• icon-head.png
  • icon-phone.png
  • icon-pin.png
  • icon-head.png
  • icon-phone.png
  • icon-pin.png
 

News & Insights

 

Search

News & Insights

When does a Director have Power to Bind a Company?

The customary authority of one director of a board of several, acting alone, is very limited:  there needs to be some evidence of customary authority..

News & Insights

When does a Director have Power to Bind a Company?

The customary authority of one director of a board of several, acting alone, is very limited:  there needs to be some evidence of customary authority


The recent Court of Appeal decision in Bishop Warden Property Holdings Limited v Autumn Tree Limited,[1] upholding an earlier High Court finding,[2] has alarmed some in the legal and business community.

Contrary to some suggestions, the case is not authority at Court of Appeal level for the novel proposition that one director alone cannot bind a company to a contract.  Nor are its particular findings expected to change too much for most ordinary business contracting, as it appears to have been decided very much on its own facts.

The case is nonetheless significant in terms of company contracting.  It reaffirms existing law and the correct interpretation of section 18 of the Companies Act 1993.  It also sends a salutary reminder to those involved in negotiating and settling contracts as to the extent of a director’s authority and as to when care should be exercised in assuming actual or apparent authority.

Key facts

The case involved an application by Autumn Tree to remove a caveat from land it owned that was subject to an unconditional sale and purchase agreement with Bishop Warden.

Autumn Tree was a company formed solely for the purpose of owning and subdividing some residential land in Meadowbank, Auckland.  This was its sole property.  The company was owned by 3 shareholders, with a Mr Zhao holding 50%, Anna 30% and Tina 20%.  Tina was sole director, seemingly as nominee for all 3 shareholders.

Removal of the caveat depended on whether or not the Agreement was valid (ie. had been validly entered into).  It was accepted that if the Agreement wasn’t valid, Bishop Warden had no interest to support its caveat and the caveat should therefore be removed.

In the space of one afternoon, late on 3 August 2017, Mr Blomfield (representing Bishop Warden) and Tina negotiated a sale and purchase of the land, valued post-subdivision at some $3.35M, for $1.1M.  Tina had explained she wanted to exit the company and did not want to proceed with the subdivision.  Mr Blomfield alleged he believed at the time, based on a company search undertaken that morning, that Tina was the sole director of Autumn Tree.

Unbeknownst to Mr Blomfield, some sort of disagreement existed between the Autumn Tree shareholders as a result of which the Companies Office records were adjusted by Autumn Tree’s accountants on instruction from Mr Zhao.  The companies register showed a transfer of Tina’s shareholding in Autumn Tree to Anna being registered just before midday on 3 August, and Anna registered as a new director around 1 pm.  Tina’s removal as a director was not recorded until 5 August, but was effective from 3 August.

The legal issue

The legal argument centred around section 18(1) of the Companies Act and its codification of the common law “indoor management rule” and the doctrine of apparent authority.  Applied to the facts, the question was whether, as one of two directors, Tina had authority to bind Autumn Tree to the Agreement.

Section 18(1) and the indoor management rule

Section 18(1) is based on the proposition that a person dealing with a company is entitled to assume that the company’s internal requirements have been complied with and its officers are acting lawfully.  Otherwise, business interactions would be greatly complicated.

To this end, section 18(1) restricts the circumstances in which a company can assert against a person dealing with it that the company, or the person held out by it as acting on its behalf, lacked authority to enter into the relevant transaction.  The company cannot cite:

  1. non-compliance with the Companies Act or the Constitution;
  2. that someone named as a director on the Companies Office records is not a director, has not been duly appointed, or does not have authority to exercise a power which a director of such a company customarily has;
  3. that a person held out by it as a director, employee or agent has not been duly appointed or does not have authority to exercise a power which such persons customarily have in businesses of that type; or
  4. that a document issued on behalf of the company by a director, employee or agent with actual or usual authority to issue the document is not valid or genuine,
unless, in each case, unless the person has, or ought to have, by virtue of his or her position with or relationship to the company, knowledge of the relevant defect.

The courts’ decisions

Both the High Court and Court of Appeal found that at the time the Agreement was concluded (around 6 pm on 3 August), for all intents and purposes Autumn Tree was holding out both Tina and Anna to be directors.  This was what at the time was showing on the companies register and that amounted to “holding out”.  Mr Blomfield could not rely on his belief that Tina was the sole director, in reliance on his earlier search.

Bishop Warden was found to have failed to establish that Tina had actual authority.  The case therefore fell to be decided on the question of her apparent authority.  Section 18(1) did not assist Mr Blomfield in the circumstances, and Autumn Tree won on its claim that Tina lacked actual or apparent authority and the sale and purchase transaction was therefore invalid.

Both courts found that the position as to customary authority (in terms of section 18(1)(b) and (c)) varies significantly between the customary authority of a sole (or managing) director and that of a director who is one of a board of two or more directors.  The customary authority of one director of a board, acting alone, is very limited.

Citing ample respected academic and judicial authority, the courts noted that a director acting solely in that capacity must act as part of a board in order to bind the company.  Directors can act only collectively as a board.  The function of an individual director is to participate in board decisions.  Absent some express or implied representation made by the company, a director has no ostensible authority to bind it.  Moreover, it is not sufficient for the person claiming authority simply to assert it.  There has to be some representation or holding out by the company.

In this case, the courts held that one of two directors of a property development company, acting unilaterally, does not customarily have authority to enter into a significant property transaction.

It is all a question of what is customary, or usual, director authority for a company of the type in question.  Here, with a company owned by three distinct shareholders, whose sole purpose was to hold this one land asset, it would not be customary for one director acting alone to have authority to dispose of that asset.  Major transaction approval by shareholders would be required.  Moreover, found the High Court, Mr Blomfield was aware of sufficient suspicious circumstances (including the sale price at an obvious under-value) as to have deemed knowledge that Tina would lack authority to transact.  That he was operating under the possibly mistaken impression that Tina was the sole director was no excuse.

Helpfully, the Court of Appeal confirmed the effect of the proviso to section 18(1), reaffirming the High Court’s finding on the proviso in Equiticorp Industries Group Limited (in statutory management) v Attorney-General (No 47)[3].  The proviso creates two classes of knowledge which preclude reliance by the third party on section 18(1):  actual knowledge (including wilful blindness) and constructive knowledge.  Constructive knowledge will only be imputed where there is something in the third party’s position with or relationship with the company to justify it.  This has to be an on-going relationship, rather than that around a one-off transaction.

This limitation on the proviso’s effect means that more often than not, parties will be able to rely on the protection afforded by the indoor management rule as embodied in section 18(1).

Commentary and practical suggestions

The case reminds us of the need for caution, but at the same time we have to be able to go about business sensibly.

The key take-out for lawyers and clients is not that all manner of solicitors’ certificates, additional signatories, warranties and due diligence checks are required.  It will not be a case of requiring all directors, and only directors, of a company to sign contracts.  You will not be needing to vet the company’s corporate authorisation resolutions or delegations (though if you choose to, do correct them if deficient!).

The point is to be aware of the governance limitations as a matter of law (which are both sensible and well-established), consider each set of circumstances on its merits, ask sensible questions of clients, agents and advisors (including about corporate authorisation of the transaction and similar transactions, what is customary for this company and what delegations or powers of attorney are in place).  Undertake what should be regarded as basic housekeeping due diligence (for example, obtaining company searches and updating these just prior to signing, checking what the constitution says about signing of documents).  Check the signatures on the executed document.

Importantly, consider whether there is anything in the circumstances, or through your or the client’s relationship with the company, that means you may not be able to rely on the proviso to section 18:  might you be imputed with some actual or constructive knowledge of a defect in authority, by virtue of your relationship with the company?

Where the consequences of any invalidity are significant, you may want to insist on two directors signing, thus reducing any risk.

From the company’s perspective, as a matter of best practice make sure that transactional authorisations are in place, management are complying with corporate delegations and Companies Office records are up to date.

If you are dealing with a company that has only one sole director, relax.  That director is the board and the voice of the company.  You can rely on that person’s signature unless there is something in the circumstances, or some “holding out” by the company to the contrary.  Be wary nonetheless of the possible need for major transaction approval.
 
 
[1] [2018] NZCA 285
[2] Autumn Tree Limited v Bishop Warden Property Holdings Limited [2017] NZHC 2838
[3] [1998] 2 NZLR 481


Download as a PDF
Close window
x

UDAs in New Zealand: Auckland’s Turn

The concept of urban development authorities as tools to expedite large scale urban development has been floated in New Zealand for over a decade.  The “housing crisis” has, however, injected new momentum into the conversation in recent times with both the previous and current government discussing proposed legislation to introduce urban development authorities.    ..

UDAs in New Zealand: Auckland’s Turn

News & Insights

UDAs in New Zealand: Auckland’s Turn

UDAs in New Zealand: Auckland’s Turn

The concept of urban development authorities as tools to expedite large scale urban development has been floated in New Zealand for over a decade.  The “housing crisis” has, however, injected new momentum into the conversation in recent times with both the previous and current government discussing proposed legislation to introduce urban development authorities.   


Last week Minister for Housing and Urban Development Phil Twyford announced plans to establish an urban development authority in Auckland proposed for introduction by the end of this year or early next year.  The authority’s scope of powers and functions is not yet clear, however it seems likely they will include some ability to fast-track planning approval for projects.  The delivery of housing is clearly the focus for this new entity, but earlier comments from the Government indicate that urban development authorities could also deliver broader infrastructure and community projects in support of its housing focus.


While the proposed Auckland urban development authority will be the first of its kind under the new proposed legislation, it will by no means be the first or only entity empowered by special purpose legislation to fast-track development.  First touted by then Minister Gerry Brownlee as an “urban development authority”, Regenerate Christchurch is a statutory entity charged with and empowered to lead the regeneration of the Christchurch district.  While it does not have the full suite of “tools” that might be expected for an urban development authority (including land acquisition, securing funding, infrastructure development), it does have the ability to override local planning documents to expedite regeneration initiatives.


The experience of Regenerate Christchurch and CERA before it (which was given an even broader suite of powers to enable the expedited recovery of Christchurch) offers invaluable lessons to those who are charged with establishing the new urban development authority, and indeed, to those who are charged with leading it.  Tools granted by special legislation to fast track development can be very effective, both in terms of ease of delivery and in obtaining high quality outcomes.  The use of those tools can also enhance – rather than compromise – public engagement and iwi consultation on urban development projects.  This can, in turn, incentivise innovation and investment, particularly where development can be scaled.  However, as always with great power comes great responsibility.  The exercise of these powers is not without political risk.  As a result the successful use of this legislation will, as Auckland is about to find out, depend at least in part on both the political and public appetite for that risk.


Download as a PDF
Close window
x

Audit of councils’ long term plan consultation documents 2018-2028

The Auditor General has recently released a review of the success (or otherwise) of councils’ 2018-2028 long term plan consultation documents (Consultation Documents). In 2015 it became mandatory for councils to produce Consultation Documents while undertaking a review of their long term plans. The aim of these documents is to provide “an effective basis for public participation in local authority decision-making processes about the content of a long-term plan”. Essentially, the Consultation Documents should provide members of the public with an explanation of the important issues the council faces during the next 10 years...

News & Insights

Audit of councils’ long term plan consultation documents 2018-2028

The Auditor General has recently released a review of the success (or otherwise) of councils’ 2018-2028 long term plan consultation documents (Consultation Documents). In 2015 it became mandatory for councils to produce Consultation Documents while undertaking a review of their long term plans. The aim of these documents is to provide “an effective basis for public participation in local authority decision-making processes about the content of a long-term plan”. Essentially, the Consultation Documents should provide members of the public with an explanation of the important issues the council faces during the next 10 years.


The report looked at the different methods councils adopted when preparing their Consultation Documents and how effective the documents were in facilitating community participation. The report notes that effective Consultation Documents should contain clear language, be clear on which issues are subject to consultation and where to find the underlying information that the content of the document relies on.
 
The Auditor General made several observations on accessibility, length, effectiveness of grouping issues and the questions asked noting these are all important elements that will determine the success of the Consultation Documents. It also assessed the ways councils had tried to improve community participation. The report commended those who engaged with the community prior to the consultation period, focused on effective communication (e.g. using simple language), limited the number of issues consulted on and promoted the documents through advertising campaigns.  It also highlighted the need to update the community about progress on issues already consulted on.
 
In regards to the issue of resilience, the Auditor-General found that most councils acknowledged the need to consider the effects of climate change and risks from natural hazards and observed that councils are developing an understanding of their exposure to risk that will then inform investment decision-making for long-term planning processes.
 
While the Report could not be said to provide any revolutionary insight into the consultation process, it is hoped that it will help to guide councils in the development on their future plans and lead to more meaningful public participation.


Download as a PDF
Close window
x

Mischief mismanaged? Auckland Council’s proposed remedy to its incorrect application of the Auckland Unitary Plan

Over the last couple of days, the media has been covering what has been dubbed Auckland Council’s “botch-up” whereby some 430 consents were granted by the Council for works on properties located within the Single House Zone (SHZ) and Special Character Areas Overlay (SCA Overlay) in accordance with what the Environment Court has held to be an incorrect application of the Auckland Unitary Plan (AUP).  Reports state that the Council is now requiring these consent holders to cease works and apply for replacement consents, to be paid for, and assessed by, Council in accordance with the correct application of the AUP as determined by the Environment Court.  For the reasons set out below, we consider that the Council’s proposed solution, as reported, may be problematic from a legal perspective...

News & Insights

Mischief mismanaged? Auckland Council’s proposed remedy to its incorrect application of the Auckland Unitary Plan

Over the last couple of days, the media has been covering what has been dubbed Auckland Council’s “botch-up” whereby some 430 consents were granted by the Council for works on properties located within the Single House Zone (SHZ) and Special Character Areas Overlay (SCA Overlay) in accordance with what the Environment Court has held to be an incorrect application of the Auckland Unitary Plan (AUP).  Reports state that the Council is now requiring these consent holders to cease works and apply for replacement consents, to be paid for, and assessed by, Council in accordance with the correct application of the AUP as determined by the Environment Court.  For the reasons set out below, we consider that the Council’s proposed solution, as reported, may be problematic from a legal perspective.


Origin of Council’s current action

The Council’s current action has been triggered by a series of three decisions issued by the Environment Court between December 2017 and March this year in the case of Auckland Council v Budden.  Auckland Council sought declarations from the Environment Court confirming that the way it had been applying the AUP rules was correct.  In that regard, where restricted discretionary consent was required for works on a property located within both the SHZ and SCA Overlay, the Council had been assessing the consent application against the Overlay provisions only, as if they replaced the SHZ standards.  The Environment Court held that this approach was incorrect, declaring that:

Where a proposed activity:

  1. is on a site located within both the Residential – Single House zone (“SHZ”) and the Special Character Areas Overlay – Residential (“SCAR”) of the partly operative Auckland Unitary Plan (“AUP”); and
  2. is classed as a restricted discretionary activity either under Activity Table D18.4.1 or, due to its non-compliance with a SHZ or SCAR development standard, under Rule C1.9(2) –

then the relevant SHZ, SCAR and General Rules (and any relevant objectives and policies) apply, in the processing and determination of any resource consent application for the proposed activity, without the SCAR rules prevailing over or cancelling out other rules.

Status of consents granted

While Council has now changed its approach to assessing applications for restricted discretionary activities in both the SHZ and SCA Overlay so that it considers both sets of standards, it is apparent that some 430 consents were granted under its previous, now deemed to be incorrect, application of the AUP.  Importantly however, as a matter of law, the decision of the Environment Court did not overturn these consents.  It is a general principle of administrative law that all things are presumed to be correctly done.  This presumption of validity provides that a decision should be treated as valid unless set aside by a court of competent jurisdiction. 

Council’s proposed remedy

There is no authority for the Council to require consent holders to cease the exercise of their resource consents where such consents have not been overturned or found to be invalid.  While the decisions made by the Council, in accordance with its incorrect application of the AUP, are open to challenge by judicial review (for example, by aggrieved neighbours or community groups), unless and until a determination on them is made, consent holders are entitled to exercise their consent.  While it is pragmatic of the Council to reduce both its risk (as the consent authority that granted the consents in accordance with an incorrect application of the AUP) and the consent holder’s risk (as the holder of a consent granted using an incorrect approach), by requesting consent holders apply for new consents, we do not consider that there is any authority for the Council to require consent holders to do so, or to require them to stop works while their replacement consent application is determined.

If a consent holder does not apply for a replacement consent, they can continue to rely on their existing consent, recognising that there is the potential for it to be challenged on judicial review on the basis of the Environment Court’s declaration.  Even on a successful judicial review on a point of law, practically the consent holder may not be required to alter/remove its consented works as, in our experience, the Courts are less likely to meddle in granted consents where construction has been completed (depending of course on the scale of alterations/development undertaken in accordance with the consent).

The Auckland Council has indicated that consent holders should seek their own advice and we concur with that, however we accept it is somewhat inequitable to require that of consent holders who have relied on Auckland Council getting it right in the first place.  We expect to hear much more about this matter in the weeks to come.


Download as a PDF
Close window
x

Davidson Court of Appeal Decision - Reviving Part 2

The Court of Appeal yesterday released its decision regarding the application of the Supreme Court’s reasoning in King Salmon to resource consent applications.  In the judgment delivered by Cooper J, the Court of Appeal overturned part of the High Court’s judgment, reinstating the ability for consent authorities to have recourse to the purposes of the Resource Management Act in Part 2 in those instances “when it is appropriate to do so”. ..

News & Insights

Davidson Court of Appeal Decision - Reviving Part 2

The Court of Appeal yesterday released its decision regarding the application of the Supreme Court’s reasoning in King Salmon to resource consent applications.  In the judgment delivered by Cooper J, the Court of Appeal overturned part of the High Court’s judgment, reinstating the ability for consent authorities to have recourse to the purposes of the Resource Management Act in Part 2 in those instances “when it is appropriate to do so”. 


The Decision

The long awaited decision offers clarity (for now) on the “pre-eminence” of Part 2 in assessing resource consent applications following the Supreme Court’s rejection of the overall broad judgment approach in the context of plan changes.  Applying King Salmon the High Court determined that because Part 2 had found its expression in the higher order planning documents, recourse to those provisions directly was neither required nor authorised in consent decisions unless some invalidity, incomplete coverage or uncertainty of meaning in those documents could be identified.  That finding, and the application of King Salmon to resource consent decisions, was the subject of the challenge before the Court of Appeal.

In brief the Court considered that the High Court’s position did not find support in the plain language of section 104(1), its legislative context or history, or previous judicial interpretation of the purpose and function of Part 2 in consenting decisions.  Nor did it find support in the judgment of King Salmon itself, or in consideration of the inherent differences between plan changes and resource consents as planning tools under the RMA. The Court identified that planning documents unlike consent applications are developed/amended through a legislative process and as part of a hierarchy which ensures implementation of higher order documents and Part 2.  However, they cannot always furnish a clear answer as to whether consent should be granted or declined.  In those instances the Court found that it is appropriate and indeed section 104(1) provides for, the ability for consent authorities to directly consult the purposes of the Act to reach a decision.

Further the Court of Appeal determined that if the Supreme Court intended its approach to apply “across the board”, it is inevitable that the Court would have expressly said so given the wide reaching implications.  In any event, the Supreme Court’s reasoning was expressly tied to the “plan change context under consideration”.

Those awaiting a return to pre-King Salmon days of the RMA may however be disappointed.  While the Court of Appeal acknowledged the “pre-eminence” of Part 2 in resource consent decisions and reinstated the ability to consult it directly, it considered that the circumstances in which that would be required may be limited, particularly where the relevant plan “has been competently prepared under the Act”.  In those instances where it is clear that a plan has been prepared having regard to Part 2 and contains a coherent set of policies leading toward clear environmental outcomes, reference to Part 2 is unlikely to add anything.  In instances where the NZCPS is engaged, the Court goes as far to say that resort to Part 2 for the purposes of subverting clear restrictions in the NZCPS would expose the consent authority to being overturned on appeal.  However absent assurance of the alignment between Part 2, the planning documents and the proposed consent decision, the Court considered that direct consideration of Part 2 is both appropriate and necessary. That, in the words of the Court, is the implication of the words “subject to Part 2” in section 104(1). 

Implications

So while King Salmon no longer applies to resource consent decisions (at least for now), the Court of Appeal’s judgment is hardly a slam dunk on the Supreme Court’s broader rationale. While decision makers may now consult Part 2 directly on consent applications, the Court is clear that that exercise is unlikely to add anything to the evaluative exercise where the plan is clear on the way Part 2 is to be achieved. In what we would suggest is a cautionary warning shot, the Court adds that in those instances, reference to Part 2 cannot justify an outcome that is contrary to the thrust of the policies.  However where it appears that a plan has not been prepared in a manner which appropriately reflects Part 2, or the objectives and policies are pulling in different directions, consideration of Part 2 is both appropriate and necessary.

We will be following how the Court of Appeal’s decision is interpreted in the coming months, and of course, an appeal of the Court’s decision to the Supreme Court remains a possibility. While the “pre-eminence” of Part 2 has (in our opinion, rightly) been restored for consent decisions, the Court of Appeal’s decision has not significantly eroded the renewed focus on the careful application of the plan provisions.  We would therefore expect increased involvement in plan review processes to secure/protect desired planning and environmental outcomes. 

For further information on this case, its implications or any resource management queries, please don’t hesitate to contact any one of our team.


Download as a PDF
Close window
x

Duffy Books

We are excited this year to be continuing our support of the Duffy Books in Homes Programme.  Since its launch in 1995, Duffy Books has been “inspiring a love of reading in children, so they can become adults who inspire a love of reading.”  By supporting a low decile school operating on an ever-tight budget, the Programme ensures an increasing number of children have the opportunity and resources to read...

Duffy Books

News & Insights

Duffy Books

Duffy Books

We are excited this year to be continuing our support of the Duffy Books in Homes Programme.  Since its launch in 1995, Duffy Books has been “inspiring a love of reading in children, so they can become adults who inspire a love of reading.”  By supporting a low decile school operating on an ever-tight budget, the Programme ensures an increasing number of children have the opportunity and resources to read.


Greenwood Roche is proud to be supporting Riverhills School (Auckland), St Anne’s School (Wellington) and Bamford School (Christchurch).  Our team has enjoyed working together to support the programme, particularly the cake baking competitions! Representatives from each of our offices have attended school assemblies to deliver books to students and have been humbled by the warm welcome we have received.  Books are important to lawyers and its great to see the next generation of readers getting the chance to shine. 

We are looking forward to watching the progress of the children on their path to a lifelong love of reading.  To find out more about the Programme and the difference it is making, or to make a donation, you can visit Duffy Books at http://www.booksinhomes.org.nz.

Photo:  Young pupils of St Anne’s School in Newtown, Wellington


Download as a PDF
Close window
x

Draft Set of National Planning Standard Released for Consultation

The first draft set of National Planning Standards have been released for consultation under the Resource Management Act 1991. Designed to reduce unnecessary variation across regional policy statements and regional and district plans, the proposed standards direct a templated structure, form and some content across these documents. Once these final standards have been notified, councils will have between 5 – 7 years to amend their planning documents accordingly. While we do not anticipate that compliance with the proposed structure and form standards will be overly challenging (particularly for the bigger councils such as Auckland and Christchurch), standardisation of the definitions is more controversial. ..

News & Insights

Draft Set of National Planning Standard Released for Consultation

The first draft set of National Planning Standards have been released for consultation under the Resource Management Act 1991. Designed to reduce unnecessary variation across regional policy statements and regional and district plans, the proposed standards direct a templated structure, form and some content across these documents. Once these final standards have been notified, councils will have between 5 – 7 years to amend their planning documents accordingly. While we do not anticipate that compliance with the proposed structure and form standards will be overly challenging (particularly for the bigger councils such as Auckland and Christchurch), standardisation of the definitions is more controversial. 


Background

The mechanism for allowing central government to design and implement standards which could be applied nationally or for specific localities or regions was introduced in 2017 among a suite of other changes to the Resource Management Act 1991 (RMA). 

The change sought to recognise that while the RMA is necessarily a devolved system in which councils have the ability to tailor their individual regional and district plans and policy statements, the large amount of variation that has consequently occurred has made these documents harder to prepare and use (impacting on efficiency) and has detracted from councils’ ability to invest more time and resource into addressing truly local planning matters.  Some basic standardisation of these documents led by central government is considered to assist in addressing these issues, in addition to creating better alignment and information sharing between councils, and increasing navigability of these documents for professionals and plan users. 

To qualify for standardisation, the Minister for the Environment (or Minister for Conservation if the matter relates to the coastal marine area) must consider that the matter in question:
 

  • requires national consistency;
  • is required to support the implementation of a national environmental standard, a national policy statement, a New Zealand coastal policy statement or regulations made under the RMA;
  • is required to assist people to comply with the new procedural principles set out in section 18A of the RMA.
There are a range of matters to which the Minister may have regard when developing a national planning standard, and a range of higher order documents to which those standards must either give effect to or be consistent with. 

For mandatory directions, councils are not required to use the normal Schedule 1 process to amend their plans to align with these standards, avoiding any added cost and delay associated with the standard consultative process of plan changes.  For discretionary directions (where councils have options over which provisions they implement), one of the Schedule 1 processes must be used.  Further, while the RMA stipulates that councils have a year to implement mandatory directives, it also authorises the Minister to amend that timeframe in the direction.

Conceptually, these standards make perfect sense.  However as usual, the devil is in both the detail of the standards and implementation requirements, which brings us to the first draft set of national planning standards which have been notified for consultation. 

Round 1: the first set of planning standards

The first set has been produced in accordance with a specific direction in the RMA, which required them to include a structure and form for policy statements, definitions, and requirements for the electronic functionality and accessibility of policy statements and plans.  In summary:
 
  • The structure standards set a common framework for plan provisions that all plans must use.  The structure is made up of parts, then chapters then sections.  Some chapters are required in all plans, while others are only required if they are relevant to a district or region.  Most notably, a set of 27 zones (divided into ‘zone families’) will be standardised, and will include a purpose statement for each of the zones which guides what it does and their colour(!).  Councils may still create special purpose zones but only in specific circumstances where they do not overlap with the purposes of other zones.  Because Councils have discretion over which zones they will include, a Schedule 1 RMA process must be used to make these changes.
  • The form standards are principally concerned with:
    • improving the electronic accessibility and functioning of plans across New Zealand;
    • standardising mapping formats (colours and symbols) and the use of specific spatial planning tools such as zones, overlays, notations, precincts and structure plans; and
    • combining objectives and policies with rules which are to be included in a table format.
  • Discussed in further detail below, the content standards require the adoption of 109 terms and their definitions, and the use of specific noise and vibration metric standards.  Nearly half these terms use the definitions given in the RMA, NZ Standards and other Acts. 
While the default RMA timeframe for implementing planning standards is one year, in response to feedback from Councils, the Minister has decided to extend the implementation timeframes for these standards to seven years for councils that have recently adopted their second generation plans, and five years for others. 

Interestingly, the decision to extend the timeframes was made in preference to the request from Councils that implementation simply be required when Councils undertake the next review of their plans.  For reasons we discuss in further detail below, some of these standards will require potentially significant re-drafting of the existing plans and policy statements which arguably could be more effectively achieved as part of a wider review. 

Discussion

While many of the proposed standards will be (to varying degrees) administratively burdensome for councils (and certainly teething issues can be expected), reducing variation in structure and form in the manner proposed should largely avoid any impacts on the substance of the planning documents.  However, two areas which are bound to cause more headaches for councils are the inclusion of standard zones and new definitions (being those not already defined in the RMA, NZ Standards or other legislation). 

As set out above, councils have discretion to choose at least one of the 27 zones for inclusion in their plans.  The prescribed zones are accompanied by broadly drafted purpose statements (which the zone provisions must fulfill), but the drafting of the objectives, policies and rules for the zone remains with councils.  While it is not clear from the drafting, it would seem that councils cannot comply with this directive by simply including one of the 27 zones.  The discretion to not include a prescribed zone may be exercised only where the prescribed zone is not relevant for the council in question (i.e. they have no port for which a zone could be used).  Further, councils can only add special purpose zones where proposed land use activities and anticipated development within a defined area are:
 
  • significant to the district or region;
  • could not be enabled by another zone; and
  • could not be enabled by the introduction of an overlay, precinct, designation, development area, or specific control.  
In summary, the onus appears to be on councils to demonstrate that any inconsistency between its zones and the prescribed zones are because the prescribed zones or the use of the spatial planning tools are somehow inadequate.

We anticipate that existing zones in most plans would be largely consistent with the prescribed zones, meaning that implementation is unlikely to cause significant issues.  However, the Auckland Unitary Plan is possibly the most notable exception to this, given the plethora of particularly residential zones which were designed to account for the significant growth and associated housing pressures being experienced. 

While some of these zones may fit within the prescribed residential zones, others (for example the Mixed Housing Urban Zone or Mixed Housing Surburban Zone) would more appropriately be identified as a sub-zone rather than a precinct or an overlay (which Auckland Council would need to use if it wanted to differentiate between similar density zones but for different areas).  Given the resource that has gone into the creation of the current zones, simply removing them or subsuming even some of them into the same prescribed zone may be extremely unpalatable.  While overlays and precincts could assist in distinguishing these zones, using these tools to affect what is really a zoning matter seems akin to trying to fit a square peg into a round hole. 
In summary, even with the seven year implementation time frames for some councils, we are expecting to see some push back on this standard.  One solution may be amending the timeframes for implementation of the prescribed zones to the point when the relevant Council is undertaking its next full review.

The prescribed definitions are another area likely to cause some challenges for councils.  While some of the definitions are uncontroversial, others may have significant impact on the broader operation of the relevant plans which may in turn require more widespread amendment.  Because the inclusion of the definitions is a mandatory directive, councils do not have to use the Schedule 1 process.  However, consequential amendments to the plan beyond the scope of section 58I(3)(d) do require the full Schedule 1 process. (Section 58I(3)(d) refers only to consequential amendments needed to avoid duplication or inconsistency).

Plan for example, will require consequential amendments to many other rules simply in order to make those rules coherent.  The current definition of “building” in the Christchurch District Plan includes “any erection, reconstruction, placement, alteration or demolition of any structure or part of any structure within, on, under or over the land”.  In that sense, the definition effectively operates as a rule in itself.  The prescribed definition of “building” in the standards however is: “any structure, whether temporary or permanent, moveable or fixed, that is enclosed with 2 or more walls and a roof or any structure that is similarly enclosed”.  Consequently, if the prescribed definition is included in the Christchurch District Plan, any activity description for “building” must also be amended (possibly using the Schedule 1 process) to include the action of erection, reconstruction, placement, alteration or demolition of any structure. 

There are a number of other examples of prescribed definitions which will not only impact on the operation of the wider plan, but which may also inadvertently exclude activities which have relied on existing definitions to establish in certain areas.  The prescribed definition of “community facility” for example requires the facility to be “non-profit”, a somewhat arbitrary characteristic which does not feature as an exclusive requirement in the Auckland Unitary Plan definition or the Christchurch District Plan definition. 

Similarly with the zoning, it would seem to us to make a great deal more sense to require councils to include these definitions when they next undertake a review of their district plan, rather than requiring them (even within seven years) to override the existing provisions (and consequently the significant resource expended to develop them) and replace them with new provisions which have been developed without reference to each particular setting in which they will operate.  Again we expect to see feedback to that effect when submissions are published.

From here

The Ministry for the Environment is now accepting submissions on the draft planning standards which are available for your review here http://www.mfe.govt.nz/publications/rma/draft-national-planning-standards.  Submissions close on Friday 17 August 2018.  The indicative timeframes suggest that the finalised version of these will be gazetted in April next year. 

Greenwood Roche is following the development of these planning standards closely and our resource management team is more than happy to answer any questions you may have or assist you if you would like to draft a submission.
 


Download as a PDF
Close window
x

Recent High Court decision is salutary reminder of a builder’s duty of care to building owners

In the case Minister of Education v H Construction North Island Limited (formerly Hawkins Construction North Island Limited), compelling evidence of buckets collecting rainwater in classrooms at Botany Downs Secondary College set the scene for a significant judgment.  ..

Recent High Court decision is salutary reminder of a builder’s duty of care to building owners

News & Insights

Recent High Court decision is salutary reminder of a builder’s duty of care to building owners

Recent High Court decision is salutary reminder of a builder’s duty of care to building owners

In the case Minister of Education v H Construction North Island Limited (formerly Hawkins Construction North Island Limited), compelling evidence of buckets collecting rainwater in classrooms at Botany Downs Secondary College set the scene for a significant judgment.  


In the case Minister of Education v H Construction North Island Limited (formerly Hawkins Construction North Island Limited), compelling evidence of buckets collecting rainwater in classrooms at Botany Downs Secondary College set the scene for a significant judgment.  The Minister alleged that nine buildings leaked due to a raft of construction defects for which the builder was liable.  While Hawkins accepted that there were issues with the buildings related to poor workmanship, it contended that the law has not recognised a duty of care in this context and claimed that the building contract precluded any liability in negligence.
 
The Court found Hawkins liable to pay the cost of remedying over half of the alleged defects, at a total cost of $13.4 million.  The decision confirms a clear trend in recent cases that the scope of a builder’s duty of care to building owners is to comply with Building Code standards.  Importantly, it confirms that a contractual relationship between well-informed and well-advised parties is unlikely to exclude the builder’s tortious duty of care unless the contract expressly says so.
 
Central to Hawkins’ defence was that, under the terms of the contract, the architect assumed either the exclusive or primary obligation to comply with the Building Code, and that it would be wrong to interfere with the agreed allocation of risk and commercial certainty.  This argument was unsuccessful, in part because of the notable absence of the architect as a party to the proceedings, but ultimately due to the absence of any express contractual exclusion of Hawkins’ tortious liability.
 
Contractors and claimants should note the following comments on establishing a breach of the Building Code:

  • Moisture meter readings should be approached with caution when used for substantiating a breach.  A lack of evidence of moisture damage or a low moisture meter reading will not necessarily be treated as conclusive.
  • Proof of widespread “actual damage” is not required to establish a breach.  The intention of the Building Code is to prevent damage, and therefore a breach can include “potential damage”.
  • A complete lack of damage after an extended period will likely be fatal to a claim.  The Court found that, on the basis that the school buildings were now 15 years old, any real risk of damage should have become apparent.  Accordingly, a lack of evidence of damage was treated as conclusive.
Another salient point for contractors is the importance of keeping an accurate record of key decisions in the construction process, particularly where the decision is made as a result of a direction from another contractor or consultant.  While Hawkins accepted that some of the defects existed due to a construction failure, it argued that Hawkins had been overruled by the architect as to how some items should be installed.  The Court rejected this argument in the absence of any documentary evidence of the architect’s alleged directions.
 
We regularly advise on construction contracts and related matters.  If you would like to discuss your construction project or this article, please contact Doran Wyatt, Barry Walker or James Riddoch.


Download as a PDF
Close window
x

Born Again? Legislative Assistance to Reinstate Christchurch Cathedral

Since being severely damaged in the 2010/2011 earthquakes, the iconic Christ Church Cathedral has lain largely in ruins, not only impacting the physical and economic regeneration of the immediate surrounds but for many, symbolising the pace (or lack thereof) at which the rebuild of Christchurch has occurred.  Seven years on, announcement after announcement, and significant time and money invested in legal costs and consultancy bills, the decision to re-instate the Cathedral was confirmed by the Anglican diocese in September this year.  The re-instatement option is estimated to cost approximately $104m, and is expected to be funded by grants from the Christchurch City Council, the Great Christchurch Buildings Trust, the Crown and the insurance payout received by the Anglican Church.  In addition to the grant, the Government is offering a $15m loan. ..

News & Insights

Born Again? Legislative Assistance to Reinstate Christchurch Cathedral

Since being severely damaged in the 2010/2011 earthquakes, the iconic Christ Church Cathedral has lain largely in ruins, not only impacting the physical and economic regeneration of the immediate surrounds but for many, symbolising the pace (or lack thereof) at which the rebuild of Christchurch has occurred.  Seven years on, announcement after announcement, and significant time and money invested in legal costs and consultancy bills, the decision to re-instate the Cathedral was confirmed by the Anglican diocese in September this year.  The re-instatement option is estimated to cost approximately $104m, and is expected to be funded by grants from the Christchurch City Council, the Great Christchurch Buildings Trust, the Crown and the insurance payout received by the Anglican Church.  In addition to the grant, the Government is offering a $15m loan. 


Recognising the decision of the Diocese, the strategic importance of the Cathedral to the regeneration of the city, and the threat that continued challenge to the reinstatement would present, the Government has proposed legislation which seeks to streamline the process of reinstatement and provide a higher degree of certainty that it will occur.  We have summarised the key elements of the Bill (which was presented to the House in early December) below. 

In brief:

• The Bill will allow the Governor General, on recommendation by the appropriate Minister, to issue Orders in Council (OIC) to grant exemptions from, modify (which includes suspending, or excluding the jurisdiction of the court) or extend statutes listed in Schedule 2 of the Bill.  Perhaps most significantly, the subject statutes currently include the Resource Management Act 1991 (and plans or rules made under it) and the Heritage New Zealand Pouhere Taonga Act 2014 (Heritage Act).  In effect, an OIC issued under the Bill could substantially alter or indeed suspend the processes under both of these statutes which if left unaltered could allow for further public, Council or Heritage New Zealand input which might further delay the reinstatement. 

• The Bill also contains a mechanism (utilising OICs on the recommendation of the Minister) to add statutes to Schedule 2.  However, the proposal (via an OIC) to include further statutes in Schedule 2 is made subject to confirmation by the House of Representatives.

• The application of OICs is geographically bound, only applying to the Cathedral area. 

• The supervisory jurisdiction of the High Court through judicial review is proposed to be time bound, requiring applicants to lodge a statement of claim within 28 days of the relevant decision being made.  The justifications for the proposed limit on this crucial constitutional role are the risk and delay to the project, should parties have an open ended right to request review of decisions made under it, and the reduced risk of review given the airtime (both through broader consultation and litigation) already given to affected parties to express their views and concerns.  The limiting of the supervisory jurisdiction of the High Court by the legislature and/or the executive branches has rarely gone down well with the judiciary.  However given the nature of the limit (timing of bringing a claim) and the history of the Cathedral, it may be considered justified on this occasion. 

• Perhaps more interestingly, clause 17(2) of the Bill provides that even where review is requested in good time and the exercise of power is found by the High Court to be invalid, any such determination does not affect the validity or effectiveness of any action already taken under or in reliance on the exercise of power.  Although, the Court retains a discretion to order that that the subsection does not apply this section reinforces to need to act quickly to challenge a decision.  This is both in order to meet the time restriction, but also to mitigate or avoid the risk of what would essentially be a meaningless claim if the action to which the decision relates is already carried out and cannot be “undone”. 

• The recommendation of Minister to the Governor General to issue an OIC in respect of a Schedule 2 statute must satisfy the following pre-requisites before it may be made:

• The Minister must be satisfied that (among other matters) the OIC is necessary or desirable for the purposes of the Act (described below).

  • The terminology “necessary or desirable” seems to be a deliberate deviation from the requirement included in both the (now repealed) Canterbury Earthquake Recovery Act 2010 and the Greater Christchurch Regeneration Act 2016 of the Minister to only exercise his/her powers where he/she “reasonably considers it necessary”.  That requirement was subject to a prescriptive judicial interpretation by the Court of Appeal in Independent Fisheries, instituting it as a very high bar for the Minister to meet (1).   Confirmed in that same decision, “desirable” on the other hand sets a much lower bar (2).
  •  A draft of the OIC has been reviewed by a Panel established to review the OICs and the Regulations Review Committee.
  • The Minister has had regard to the Panel’s recommendations on the OIC and the comments of the Committee.
  • The Minister has consulted with the Minister for Arts, Culture and Heritage (if the OIC relates to the Heritage Act), or the Minister for the Environment (if the OIC relates to the RMA).
  • The statutory engagement process has been followed.
  • In short, this process requires the Minister to “make available” an explanation of the aim of the proposal, the effect it will have, and why the Minister thinks it is “necessary or desirable” to persons the Minister thinks appropriate given the proposed effect of the Order, or to the public generally.  Those persons have 20 working days to provide written comment on the proposal, and the Minister must have regard to those comments. 

• The requirement to exercise statutory authority in accordance with the purposes of the authorising legislation provides a critical “check” on the exercise of power by public bodies. The purposes of the Bill is to facilitate the reinstatement of the Cathedral and, in particular;

  • To facilitate the rein-statement in an expedited manner compared with processes and requirements outside the Act; or
  • To provide cost-effective process for reinstatement compared with processes outside the Act; or
  • To achieve earlier or greater certainty for the owner of the Cathedral and the Christchurch community generally as to the reinstatement of the Cathedral than would be likely under processes and requirements outside the Act.

Interestingly, in order to meet any of those purposes, the proposal (to which the exercise of power relates) must meet both the definition of “re-instatement” and “Cathedral” in clause 4.  Both definitions are broadly drawn.  “Cathedral” includes all ancillary structures and improvements proximate to, and directly associated with, the Cathedral.  “Reinstatement” includes 1 or more of a wide range of other actions, including “demolition of any part of the Cathedral”.  There are, in other words, a plethora of actions as part of reinstatement that this Bill will seek to provide for.  As currently drawn, we do not however consider that, should the decision to reinstate be changed to demolish and replace, the Bill would provide for this. 

General Comment

The discretion afforded to the Minister and the proposed absence of substantive public process will undoubtedly raise concerns as the Bill progresses through the House.  As alluded to, any limitation on the supervisory jurisdiction of the High Court will also attract controversy.  On that basis we would expect to see some amendment to the Bill.  However this is a very specific context and the legislation is designed to address a very specific mischief, being to accelerate the resolution of what has been a very long, expensive and contentious matter.  Further, legislation to facilitate whatever outcome was determined for the Cathedral was also indicated from the former Government, and as such, we could expect general support from both sides of the House. 

Greenwood Roche’s resource management specialists have unrivalled experience with delivering large scale project developments across New Zealand (and particularly in the Canterbury context) using fast track planning legislation.  Our team is following the development of this legislation closely and will provide updates as they come to hand.

Footer:
1. Canterbury Regional Council v Independent Fisheries Limited [2012] NZCA 601.
2. Canterbury Regional Council v Independent Fisheries Limited [2012] NZCA 601, at [107].


Download as a PDF
Close window
x

Greenwood Roche Young Achiever of the Year 2017

We are pleased to continue to support the Property Council Southern Excellence Awards which recognise and celebrate excellence in property in the South Island.  Christchurch Partner, Lauren Semple had the honour of presenting the Greenwood Roche Young Achiever Award as part of the event on 10 November 2017...

Greenwood Roche Young Achiever of the Year 2017

News & Insights

Greenwood Roche Young Achiever of the Year 2017

Greenwood Roche Young Achiever of the Year 2017

We are pleased to continue to support the Property Council Southern Excellence Awards which recognise and celebrate excellence in property in the South Island.  Christchurch Partner, Lauren Semple had the honour of presenting the Greenwood Roche Young Achiever Award as part of the event on 10 November 2017.


Congratulations to Fiona Short of Warren and Mahoney, this year’s winner of the Greenwood Roche Young Achiever Award.  Fiona is a very deserving winner of this award.  She has recently become an Associate in the Christchurch Warren and Mahoney office, recognising her contribution to the Canterbury Rebuild.  Moving to Christchurch months after the Canterbury Earthquakes, Fiona quickly found her stride working on a wide range of architectural projects.  Her work on the Mary Potter Apartments went on to win a New Zealand Institute of Architects Canterbury Architecture Award. 

Fiona has a clear passion for sustainability, leading the sustainability portfolio group within Warren and Mahoney.  This group has been instrumental in creating documents to redefine what sustainability means to the architecture practice.  Fiona has also played an active role in conversations about diversity and inclusion in the construction industry, including being part of the team responsible for organising the Architecture + Women exhibition aimed at increasing the visibility of the work in the rebuild undertaken by Christchurch women architects.

Congratulations Fiona, we look forward to seeing where your career takes you and to working with you in the future.


Download as a PDF
Close window
x