The Court of Appeal has denied a litigation funder a windfall return in a case revolving around land on the Te Atatu waterfront which the Auckland Harbour Board decided in 1949 should become a new port.
The litigation funder, S40 Ltd, has 10 shareholders headed by interests associated with director David Pritchard, of Otaki. They backed the claim by 13 individuals and the Royal NZ Foundation of the Blind, as successors to the interests of the former 7 landowners.
Mr Pritchard, a former director of Housing NZ Ltd, Port Marlborough NZ Ltd and Wellington International Airport Ltd, has had a wide range of property interests. He became a tetraplegic at the age of 61.
The other director is Brian Fitzgerald, a former director of Strategic Finance Ltd who’d moved on well before its demise 5 years ago. He’s maintained a number of property finance interests, including Mondial Associates Ltd, Triumph Capital Ltd, Wakefield Capital Ltd & Willeston Capital Ltd, and owns a number of interests on Princes Wharf, Auckland, including Euro Bar Ltd, parking & commercial units.
S40 refers to section 40 of the Public Works Act 1981, which requires land taken for a public work but no longer required for that purpose to be offered back to the former owner or successor.
The court found against Auckland Council, the successor to the harbour board, on some central points, but baulked at allowing the windfall, largely because of council input over the last 30 years.
The judges – Justices Rhys Harrison (who wrote the court’s reasons), Christine French & Jillian Mallon – said in their ruling, issued last Friday: “We accept, of course, that the owners have established the council’s breaches of their rights; and that in the normal course they should be vindicated by declaratory relief. But, where the owners’ delay has been prolonged and where the effect of allowing them to assert their rights now would be adverse to the council & its ratepayers, the interests must be balanced.
“In undertaking this balancing exercise we repeat that the purpose of section 40 is remedial, designed to confer a personal, not an economic, benefit on those with an attachment to the land. The effect of the litigation funding arrangements is that, in the event of success, the owners will be bound to transfer the land immediately to S40 Ltd. Precisely what they will receive in return was the subject of some disagreement between the parties at the hearing and in additional submissions filed afterward.”
The harbour board notified the owners of the 7 properties in 1949 that their rural land was within an area designated for the construction & development of port facilities and, over the next few years, the board acquired over 75ha from them. But by the late 1970s it became apparent that the port proposal wouldn’t proceed, and the land was progressively rezoned and used for other purposes. Some is now a residential subdivision, most is within a public park and its potential value for housing is very substantial.
Successors of the 7 original owners applied to the High Court for declaratory relief in 2005. Justice John Fogarty upheld all their substantive claims except on a discrete point of statutory interpretation, which he decided in the council’s favour. As a result, the owners’ claims failed.
The Court of Appeal disagreed with Justice Fogarty’s conclusion on the point of statutory interpretation, but otherwise agreed with his dismissal of the council’s defences other than on the standing of 3 owners to sue. As a result, 4 of the 7 owners satisfied the legal elements for their claims.
And then came the crunch: “The final & ultimately decisive question will be whether we should exercise our discretion to grant the owners’ applications for declaratory relief. In this respect the factors of delay and the nature of the owners’ interests in the Te Atatu land will assume particular importance.
“We agree with Justice Fogarty that as a matter of fact the Gazette notice effectively froze both the market & the price. Allowing the council to rely on circumstances which have arisen in the 13 years between the board’s failure to address section 40(2)(c) in a timely way and the council’s resolution would undermine its remedial purpose and enable the council to benefit from its predecessor’s default. And we add that the council’s reliance in its resolution on the section 40(2)(b) factor – of a significant change in the character of the land for the purpose of the public work for which it was held – could not be sustained where no steps had been taken before 1 August 1983 to develop the land for a harbour….
“We have concluded the board was under a duty from 1 August 1983 to offer back the Williams, Flavell, Robertson & Stewart land.”
The Court of Appeal said it appeared undisputed that the owners didn’t learn of the harbour board’s breach of its section 40 obligation until they were approached by representatives of their litigation funder, S40 Ltd, in the early 2000s. The 2 parties who were earlier aware of their rights were both met by the board’s absolute denial of any obligation or by silence.
“The question is whether, with knowledge of the facts giving rise to a right of action, the owners have by their inactivity placed the council in a position where it would be inequitable or unreasonable if the remedy were later asserted.”
In October 1995, Waitakere City Council had 35ha designated for the Harbour View residential subdivision, some became coastal reserve and the remaining 30ha was designated for a public area. The Court of Appeal said the landowners or their successors should have known by then the council intended to use the land for purposes other than for a port.
The council imposed a special levy to develop the Harbour View–Orangihina Park, which was partially funded by a uniform annual charge raised on all properties in Waitakere City for 5 years from July 2001.
Counsel for the landowners’ successors, Colin Carruthers QC, sought to counter the difficulties the council would now face in transferring the Te Atatu land to private interests and unwinding the formal changes to its legal status, saying the council would always be in a position to reacquire it.
“However, this submission serves to highlight an inequity which undermines the owners’ claims. S40 Ltd, the owners’ litigation funder, would be the principal beneficiary of success. The company would acquire the Te Atatu land at 1983 prices, without any adjustment for the time value of money in the intervening 22 years. Inflation over this period, and the rapidly increased demand for land for residential purposes, mean its 1983 value is a fraction of its current market worth. On one estimate, the value of the Te Atatu land as a whole is about $50-70 million. To allow the owners, or more particularly S40 Ltd, to take at the council’s expense the benefit of windfall profits attributable solely to extraneous factors would be contrary to the policy underlying section 40.
“We accept, of course, that the owners have established the council’s breaches of their rights; and that in the normal course they should be vindicated by declaratory relief. But, where the owners’ delay has been prolonged and where the effect of allowing them to assert their rights now would be adverse to the council & its ratepayers, the interests must be balanced.”
The court understood the owners would receive payments in the range of 2.2-4.4% of the current land values (except for the Royal Foundation of the Blind, which was entitled to a larger sum, and David McCormick who would receive a fixed sum of $2 million). “On the other hand, as well as expressing disagreement with some of these calculations, Mr Carruthers emphasised alternative options for the owners under the agreements. Among them are settlement and acquiring shares of an equivalent value in a landholding company under S40 Ltd’s primary control. He also criticised the council’s valuation figures as misleading.”
Out of that, the court said these disputes were beside the point “because, even on Mr Carruthers’ approach, which results in a higher proportion of the land’s current market value going to the owners, the evidence establishes that S40 Ltd has the predominant interest in this litigation and that it is solely of a financial nature….
“However, the change would ultimately be one of degree only. Critically, S40 Ltd would still obtain a substantial windfall attributable to the relentless effects of inflation on land values in West Auckland since 2005. And the council would remain both exposed to a corresponding financial burden and vulnerable to losing the amenity value of the Te Atatu land. These factors would remain decisive against the owners’ amended position.”
The court said in its conclusion: “It is now too late to require the council to offer the Te Atatu land or part of it back to the owners. While the large balance not developed for housing still retains its original physical character, this area as a whole now has an obvious amenity value to the general public, to which local ratepayers have contributed by paying special levies. This value would be lost if the land reverted to private ownership and was later rezoned for development.
“By comparison, the owners would not lose the right which section 40(2) was designed to recognise – they have no personal interest or attachment to the land. Their only interest, or more particularly that of their litigation funder, is financial in nature.
“The owners seek recovery of the land for a windfall profit at the council’s expense in circumstances where the law assumes they have already been fairly compensated for the loss of their land; and where a declaration would effectively grant them a financial remedy which would otherwise be time-barred. The litigation funder would be in a real sense the ultimate beneficiary of the owners’ success.”
Because the court devoted much of its judgment to addressing some defences the council raised – “which, on an objective appraisal of the High Court judgment and the previous judgments on its unsuccessful application to strike out, should not have been pursued on appeal” – no order was made for costs.
Links: Court of Appeal judgment, Charles William Williams And Ors v Auckland Council
Attribution: Judgment, Companies Register.