Forest owners lose appeal in Council rates stoush

A legal challenge by forest owners to a new rating system adopted by the Wairoa District Council has failed.

In 2021 the council set the rating differential for ratepayers who own more than 100 ha of plantation forest at four. The New Zealand Forest Owners Association (NZFOA), which represents the interests of commercial forest plantation owners, sought judicial review of the decision on the basis that it was unlawful or unreasonable.

In a decision recently released online, the Court of Appeal considered a range of issues and found in favour of the council on each of the following:

• whether there needed to be a rational connection between rates and the costs of services used;

• whether there was an absence of a rational connection in this case;

• whether the council acted with improper purpose;

• whether the Council acted lawfully in discriminating among forestry owners;

• and whether the rating decision was unreasonable.

The Appeal Court referred to a recent Supreme Court decision confirming rating systems were not based on the principle of user-pays and that the authority to adopt a differential in the general rate also allowed for discrimination among groups of property.

The incidence of a general rate need not be settled by cost-benefit calculations and there did not need to be a close correlation between an activity and its benefits for the targeted group.

“This is not an extreme case where the council has acted without regard to relevant considerations,” the Appeal Court said.

It did not accept the NZFOA’s proposition that there must be a rational connection between the benefits enjoyed by ratepayers targeted by a rating differential and the amount they are asked to pay.

“A rational connection instead requires that the rating differential decision be justified by reference to considerations which must or may be taken into account under rating legislation. One such consideration is the use to which rateable land is put.”

Was there an absence of a rational connection in this case? No, the Appeal Court said.

“The council took relevant considerations into account which led them to rebalance funding sources to target farming and forestry land. The decision cannot be challenged on the ground that the council relied on an inaccurate estimate of costs caused by the forestry industry’s use of low-volume roads as there need not be a close connection between this cost and the rates. Further, NZFOA benefited from council services in other ways, not only through road use.”

Did the council act with an improper purpose? No, the Appeal Court said. NZFOA had argued that the council acted with the illegitimate purpose of deterring forestry investment in Wairoa.

“This court does not accept that. The council focused on the district’s decline and the unaffordability of rates for most residents. There has been a loss of downstream benefits for the community as a result of forestry, but the funding needs of the council have not fallen and they might therefore reasonably look to forestry and farming to make up the difference.

“Further, the council made no attempt to calculate the amount needed to deter forestry investment, nor was there any evidence that the amount payable under the new differential is unaffordable.  The council has also not made any attempt to subsidise farming, in fact they too must pay an increased share of rates.”

The council acted lawfully in discriminating among forestry owners, the court said. Rating powers expressly envisage that the relative incidence of rates will vary within a rating district. A degree of unfairness is to be expected at the margins of rating categories. The council was required to make a substantive decision about funding sources based on a broad political assessment of the current and future needs of the community. “This court is not persuaded that the council’s decision to discriminate among forestry interests was unfair, still less that it was so unfair as to justify intervention on judicial review.”

The rating decision was not unreasonable, the court said.

“That ground of appeal had rested on the incorrect premise that there must be a direct relationship between costs caused by the forestry industry and the rates it is required to pay, which this court already rejected,” the court said.