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High Court of New Zealand Decisions |
Last Updated: 14 August 2018
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
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CIV-2016-404-2998
[2018] NZHC 1839 |
UNDER
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The Public Works Act 1981
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BETWEEN
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AZTEK LIMITED
First Plaintiff
TERESTA MAY PRUJEAN
Second Plaintiff
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AND
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THE ATTORNEY-GENERAL
Defendant
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Hearing:
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5, 6 and 7 June 2018
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Appearances:
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M E Casey QC and A J Casey for the Plaintiffs J R Burns for the
Respondent
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Judgment:
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24 July 2018
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JUDGMENT OF MUIR J
This judgment was delivered by me on Tuesday 24 July 2018 at 11.00 am Pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar Date:..............................
Counsel/Solicitors:
M E Casey QC, Barrister, Auckland. A J Casey, Barrister, Auckland.
J Burns, Barrister, Wellington.
AZTEK LIMITED v THE ATTORNEY-GENERAL [2018] NZHC 1839 [24 July 2018]
Introduction
[1] These proceedings raise a novel point under the “offer-back” provisions in s 40 of the Public Works Act 1981 (the Act) – provisions that have been the subject of significant academic criticism in the past1 and which continue to generate complex litigation on account of the size of the windfalls potentially available to plaintiffs who can establish an obligation to offer back at some earlier date when property values were at levels lower than those applying at the time the claim was brought.
[2] At issue in the case is the position of a company that was:
(a) vendor of the land that was acquired by the Crown;
(b) struck off at the time a decision was made that the land was no longer required for the purpose for which it was held;2 but
(c) has subsequently been reinstated to the Register for the purposes of pursuing a claim to recovery of the property.
[3] The central question for determination (reflected in alternate claims for breach of statutory duty and in judicial review) is whether the obligation in s 40(1) of the Act to “endeavour to sell the land in accordance with subsection (2) if that subsection is applicable to that land” includes an obligation to send a notice either to its former registered office and/or its former director/shareholder advising that the land is no longer required and giving such director/shareholder the reasonable opportunity to apply for reinstatement of the company.
[4] Predictably, as a result of rapidly increasing Auckland property prices, the present value of the property is likely to be substantially greater than its value at the time (2011 or 2012) when the plaintiffs say it should have been offered back to the
2 Or for any other public work or for exchange under s 105 of the Act (refer s 40(1)(a), (b) and (c)).
company (assuming reinstatement). The difference could be in the order of $1 million or more.
Background
[5] The land in issue in the proceedings comprises Lot 13 on DP 202643, Title Reference 131B/788; and Lot 5 of DP 334605, Title Reference 141687; plus the respective shares that these Lots hold in a common access Lot (together “the properties”). They are located in Waterview Downs which is, in turn, located in the area between Great North Road and Oakley Creek, Waterview.
[6] The properties are part of a larger area of then mostly undeveloped land that was acquired by the second plaintiff, Ms Prujean, and her partner, Mr Cull, in the 1990s. Resource consent was sought and obtained in 1997 for the land to be subdivided and developed for residential purposes.
[7] Ms Prujean and Mr Cull intended to develop the land in stages. After stage 1 of the development they got into financial difficulties as a result of which a mortgagee sale occurred in 2001. However, Ms Prujean and Mr Cull were successful in re- acquiring significant parts of the land from the mortgagee and incorporated the first applicant, Aztek Limited (Aztek), on 8 October 2001 for that purpose. Part of the land was then on-sold to help fund the re-purchase and dwellings were built on three of the remaining sections, two of which were sold off the plans. The access road was in turn completed and various preparatory works undertaken in respect of the remaining five sections.
[8] During this period the New Zealand Transport Agency (NZTA), which was then known as Transit New Zealand (TNZ), was in the early stages of planning what has since become the State Highway 20 extension that links with the North-Western Motorway (State Highway 16) through the new Waterview Tunnel. There was initially some uncertainty as to the form and route of the proposed works. As a result, there was market resistance to properties in the Waterview Downs subdivision, which impacted on the commercial viability of the project. Because of this resistance, Aztek approached TNZ to explore possible acquisition by it of those sites on which homes had not yet been built. This was initially in 2003.
[9] A negotiation was commenced with The Property Group (TPG), a specialist property consultancy, representing the Crown. The negotiation was protracted and did not result in an agreement until 29 August 2005. In terms of that agreement, the properties were acquired for the sum of $980,000, including GST. In addition, Aztek was paid a sum of $125,149.79 for reimbursement of “fees incurred” and $19,294.02 on account of costs.
[10] The agreement reserved to Aztek the right to “seek reimbursement of holding costs and real estate agent commission under the Public Works Act 1991”. This reflected Aztek’s claim that uncertainty about TNZ’s plans had resulted in an inability to effect presales with resulting holding costs and the Crown’s position that such losses (if established) were not appropriately compensated under the Act.
[11] In the event, Aztek took no further steps in terms of the rights reserved under the agreement. In evidence in these proceedings, Ms Prujean and Mr Cull state that the proceeds of the settlement were paid to financiers and that they had neither the resources nor energy to pursue the matter further.
[12] It is similarly clear from that evidence that Ms Prujean and Mr Cull regarded the Crown and TPG’s approach to compensation as parsimonious and as failing to recognise that, in the context of any such development, the “cream”, as they put it, was only available upon completion. Indeed, they went further and suggested that the Crown took advantage of their difficult financial circumstances to effect settlement on less than fair terms.
[13] Such suggestion was strenuously resisted by the respondent’s witnesses. It is unnecessary for me to make any finding in this respect and I decline to do so. I regard all such evidence as irrelevant, save only for the fact that I accept that, from Ms Prujean and Mr Cull’s perspective, they regarded themselves as having “unfinished business” at Waterview Downs. To the extent such view may inform discretionary relief, I therefore record it.
[14] In 2008, Ms Prujean and Mr Cull moved to Australia in search of better opportunities. As the Waterview Downs property had been Aztek’s main asset, and its
development the main purpose for Aztek’s existence, they say they ceased filing annual returns. As a result, Aztek was struck off the Register on 31 March 2009. In her evidence Ms Prujean states that she could not recall having received any notice from the Companies Office that Aztek would be struck off, but candidly acknowledged that because there was “no purpose in keeping Aztek going” she would probably not have done anything to prevent this occurring.
[15] In Australia, Ms Prujean took up employment as a commissioned sales person with a real estate company on the Sunshine Coast. She says that, as a result, any Google search of what I accept is her unusual surname would have identified contact details for her. Mr Cull in turn established himself as a project manager in the same area.
[16] Despite their Australian residence, Ms Prujean and Mr Cull retained an interest in the Waterview project. On occasional visits to New Zealand, Mr Cull observed that the properties were still being used in relation to it.
[17] In 2015, he read that the tunnelling project had been completed and it occurred to him and Ms Prujean that the Crown may no longer have any use for the properties. In July of that year they inquired through their solicitors about their rights to have the properties offered back. At the same time Ms Prujean, as the sole former director and shareholder of Aztek, applied under s 328 of the Companies Act for it to be restored to the Register. This application was granted, with restoration occurring on 21 August 2015.
[18] In fact, NZTA had determined some years earlier that the properties were surplus to requirements. On 3 November 2010, a designated officer confirmed that the properties were “no longer required by NZTA for the purpose it was held ... and it is declared to be surplus”.
[19] The following day, sign off was recorded on behalf of the NZTA Property Division manager. The relevant part of the form records various supplementary steps that would need to be taken in respect of the disposal:
Register a Covenant on the Title to prevent any development occurring on the property that could create a hazard to the tunnel. Register an Encumbrance on the Title acknowledging that the Land is capable of being adversely affected by ground settlement.
Register a Reverse Sensitivity Covenant on the Title acknowledging that the property is capable of being adversely affected by Noise.
[20] The statement of defence pleads that at some point in 2010 TPG was instructed to “complete a report investigating the Land for the purposes of complying with the s 40 PWA”. Its report to Mr Trevor Knowles, Manager Clearances of Land Information New Zealand (LINZ), is dated 3 February 2011. It was prepared by Mr David Manson, who gave evidence in the proceedings. The report chronicles the acquisition history, identifies the current valuation of the property as $785,000 and notes that prior to disposal it will be necessary to do the following:
Title Requirements 1. Publish and register a Gazette notice setting
apart the strata for tunnel and segregation strip in the following areas ...
[21] In terms of the offer back provision, the report relevantly noted:
Section 40(2)(a) Impractical, Unreasonable and Unfair
The former owner was Aztek Limited. The company is struck off as shown by the attached company search. The company search also verifies that no change of name or amalgamation of company has been recorded. It is therefore impractical to offer the land back as there is no one to offer the land to.
We consider that there is sufficient justification to recommend exemption from the offer back on the grounds of impractical in terms of s 40(2)(a) of the PWA.
[22] In coming to that conclusion, Mr Manson’s evidence was that he had reference to the Standard for Disposal of Land Held for a Public Work (LINZS 15000) and
Guideline for Disposal of Land and Held for a Public Work (LINZG 15700), both effective 13 November 2009. He says he also considered the previous Accredited Supplier Standard 4 dated 1 July 2002 as a cross-reference.
[23] The 2002 Standard includes the following provisions:
Land acquired from a now defunct company
Where land was acquired for a public work from a company that has now been wound up or dissolved it would be impracticable to offer the land back. Care is necessary to ensure the company has not simply changed its name.
There may also be cases where use of this exemption is not applicable, eg where a Harbour Board was dissolved in accordance with the Local Government Restructuring Act 1989 and its assets and regulatory functions were vested in Regional Councils. A regional council is not a success within the meaning of the PW Act. This deals only with (i) natural persons capable of leaving a property through a will or intestacy and (ii) successors in title who may be either natural or legal persons.
While s 40(5) appears to limit successors to those taking ownership under a will or intestacy the High Court has found (in Bowler Investments Limited v The Attorney-General [1987] NZHC 333; (1987) 7 NZAR 73) that s 40 also applies to bodies corporate.
[24] Turning to LINZS 15000, its scope is said to (inter alia) set out the procedures to be followed and the minimum level of information that must be provided to enable LINZ to assess whether land disposal complies with the law and whether all those with an interest in the land have been considered.3
[25] Paragraphs 9.1 and 9.2 in turn provide:
9.1 General
If there are no exemptions to the requirement to offer back, the vendor agency must make reasonable efforts to identify and locate the former owner or their successor, and make the offer back to that person.
9.2 The former owner was a company or other legal entity
If the former owner was a company or other legal entity and it no longer exists, the vendor agency must provide evidence of steps taken to identify any succeeding entity entitled to receive an offer back.
[26] The Guideline LINZG 15700 provides further commentary in relation to when it will be “impractical to offer back”.4 It identifies the relevant legislation as s 40(2)(a) of the Act and cites as examples of “when it may be impractical to make an offer back”—“the former owner was a now defunct company”. The following commentary then occurs:5
Former owner now a defunct company
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If the land was acquired from a company that has since been wound up or
dissolved, the vendor agency should ensure that the company
has not merely
changed its name
or amalgamated with another company
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[27] In evidence, Mr Manson conceded that the prospect that Aztek might be reinstated to the Register was not something that “exercised my mind”, although he believed that he would have been aware of the possibility generally of a struck off company being restored. He in turn acknowledged that he “may not have been aware” of provisions in the Companies Act that deemed a reinstated company to have continued in existence as if it had not been removed from the Register.6 However, he adhered to the view expressed in his 2011 recommendation that it was impracticable to offer the land back at a relevant time and that it accordingly ought to have been exempted from the requirement in s 40(2) to be offered back.
[28] In terms of the preconditions of offer back identified in s 40(1)(a), (b), and (c) of the Act, Mr Manson’s report noted that NZTA no longer required the property or any interests in it other than pursuant to the encumbrances identified, that there was no known requirement for the property for any other public work, and that there was no known or likely exchange requirement under s 105 of the Act.
[29] The report concluded with a summary:
There are grounds to justify exemption as impractical as the Former Owner is a company that has been struck off.
5 At 17.
6 Companies Act 1993 s 330(2).
[30] The report was received by Mr Knowles as delegated representative of the Chief Executive of LINZ, being the person tasked in s 40(1) with endeavouring to sell the land in accordance with subsection (2).
[31] Mr Knowles in turn tasked a Ms Drysdale to review the advice using an “administrative law check list”. She signed such a check list as decision maker, albeit this is accepted as being in error as it was Mr Knowles who had that responsibility. The check list answers the following questions with a “Y” for yes.
[32] In his evidence, Mr Knowles accepted that these answers were incorrect. He says that the correct answer to question 4 was no and that questions 5–7 were therefore not applicable. He says that was the conclusion he came to in February 2011 when he reviewed the relevant working papers.
[33] Ms Drysdale’s work was, in turn, peer reviewed by a person identified as S Gilbert, who noted in the relevant recommendation section:
As the former owner, a company, has been struck off the Companies Register and no longer exists I agree with recommendation and your findings.
[34] On 21 February 2011, Mr Knowles approved a recommendation exempting the properties. It was already signed by Mr Manson and TPG’s in-house solicitor, Ms Morgansen. In evidence, he said that among the documents that he considered at the time was a current company extract identifying Aztek as having been struck off and as formerly having had a sole director shareholder, Ms Prujean. He accepted he did not consider Ms Prujean as a person interested in the possibility of the land being offered back, that he did not consider contacting her, nor did he regard her as a person prejudicially affected. Indeed, he considered there to be no person in that category. He acknowledged a general awareness of the ability of companies to be restored to the
Register and accepted that had Aztek been restored as at 21 February then he would have regarded it as appropriate that the properties be offered back to it.
[35] A key consequence of the decision that the lands be exempted from offer back to the former owner was that the lands were required to be placed into the Māori Protection mechanism recognised pursuant to the framework agreement signed on 12 February 2010 by the Crown and Ngā Mana Whenua o Tāmaki Makaurau.
[36] The Crown says that, consequently, certain rights and duties have now crystallised, being those pursuant to:
[37] As a result, the Whenua Haumi Roroa o Tāmaki Makaurau Limited partnership (WHR partnership) currently possesses the rights and the Crown the corollary duties to the properties. These include the rights and duties pursuant to Subpart 1 of the Ngā Mana Whenua o Tamaki Makaurau Collective Redress Act 2014—including, in particular, the right of first refusal to purchase the land.
The legal position – striking off and reinstatement
[38] The plaintiffs submit that the incorporation of Aztek to hold the land in 2001 simply reflects the commercial reality that corporate structures are common place for the retention and development of land. But at the outset it is necessary to reaffirm the principle of separate legal personality enshrined in s 15 of the Companies Act 1993 in terms a company is “a legal entity in its own right, separate from its shareholders.7 As the Court of Appeal recently observed in Mahon v The Station at Waitiri Ltd:8
7 Companies Act 1993, s 15.
8 Mahon v The Station at Waitiri Ltd [2017] NZCA 387.
If a commercial party chooses to hold an entity through a company, then that is a choice that they have made and by which they must be bound. A party cannot utilise an incorporated structure for the benefits that it brings them but then disavow the necessary legal consequences of the use of that structure when it suits.
[39] While, therefore, it is highly likely that if the properties had been originally owned by Ms Prujean in her personal capacity, rather than by a private company of which she was sole director and shareholder, the Crown would have been obliged to offer them back to her in 2011, and while at first blush it may seem unfair that a different outcome may potentially result from her incorporation of a company which at the relevant time was struck off,9 to allow such considerations to dictate outcome would in my view be to undermine the basic concepts of incorporation and limited liability.
[40] The starting point then is to consider the status of Aztek as at February 2011 (noting that it was no different in 2012 when the plaintiffs alternatively say an opportunity should have been given for its reinstatement), and the consequences of such reinstatement in 2015.
[41] Again, the analysis begins with s 15 of the Companies Act. It provides that a company “continues in existence” as a legal entity in its own right “until it is removed from the New Zealand Register”. In the present case, such removal occurred in 2009, as a result of a failure to file an annual return. What then was the result? In Wire Supplies Ltd v Commissioner of Inland Revenue,10 Courtney J saw it in unequivocal terms:
[22] In my view, a company ceases to exist for all relevant legal purposes upon removal from the register under s 318. I do not see any basis for resisting the obvious effect that removal of a company from the register has. That effect cannot be denied simply because the company concerned may one day be restored to the register.
10 Wire Suppliers Ltd v Commissioner of Inland Revenue HC Auckland CIV-2003-404-6401, 1 September 2005. (Strike out decision, subsidiary to the main judgment in [2005] NZHC 1213; [2006] 2 NZLR 384).
[42] Likewise, in Clark v Libra Developments Ltd, the Court of Appeal described a company that has been removed from the Register as “no longer a company” having earlier referred to it as being in a state of “suspended animation”, that is suspended emptiness.11
[43] In short, as at February 2011 (or 2012) Aztek did not exist as a legal entity. I see this as the inescapable consequence of s 15.
[44] However, ss 328 and 329 provide mechanisms by which companies that have been removed from the Register (for example, because of failure to file returns or as a final step in their liquidation) may be restored.
[45] Section 330(1) provides that such restoration occurs when a notice signed by the Registrar, stating that the company is restored to the register, is registered under the Act. Significantly, s 330(2) then provides:
(2) A company that is restored to the New Zealand register shall be deemed to have continued in existence as if it had not been removed from the register.
[46] The Court of Appeal has twice addressed the purposes of this provision. In
Clark v Libra Developments Ltd, it stated:
[200] No doubt it was in recognition of the legal and practical difficulties caused by trading during a period of removal from the register that Parliament gave the Court power in ss 328(6) and 329(4) to make orders on restoration designed to place the company and others as nearly as possible in the same position as would have been the case had removal not occurred. ...
[203] But Parliament recognised that because the grounds for removal in s 318 are wide and removal may follow the company’s failure—sometimes minor failure—to comply with its statutory obligations, the Court or the Registrar should have the power of restoration to the register in appropriate cases and, should that occur, it is also appropriate that the company and all those dealing with it during the period of removal should not be disadvantaged by its and their actions during the period it was off the register. Accordingly, neither it nor they can challenge the validity of actions taken, including during the period of its removal, and the Court is given power on restoration so to adjust the rights and obligations of the
11 Clark v Libra Developments Ltd [2007] NZLR 709 at [201].
company and those involved with it as to place them as nearly as possible in the same position as if it had not been removed.
(emphasis added)
[47] Likewise, in the more recent decision of Great North Motor Company Limited (In Receivership) v Commissioner of Inland Revenue, the Court stated:12
[52] What is clear, however, is that the Companies Act 1993 is driven by the desire for commercial certainty. The long title states, among other things, that the Act defines “the relationships between companies ... and their creditors” and provides “straightforward and fair procedures for realising and distributing the assets of insolvent companies”. Section 330(2) is straightforward and fair: neither the restored company nor third parties can challenge the validity of actions taken during the period of its removal. That is the starting point for Great North and the Commissioner. Any judicial alteration to their positions under ss 328(6) or 329(4) “as may be necessary or desirable” deviates from that starting point, albeit guided by the underlying concern to place the restored company and any other persons as nearly as possible in the same position as if the company had not been removed from the register. Put another way, the Court’s power to give directions or make such orders is superimposed on a default statutory rule.
(emphasis added)
[48] As these statements confirm, the section is directed to ensuring that there can, assuming subsequent restoration, be no challenge to the validity of actions taken by either the company or those dealing with it during the period the company is removed. The mischief that the section addresses is the legal and practical difficulties of trading during the period of removal.
[49] What it does not, however, provide is that actions lawfully taken by the Crown, on the accurate premise that the corporate entity from which it acquired land no longer existed, are in some way made retrospectively unlawful by subsequent restoration to the register. I accept the submission of the Attorney-General that s 330(2) was never intended to operate in that way. To the extent the plaintiffs’ claim assumes a different starting point, I reject it.
[50] However, it remains to be decided whether, having regard to the terms of s 40 and its legislative purpose, the Chief Executive of LINZ acted lawfully in concluding
that the properties be “excepted from offer back to the former owners or their successors”. This necessitates that I canvass some of the very extensive authority in respect of the section.
Section 40—Background purposes and application
[51] I include the section in full:
40 Disposal to former owner of land not required for public work
(1) Where any land held under this or any other Act or in any other manner for any public work—
(a) Is no longer required for that public work; and
(b) Is not required for any [other public] work; and
(c) Is not required for any exchange under section 105 of this Act—
the chief executive of the department within the meaning of section 2 of the Survey Act 1986 or local authority, as the case may be, shall endeavour to sell the land in accordance with subsection (2) of this section, if that subsection is applicable to that land.
(2) Except as provided in subsection (4) of this section, the chief executive of the department within the meaning of section 2 of the Survey Act 1986 or local authority, unless—
(a) He or it considers that it would be impracticable, unreasonable, or unfair to do so; or
(b) There has been a significant change in the character of the land for the purposes of, or in connection with, the public work for which it was acquired or is held—
shall offer to sell the land by private contract to the person from whom it was acquired or to the successor of that person—
(c) At the current market value of the land as determined by a valuation carried out by a registered valuer; or
(d) If the chief executive of the department within the meaning of section 2 of the Survey Act 1986 or local authority considers it reasonable to do so, at any lesser price.
(2A) If the chief executive of the department within the meaning of section 2 of the Survey Act 1986 or local authority and the offeree are unable to agree on a price following an offer made under subsection (2) of this section, the parties may agree that the price be determined by the Land Valuation Tribunal.
(3) Subsection (2) of this section shall not apply to land acquired after the 31st day of January 1982 and before the date of commencement of the Public Works Amendment Act (No 2) 1987 for a public work that was not an essential work.
(4) Where the chief executive of the department within the meaning of section 2 of the Survey Act 1986 or local authority believes on reasonable grounds that, because of the size, shape, or situation of the land he or it could not expect to sell the land to any person who did not own land adjacent to the land to be sold, the land may be sold to an owner of adjacent land at a price negotiated between the parties.
(5) For the purposes of this section, the term successor, in relation to any person, means the person who would have been entitled to the land under the will or intestacy of that person had he owned the land at the date of his death; and, in any case where part of a person's land was acquired or taken, includes the successor in title of that person.
[52] A number of cases have addressed the legislative purpose of s 40. Most recently, the Court of Appeal in Williams v Auckland Council described the section as “remedial”:13
Its purpose was to address the consequences of a decision by government or a local authority to take land for a proposed public work which did not proceed.
... Fairness required that those owners or their immediate successors should be given the opportunity to buy the land back.
[53] This accords with earlier observations of the Court of Appeal:14
[60] The underlying policy [of s 40] is to increase the protection to the rights of property owners when land is taken...
[54] In Deane v Attorney-General, Hammond J memorably described the Crown’s compulsory powers of acquisition under the Act as “draconian” but “necessary ... in a complex and collective society”.15 As a consequence, however, of their direct interference with property right, he identified such powers as “strictly construed”, and required to be exercised in “good faith” and “even-handedly”. He then went on to state:16
In this country, as a further measure of fairness, s 40 was amended to its now formulation to provide that, in the terms conferred by the section, once land is no longer required for a public work it must be offered back to the former owner.
13 Williams v Auckland Council [2015] NZCA 479, (2015) 7 NZ ConvC 96-013 at [100].
14 Attorney-General v Edmonds CA97/05, 28 June 2006 at [60].
15 Deane v Attorney-General [1997] 2 NZLR 180 at 191.
16 At 192.
[55] In his Honour’s view, persons from whom land was compulsorily acquired retained an “inchoate right to repurchase” and that attempt to treat s 40 on a “strictly commercial footing” were wrong in principle because the section “cannot be understood in isolation from its broad purpose: the vindication of the inchoate rights of the former owner”.17
[56] I accept these authorities as identifying the broad framework within which this case must be decided.
[57] Nevertheless, it is also clear from the authorities that s 40 operates as a code. That was expressly recognised by Baragwanath J in Glucina v Auckland City Council & Ors:18
The statutory language establishes what is in my view a clear code as to what is to occur. The language of the provision is specific; it provides explicitly to whom the offer is to be made, namely the former owner and if the former owner is a deceased individual “successors” as defined in s 40(5). The definition is inconsistent with the inclusion of an assignee.
[58] The sequential steps that such code provides for were elaborated in the leading Court of Appeal decisions in Attorney-General v Hull19 and Attorney-General v Morrison.20 In Morrison, they were described in the following terms:
[17] In Attorney-General v Hull [2000] NZCA 107; [2000] 3 NZLR 63 this Court set out the processes to be followed when s40 of the Public Works Act applies. As indicated at para [41] of that decision the first, and usually determinative, criterion in s 40 is satisfied when, in terms of subs(1)(a), the land is no longer required for the purpose for which it was taken. Whether that is so is a question of fact involving an assessment of intention in the light of objective circumstances. Proof that the land is no longer required for the relevant public work may be achieved by demonstrating an affirmative decision to that effect. The point can also be established by examining the conduct of the body holding the land and, if appropriate, drawing an inference that the body has concluded that it no longer requires the land for that work.
...
[19] The next step, as set out in para [43] of Hull, is for the landholding agency (in this case the Housing Corporation) or the Chief Executive to take reasonable (and, we add, expeditious) steps to ascertain whether the land is or is not required in terms of s40(1)(b) or (c). Fisher J, in his judgment in this
17 At 193.
18 Glucina v Auckland City Council and Ors HC Auckland M931/95, 28 February 1996.
19 Attorney-General v Hull [2000] NZCA 107; [2000] 3 NZLR 63 (CA).
20 Attorney-General v Morrison [2002] NZCA 198; [2002] 3 NZLR 373 (CA).
case, expressed the view that this passage was difficult to reconcile with the decision of both this Court and the Privy Council in Horton.
[20] We have no such difficulty. If the land is required for the purposes set out in s40(1)(b) or (c) then the offer back provisions are not triggered. If, once s40(1)(a) was satisfied, no inquiry could be made of other agencies then land could conceivably be offered back despite it being required for the purposes set out in s40(1)(b) or (c). This cannot have been the statutory intention as it would render those paragraphs nugatory in such a case. Nor can it be the case, however, that an agency or the Chief Executive can delay indefinitely, ostensibly ascertaining whether paras (b) and (c) are satisfied, on the basis for instance that some other agency may possibly require the land. That would defeat the purpose of s40.
[21] If, after inquiry, the land is not required for the purposes set out in s40(1)(b) or (c) the Chief Executive must, as set out in para [44] of Hull, give bona fide and fair consideration to whether the statutory course of offer-back would be impracticable, unreasonable, or unfair under subs (2) or whether in terms of subs (4) the land is instead to be sold to an adjacent owner. Unless one of those exceptions applies, the Chief Executive must offer the land back to the original owner.
[22] The timing of that offer back will depend on the facts in each case but a reasonable time in the circumstances to ready the land for sale and to locate the original owner or successors in title of the land is allowed—see McLennan.
[59] In its terms, and as confirmed by the authorities, the obligation to endeavour to sell the land in accordance with the subsection crystallises at the point the land is no longer required for the public work for which it is held (assessed objectively drawing appropriate inferences) nor required for any other public work or exchange.21 A reasonable time is then allowed to the Chief Executive to ready the land for sale and to locate the original owner or successors as defined in s 40(5).22 At that point (actual or deemed) a right to an offer vests subject only to being defeated by what the Court of Appeal described in Attorney-General v Edmonds as “the exercise of the discretion conferred by s 40(2)(a) or by the existence of facts set out in s 40(2)(b)”.23
[60] In McLennan v Attorney-General Smellie J described the obligation both to “endeavour to sell the land in terms of s 40(1) and determining to offer to sell the land in terms of s 40(2)” as ones which must be discharged “timeously and with due
21 Section 40(1)(a)(b) and (c).
22 It is common ground that the “successor” provisions do not apply in this case.
expedition in all the circumstances of the particular case”.24 Inappropriate delay in a rising property market may, as a result, mean that “current market value” at which the property must be offered is that applicable at an earlier time.
[61] I accept the submission of the Attorney-General (based on the Court of Appeal’s decision in Edmonds)25 that the obligation to offer back is one which accrues at a single fixed point in time. This will not be earlier than that allowed for the completion of reasonable inquiries about the identity/whereabouts of the person from whom the land was acquired or their successors. It is at that same point that the assessment of whether it would be impracticable, unreasonable or unfair to offer to sell the land back is made. It is not a continuing obligation thereafter.
[62] Typically, in tandem with such inquiries will be steps to ready the land, including finalisation of any subdivision or registration of any covenants or the like. However, as subsequently discussed, I cannot identify any restriction on offering to sell the land subject to the imposition of such covenants, assuming the other inquiries are complete, in which case the singular assessment of impracticability, unreasonableness or unfairness will occur immediately prior to the offer.
[63] In this case the decision was made that it was impracticable to offer the property back because the corporate entity from which it had been acquitted no longer existed.
[64] Predictably, the authorities require that any assessment of impracticability (or unreasonableness or unfairness), in terms of s 40(2)(a), must be undertaken in good faith26 and fairly.27 In the High Court decision in Edmonds, Miller J said (in terms which were not disturbed on appeal):
[150] A decision having been made to invoke s.40(2)(a), the Chief Executive is under a duty to reach a decision in good faith and fairly. In Hull, the Court of Appeal held that the Chief Executive must give ‘bona fide and fair’ consideration to s40(2)(a). Good faith is self-explanatory, and it is not in issue in this case. Three points may be made about the requirement that
24 McLennan v Attorney-General [1999] 2 NZLR 469 at 481.
25 Attorney-General v Edmonds CA97/05, 28 June 2006.
26 Or “bona fide”. I regard the terms as synonymous.
consideration be fair. The first is that it is an objective standard; the Court may determine whether the decision was fair. It must do so by reference to the statutory language of ‘impracticable, unreasonable, or unfair’. Such a standard obviously leaves the Chief Executive with a substantial degree of discretion. Second, fairness must be assessed from the perspective of the former owner, whose rights are protected by s40 and to whom a duty to act fairly when invoking s.40(2)(a), if it is to mean anything, must be owed. Third, the rights or interests of others (including the agency itself) may also be considered, since the Chief Executive may decide to retain the land if it would be ‘unreasonable’ or ‘unfair’ to sell it to the former owner.
[65] In none of the cases does there appear to have been an express finding as to the meaning of “impracticable” in the s 40(2)(a) context. In Hood v Attorney-General the Court of Appeal noted, without specific imprimatur, counsel’s submission that “impracticable” means something that cannot be done rather than just presenting practical difficulties.28 But that case was concerned with application of the words “unreasonable” and “unfair”, not impracticable.
[66] The same was the case in Attorney-General v Edmonds, where the Court of Appeal said:29
[125] On the second issue, that is whether offer back would be unfair or unreasonable, the Crown submits that from Hood it is clear that the Court has to undertake a broad analysis concerned essentially with the balancing of the competing rights and interests created by the Act. The matter should not be judged only from the point of view of the land-holding agency. The submission is that the Court has given priority to interests of the former owner which is not correct especially where those interests are solely commercial.
[67] Likewise, the Court of Appeal’s judgment in Nicholls v Victoria University of Wellington recorded the trial judge’s finding that “it had not been contended that it was impossible or impracticable to trace at least some of the previous owners of successors”.30 But the Court did not further comment on the possible differences in meaning between “impracticable” and “impossible”, which the trial judge may have intended.
[68] Significantly, however, both Hood and Nicholls highlight that the s 40(2)(a) inquiry is one where the usual focus will be on the identification/tracing of the
28 Hood v Attorney-General CA16/04, 2 March 2005 at [71].
29 Attorney-General v Edmonds CA97/05, 28 June 2006.
30 Nicholls v Victoria University of Wellington [2001] NZCA 319; [2002] 1 NZLR 659 (CA) at [15].
previous owner or successors. In Nicholls it had not been contended that it was impossible or impracticable to trace them. In Hood it was held that the case was “not one where successors to the former owners are dead or cannot be located”. That focus arises from the terms of s 40(2) itself and in particular the obligation to offer back “to the person from whom it was acquired or to the successor of that person”. In the present case, the Attorney-General contends that the requisite identification process took place—there was no difficulty in doing so. It is just that what was identified was a company that no longer existed.
[69] Outside the context of the Act, the word “impracticable” has received some, although limited, judicial consideration. In Exchange Commerce Corp Ltd v New Zealand News Ltd, for example, the Court of Appeal said in relation to the “impossible or impracticable” test in the then r 299 relating to pretrial discovery:31
Then there are the words “impossible or impracticable”. There is some, but not much, difference between these words in ordinary parlance. A thing is said to be impracticable when it cannot be done, when it is practically impossible to do it. ...
[70] The “practically impossible” formulation mirrors in part the Oxford English Dictionary definition:
Impracticable...
1. Not practicable; that cannot be carried out, effected, accomplished, or done; practically impossible.
[71] I proceed on the basis that impracticability does not require literal impossibility, but note that such shade of meaning as exists between the two words is irrelevant in the context of the present dispute. The Attorney-General’s position is that it was (literally) impossible to offer to sell the land to the person from whom it was acquired and therefore necessarily impracticable.
The causes of action
[72] These are three-fold.
31 Exchange Commerce Corp Ltd v New Zealand News Ltd [1987] NZCA 94; [1987] 2 NZLR 160 (CA) at [164].
(a) In the first, the plaintiffs allege a breach of statutory duty in failing to offer to sell the property to the first plaintiff. It seeks a declaration that it should do so and that the offer price should be the market value of the land at the date it was determined to be no longer required.
(b) In the second, they seek judicial review of the decision that the land be exempted from offer back on the grounds set out in s 40(2)(a). Such claim is premised on the failure to give Ms Prujean an opportunity to apply to restore Aztek to the register, and the ability of the company to be so restored, despite having formerly been “struck off”. The relief sought is that the decision to exempt the property from the requirement to offer back be set aside and that the defendant now reconsider the decision.
(c) In the third it says that because at the time the exemption decision was made the relevant encumbrances had not been registered to protect the public work, the decision was premature with the result that a declaration should be made that the property was at that stage still required for the public work for which it was held and should now be offered to Aztek at the market value applicable when the encumbrances were registered (30 April 2012).
The plaintiffs’ case
[73] The plaintiffs’ overarching submission in relation to the first and second causes of action is that the obligation to “endeavour” to sell the land, in s 40(1), should be distinguished from the obligation to sell in s 40(2) and should include an endeavour on the part of the Chief Executive to “put himself in a position to sell [the property] back to the former owner or his or her successors even if such entity does not at that time lawfully exist”.32
[74] In relation to the second cause of action the plaintiffs say that in failing to give Ms Prujean the opportunity to restore Aztek to the Register, the Chief Executive acted
32 Mr Casey QC’s proposition as recorded by me in one argument.
in a manner that was contrary to the policy and objectives of s 40, that his decision failed to give weight to Ms Prujeans interests as former owner of the shares in Aztek and that it was one which, “taken in the round”, was unreasonable, irrational or substantially unfair.
[75] In both cases, the plaintiffs submit that their position is supported by:
(a) The statements of general principle that I have previously identified in relation to s 40.
(b) The “endeavour” requirement in s 40(1).
(c) Recognition in the authorities that the obligations under s 40(2) requires the Chief Executive to consider “fairness to any other affected third party or parties”,33 in which category they place Ms Prujean as shareholder of the former company.
[76] The plaintiffs further say that the obligation on the part of the Chief Executive—to endeavour to put himself in a position to sell the property back to Aztek—included an obligation to make “a reasonable and bona fide attempt” to locate Aztek’s shareholder and director Ms Prujean, and give her an opportunity to allow her to seek to restore it to the Register. Mr Casey QC submitted that, in a contemporary context, this would include a Google search, which, given Ms Prujean’s unusual name and internet presence through her employment, would have readily facilitated contact. He further submitted that the obligation would then extend at least to advising her that she may wish to seek legal advice, following the Crown’s decision that land acquired from the former company was no longer required for the purposes held.
[77] In respect of TPG and the Chief Executive’s reliance on standard LINZS 15000 and Guideline LINZG 15700, the plaintiffs submit that while they provide guidance in respect of the process and are relevant, neither takes precedence over s 40 nor are
33 Relying on the High Court decision in Hood v Attorney-General HC Wellington CIV-2002-485- 819, 22 December 2003 at [92], which it says was endorsed on appeal. I note the endorsement was not specific to the actual observation but was of the result.
they “exhaustive or determinative”.34 As such, they say that recognition in the guidelines that it may be impracticable to make an offer back in the case of a “defunct company” and in both the Standard and Guidelines to the fact that, in the company context, it is only “succeeding entities” (as for example in the case of name change of amalgamation) that need to be considered when a company is defunct, is not an answer to the judicial review claim.
[78] In respect of the third cause of action, the plaintiffs say that the issue is not what might or might not have been inserted as terms in an offer. But rather whether as a matter of fact the land was “no longer required”. It says that, until registration of the rights reserved was effected, the land was still required for public works purposes being “the subsurface (strata) for the tunnel and also for protection against reverse sensitivity”. The plaintiffs say therefore that the February 2011 determination under s 40(2)(a) was “premature”.
Discussion
First and second causes of action
[79] At the outset, it is in my view necessary to identify that the “endeavour” obligation, on which the plaintiffs so significantly rely, is one that is:35
... to sell the land in accordance with subsection (2) if that subsection is applicable to the land.
(emphasis added)
[80] As such, it does not stand in isolation from the obligation to offer to sell in s 40(2). If at the time the preconditions in s 40(1)(a)(b) and (c) are satisfied, the Chief Executive is in a position to determine that the offer obligation is not applicable (because for example it can then be determined to be impracticable) then in my view no further “endeavours” are required.
34 Relying on Bowler Investments Ltd v Attorney-General [1987] NZHC 333; (1987) 7 NZAR 73 (HC) where the Court held that the guidelines had placed an erroneous emphasis on the element of compulsion when they suggested it would always be unreasonable to offer back when the acquisition had not occurred compulsorily.
35 Public Works Act 1981, s 40(1).
[81] Often of course the two will not be coincident because significant further inquiry will be necessary on the part of the Chief Executive either to identify/locate the party from whom the land was acquired, or (more commonly) to pursue what the cases recognise can often be time consuming investigations into the identity and whereabouts of successors, in terms of s 40(5). That was not, however, the case here. As at 21 February 2011, when the Chief Executive’s delegate Mr Knowles made his decision to exempt the lands from offer back, there was a coincidence of NZTA decision that the land was no longer required, Chief Executive decision under s 40(1)(b) and (c) (which must be assumed to have been made contemporaneously with the exemption on 21 February 2001) and decision that it was impracticable to offer back because of the then status of the original vendor (non-existent or “defunct”).
[82] Furthermore, the fact that the application of subsection 2 is identified as a prerequisite to the “endeavour” obligation means that the operative words of subsection 2, “shall offer to sell the land .... to the person from whom it was acquired or the successor of that person”, are a legitimate part of the decision-making framework from the outset. And if, at that point (that is when the endeavour obligation itself crystallises), the person (in this case company) from whom it was acquired does not exist, with the result that it is not only impracticable but impossible to sell the land to it, in my view the endeavours may legitimately cease.
[83] Although I accept the plaintiffs’ submission that there is, within the authorities, significant emphasis on the vindication of the inchoate rights of vendors, such rights occur within a codified framework, which recognises:
(a) as a prerequisite that the party from whom the land was acquired (or successors) exist;
(b) that it is not impracticable, unreasonable or unfair to offer to sell the land to them; and
(c) as provided for in s 40(2)(b), that there has not been a significant change in the character of the land.
[84] The very specific provisions in the Act relating to “successors” reinforce this conclusion. They limit the term to those who would have been entitled to the land under the will or intestacy of the person from whom it was acquired and would (apart from that person’s death) otherwise have been entitled to the offer. They reinforce that only in limited circumstances is the Chief Executive concerned to inquire beyond the existence and identity of the former owner. It is common ground in these proceedings that the “successor” provisions do not apply.
[85] It follows therefore that in my view when Standard LINZS 1500 and Guidelines LINZG 15700 confine themselves, in the context of “defunct” companies, to an examination of whether there has been a name change or amalgamation and do not contemplate possible restoration to the register under the Companies Act provisions, they do no more than recognise the codified circumstances in which an offer back is to be made. Although, therefore, I accept the plaintiffs’ starting point that the Standard and Guidelines are not decisive in a judicial review context (except potentially in relation to an allegation of unreasonableness or irrationality), I regard them as, in this case, simply reflective of the statutory framework.
[86] In my view, the plaintiffs also go too far in saying that the obligations recognised by the High Court in Hood, “to consider fairness, not only to the former owner, but to the Crown and any other affected third party”, extend to the former shareholder of what is, at the time the relevant decision is made, a non-existent company. Hood was a case where the third party interests concerned (those of the Council) already subsisted in the property at the relevant date. Here what is contended for is an interest in reinstating a party that would, in turn, be entitled to assert a right to an offer. It is in my view too indirect. Moreover, the argument tends to conflate owner and shareholder in a way that is inconsistent with principle and the recent observations of the Court of Appel in Mahon.36 And it is again difficult to reconcile with the tight prescriptions on identification of “successor”. If the relevant third party is to be one associated with the person from whom the land was acquired then, in my view, the scheme of the section suggests that their interests are only recognised to the extent they derive from “succession” as defined in s 40(5).
36 Mahon v The Station at Waitiri Ltd [2017] NZCA 387 at [37].
[87] The plaintiffs’ essential argument must also be tested against other potential applications. If they are correct, then logically it would also follow that, if in the course of establishing the identify of successors, the Chief Executive received information that someone had, for example, the potential to make a Family Protection Act 1955 claim in respect of the property or may qualify as a successor if they sought a declaration of paternity, there would be a like obligation to that suggested in the present case to place such person on notice that they should be seeking legal advice. And, since a creditor also has standing to seek restoration of a company to the Register,37 if the plaintiffs were correct in their position, then, in the case of a company whose liquidation is complete and that has consequently been removed under s 318(1)(c), the Chief Executive would appear to again be under an obligation to identify and notify creditors.
[88] In both cases, I consider this places the obligation too highly (and potentially very onerously). Indeed, I accept the submission of the Attorney-General that it would involve the Chief Executive stepping outside the terms of his mandate.
[89] In my view, what is required of the Chief Executive is to take a “snapshot” in time, typically at the conclusion of the reasonable time allowed to identify the previous owner and successors but, as in this case, one that could be taken at the outset of his “endeavours”. And the parties that are captured in that “snapshot” (if any) are those in whom a right to an offer vests (subject to the defeasance provisions in s 40(2)(a) and (b). If there is no-one in the frame, as in this case, then disposal of the land is governed by s 42 and not by the offer back provisions. It is impossible in that situation for the land to be sold to the person from whom it was acquired or their successor. Perforce it is also impracticable to do so.
[90] It follows that, in my view, neither the first nor second causes of action are made out. I add only that in relation to the claim for review:
(a) There is not in my view any basis for suggesting that the Chief Executive acted unreasonably or irrationally in his decision to exempt
37 Companies Act 1993, ss 328(2) and 329(2).
the lands from offer back since his decision accorded with the codified scheme.
(b) Nor can it be said that he failed to take into account a relevant consideration in terms that “the reason why [Aztek] had been removed from the Register [was because] its only asset (the property) had been acquired under the Act”.38 There is no reason to suggest that this was knowledge the Chief Executive had or should have had and the point was not pressed in submissions.
(c) I do not consider any reviewable ground arises from Ms Drysdale’s incorrect response to whether she had “identified persons prejudicially affected by the proposed decision” (and the associated questions). She was not the decision maker. That was Mr Knowles’ role in his capacity as the Chief Executive’s delegate. It is clear from his evidence that he was uninfluenced by the error and proceeded (consistently with the Standard, the Guidelines and TPG’s recommendation) on the basis that there was no such prejudiced party because the corporate entity from which the property had been acquired no longer existed.
Third cause of action
[91] The plaintiffs say the decision under s 40(2)(a) was premature. Because Aztek had similarly not been restored to the Register at the later date (pleaded as 30 April 2012 but in fact 22 March 2012) when registration of the Gazette Notices and Covenants occurred in relation to the interests retained by the Crown, it is difficult to identify how practically the claim can alter the outcome.
[92] To the extent that it is suggested another determination should have been made in March 2012, and that the failure to do so equates to breach of statutory duty, I find the argument unattractive. Although the authorities indicate that there is no obligation to offer to sell until after a reasonable period of time to ready the land, which might include, for example, subdivision or the reservation of a stratum estate or the creation
38 Statement of claim paragraph 13(b).
of covenants, I can see no objection to the Chief Executive (assuming he has already identified the offerees) offering to sell at an earlier time and on a basis which specifically recognises the rights to be reserved. Such may indeed represent an even more punctilious discharge of the requirement to be timely in offering the land to the appropriate parties—an obligation that at least in part derives from the historical tendency of property prices to increase over time.
[93] That conclusion seems to me consistent with the Act’s definition of land, which includes “any estate or interest in land”, with the result that the obligation to “endeavour to sell the land” can be discharged by reference to such part of the estate or interest in the land as is no longer required for the public work. It is also consistent with the decision of this Court in Kerr-Taylor v Attorney-General, in which, in response to the defendant’s submission that it would be impracticable to offer the land back without a new title, the Court noted that the responsibility for making a decision as to the impracticability or otherwise of “offering back” lay with LINZ39.
[94] In my view, flexibility should be permitted either for offers to be made on terms that recognise that there will be reservations from the title transferred or, in appropriate cases, for the offer to be delayed pending timely completion of the formalities. If I am correct in that conclusion then likewise I see no basis for criticising the Chief Executive’s decision to exempt the land from the offer back provisions at the point he did.
Discretion
[95] Had my conclusions been otherwise in respect of the Chief Executive’s decision, then there are, in my view, a number of factors which would have weighed against exercise of the Court’s discretion to grant the declarations sought.
[96] For a start, I accept the Attorney-General’s submission that the reason Aztek did not exist at the time the Chief Executive came to consider the offer back provisions (or indeed at the later date contended for in the third cause of action) was solely due to its (and Mr Prujean’s) default in failing to comply with its ongoing obligations to
39 Kerr-Taylor v Attorney-General [2004] 3 NZLR 104 (HC) at [102].
file returns.40 Her previous compliance in this regard underscores her knowledge of the requirements and what can be assumed therefore to be a deliberate decision to allow the company to be struck off. Indeed, she acknowledges in her evidence that although she could not recall receiving any communication from the Companies Office, there was, in any event, “no purpose in keeping Aztek going” and she would “probably not have done anything to prevent it being struck off”. Such a decision must be taken as having been made against her assumed knowledge of the long-standing statutory provisions for offering property back.
[97] The case is therefore one designed to deliver a windfall (in the sense of declaration of entitlement to the properties at a purchase price likely to be significantly less than assumed current value) against a background where such advantage would never have arisen apart from the plaintiffs’ default.
[98] Moreover, in the intervening period between the date of the Chief Executive’s decision in February 2011 and the issuing of proceedings in December 2016, a number of Tangata Whenua rights and Crown obligations arose in respect of the lands pursuant to the various agreements referred to in [36] above and the Ngā Mana Whenua o Tāmaki Makaurau Collective Redress Act. Currently therefore the WHR possesses a statutory right of first refusal under Subpart 1 of the Act.
[99] Neither party made submissions in respect of how the Crown could give effect to the declarations sought by the plaintiffs in light of the third party rights which have in the intervening period been created. At a minimum, however, such rights must weigh against exercise of the discretion sought.
[100] This brings me to a third consideration. As the Supreme Court has recently reaffirmed in Williams v Auckland Council, “the purpose of the Public Works Act is to restore to someone whose land has been compulsorily taken, land with which that person has a personal or familial connection”.41 Aztek was a property developer that had, prior to negotiating its sale to the Crown, been intending to build houses on the remaining lots and to sell them. It cannot be said that its interest in repurchase was,
40 Companies Act 1993, s 214.
41 Williams v Auckland Council [2016] NZSC 20 at [9].
in the words of the Court of Appeal in Hood v Attorney-General, “anything other than
.... commercial”.42 And since, in my view, the likely outcome of the WHR Partnership’s statutory right of first refusal would be to deliver a purely financial result to Aztek (in circumstances where it must be assumed to have already been fairly compensated for the loss of its land), this too would in my view weigh against exercise of the discretion sought.
Result
[101] I give judgment for the Attorney-General on each of the plaintiffs’ causes of action.
Costs
[102] In the absence of agreement between the parties (which should be possible) memoranda may be filed on the following timetable:
(a) Defendant’s submissions 13 August 2018.
(b) Plaintiffs’ submissions 27 August 2018.
[103] Provisionally, I would have thought that a 2B allowance was appropriate. I cannot currently identify any feature of the litigation that would justify an uplift on that.
Muir J
42 Hood v Attorney-General CA16/04, 2 March 2005 at [100].
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