The settlement at Mangawhai Heads.

Judge to issue hamstrung Mangawhai ratepayer group indemnity costs, accepts new validation law, wants more debt options considered

The Mangawhai Ratepayers & Residents Association has won some points from a High Court judgment out today, but not the crucial ones it needed in its clash over the EcoCare wastewater scheme for the coastal settlement with the commissioners now running the Kaipara District Council.

Justice Paul Heath issued an incomplete decision. He proposed issuing 3 declarations, but asked for further submissions on their form. He said that, provisionally, he intended to issue indemnity costs to the association for all steps it had taken up to the end of the hearing in February. But he will hold a telephone conference with the parties as soon as practicable after 20 June and, in the meantime, won’t seal the judgment.

Justice Heath found the EcoCare & 2006 modification 1 agreements, and the council decisions to enter into them, breached the Local Government Act.

The ratepayers association sought a declaration that ratepayers should be reimbursed for rates levied unlawfully for the wastewater scheme, even if the judge found the Validation Act passed to make those rates lawful did just that – made them lawful.

The judge said he had no basis to go behind Parliament’s decision to validate the levies, and it wasn’t for the court to second-guess Parliament’s political judgment in finding that a local bill was desirable. He said removing the association’s ability to seek meaningful relief on its application for judicial review, through enacting the Validation Act, “must be characterised as a reasonable limit” under the Bill of Rights. So, although he found an apparent inconsistency, it was legitimised.

Despite the proposed indemnity for the association’s costs in seeking judicial review, Justice Heath didn’t interfere with the requirement under the Validation Act that levied rates must be paid, even if levied unlawfully.

He agreed with counsel for the council, David Goddard QC, that the contracts the council entered to pay for the Mangawhai project were what are termed protected transactions under the Local Government Act, which entitled a creditor to take enforcement action [by inference, against the council] if the council defaulted on its obligations.

The judge didn’t take the credit arrangements outside the protected transaction regime to suggest creditors might pursue individuals the ratepayers believed might have been culpable in creating the financial disaster, although he did mention “recovering some of the costs from third parties”.

Justice Heath said: “Under the protected transaction regime, even if the council’s decision to borrow was unlawful, the creditor is left with a valid & enforceable debt owing from the council. If the council falls into default of its obligations under the loan, the creditor is entitled to bring proceedings to recover the amount payable. If judgment were obtained, enforcement processes are available.”

He said ABN Amro & 3 other financiers had entered into the finance arrangements with the council, and ABN Amro had obtained the required council chief executive’s certificate of compliance under the regime.

Last September, after this case went to court, a debenture trust deed administered by Corporate Trust Ltd replaced previous debt security instruments. Corporate Trust’s shares are held by Kim von Lanthen & Matthew Lancaster. They are the directors along with Sam Maling, who resigned most of his roles at Pyne Gould Corp Ltd & related entities, including the Marac Finance businesses, in 2010.

Mr Lancaster is managing director, and Mr von Lanthen risk director, of Foundation Corporate Trust, formed during a 2012 management buyout of Perpetual Trust’s corporate trustee business. They describe it as New Zealand’s only stand-alone full-service corporate trustee.

Council chief executive Steve Ruru gave evidence that, of the council’s $77.58 million of debt at 30 June 2013, $52.9 million related to the Mangawhai wastewater scheme and was due to expire on 31 July 2014. The council expected the cost of any new borrowing would be significantly higher, particularly if the council couldn’t borrow through the Local Government Funding Agency.

Justice Heath said the council wasn’t under a duty to levy rates to meet the debt: “It should consider all available options in an endeavour to ascertain what approach to repayment will be in the best interests of its ratepayers. That includes evaluating the advantages & disadvantages of negotiating with existing creditors to ascertain whether there are means of restructuring debt arrangements that would place less of a burden on its ratepayers. The possibility of recovering some of the costs from third parties should also be considered. That type of analysis should enable the commissioners to make more informed decisions about its options.”

The judge added that, while the creditor had an enforceable debt, the council had a number of options available to it: “Just like any other entity, the council has the ability to negotiate to restructure the loan arrangements. If negotiations were unsuccessful, it could legitimately leave its creditors to exercise what remedies are available to it at law, or levy rates to pay the debt.”

He said there was no evidence that the council had undertaken such an assessment when it struck the rates, so the ratepayers association hadn’t advanced any challenge on the ground that it was unreasonable under any administrative law. “Nevertheless, in relation to future rates that might be struck, it will be necessary for the council to give proper consideration to these issues before making its rating decisions.”

Earlier stories:
30 April 2014: Mangawhai wastewater court decision scheduled for May
4 February 2014: Validation Act & protected transactions law prove tough nuts for Mangawhai ratepayers to crack
6 October 2013: Commissioners reject “unfair” Mangawhai ratepayer proposal, seek sewage options, adopt annual plan

Attribution: Judgment.

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