New Zealand: Supreme Court Upholds Council’s Appeal On Roading And Subdivisions

The recent decision of the Supreme Court in Waitakere City Council v Estate Homes Limited [2006] NZSC 112 has clarified the law relating to subdivision consent conditions that require the provision of public infrastructure. The decision overturns an earlier judgment of the Court of Appeal ([2006] 2 NZLR 619) and contains some important comments on the scope of Environment Court appeals and the lawfulness of consent conditions generally.

The background to the case involved a proposed subdivision by Estate Homes Ltd (Estate Homes) that included the construction of an arterial road along the path of a longstanding designation. Waitakere City Council’s (Council’s) normal policy was to require applicants for subdivision consent to undertake the construction of designated roads as part of the subdivision process. In such situations, the Council would typically pay compensation to developers to the extent that the road was not necessary for the purposes of the particular development. In light of this policy, Estate Homes’ consent application sought compensation for the difference between the cost of constructing a local road (which was arguably required to serve the subdivision) and an arterial road (which was the higher capacity road demanded by the Council under the designation).

The Council ultimately granted subdivision consent to Estate Homes. The consent was issued subject to a condition requiring the road to be vested in the Council and stating that the amount of compensation would be the difference between the construction of an arterial road and a collector road. Estate Homes appealed against that condition, which resulted in a much smaller compensation payment, and the matter proceeded on appeal through the Courts.

The main issues for the Supreme Court were:

• identification of the statutory basis for the Council to require the road to be constructed; and
• what entitlements to compensation this gave rise to.

The majority of the Court of Appeal had held that by imposing the condition noted above, the Council effectively ‘acquired’ the land under s322(2) of the Local Government Act 1974. On that basis, the majority reasoned that the Council was required to fully compensate Estate Homes for the ‘taking’, due to associated provisions in the Local Government Act 1974 that invoked the Public Works Act 1981.

The Supreme Court disagreed. It held that the legal presumption of compensation only applies if there is actually a taking of land. It held that ‘if a lawful condition to a subdivision consent requires the giving up of land in exchange for the right to subdivide, no expropriation or taking will be involved’. This was because a ‘taking’ involves a forced acquisition of land which a landowner must submit to. In contrast, the Supreme Court considered that in the subdivision context a landowner can always decide whether ‘the right to subdivide will be bought too dearly at the price of complying with the conditions’. The Court therefore held that the Council’s requirement was not a ‘taking of property’ giving rise to a statutory requirement to pay compensation.

The Supreme Court then went on to state that (contrary to the Court of Appeal’s view) s108(2)(c) of the Resource Management Act 1991 (RMA) directly empowered the Council to impose the condition it did. This was because the phrase ‘services or works’ in s108(2)(c) clearly included construction of the road, which formed part of the consent application.

Having decided that the condition was imposed under section 108(2)(c) of the RMA, the Supreme Court then addressed whether the condition satisfied the standard common law requirements for consent conditions.

In doing so, the Court disagreed with the Court of Appeal’s view that there must be a ‘causal link between conditions and the effects of the proposed subdivision’. In contrast, the Supreme Court stated that there is no requirement that conditions of consent must only be imposed to ameliorate the effects of a proposed development. Rather, the relevant test is that there be a logical connection between the proposed development and any conditions of consent. The Supreme Court’s decision makes it clear that this connection does not have to relate to the effects of the proposed development.

The Court also commented on the Environment Court’s ability to permit an increase in an applicant’s claim for compensation through the appeal process. This issue was relevant because Estate Homes’ original application to the Council sought only compensation for the extra costs associated with constructing an arterial road, over and above that of a local road. However, on appeal Estate Homes contended that it was entitled to compensation for the entire cost of construction and the value of all the land that was to be vested in the Council.

The Court of Appeal had held that it would be unfair to prevent Estate Homes from seeking full compensation on appeal, when the form of its application had been heavily influenced by what Council officers had indicated would be in line with Council policy. However, the Supreme Court was clear to point out that while the Environment Court may permit the party which applied for consent to amend its application, it may not do so to such an extent that the matter before it becomes, in substance, a different application.

In this case, the Supreme Court held that the Council was prejudiced by the course that was taken. In stating in its consent decision the basis on which it was prepared to pay compensation, the Council exposed itself to an appeal to the Environment Court on the ground that the compensation offered was insufficient to make its requirement of construction of the road to an arterial standard a reasonable one. The Council had therefore assumed the risk that the Environment Court would decide that additional compensation, on the basis originally sought by Estate Homes, was necessary. However, the Council did not put itself at risk of the amount of compensation being at large before the Environment Court. For that reason, the Supreme Court determined that the Environment Court should not have allowed Estate Homes’ appeal to depart so significantly from the compensation it was seeking through its original application.

The case highlights the potential difficulties that can occur when public infrastructure requirements are imposed, and the amount of compensation determined, via consent conditions. The most significant problem is that conditions of this nature can be re-opened by the Environment Court on appeal and the level of compensation adjusted (to the disadvantage of at least one of the parties).

As a way of avoiding this pitfall, the Supreme Court notes that both councils and developers may wish to consider the prospect of entering private side agreements to undertake certain work, and where necessary, to provide additional land for an agreed amount of compensation. If executed in advance of a formal application for consent, such agreements would be removed from the jurisdiction of the Environment Court on any appeal against a Council’s decision. This approach would dispense with the need for Councils to take the risk that their consent conditions are invalid, in terms of administrative law standards, if the compensation stipulated in the conditions is inadequate. It would also avoid the dilemma of Councils being committed to payment for items of infrastructure, when the price can be altered by the Environment Court in accordance with its view of what is adequate.

The Supreme Court also cautioned developers about strategically structuring consent applications to reflect Councils’ policies. The Court recommended that developers should apply for consent in terms that they consider suitable. If the Council then grants the consent subject to conditions, and the developer wishes to take issue with those conditions, the appeal process can be invoked. The Court cautioned that matters may become needlessly complicated if, as in this case, an applicant attempts to challenge conditions of consent on the basis of what it would have applied for, had it not been concerned to comply with advice given by Council officers. While the problem of delay may tempt applicants to act in a strategic way in order to expedite the process, the case makes it clear that this will not provide a justification for seeking to re-work the scope of a consent application at the appeal stage.

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