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24 May 20236 minute read

Auckland Council v CP Group Ltd & Ors [2023] NZSC 53

The Supreme Court has released its decision in Auckland Council v CP Group Ltd & Ors (sometimes referred to as the “hotel bed tax” case). This keenly awaited decision provides useful guidance on how the courts will approach challenges to targeted rates and local government decisions more broadly. Local authorities should feel assured that the courts will continue to exercise a degree of deference towards local government decision making, especially where it concerns rating.

The case was about Auckland Council's decision to impose a targeted rate in the 2017/2018 and 2018/2019 rating years on commercial accommodation providers to help fund expenditure on visitor attraction and major events by Auckland Tourism, Events and Economic Development (ATEED), a council-controlled organisation. The respondents, which were all subject to the rate, judicially reviewed the Council's decisions as unreasonable. The respondents succeeded in the Court of Appeal (following an initial rejection by the High Court) on the basis the Council had not correctly applied section 101 of the Local Government Act 2002 when imposing the targeted rates. 

The Supreme Court dealt with two key issues:

  1. Compliance with section 101(3)(a)(ii) of the Local Government Act 2002 which requires a local authority to consider the distribution of benefits between the community, any identifiable part of the community, and individuals, when determining which sources are appropriate to meet its funding needs.
  1. The reasonableness and legality of the Council's decision to impose a targeted rates (considering the continuing application of Wellington City Council v Woolworths (No 2) [1996] 2 NZLR 537).


Key points
  1. The Supreme Court allowed the appeal, finding the Council did comply with section 101(3)(a)(ii). The Court's decision gives greater latitude to decision makers in a rating context than the Court of Appeal had allowed in the decision under appeal.
  1. It followed that the decision was not unreasonable, and that Council's approach was open to it given the nature of section 101 and the context of rating decisions. Wellington City Council v Woolworths remains good law, with the rationale applying more so to the 2002 statutory scheme than the 1974 Act under which that case was decided.
  1. While stating that it did not wish to engage in a discussion about deference and variable intensity of judicial review, the judgment indicates some of the Court's thinking on the topic, at least as it relates to local government decisions. Given the debate on this topic (both in academia, and in the lower courts), further senior court authority on this point would assist.
  1. Local authorities will be grateful for the increased clarity this decision provides on the approach to targeted rates, an often hotly contested and controversial topic. Given the increasing impact of climate change and public debate on urban density and design, we anticipate further discussion on this question.


Was there an error of law? Approach to section 101(3)(a)(ii) and the rating decision

The Court held that Council's decision making did properly take into account the section 101(3)(a)(ii) considerations. The Court's reasoning focussed on a different assessment of the degree to which the Council had relied and was entitled to rely on an expectation that accommodation providers would pass on the costs of the rate. While the Council considered some costs would be passed on, it also acknowledged that some costs would be borne by the affected businesses.

Section 101(3)(a)(ii) does not require the detailed and precise analysis argued for by the respondents. Council acknowledged that there would be increased costs for accommodation providers, and its conclusion was reasonably founded in the information it had before it. It was permitted to proceed on that basis.

On the approach more broadly, the Court held that the section “does not require a close correlation between the activity and the benefits received by the proposed target of the rate”. Underlying their reasoning is their view that rating is a taxation system rather than a user-pays system. Given their “democratic mandate” articulated by section three of the Act, Council's are entitled to some latitude in how they exercise their powers. The Court relied on Woolworths, noting that an “elusive search for a direct relationship between services and benefits” is not necessary. “[S]ome benefit…may suffice” to satisfy the factors listed in the section.



The Court agreed with the Court of Appeal that the decision on unreasonableness would follow their decision on error of law, but not much else. The Court confirmed the approach in Woolworths that “the test a claimant must meet when challenging a rating decision is a stringent one”. This is even more true for the scheme of the 2002 Act than the 1974 Act. Woolworths notes ratings as being “essentially a matter for democratic representatives”, with “constitutional and democratic constraints on judicial involvement” given the breadth of policy questions involved. The authority is “well understood” and has “provided a sufficient palimpsest or guiding standard for local authorities”. Rating decisions are complex, do not have right or wrong answers and “ultimately require judgement on the part of local authorities”.

When responding to the respondents' criticism of the reason, the Court restates its acceptance of the Council's reasoning as it related to passing on costs, and that any criticism of ATEED's performance as a promoter relative to the accommodation providers was not relevant. Further, some degree of inequality is unavoidable in any targeted rate, so that it cannot by itself make a decision unreasonable. Council had also responded and sought to minimise some of the unfairness in the scheme. It was not tenable to suggest that Council should resolve all the potential issues before setting a rate.


Other comments, and the possible demise of a fiduciary duty

As part of its discussion on unreasonableness, the Court noted strong doubts that the concept of fiduciary duty retains much usefulness when assessing local government decision making. To some extent, this is because section 101 captures and addresses the same concerns which led to the creation of the duty. The Court noted with approval the Court of Appeal's decision in Waitakere City Council v Lovelock which held the concept of a duty did not sit well with rating decisions which are imposed on property rather than individuals.

The Court also noted the ongoing debate concerning levels of scrutiny in judicial review, including articles by Associate Professor Marcelo Rodriguez Ferrere and Dr Dean Knight which broach the topic, but that it was not necessary to address that in its decision. That said, the judgment does engage with many of the factors present when considering what would be an appropriate intensity of review.