sector was never a realistic option to fund ATEED for 2017/2018 and beyond. The urgency in addressing ATEED’s financial situation was emphasised in the Mayoral Proposal. The Council was entitled to pursue a rating option and was not required to consider options which were clearly less likely to succeed in raising revenue to the levels considered necessary.
Discussion
[284] This point may be disposed of briefly. I agree with Mr Farmer. The LGRA provides local authorities with specific rating powers. These necessarily impose a degree of financial hardship on every ratepayer. Exercising these powers cannot be unreasonable simply because there may have been a less onerous funding option. Taken to its extreme the imposition of every rate might be attacked for unreasonableness on this ground. There will always be alternative options. While pursuing an opt-in funding model would have had less of an economic imposte on accommodation providers, it would also necessarily have led to a shortfall in funding ATEED. ATEED would have been forced to pull back its investment in attracting visitors or the general ratepayer would have picked up the shortfall. For the reasons I have outlined, the Council was entitled to pursue a targeted rate to avoid either of these results.
[285] Furthermore, the evidence is that the voluntary “opt-in” model was not widely supported across all elements of the sector. The APTR has the effect of capturing virtually all commercial accommodation providers. In that sense it is necessarily more equitable.
Concluding remarks on unreasonableness
[286]In summary, I have concluded that:
(a)The APTR was not premised on the assumption that accommodation providers could immediately pass on its economic burden to customers. There will likely be a degree of financial hardship for the sector; but in time this will fade as accommodation providers adjust their business models.
(b)The fact that accommodation providers already contribute to destination marketing was not taken into account by the Council, but it did not need to be.
(c)The Council did not engage in a precise analysis of the benefits caused by ATEED’s spending because this is all but impossible. It is sufficient that it proceeded on a logical assumption that ATEED’s investment provided a benefit to accommodation providers.
(d)It is inevitable that the APTR leads to a degree of horizontal inequity, but none of the inequities complained of is so gross as to render it unreasonable. The starkest unfairness was addressed by the remissions schemes.
(e)The Council did not need to devote resources to considering an opt-in funding scheme for ATEED.
[287] It follows I do not think the decision to impose the APTR was unreasonable. I turn now to the next, related ground of review.
Second ground of review: failure to comply with s 101(3) of the LGA
[288] The applicants say that the Council breached its obligations under s 101(3) of the LGA. This ground of review is closely linked to the first.
Legal principles
[289] Section 101 contains the Council’s overarching financial management obligation:
“101 Financial management
(1) A local authority must manage its revenues, expenses, assets, liabilities, investments, and general financial dealings prudently and in a manner that promotes the current and future interests of the community.
(2) A local authority must make adequate and effective provision in its long-term plan and in its annual plan (where applicable) to meet the expenditure needs of the local authority identified in that long-term plan and annual plan.
(3) The funding needs of the local authority must be met from those sources that the local authority determines to be appropriate, following consideration of,—
(a)in relation to each activity to be funded,—
(i) the community outcomes to which the activity primarily contributes; and
(ii) the distribution of benefits between the community as a whole, any identifiable part of the community, and individuals; and
(iii) the period in or over which those benefits are expected to occur; and
(iv) the extent to which the actions or inaction of particular individuals or a group contribute to the need to undertake the activity; and
(v) the costs and benefits, including consequences for transparency and accountability, of funding the activity distinctly from other activities; and
(b) the overall impact of any allocation of liability for revenue needs on the community.”
[290] Section 101(3) is concerned with ensuring there is a thorough process by which the local authority identifies and uses sources of funding to meet local authority needs.96 It is the “critical filter” by which funding sources in respect of each activity are to be considered and determined.97 The factors contained in s 101(3)(a) are to be
96 Paekakariki Informed Community Inc v Kapiti Coast District Council HC Wellington CIV-2003- 485-2760, 29 September 2004 at [51].
97 Neil Construction Ltd v North Shore City Council [2008] NZRMA 275 (HC) at [214].
considered on an activity-by-activity basis.98 All must be considered; they are clearly stated to be cumulative, not alternatives or options for consideration.99 Having done so, s 101(3)(b) requires a local authority to “stand back” after a proposed allocation of liability for revenue and consider its impact on a range of community factors.100
[291]Mr Galbraith submits:
(a)the Council failed to adequately consider the distribution of benefits between the community as a whole, any identifiable part of the community, and individuals;
(b)the Council did not properly inform itself of the extent to which ATEED’s spending would benefit the accommodation sector; and
(c)the Council failed to properly consider the costs and benefits, including consequences for transparency and accountability, of funding the activity distinctly from other activities. It proceeded on the incorrect pass-through assumption and did not take into account the extent to which accommodation funders already promote New Zealand as a tourist destination.
[292] Mr Galbraith says that as a result, the Council failed to consider the factors under s 101(3)(a)(ii) and (v), that is, the distribution of benefits within the community and the costs and benefits of funding the activity. In support of these propositions the applicants largely repeat the arguments advanced in respect of the first, second and third considerations under the first cause of action.
[293] I have already addressed those arguments in some detail.101 It is unnecessary to repeat my findings save to say that I have found that the Council’s decision-making was not flawed in any of the ways complained of. This conclusion necessarily makes the second ground of review more of an obstacle for the applicants. The treatment of
98 Paekakariki Informed Community Inc v Kapiti Coast District Council at [52].
99 Neil Construction Ltd v North Shore City Council, above n 97 at [212].
100 Paekakariki Informed Community Inc v Kapiti Coast District Council, above n 96 at [52].
101 See above at [194]-[202], [211]-[215] and [234]-[244].
s 101(3) occupied six pages in the Staff Report. These are reproduced in full in Appendix 1 to this judgment.
[294] Mr Galbraith submits that more than mere lip service is required in respect of each mandatory consideration.102
[295] It is plain to me that the Council’s engagement with each of the factors listed in s 101(3) was entirely sufficient. Furthermore, given the factual findings I have already made I do not accept that the Council either did not consider any of the relevant factors or should have done so more rigorously. This was not a “lip service” analysis. It was comprehensive, detailed and, where relevant and available, supported by statistical evidence. As can be seen, each of the factors listed in s 101(3) is assessed in a measured and even-handed way.
[296] It is also evident that, taking into account the rest of the Staff Report, the Council did in fact “stand back” and consider the impact of the APTR. Overall, and as I have already commented, I do not think the imposition of the rate can be impugned for want of analysis. The decision-making process was considered. Further, it was fluid and responded readily to valid criticisms, as can be seen in the detailed background I have set out above. The most glaring criticisms of the Council’s decision-making expressed by the applicants, such as the failure to consider pass- through sufficiently or engage in a detailed cost benefits analysis of ATEED’s spending, were simply not workable in the circumstances for reasons which I have already given. Put simply, I do not think, taking into account the practicalities and relative urgency of local body decision-making, the Council could have done more to comply with its statutory obligations under s 101(3).
[297]It follows that this ground of review fails.
Third ground of review: breach of s 82 of the LGA; failure to consult
[298] The applicants say that the Council failed to comply with s 82 of the LGA by not specifically consulting on two matters:
102 South Waikato District Council v Electricity Corporation of New Zealand HC Wellington CP16- 93, 18 August 1994 at [35].
(a)its decision to geographically differentiate the APTR; and
(b)its decision to make the APTR subject to the Miscellaneous Remissions Scheme.
[299] Again, I have already discussed these issues under the first ground of review. As a consequence the treatment of this ground will necessarily be brief.
Legal principles
[300] The LGA does not impose a general duty to consult. But if a local authority does choose to consult (or is required to do so by the LGA in relation to a specific matter), the relevant principles are to be found in s 82:
“82 Principles of consultation
(1) Consultation that a local authority undertakes in relation to any decision or other matter must be undertaken, subject to subsections (3) to (5), in accordance with the following principles:
(a) that persons who will or may be affected by, or have an interest in, the decision or matter should be provided by the local authority with reasonable access to relevant information in a manner and format that is appropriate to the preferences and needs of those persons:
(b) that persons who will or may be affected by, or have an interest in, the decision or matter should be encouraged by the local authority to present their views to the local authority:
(c) that persons who are invited or encouraged to present their views to the local authority should be given clear information by the local authority concerning the purpose of the consultation and the scope of the decisions to be taken following the consideration of views presented:
(d) that persons who wish to have their views on the decision or matter considered by the local authority should be provided by the local authority with a reasonable opportunity to present those views to the local authority in a manner and format that is appropriate to the preferences and needs of those persons:
(e) that the views presented to the local authority should be received by the local authority with an open mind and should be given by the local authority, in making a decision, due consideration:
(f) that persons who present views to the local authority should have access to a clear record or description of relevant decisions made by the local authority and explanatory material relating to the decisions, which may include, for example, reports relating to the matter that were considered before the decisions were made.
…
(3) The principles set out in subsection (1) are, subject to subsections (4) and (5), to be observed by a local authority in such manner as the local authority considers, in its discretion, to be appropriate in any particular instance.
(4) A local authority must, in exercising its discretion under subsection (3), have regard to—
(a)the requirements of section 78; and
(b) the extent to which the current views and preferences of persons who will or may be affected by, or have an interest in, the decision or matter are known to the local authority; and
(c) the nature and significance of the decision or matter, including its likely impact from the perspective of the persons who will or may be affected by, or have an interest in, the decision or matter; and
(d) the provisions of Part 1 of the Local Government Official Information and Meetings Act 1987 (which Part, among other things, sets out the circumstances in which there is good reason for withholding local authority information); and
(e) the costs and benefits of any consultation process or procedure.”
[301]The operation of s 82 was helpfully summarised by the Court of Appeal in
Wellington City Council v Minotaur Custodians Ltd:103
“[38] The effect of this provision is that, when a council does choose to consult, certain “principles” apply to the particular forms of consultation the council adopts: most relevantly, those affected should have access to relevant information in an appropriate format and be encouraged to present their views having been given clear information as to both the purpose of the consultation and the scope of any likely decision. Further, a council must ensure that interested or affected parties have a reasonable opportunity to present their views, and that those views are received by council with an open mind.
[39] In substance, these principles are really basic performance standards. Subsection (3) is the counterweight. This restates… that the “how” of compliance with these guidelines is a matter for the local authority. That
103 Wellington City Council v Minotaur Custodians Ltd, above n 35.
proposition is subject to the following further considerations which the local authority must (relevantly) bear in mind:
(a) the terms of s 78 including, presumably, the fact that it is subject to the reservation to the local authority of the decision of how to implement;
(b) whether the views of those affected are already known to the local authority;
(c)the significance of the issue in question for those affected; and
(d) the costs and benefits of consultation.” (Citations omitted)
[302]The Court went on:
“[42] In summary, pt 6 of the LGA carefully and repeatedly rejects the idea that there is to be found in its provisions any duty to consult with affected or interested parties. Instead, local authorities are given a deliberately broad discretion as to whether to consult, and, if so, how. That does not mean, however, that there are no limits on a council’s discretion. Like all statutory decisions, consultation decisions must be rational and consistent with the objects of the LGA and the particular controlling provisions…”
[303] Mr Galbraith submits that the applicants should have been consulted on the differential application of the APTR based on location. In the Supporting Document, differentiating the APTR on this basis was described as “not justified”. But that position changed following consultation. According to the applicants, geographic differentiation was raised for the first time at the FPC workshop on 17 May 2017. Thereafter, the Revised Mayoral Proposal recommended categorising the accommodation providers paying the APTR into three zones based on their location.104 This was later incorporated into the APTR.
[304] Mr Galbraith says this was a “very significant change in approach”. It introduced significant horizontal inequity into the APTR, creating “arbitrary” distinctions between different areas of the city and imposing a greater burden on hotels in the CBD. Ratepayers were not provided with clear information on the decisions around this issue and were thus denied an opportunity to present their views. Had they been, they could have explained the potential problems. Mr Galbraith says the Council should have consulted on the proposal to differentiate geographically at the outset or,
104 See above at [98](b).
given its change of view in May 2017, as a supplementary consultative process. He says it was not permissible for the Council to consult on one concept but not on the later, materially different, variant.
[305] A similar point is made in relation to the use of the Miscellaneous Remissions Scheme. This was first raised after the consultation process. That was because, after consultation, the Council learned from submitters that the APTR could operate unfairly against some ratepayers. The issue was first raised at the FPC workshop on 17 May 2017. It was then included in the Revised Mayoral Proposal. Guidance on how the policy would operate in practice was not published until June 2017 after the APTR was in place.
[306] Mr Galbraith repeats his submission that this constituted an “unusual” and uneven use of the remissions scheme. Having undertaken consultation on the APTR, the Council ought to have consulted on the possibility the rate it might apply differentially.
[307]Mr Farmer replies as follows:
(a)options for differential application of the rate (both in terms of accommodation provider and location) were included as part of the formal consultation documents, discussed with industry representatives and briefed to the media;
(b)the Miscellaneous Remissions Scheme was already in existence. No new policy was introduced as part of the decision to impose the APTR;
(c)both aspects of the APTR challenged under this ground were refinements to the proposal made in response to feedback received by the Council during consultation; and
(d)it is implicit in any consultation process that what is adopted may differ from that originally proposed. This is an artefact of any effective consultation process. Proposals evolve in response to feedback.
Discussion
[308] I do not consider the Council breached its obligations under s 82 of the LGA. As Mr Farmer notes, the options of differentiating the APTR based on location were expressly referred to in the Supporting Information. Given the stage of the decision- making process and the degree of latitude afforded by s 82, the Council included an appropriate level of information on the matter.
[309] Further discussions on differentiation took place at the second and third sector steering meeting and revisions to the proposal were given to the media in May 2017. It follows I agree with Mr Farmer that geographical differentiation was “on the table” during the consultation process. The relevant information could have been reviewed and submitted on by anyone so inclined.
[310] Indeed, as a result of the feedback received, the Council decided to refine its proposal for the APTR and differentiate the rate on a geographical basis. Rather than revealing any shortcoming in the consultation process, I consider this response by the Council reveals the process worked as it should. Further, the adjustment made was not outside the bounds of what was consulted on. It did not require an additional round of consultation. As noted by the Court of Appeal in Minotaur, the “how” of compliance with s 82 is a matter for the local authority.105 In this situation, requiring the Council to have undertaken additional consultation processes on what could be regarded as tinkering with the existing proposal (which itself was prompted by the initial consultation) would be overly burdensome and would read into s 82 an obligation which simply is not required.
[311] The same applies to the application of the existing remissions policy. There was no need to consult prospective ratepayers on this. The remissions policy was already in place. Further, the decision to apply it to APTR ratepayers was designed to soften certain unfair aspects of the APTR. Again, this was an issue brought to the Council’s attention during the consultation process. Requiring further consultation would be circular.
105 At [39].
[312] I also agree with Mr Farmer that it would be non-sensical to require re- consultation on an existing remissions policy whenever a new rate is formulated which might qualify under that policy. In any case, the miscellaneous remissions policy was only ever intended as a temporary measure to soften any hardship. Notably, there is no challenge to the subsequent decision to implement the more tailored remissions scheme.
[313] It follows, I am satisfied the Council did not breach s 82. On the contrary, both matters complained of demonstrate the Council’s consultation process worked as intended. This ground of review must also fail.
Conclusion
[314]I have concluded that:
(a)the decision to impose the APTR was not unreasonable;
(b)the Council did not breach s 101(3) of the LGA; and
(c)the Council did not breach s 82 of the LGA.
[315]It follows the application for judicial review is declined.
[316] The Council being the successful party, it would normally be entitled to costs. If the parties are unable to agree as to costs, they should file memoranda not exceeding five pages within 25 working days of the date of this judgment.
Moore J
Solicitors:
Mr Galbraith QC, Auckland Bell Gully, Auckland
Mr Farmer QC, Auckland Simpson Grierson, Auckland
Appendix 1
•Auckland Convention Bureau 2015/2016 - estimated 107,195 visitor nights generated
•Major Events 2015/2016 - estimated 282,150 visitor nights generated.
77. Figures quoted by Tourism Industry Aotearoa show that more than 87 per oent of accommodation provider revenue is from visitors to Auckland (over 90 qer cent when campgrounds are excluded).
78. One at the issues raised in feadback is that national statisties show that only 10 per cent of visitor spending is on accommodation. This feedback referred to the following statistics (which were included in the consultation materials)'
]
head ar•d bavszags Other passenger transport
Retail
51.206
“ 81.229
$3,148
79. However, these statistics include visits for all reasons - business, holidays, education and visiting friends and relatives. Business and leisure travellers are the primary targets at ATEED's visitor attraction and major events expenditure. Historical data on overnight domestic visitors to Auckland for the year ending December 2012 shows the proportion of visitor spending on accommodation for these visitors is higher at around 22 per oen£
z.sx 1.es
- S g 3 SP 4 OF 6 1% 8 1% 7 BE
The feedback highlights that there are significant direct benefits to other businesses that operate tourism based activities. There are also indirect benefits to other businesses and the oommunity as whole from The increased economic activity.‘ Figures drawn km M MonthJy Regional Tou+am EstimaM prepared by MindoT Business Tnnoyation 4nd EmpJoymem @ 2016.
' tsusttcs Mw Zealand. Domestic Tmvcl 6urvey. 012. Note th+s data is riot strx-jJy comparable to tne prece<hrig tsble from Gw+Jsjjcs New Zealand es the deka sours md ceponscaon0 expenditure ¥re ditTeiem
The consultation material was prepared on the understanding that individual accommodation providers would have the option of passing on the increased cost from a targeted rate without any significant impact on demand. However. feedback through the submission process f›as raised conoem that the ability to pass on costs may differ for some categories of provider.
Motels generally oflèr services in a similar priœ band to budget hotels. and submîtters considered they benefited tess from visitor attraction and major evonts expendituæ. The average occupancy rate for motels is also lower than for hotels. As a result, the demand for motel servies will be less price inelastic than hotels.
Backpackers and campgrourids are targeted at the more budget conscious traveller. Demand for their services will be much more prioe-sensitive than hotel or motel accommodation.
A differential could be applied to these categories of providers to reduce the impact of the targeted rate.
Recognifion that the geographic location of some accommodation providers mean that they do not benefit to the same degree from the visitor attraction activities.
Feedback from providers in more suburban locations. particularly those further from the CBD. indicated that they felt that they did not reoeive significant benefit from activities that were often centred in the city. While capital values (on which the fate wou\d be applied) do to some extent reflect the distance fiom the city centre. consideration could be given to a differential based on geographic location.
d) Recogniôon of the inability of some acœmmodation providers to pass on the cost due to œntractual œmmitments.
Feedback highlighted that one of the key operating models for the provision of commercial accommodation is serviced apartments owned by investors who are liable for rates. They are made available for short term accommodation through a variety ot contractual arrangements. The nature of these arrangements varies widely, varying from profit sharing to fixed returns, and lease terms from three months to 30 years. Staff estimate that there may be between 600 and 800 properties. out o4 2800, with long term Teases. Only some of these will have long- term restrictive leases with no ability to leave the hotel pool or pass on the rate.
Staff recommend that for the 2017/2018 year, the council consider applications for remission under its existing rate emission scheme (Remission of rates for miscellaneous purposes), for example where the owoer/ratepayer is separate from the accommodation operator and the nature of the relationship between the parties means the owner/ratapayer does not have the option of passing on the increased oosts to the accommodation operator and ultimately the visitor. A more targeted remission scheme should be developed along with the LTP 2018• 2028.
e) Applying the targeted rate to informal providers
Another consistent theme from feedback was the perceived unfairness of informal providers of accommodation being excluded in the application of the rate. The proposal was clear that the targeted rate wou\d appty onty to those properties \dentif›ed as businesses for rating purposes. Staff agree that infusion of the informal sector not currently rated as business should be addressed kom 2018/2019 for otter properties (staff will report back on the process for this as part of the Long-term Plan 2018-2028).
Govemance
93.The proposal made provision for the introduction of a revised governance mechanism with greater involvement of commercial accommodation providers. Only a few submissions made refaranoe to this element of th proposal. They all supported mu<h greater invotvemant by providers in decision-making.
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