The Timaru, Waimakariri and Whangārei District Councils (the Councils) sought declarations that the reforms would effectively breach long standing principles of democracy and property rights by diluting local democratic accountability and expropriating local government assets.
In dismissing the Councils’ bid in Timaru District Council & Ors v Minister of Local Government1, the Court provided guidance on the availability and scope of declaratory relief as well as the principle of non-interference in the legislative process.
The proceeding arose from the Government’s proposed Three Waters reforms, which will restructure how New Zealand’s drinking water, wastewater, and stormwater services, which are presently owned and operated by local councils, are provided to local communities.
The Water Services Entities Act 2022 was enacted on 14 December 2022 and will come fully into force by 1 July 2024 (unless repealed under a change of Government). It establishes four new Water Services Entities that will be responsible for the day-to-day operation and supply of the Three Waters services. Further legislation is intended to be enacted that will, among other things, govern the transfer of the ownership of Three Waters assets from local council organisations to the new Water Services Entities.
The Councils oppose the reforms, concerned that they will cause a loss of local democratic accountability and deprive the Councils of assets that local communities have funded.
The declarations sought by the Councils
The Councils sought three declarations in a bid to challenge the further implementation of the Three Waters reforms:
- Local government is an important and longstanding component of the democratic governance of New Zealand.
- Important and longstanding principles and features of the democratic governance of New Zealand at local community level include the following:
- Local infrastructure assets are owned and/or controlled, and related services provided, by local Councils (local councils);
- Local councils are responsive/and democratically accountable to their communities for their ownership, stewardship and decision-making in relation to local infrastructure assets and related services;
- Local councils owe (or may owe) fiduciary-like obligations to their communities; and
- Local government infrastructure assets have generally been wholly or materially funded as a result of rates or charges or rentals paid by generations of persons (including businesses) located in their communities.
- The Councils’ rights of ownership in relation to infrastructure assets include the following:
- the exclusive ability to prevent others from interfering with such assets;
- the exclusive possession or control of such assets;
- the exclusive ability to manage and operate, and/or enter into contracts in relation to, such assets;
- the exclusive ability to modify or replace the assets (and to dispose of redundant or surplus assets);
- the exclusive ability to use such assets (excluding assets within the scope of s 130(3) of the LGA) as security for borrowing; and
- the exclusive entitlement to receive full, fair and objectively independently assessed compensation for any infrastructure assets removed by legislation from the ownership (in particular, the rights of ownership outlined in (a)–(e) above) of such assets.
The Court has jurisdiction to make declarations of legal rights and also of the core values and principles that underpin those rights
The first issue was whether the Court had jurisdiction to grant the declarations sought.
The Crown submitted that the Court’s jurisdiction to grant declaratory relief is limited to declaring legal rights, and not “components”, “principles” and “features” of local government as sought by the Councils. The Councils submitted that declaratory relief is not confined to legal rights, that the law includes core values and principles and, accordingly, that the Court has jurisdiction under both the Declaratory Judgments Act 1908 and its inherent jurisdiction to make the declarations sought.
The Court agreed with the Councils that the common law includes fundamental values and principles and, accordingly, that it is the Court’s role to say what those values and principles are when a case before it requires that. In theory, therefore, because values and principles are part of the law, they may be the subject of the declaratory judgment jurisdiction in a claim that raises them but always subject to the Court’s discretion.
The Court will not interfere in the legislative process
Having determined that it had jurisdiction to make the declarations sought, the Court assessed whether it should exercise its discretion to do so in light of the ongoing legislative process.
Parliamentary sovereignty means that Parliament can, if it chooses, legislate contrary to fundamental principles and rights. The constraints on Parliament’s ability to do so are ultimately political, rather than legal. The principle of legality, however, means that fundamental rights cannot be overridden by general or ambiguous words. In the absence of express language or necessary implication, the courts will presume that even the most general words were intended to be subject to basic rights.
The Councils therefore sought the declarations of principles and rights which they submitted had not been squarely and unambiguously confronted by the legislature in the Three Waters reforms.
The Crown accepted that, as a general principle, local government is an important and longstanding component of the democratic governance of New Zealand but that it is a creature of statute and therefore subject to Parliamentary sovereignty. The Crown submitted that the functions and powers of local government are set out in the Local Government Act and, just as Parliament had conferred those functions and powers, it can remove them. The Crown further submitted that means Parliament can decide whether local infrastructure assets and related services should remain owned or controlled by local councils and how those services should be delivered.
In exercising its discretion, the Court declined to make the declarations sought by the Councils. It found that the declarations were framed too generally and expressed in terms that were abstract, depriving them of usefulness. The Court further added that the declarations were framed this way in an attempt to avoid infringing the principles of non-interference by the judiciary with the legislative process, which the Court considered they did unsuccessfully.
The Councils also argued that if they were to lose ownership of any Three Waters assets through legislation, they were entitled to receive full and fair compensation. The Court somewhat agreed – accepting that the Three Waters reforms do involve a form of “expropriation” for which compensation could be given – but that this is ultimately a matter for Parliament too – again dismissing the Councils’ case on this basis.
The concluding paragraph of the Court’s judgment served a reminder of the importance of Parliamentary sovereignty and the separation of powers in New Zealand’s constitutional framework: ‘The Parliamentary process is there to ensure that the important issues at stake are carefully considered. It is not the court’s role to interfere in that’.2
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1 Timaru District Council & Ors v Minister of Local Government  NZHC 244.2 At .