THE REASON WHY. . . . . . . . . .
WHAT IS THE REAL ISSUE BEHIND THE LEGAL CHALLENGES TO KDC AND NRC RATES? 06.09.2017
The High Court has declared that five years of NRC rates are invalid. The MRRA is overjoyed. The NRC is in crisis. Many ratepayers and outside observers do not understand what is going on.
Many think that ratepayers have an unchallengeable obligation to pay rates so that our local council can fulfil its role and meet its financial obligations. I have heard people stating that because of the recent High Court ruling the roads will now be neglected, even though the NRC is not responsible for roads. Others suggest that a small group of discontents have used minor legal technicalities to avoid payment of rates for their own personal gain. Mayor Gent muddies the waters with his obfuscatory comments. (See Anthony Roberts’ letter in the latest Mangawhai Focus.)
Many of the elected councillors have no idea why there is so much bitterness about the past rating issues because they were not around at the time. And they are unlikely to find out. Mayor Gent and his Deputy Mayor Wethey endorsed the government’s appointment of a Crown Manager to deal with those historic issues under direct instructions from Wellington and have carefully steered councillors away from any involvement.
So, it is time that the real issues were laid bare so we can all understand what is driving the defiant ratepayers
Unlawful rates and actions of the KDC
It all goes back to 2008 when the KDC under the Tiller/McKerchar regime started setting unlawful rates that completely ignored the mandatory statutory processes under the Rating Act, and undertook the EcoCare sewerage project with its accompanying debt completely outside the law.
Ratepayers blew the whistle on these blatantly unlawful actions. Having failed to get any response from the KDC itself, for several years they made complaints and legal submissions to the Office of the Auditor-General, the Ombudsman, various Ministers of Local Government, and even to John Key. They all turned a blind eye and refused to take any action. The answer was always the same: whether the KDC had acted illegally was a matter for the courts to decide.
Even when the KDC obtained a legal opinion in early 2012 which stated that six years of rates were non-compliant with the law, the KDC still maintained that its rates were lawful until a court declared otherwise. The KDC also proposed to hit ratepayers with a massive “rates bomb” with 30 per cent increases, and even more in many cases, to pay for the massive overspending on the EcoCare project that had just been revealed. It would have destroyed Kaipara and its communities.
In desperation ratepayers and the MRRA commenced a rate strike to force the KDC and the government to take action in respect to the illegalities and the rates bomb that was about to destroy their communities.See the Herald report.
Proposal to the NRC
The MRRA had no quarrel with the NRC, but because the KDC collected rates on behalf of the NRC the rate strike was also hurting the NRC. This is what happened in the words of Bruce Rogan.
I approached Mr Nicholson (NRC chief executive) at the behest of the MRRA members who were holding back their rates with an offer to pay all the NRC rates directly to the NRC. He told me that KDC were their collection agent and that is where the money had to go. I then approached Craig Brown, who was Chair at the time, and asked him to put pressure on Nicholson to comply with our request. He came back to me after talking to Tiller (KDC mayor) and said that they were standing firm with KDC and would not co-operate.
I then went back to Nicholson and pointed out to him that a ratepayer was legally entitled to pay his or her NRC rates directly to NRC (the Act says so), so I again asked him for a bank account number that I could use myself and pass on to our members. His response was that, yes, they could do that if they really wanted to but all that would happen is that the money would be transferred to KDC and applied to the ratepayer’s account.
The rate strike brought the KDC to its knees, highlighting its incompetence and unlawful behaviour. On the verge of receivership, commissioners were appointed in September 2012 by the government to restore financial stability but with the additional task of ending the rate strike and recovering all arrears of rates.
The commissioners were ruthless. They refused any cooperation with ratepayers and immediately promoted a Validation Bill to validate all the unlawful rates and other unlawful actions of the former council.
The ratepayers dug their toes in and continued with the rate strike. See the Herald report.
The Kaipara Validation Bill passed through Parliament in 2012 and was finally enacted under urgency just before Christmas in 2013. Only NZ First and the Mana Party opposed the Bill. Those who supported the Bill did so on the understanding, based on the representations of the commissioners and the promoting MP Mike Sabin, that the whistle-blowing ratepayers would have the penalties on the withheld rates remitted (cancelled). The regulatory authorities had failed the ratepayers of Kaipara, the rates had been withheld to force the government to act, and it was only fair that they should be remitted. This is what Phil Twyford (Labour) had to say in the second reading of the Bill, stating the two reasons why Labour supported the Bill:
The first is that if negligence or corruption is found to have been involved in the governance of Kaipara District Council, and if the report of the Auditor-General does uncover culpability of that nature, then the wrongdoers must be held accountable. I take some assurance from the unanimous cross-party agreement at the select committee, which is included in the commentary on this bill, that we expect the Government to hold those people accountable if the Auditor-General’s reports finds wrongdoing of that nature.
The second is that the Mangawhai ratepayers group must not be punished for blowing the whistle. There were wrongdoings committed here. The financial cost to the residents is significant, and they must not be punished for blowing the whistle. That is why I am pleased to see a commitment being made by the commissioners to the select committee that there would be an amnesty for the rates penalties incurred by those people withholding their rates in protest at this situation. On the basis of those two elements, I believe, then, that there is a basis for passing this bill so that all of the ratepayers and the people of Kaipara District can move forward.
Noble sentiments that never came to fruition. As for the first point, we all know that even though many parties were clearly negligent, the government ensured that all those responsible were allowed to escape without any liability.
In respect of the whistle-blowers not being punished, the government saw it differently. Only two charges of penalties were remitted but on condition that all the arrears of rates were paid including all the other penalties. The commissioners refused to remit the balance of penalties.
The penalties on the rates were punitive. If rates are not paid by the due date then a penalty of 10 per cent is added immediately. Plus, in July each year a further 10 per cent penalty is added to all rates and penalties outstanding at that time. Plus in January each year a further 10 per cent is added to all rates and penalties outstanding at that time. You don’t have to be mathematician to realise how quickly the penalties would mount up.
The whistle-blowing ratepayers felt betrayed. They had tried everything to get the regulatory authorities to take action against a council that was out of control and committing the most blatant and persistent illegalities, and which was effectively thumbing its nose at the law. The only way that they had been able compel the authorities to take any action was through the rates strike.
If there was a time for fairness then this was it. If the validating legislation was to wipe the slate clean for the errant KDC it was only fair that ratepayers who had acted out of a sense of public duty should have all their penalties removed.
Ratepayers felt they were being hung out to dry by the government-directed commissioners. They felt that it was a decision of utter vindictiveness with political overtones. To them the message was being sent loud and clear that the unlawfulness of the KDC was irrelevant. As was the ratepayer’s fight for justice and the rule of law. Ratepayers throughout the country were being taught a lesson by the example being made of the KDC ratepayers. Ratepayers were obliged to pay rates whether legal or not, and were not to challenge or “mess with City Hall” and the government. Whistle-blowers would not be tolerated.
That is the root cause of all the problems. Those who withheld the rates do not accept that the Validation Act was the appropriate response, but they were prepared to pay the retroactively validated rates, but they refused to pay the vindictive and politically motivated penalties.
Driven by the government to recover all arrears of rates and penalties, the commissioners refused to give way. They wanted their pound of flesh in the form of penalties.
In August 2014 the MRRA on behalf of whistle-blowing ratepayers attempted to settle the issue on a fair and honourable basis. They acknowledged the fact of validation and agreed to pay the outstanding rates. They tendered to the KDC cheques in payment of the outstanding rates either in person or through the mail. The payment included the rates only, with no penalties and were paid on the basis that all penalties charged to whistleblowing ratepayers would be remitted. A total of $550,000 was tendered in person by Bruce Rogan to the KDC chief executive Steve Ruru, and possibly up to a total of a million dollars including the payments made through the mail. One ratepayer posted in a cheque for over $150,000.
Quite amazingly the commissioners (and presumably the NRC) refused to accept the payments and returned the monies to ratepayers. The Northern Advocate’s report on the matter can be seen here.
Actions to recover unpaid rates and penalties
Less than two weeks later, the commissioners announced that they would proceed to take legal proceedings against defaulting ratepayers. The campaign to recover rates arrears and penalties started in earnest in September 2014. See NZ Herald and Stuff.
The KDC denied the figure of 300 individual summonses and stated that the correct figure was 107. It was never established how many ratepayers’ mortgagees were approached to compel payment under the provisions of the Rating Act.
Many ratepayers succumbed to the pressure and paid the outstanding rates and penalties, leaving about seven cases that would proceed to a hearing in the District Court. Those remaining ratepayers were prepared to pay the outstanding rates but were determined to resist every attempt to extract the punitive penalties from them. It was agreed between the parties that the case against Bruce and Heather Rogan would be a test case and the other cases were stayed.
And so the KDC's legal battle to claim its pound of flesh – the punitive penalties - commenced.
Originally the KDC sued ratepayers in its own name but then amended the action to include NRC rates. The MRRA had long identified defects in the KDC rating processes and documents which it intended to plead in the judicial review, and, with the involvement of the NRC, turned its attention to defects in the NRC rates so that it could plead those as well.
The action to recover rates is in the District Court was simply a debt collecting exercise. The KDC and the NRC were obliged to establish that their rates were due and payable. The Rogans contended that they were not due and payable because they were unlawfully set and assessed and because the combined rates assessment notices and rates invoices were unlawful.
Judge de Ridder in the District Court had little time for arguments relating to the defects in rates. He found for the two councils on the basis that the Rogans had failed to apply for judicial review of the rates under section 60 of the Rating Act, an obscure provision in the Rating Act that is wilfully misinterpreted by local authorities to their own advantage.
The Rogans immediately applied to the High Court for a judicial review and appealed the District Court decision to the High Court.
The judicial review and the Rogan appeal were heard together. Judgment has been given in the judicial review with a finding that the NRC rates for the years 2011/2012 to 2015/2016 are invalid. The Court did not accept the MRRA claims of unlawfulness in respect of the KDC rates but left it open as to whether the unlawfulness of the NRC rates affects the lawfulness of the joint rates assessment notices and rates invoices of the KDC and the NRC.
The judgment of the Rogan appeal has yet to be released. When that happens we will be able to do a full assessment of the effect of the judgments on the rates of the KDC, the NRC and the rates of other local authorities throughout New Zealand.
Hopefully readers will now understand why ratepayers in Kaipara feel so betrayed by the KDC and the government. The KDC was exonerated for all of its incompetence and illegalities whilst the whistleblowing ratepayers, who had acted out of the highest of motives, were persecuted ruthlessly and vindictively by a government-driven regime using (ironically) the ratepayers' own money.
In retrospect it will be seen as one of the greatest abuses of government power in local government history.
And it was all so avoidable if fairness and commonsense had prevailed.
In short if the penalties incurred by the whistle-blowers had been remitted fairly and honourably as Parliament expected, there wouild have been no challenge to the KDC and NRC rates.
If the fair and honourable offer of the rebel ratepayers to the pay the rates without the vindictive penalties had been accepted, there would have been no challenge to the KDC or NRC rates.
If the NRC had stepped aside from the political pressure exerted by Wellington and allowed the rebel ratepayers to pay their NRC rates directly to the NRC, there would have been no challenge to the NRC rates.