Lu v Auckland Council

[2021] NZHC 1232

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2020-404-000475

[2021] NZHC 1232

BETWEEN

QIUFEN LU

First Plaintiff

LIANSEN MAO
Second Plaintiff

AND

INDUSTRIAL AND COMMERCIAL BANK OF CHINA (NEW ZEALAND) LIMITED

First Defendant (STRUCK OUT)

AUCKLAND COUNCIL

Second Defendant

Hearing:	21 May 2021
Appearances:	No appearances for/by First and Second Plaintiffs D W Hebenton for Second Defendant
Judgment:	28 May 2021

JUDGMENT OF ASSOCIATE JUDGE P J ANDREW

This judgment was delivered by Associate Judge Andrew on 28 May 2021 at 3.00 pm

pursuant to r 11.5 of the High Court Rules Registrar / Deputy Registrar

Date ………………………..

LU v AUCKLAND COUNCIL [2021] NZHC 1232 [28 May 2021]

Introduction

[1]    The Auckland Council, the second defendant, applies to strike out the plaintiffs’ amended statement of claim dated 16 March 2021 (r 15.1 High Court Rules). It says that the pleading discloses no reasonably arguable cause of action and is not capable of being rectified.

[2]    The plaintiffs, Ms Lu and Mr Mao, were the owners of some eight properties in the Auckland region. They say they have been adversely affected by the Auckland Unitary Plan and the zoning changes that resulted from its adoption by the Auckland Council. The amended statement of claim also challenges the provision of services by the Auckland Council when exercising its statutory duties under the Resource Management Act 1991 (RMA).

[3]There are three causes of action advanced:

(a)Breach of fiduciary duty in that the Auckland Council failed to consider the plaintiffs’ commercial interests when it adopted the Unitary Plan, which changed the zoning of the properties;

(b)Commercial duress in that the plaintiffs allege that the Auckland Council provided poor service, which caused a delay in the subdivision process for the property at 13 Memorial Avenue, Mount Roskill;

(c)Breach of the Consumer Guarantees Act 1993 in that the plaintiffs allege they are not satisfied with the service the Auckland Council provided as the unitary authority in Auckland responsible for decision making under the RMA.

[4]    By way of relief, the plaintiffs claim $11,970,000 “being the commercial losses of the fair market value of the properties that supported by RV & CV less the force[d] sale values of the properties”.

Factual background

[5]    The eight properties referred to in the amended statement of claim were all at one time owned by the plaintiffs.   The properties on Norana Avenue  (owned by   Ms Lu), Weranui Road (owned by Ms Lu) and Memorial Avenue (owned by Mr Mao) were purchased between June 2012 and March 2013.

[6]    Public consultation on the draft Auckland Unitary Plan began in March 2013 and the Proposed Auckland Unitary Plan (PAUP) was publicly notified in September 2013. The public had the opportunity to make submissions on the PAUP between September 2013 and February 2014.

[7]    The properties at 41 Candia Road (owned by Mr Mao) and 41A Candia Road (owned by Ms Lu) were purchased between August and November 2015, and following public notification of the PAUP.

[8]    Ms Lu sold the four properties she owned on Norana Avenue between 2016 and 2018. The properties at 41 and 41A Candia Road and 32 Weranui Road were sold by mortgagee sale. Mr Mao still owns 13 Memorial Avenue.

Procedural history

[9]    On 18 March 2020, Ms Lu filed a statement of claim against the Industrial and Commercial Bank of China (New Zealand) Ltd and the Auckland Council. The Council was not served with the claim until 1 September 2020.

[10]   On 21 May 2020, Muir J struck out the claim against the Bank under High Court Rule 5.35B.

[11]   On 22 September 2020, the Council filed an interlocutory application to strike out the claim. Ms  Lu  was  served  with  the  Council’s  strike  out  application  on 25 September 2020. She failed to file a notice of opposition.

[12]   Between October 2020 and February 2021, the proceedings were adjourned to allow Ms Lu additional time to file a notice of opposition.

[13]   In an amended statement of claim filed on 16 March 2021, Mr Mao was added as a second plaintiff (without seeking leave to formally join him as a party in the proceeding). The amended pleading included two new causes of action.

[14]   On 9 April 2021, the Council filed and served an amended strike out application. However, the plaintiffs failed to file and serve a notice of opposition in accordance with timetable orders that I made on 31 March 2021.

[15]   On 6 May 2021, Brewer J ordered that unless the plaintiffs filed their notice of opposition and affidavits in support by 11 May 2021, they would be debarred from doing so and the hearing would proceed on a formal proof basis.

[16]On 10 May 2021, the plaintiffs filed and served a Notice of Opposition.

[17]   On 18 May 2021, the plaintiffs filed a memorandum seeking a direction that the application to strike out be determined on the papers. And in the event that the hearing were to proceed, the plaintiffs seek the opportunity to file a further memorandum responding to the submissions of the Auckland Council.

[18]   There was no appearance by or on behalf of the plaintiffs at the hearing on  21 May 2021. The Auckland Council understands that both plaintiffs are presently in China. The Court received no formal advice from either plaintiff that they would not be present at the hearing. No explanation has been provided.

The Notice of Opposition

[19]   No affidavits were filed in support of the Notice of Opposition. In their Notice of Opposition, the plaintiffs:

(a)Seek an order from the Court that the Council provides them with further information so that they can amend their pleadings; and

(b)Re-state the allegations in the amended statement of claim.

Relevant legal principles

[20]Rule 15.1 of the High Court Rules 2016 provides:

Dismissing or staying all or part of proceeding

(1)The court may strike out all or part of a pleading if it –

(a)discloses no reasonably arguable cause of action, defence, or case appropriate to the nature of the pleading; or

(b)is likely to cause prejudice or delay; or

(c)is frivolous or vexatious; or

(d)is otherwise an abuse of the process of the court.

(2)If the court strikes out a statement of claim or a counterclaim under subclause (1), it may by the same or a subsequent order dismiss the proceeding or the counterclaim.

(3)Instead of striking out all or part of a pleading under subclause (1), the court may stay all or part of the proceeding on such conditions as are considered just.

(4)This rule does not affect the court's inherent jurisdiction.

[21]   The general principles applicable to the exercise of the Court’s powers under r 15.1 are summarised in the Court of Appeal’s decision in Attorney-General v Prince,1 as endorsed by the Supreme Court in Couch v Attorney-General.2 These include:3

(a)Pleaded facts, whether or not admitted, are assumed to be true. This does not extend to pleaded allegations which are entirely speculative and without foundation;

(b)The cause of action or defence must be clearly untenable;

(c)The jurisdiction is to be exercised sparingly and only in clear cases;

(d)The jurisdiction is not excluded by the need to decide difficult questions of law, requiring extensive argument; and

1      Attorney-General v Prince [1998] 1 NZLR 262 (CA).

2      Couch v Attorney-General [2008] NZSC 45, [2008] 3 NZLR 725 at [33].

3      McGechan on Procedure (online ed) at [HR15.1.02-8].

(e)If a defect in the pleading can be cured by amendment, the claim should not be struck out.

Analysis and decision

First cause of action

[22]   In their amended statement of claim the plaintiffs allege that the Council owed them a fiduciary duty in respect of zoning changes resulting from the adoption of the Unitary Plan. They allege that this “downzoning” caused them substantial losses which included the Council acquiring land for special ecological areas without compensation. In substance, this is a challenge to the density requirements in the Unity Plan.

[23]   In Chirnside v Fay,4 the Court of Appeal held that there are two situations in which the courts will find that a relationship gives rise to fiduciary duties. The first is when the relationship is one of the recognised categories which are inherently fiduciary. However, the relationship between a landowner and a local authority, when it is exercising statutory powers in relation to decision making on district regional plans is not one of those recognised categories. There is no inherently fiduciary relationship here.

[24]   The second situation in which a relationship will be classed as fiduciary depends upon an examination of whether the particular aspects of the relationship justify it being classified in that way.5 There is no particular test for determining whether a relationship falls within the second category. However, the courts have used the following broad statements of principle when determining whether a fiduciary relationship exists:6

(a)A fiduciary undertakes or agrees (either expressly or impliedly) to act for or on behalf of, or in the interests of, another person in the exercise of a power or discretion which will affect the interests of that other person in a legal or practical sense.

4      Chirnside v Fay, [2006] NZSC 68, [2007] 1 NZLR 433.

5      Chirnside v Fay, above n 4, at [75].

6      Laws of New Zealand Equity (online ed) at [97].

(b)A fiduciary relationship exists whenever there is a relationship of confidence such that equity recognises duties or disabilities upon the person in whom the confidence is reposed in order to prevent the possible abuse of confidence.

[25]   The nature of the relationship between the plaintiffs and the Council in this case (where the Council was exercising its statutory powers in relation to the Unitary Plan), does not have any of these characteristics except in the very broad sense of undertaking the exercise of a power that might have affected the interests of the plaintiffs. However, there was no undertaking to act in or with the particular interests of the plaintiffs in mind. Rather, the Council was obliged to act in a democratically accountable manner, and to have regard to and to take into account the views of all its communities and the likely impact on the diversity and interests of those communities.7

[26]   In Wellington City Council v Woolworths NZ Ltd (No 2),8 the Court of Appeal referred to its earlier decision in Mackenzie District Council v Electricity Corporation of New Zealand,9 and the observation in that earlier case that a local authority has a fiduciary duty to ratepayers to have regard to their interests. However, in Woolworths,10 the Court held that the fiduciary duty concept does not open up a route by which the Court can investigate and, if thought appropriate, interfere with every exercise by local authorities of their discretionary powers because: “That would completely undermine Wednesbury principles”.

[27]The Court of Appeal further noted:

Associated, is the point made by Lord Scarman in Bromley London Borough Council v Greater London Council [1983] 1 AC768 at pp 837–838, referring to the invitation to construe the statute in the light of the principle that a local authority owes a fiduciary duty to its ratepayers, Lord Scarman observed that the acceptance of the invitation does not decide the case: “For, as the statute must be interpreted in the light of the general law, so also must the general law be adapted and applied in a way consistent with the statutes. Indeed, if there be a clash, the statute prevails as the legislative will of Parliament.”

7      Local Government Act 2002, s 14; see CP Group Ltd v Auckland Council [2020] NZHC 89, at [131].

8      Wellington City Council v Woolworths New Zealand Ltd (No 2), [1996] 2 NZLR 537 (CA).

9      Mackenzie District Council v Electricity Corp of New Zealand [1992] 3 NZLR 41 (CA).

10     Wellington City Council v Woolworths New Zealand Ltd (No 2), above n 8, at 546.

[28]   For the Council, Mr Hebenton relies upon the Court of Appeal decision Morrison v Upper Hutt City Council,11 for the proposition that there are strong policy reasons for not imposing essentially private law obligations on local authorities when making regulatory decisions of the kind at issue here. In Morrison, the Court of Appeal refused to impose a private law duty of care on the Upper Hutt City Council in relation to the Town & Country Planning Act 1977. One of the principal reasons given was because there was a statutory remedy to review the Council’s decisions and the proposed duty of care would open a potential floodgate to a raft of claims where claimants asserted that local authorities had not interpreted a plan correctly.12

[29]   The policy reasons for not imposing actionable fiduciary duties in this case are compelling. That is apparent from the statutory scheme which I now address. As Lord Scarman observed in the passage quoted above, the general law, including any fiduciary duty, must be adapted and applied in a way consistent with the statute.

[30]   The process for the development and adoption of the Unitary Plan is set out in Part 4 of the Local Government (Auckland Transitional Provisions) Act 2010. As part of that process, the Council publicly notified the PAUP in 2013. The 2010 Act provided various mechanisms for the public to participate in the process and challenge proposed zoning changes in the PAUP. The public had the opportunity to make submissions and to be heard by the Auckland Unitary Plan Independent Hearings Panel (IHP) and those that made a submission had rights of appeal.

[31]   Following the completion of the IHP hearings in May 2016 the IHP made recommendations on the PAUP to the Council. The Council then considered those recommendations and made its decisions which were then publicly notified in August 2016. Following the close of the appeals period, the Unitary Plan became operative in part on 15 November 2016.

[32]   The plaintiffs owned six of the properties before the PAUP was publicly notified. Therefore, if the plaintiffs disagreed with the provisions of the PAUP, the

11     Morrison v Upper Hutt City Council [1998] 2 NZLR 331 (CA).

12     Morrison v Upper Hutt City Council, above n 11, at [338].

appropriate way to challenge those provisions was to make submissions to the IHP which would then have given them rights of appeal.

[33]   The plaintiffs purchased the two properties on Candia Road after the PAUP had been publicly notified. The plaintiffs cannot now complain that they were unaware that the PAUP proposed to change the zoning of their properties.

[34]   The RMA 1991 also provides mechanisms to challenge zoning requirements in the Unitary Plan. The plaintiffs could also have:

(a)Applied for a resource consent to create more lots than the Unitary Plan permitted; or

(b)Applied for a private plan change under cl 21 of Schedule 1 of the RMA.

[35]   As Mr Hebenton submitted, the scheme of the legislation, including both the Local Government (Auckland Transitional Provisions) Act 2010 and the RMA, is that the wrongs alleged by the plaintiffs are to be addressed through the statutory processes and the specialist institutions (e.g. the IHP) that deal with them. The contention that there are actionable claims against the Council for failure to consider the individual commercial interests of the plaintiffs in their properties also ignores the broader statutory responsibilities of the Council under s 5 of the RMA and s 121 of the 2010 Act. There is no tenable claim for breach of fiduciary duty. Furthermore, there is no tenable claim that any fiduciary duties (if owed) were in any way breached by the Council.

[36]   It may be that in principle the statutory powers of decision at issue in this case could properly be the subject of a judicial review proceeding. However, that would be a fundamentally different proceeding from the present one where the merits of the Council’s decision are challenged and substantial damages are sought. In the present case, beyond the mere assertion of prejudice, no particulars or evidence at all have been provided as to how and whether the decisions of the Council were unlawful in any public law sense. This is not a case where I could properly allow an amendment

to include judicial review causes of action; a fresh proceeding properly pleaded with proper particulars as to illegality, supported by some probative evidence, would need to be brought. The plaintiffs have failed to demonstrate that the pleading could be amended so as to contain a reasonably arguable cause of action.

[37]   I reject the plaintiffs’ submission that their claims are akin to weathertight litigation against a local authority. There is well established jurisprudential basis for claims in negligence against local authorities in relation to their building consent and code compliance certificate functions. The comparison with this proceeding is not a valid one.

[38]   For all these reasons, I find that the fiduciary duty claim does not disclose a reasonably arguable cause of action. It cannot succeed and must be struck out.

Second cause of action – commercial duress

[39]   The plaintiffs allege that they suffered a loss because of the Council’s “poor service”, which resulted in a delay to the subdivision process of the property at 13 Memorial Avenue, Mount Roskill.13 This is described as “commercial duress” and said to have given rise to a $50,000 additional interest payment to Westpac.

[40]   I find, however, that the second cause of action does not give rise to a justiciable claim. There is no reasonably arguable cause of action and the claim is incapable of success.

[41]   Duress allows an agreement to be set aside where a party has entered into it “as a result of some factor which in law or in equity is regarded as having a vitiating effect”.14

[42]There are two elements in the wrong of duress:

(a)Pressure amounting to compulsion of the will of the victim; and

13     Amended statement of claim dated 16 March 2021 at [6] and [7].

14     Stephen Todd & Ors Laws of New Zealand, Contract (online ed LexisNexis), at [195].

(b)The illegitimacy of the pressure exerted. There must be pressure, the practical effect of which is compulsion or the absence of choice.15

[43]   I find that the amended statement of claim discloses no basis upon which a claim based on duress could succeed. There is no conceivable element of compulsion or illegitimacy in this case.

[44]   The Council acknowledges that it failed to comply with the statutory time frames in relation to the subdivision process for the property at 13 Memorial Avenue, Mount Roskill. However, in accordance with the Resource Management (Discounted Administrative Charges) Regulations 2010, a discount was given to Mr Mao, the landowner. The 2010 Regulations are of course a statutory remedy expressly intended to apply when local authorities do not meet the requisite time frames for processing and making decisions on resource consent applications under the RMA.

[45]   The failure by the Council to meet the statutory time frames provides no basis for the claim of duress made by the plaintiffs. The wrong complained of by the plaintiffs cannot give rise to a tenable claim of duress.

Third cause of action – breach of the Consumer Guarantees Act 1993

[46]   I find that this cause of action is also fundamentally flawed. The Consumer Guarantees Act 1993 does not apply to the Auckland Council when it is exercising its statutory duties as the unitary authority under the RMA.

[47]   It may be that the Consumer Guarantees Act does apply to local authorities when they are providing commercial services to consumers. However, there is no basis for concluding that local authorities are employing services “in trade” when they are acting in a regulatory capacity.

15 Universe Tankships Inc of Monrovia v International Transport Workers Federation [1983] 1 AC366, per Lord Scarman, at 400; see also McIntyre v Nemesis DBK Ltd [2009] NZCA 329, [2010] 1 NZLR 463 at [20].

[48]   The plaintiffs’ complaint appears to be based on a general level of dissatisfaction with the Council’s service. There is no tenable basis for a claim under the Consumer Guarantees Act 1993 even if, in principle, it was to apply.

[49]   In Lu v Industrial and Commercial Bank of China (New Zealand) Ltd,16 the plaintiffs brought a very similar claim against the Industrial and Commercial Bank of China. In striking out the plaintiffs’ claim, Fitzgerald J held that:17

General ‘service’ complaints of the type raised by Ms Lu do not give rise to a justiciable cause of action.

Further grounds of opposition

[50]   I reject the plaintiffs’ claim, in their Notice of Opposition, that the Court should order that the Auckland Council provide them with further information so that they can amend their pleadings. The plaintiffs’ claims, seeking damages of nearly $12m, are fundamentally flawed for the reasons I have already given, and the provision of further information would make no difference. In any event, the proper approach would be to firstly make an official information request under the Local Government (Official Information and Meetings) Act 1987 and then file a claim focusing upon particular legal wrongs.

[51]   I further note that the Auckland Council has, in response to requests from the plaintiffs, already provided them with information they have sought.18 The information provided has included references to rating valuations and IHP reports. The Council has also specifically advised the plaintiffs that the IHP does not hold specific reports in relation to the eight properties at issue in this proceeding.

[52]   I further reject the application by the plaintiffs for an opportunity now to respond to the Auckland Council’s submissions. It is clear from my findings in this judgment that the causes of action are fundamentally untenable and incapable of being rectified. There is no utility in providing the plaintiffs with a further opportunity to respond. These proceedings have been in train for some considerable time, and in my

16     Lu v Industrial and Commercial Bank of China (New Zealand) Ltd [2020] NZHC 402.

17     Lu v Industrial and Commercial Bank of China (New Zealand) Ltd, above n 16, at [85].

18     This includes the emails from Mr Hebenton to Ms Lu dated 9 November 2020, and to Mr Mao dated 30 April 2021.

view, it is now time to bring them to a conclusion without incurring further and unnecessary costs.

Conclusion and result

[53]   I find that none of the causes of actions in the amended statement of claim discloses reasonably arguable causes of action.

[54]   I accordingly grant the Auckland Council’s application to strike out the proceedings pursuant to r 15.1. The proceedings are therefore now at an end.

[55]   As to costs, I order that costs are to be paid by the plaintiffs to the Auckland Council. Mr Hebenton is an in-house counsel. I direct that the Council is to file and serve written submissions addressing the issue of quantum of costs within 14 days. If the plaintiffs wish to oppose costs, they should file and serve any written submissions in response within 14 days of receipt of the Council submissions on costs.

Associate Judge P J Andrew