Part 3: Our analysis and comment

3.1
Mr Brown raised several different concerns about the rates and charges the company was billed for. In summary, these were:

• the status of the agreed contribution or development contributions that were charged;
• the amount of any remaining liability for a contribution;
• whether the company should pay sewerage rates as well as some kind of contribution;
• the way in which rates remissions were applied to the sewerage rates on the subdivision; and
• whether the Council should charge the company the penalties that have accrued while the company has not paid its rates.

3.2
In this Part, we discuss each of these issues in turn, before making some general comments about the actions of the Council and Mr Brown.

The status of the agreed contribution

3.3
Based on the Council documents we have seen, Mr Brown is not contesting whether the company ought to pay some form of contribution for connecting the lots to the Council’s sewerage system. Rather, the debate is about how and when payments are made, the overall amount, and who should pay.

3.4
The subdivision consent included a condition requiring the company to pay “any contributions”. We understand this to mean the agreed contribution of $150,000 for connecting to the Council’s sewerage system, which the Council and Mr Brown originally agreed would be payable.

3.5
We agree that the later agreement to convert the agreed contribution into development contributions was effectively an informal arrangement, with an uncertain legal basis. The Council went outside normal processes to help Mr Brown’s subdivision to proceed. With the benefit of hindsight, this may not have been a wise decision because it left the Council in an uncertain position if the development did not proceed as expected. It also potentially creates problems for the Council when it seeks to collect development contributions from the purchasers of the lots.

3.6
Given the problems that eventuated with collecting the agreed contribution in this phased way, the Council decided in September 2011 to revert to the original approach. It told Mr Brown that it now required payment of the outstanding contribution of $150,000 (less amounts already paid).

3.7
The Council sought legal advice on its ability to proceed to recover the agreed contribution in this way before it took this step. We generally take the view that a public entity is acting reasonably if it seeks legal advice in complex situations, and acts in keeping with that advice. As a result, we are satisfied that it was reasonable for the Council to demand in September 2011 that the company make formal arrangements for payment of this sum. The amount had been agreed as the overall contribution since 2003, and the informal arrangement to spread the payments had proved unworkable. The Council was entitled to try to end it and revert to the original agreement.

The amount of the agreed contribution still owing

3.8
We reached this conclusion in May 2012, and both parties accepted it at a level of principle. However, each party had quite a different view of what had been paid and what was still owing. In late May, the figures provided by the Council suggested that the amount still owing was $135,833.09. Mr Brown did not agree with the amount; he estimated that the amount was closer to $55,000.

3.9
We agreed to carry out further work to check the calculations. Because Mr Brown was travelling overseas for some weeks, he left a cheque with the Council for $55,754.72 as an interim step while we completed a final calculation. The Council did not bank this cheque because it was concerned that to do so could be seen as accepting this amount as a final settlement of the dispute and so might jeopardise their legal position, In any event, the cheque could not be banked because Mr Brown had not signed it.

3.10
We asked the Council and Mr Brown to provide us with information on what amounts had been paid by either the company or subsequent purchasers as development contributions. We also needed to establish which properties had been sold with obligations to pay the contributions in future. The information provided by each party did not match. We had to carry out a substantial amount of detailed work to review the transactions for each lot in the subdivision to reconcile the information, before we could calculate what had been paid and what was still owed. For some properties we have not been able to gather complete information.

3.11
The original agreement and consent condition required the company to pay a contribution of $150,000. We considered whether GST should be added to this amount. Development contributions usually attract GST, as do financial contributions under the earlier legislation. One of the Council’s background documents at the time recognised that GST was usually charged on development contributions for equivalent subdivisions. However, none of the correspondence between the company and the Council has ever explicitly mentioned GST. We accept that, if GST is payable, it is included in the $150,000 sum that was agreed between the parties.

3.12
The company has so far paid $21,101.67 as development contributions.

3.13
The agreements for sale and purchase for eight of the lots that have been sold included a clause in which the purchaser acknowledged an obligation to pay the development contribution that would be due when the lot was connected. This is in keeping with the arrangement made with the Council to spread the payments. One of the owners of one of the lots has paid the development contribution of $6,417. The owners of another one of those lots have been invoiced for $6,417 for the development contribution.

3.14
For the other six lots that have been sold, the development contributions will be payable when a building consent is applied for. Although there is some legal uncertainty about the effectiveness of these arrangements, all the relevant parties have proceeded in good faith on this basis. We considered it appropriate to assume that the new purchasers will honour the obligation in the sale and purchase agreements and pay these amounts in future. Although the exact amount to be paid will depend on the level of development contribution required at the time of connection, for the purposes of this calculation we have assumed that each will pay the amount currently required. Under the policy that came into force on 1 July 2012, that amount is $6,141. The amount in total that it is reasonable to assume will be paid in the future by the owners of these six lots is therefore $36,846.

3.15
Some sections have been sold without a clause passing on an obligation to pay the development contribution. For other sections, we have no information on whether such a clause was included. For one of these sections, the new owner paid a reduced development contribution of $2,731.24.

3.16
After deducting all these amounts (see Figure 1), we have calculated that the final balance owed is $76,487.09.

Figure 1
Our calculation of the balance owed by the company to the Council

Note: The Council has already invoiced the company for $5,897.13 in development contributions that have not yet been paid.

3.17
We assume that Mr Brown will now pay the balance owing, including amounts already invoiced. We note that it will be important for the Council to update its records to ensure that it does not charge development contributions on any of the lots that have not yet been sold.

Debate about the sewerage rates

3.18
Local authorities have different powers to recover different aspects of their expenditure on sewerage infrastructure:

• Under the Local Government Act 2002, a local authority can charge development contributions for sewerage so that the developer contributes to the extra capital costs a local authority incurs in providing a sewerage system because of growth created by the development.
• Under the Local Government (Rating Act) 2002, a local authority can charge rates for sewerage to recover the ongoing costs of the sewerage system – such as operation and maintenance.

3.19
Therefore, if a local authority charges both development contributions for sewerage and a sewerage rate, it is not recovering twice for the same service. The two Acts specifically enable local authorities to charge both in some circumstances.

3.20
The Council charges development contributions and sewerage rates. The Council has three sewerage rates, which are differentiated according to the availability of service. The Council website states that:

Sewerage Availability Rate – is charged on every rating unit or part of a rating unit not connected to the reticulated sewerage system but is within 30 metres of any part of reticulation and the Council is willing to provide a connection to the rating unit. The charge is the same throughout the district. This rate funds the availability of the supply to the landowner and like the other sewerage charges, contributes to the operating and capital costs of the schemes.

3.21
In its 2010/11 Annual Plan, the Council said that it would not charge development contributions for sewerage for existing households or vacant sections where the sewerage availability rate is imposed when they connect to an existing public sewerage system. This would apply only where the existing household or vacant section was within the area of benefit of the system.

3.22
It took this step because, under the Local Government Act, development contributions can be charged on a development only if the effect of the development is to require new or additional assets or assets of increased capacity and, as a result of this, the council incurs capital expenditure to provide for that additional infrastructure. Lots that were already within an area of benefit of a sewerage system did not create a requirement for increased capacity in the sewerage system. Connecting the lot to the system did not require the Council to spend money on its infrastructure to cope with the connection and so there was no basis for charging a development contribution.

3.23
Mr Brown argued that the reverse of this reasoning should apply; the company should not be required to pay the sewerage rates for the lots in the subdivision when the relevant remission expired. That is, because the company had been or would be paying development contributions on the lots in the subdivision, the company should not also have to pay the sewerage rate.

3.24
Council staff disagreed with this argument for several reasons. The Council’s main point was that the two payments are for different purposes, and both were relevant to this subdivision because it was not within an existing area of benefit at the relevant time. Since the Council’s development contributions policy has been in place, where new lots are created as a result of subdivision and they are not within an existing area of benefit, it has been standard practice for the Council to require:

• a development contribution – for the increased expenditure on additional infrastructure that this creates;
• payment of the sewerage rate at the availability differential (that is, the rate that applied to properties that could connect to the system but were not in fact connected) until the lot was connected to the system; and
• payment of the sewerage rate at the connected differential (that is, the rate that applied to properties that were connected to the system) once the lot was connected.

3.25
We agree with Council staff. A property will attract a development contribution if, at the time of development, it is not within the area of benefit of an existing system but will require new infrastructure. The property will also, in due course, become liable for rates, to meet the costs of the ongoing operation and maintenance of the system. At the time of development, this subdivision was not within the area of benefit and so it was appropriate for contributions to be charged, as well as sewerage rates in due course. Mr Brown’s argument did not provide a sound basis for the company to withhold payment of these rates or the balance of the agreed contribution.

Rates remissions

3.26
This aspect of the dispute is about when the rates remission policy stops applying to the subdivided properties. Mr Brown had reached an agreement with the Council about the staged implementation of the rates remissions on the company’s properties in 2004. This agreement was unusual, but it was a logical consequence of the unusual and staged way in which the Council had agreed to connect the lots to the sewerage system.

3.27
At that time, the rates remission policy provided that the remissions applied for three years. In 2009, the Council extended the time the policy was to apply to six years, except for water, stormwater, and sewerage rates. There was some controversy associated with that decision and Mr Brown’s role in it, including questions to us about the application of the Local Authorities (Members’ Interests) Act 1968. We corresponded and met with him to discuss the issue at the time. Therefore, we know from our own work and files that Mr Brown was aware of the original and extended rates remission policy, at least in general terms.

3.28
In any event, the company receives annual rates assessment notices and invoices for the properties it owns in the same way as any other ratepayer. The Council told us that the rates assessment notice issued each year sets out the full rates for the property before any remission is applied. Each rates invoice then shows the assessed rates that are due, any credit resulting from applying the rates remission policy, and the amount now due for payment. These documents are the formal legal notice to each ratepayer of what they are required to pay each year. The legislation prescribes in detail the information that the Council must provide in each assessment and invoice.

3.29
Developers like Mr Brown, who own many separate lots or titles, can receive a large number of individual rates invoices. When Mr Brown was elected Mayor, he requested that the Council start providing people in his situation with a single summarised version of all their rates invoices, on the grounds that this was a more efficient business practice. Council staff told us that 12 ratepayers have taken advantage of this arrangement and now receive a summary along with the normal individual rates assessments and rates invoices.

3.30
The summary does not contain the same level of detail as the assessment notices and invoices. In particular, it does not set out information on remissions. Council staff also expressed some concern to us about the risks of people relying solely on these summaries rather than reviewing the more detailed information in the assessments and invoices. We note that, if Mr Brown has been relying on the summary alone, this may have contributed to some of the confusion.

3.31
Based on the information we have seen, we have concluded that the Council has generally acted appropriately and in keeping with previous agreements reached with Mr Brown about how the rates remission policy would apply to the properties the company owns.

3.32
However, the Council has also made administrative mistakes in the way it has applied the remissions policies to the properties. The most significant of these was that the invoices for the 2009/10 rating year continued to apply the full level of rates remission to four lots, when the remissions period had expired for this first group of properties. The Council corrected the mistake in 2010/11 year, so that the remission reduced for 16 lots in that year (rather than being staged across two years). The result was that the overall rates increase in 2010/11 was larger than it would have been if the correct rates had been charged in 2009/10. The company benefitted financially from the Council’s mistake.

3.33
We understand from Council documents that Mr Brown has argued that, because of the Council’s error in the 2009/10 rating year, it should only charge the increased level of rates on the first four lots in the 2010/11 rating year, then on 16 lots in the 2011/12 rating year, and so on. Effectively, this suggestion is that the whole sequence of staggered reductions in remissions be postponed by a year, because the Council did not make the right change in the first year.

3.34
The chief executive told Mr Brown that this would effectively be an extension to the remissions period, and that the company would need to apply to the Council if it wanted to have the period of remissions extended for a further term. Council staff do not have the delegated authority to grant such an extension and so a decision would have to be made at a Council meeting. The company did not make such an application.

3.35
In our view, the Council must charge rates in keeping with the normal policy and existing approvals and assessments. The company benefited from the Council’s mistake in 2009, but we could see no legal reason for the company not to be required to pay the sewerage rates for which it had been invoiced from 2010 onwards. There was no good basis for the argument that the Council’s mistake in one year effectively added a year to the rates remission period for the rest of the subdivision.

3.36
After we advised Mr Brown of these conclusions on the rates and possible remissions, the company paid the sewerage rates for the lots in the subdivision for 2010/11 and 2011/12 – totalling $11,518.48 – on 26 May 2012.

Penalties

3.37 Mr Brown refused to pay the rates for the 2010/11 rating year for all his and the company’s properties, not just those in the subdivision. Some of the rates were paid in September 2011, but not the sewerage rates. As a result, the company incurred penalties for late payment on those rates. When Mr Brown paid his and the company’s rates in May 2012, he also paid these penalties. At the same time, he asked for the portion of these penalties that had accrued while we were carrying out our review to be remitted.

3.38
The Council can decide to remit penalties, but, as a matter of law, it must do so in keeping with the Council’s policies on remission of penalties and the Council’s delegations of authority. The Council’s policies require the ratepayer to make a written application for a remission. The policy on remission of penalties sets out criteria on which the Council can decide to remit a penalty. We consider it doubtful whether this situation fits within any of these criteria. However, the general policy also includes a discretion to remit rates in other circumstances:

Any application for a remission of rates in excess of that allowed under these policies must be made in writing to Council. It must set out in detail the reasons why the application is being made outside of the policies established under the Local Government (Rating) Act 2002.

Council is under no obligation to approve any applications that do not comply with the established policies and Council’s decision on the matter is final.

3.39
We accept that the complexity of the issues, competing priorities for us and the Council, and the problems we had in obtaining accurate information from the Council and Mr Brown meant that our review took much longer than anyone expected. There is an argument that it would be appropriate for the Council to consider remitting the portion of the penalties that accrued between October 2011 and May 2012.

3.40
However, it is also relevant that the Council has spent a considerable amount of staff time and money on this dispute – much more than the total penalties. The Council must also consider how it would treat any other ratepayer who withheld rates for nearly two years, given that the normal legal obligation in the Local Government (Rating) Act 2002 is to pay rates and then dispute them. Under the Act penalties will generally accrue if a person does not pay rates while they are disputed. The Council will need to assess all of these factors when exercising its residual discretion.

General comments

3.41
We have confirmed that the Council’s actions in relation to the company’s rates and other charges were generally reasonable and in keeping with its normal legal and administrative responsibilities. The rates and charges that the Council sought were properly due, although there have been mistakes at times in individual calculations and notices and the application of the remission policies.

3.42
There have also been some unusual decisions, such as agreeing to connections to the scheme in stages; agreeing to spread the payment of the agreed contribution by treating it as a development contribution; staggering the application of the rates remission policy; and providing Mr Brown with a personal summary of his rates invoices. These decisions all benefitted Mr Brown and helped his company carry on with the subdivision. They may have seemed pragmatic at the time, but with hindsight they may not have been wise from the Council’s perspective.

3.43
We also note that the Council has allowed a purchaser of one of the lots to pay a reduced development contribution. This conflicts with the agreement reached with Mr Brown that the amount of development contribution payable would be that set in the development contributions policy applying at the time of connection. The decision to require a reduced development contribution was pragmatic but does not appear to have had a strong policy basis.

3.44
In our view, making decisions in this way creates a risk for the Council that its decisions will be seen as arbitrary. The Council needs to ensure that it applies the original agreement and its policies consistently to owners of the lots – both the company and subsequent purchasers of the lots. Otherwise, it is open to “special pleading” on every decision.

3.45
Overall, we do not regard the Council’s treatment of this subdivision as reflecting well on the quality of its administration.

3.46
We also consider that Mr Brown has been unwise in the way he has pursued this dispute. Mr Brown has used his Council Executive Assistant to follow up on his company’s rating issues with Council staff. He has also written formally to the Chief Executive about the rating issues using mayoral letterhead and has regularly spoken and corresponded directly with other staff. In our experience, this type of blurring of roles is unwise and creates risk. We encourage Mr Brown to separate his personal and official roles more carefully in future and ensure that the capacity in which he is acting is always clear to Council staff. He must take care to ensure that Council staff do not feel under any pressure to treat him and his businesses in a different way because he is the current Mayor.

3.47
In future, if Mr Brown has concerns about the legality of the Council’s approach or actions as they relate to his own interests, he must pursue those in the same way as any other ratepayer. This is a matter of law as well as principle. His role as Mayor does not create a shortcut for resolving legal or other disputes about rates. This may be frustrating to him, given his governance responsibilities and close working relationships with the relevant staff. However, it is important to avoid any perception that the Mayor is getting special treatment or that the normal legal obligations and procedures are applied differently for him. Clear separation between personal activities and interests and official activity is an important protection for any public office holder and the organisation they work for.