The recent decision of the High Court in Meridian Energy Company v Wellington City Council  NZHC 48 has reaffirmed the broad discretion and wide-ranging powers of local bodies to set rates under the Local Government (Rating) Act 2002 (Rating Act). The Court has also confirmed that both general and target rates can be set differentially, within the one rating unit, depending on the use to which the land is put.
Meridian commenced judicial review proceedings requiring the Court to consider whether the Wellington City Council (WCC) acted lawfully in dividing the rural properties that Meridian had its wind farm facilities on, and relying on the land use and value of the wind farms as justification.
Meridian's first ground for judicial review challenged the lawfulness of WCC's decisions:
a. First, Meridian claimed that WCC acted unlawfully when deciding to create a division to reflect two uses of land, namely the underlying land and non-wind farm improvements, and the value of the wind farm improvements.
b. Secondly, Meridian alleged that WCC's decision to categorise the wind farm facility as falling within the Commercial, Industrial and Business Differential category was also unlawful.
By way of background, Meridian's wind farms were constructed on approximately 5,300ha of open field, and approximately 98.5% of that land was also used to graze sheep and cattle.
Commenting on section 27(5) of the Rating Act and the meaning of the word "part" which is used in that section, the Court noted at  that:
"While it would be helpful in some circumstances to physically separate the wind farm facilities from the farmlands (if, for example, the wind farm facilities were to be sold or transferred), the natural and ordinary meaning of the word "part" or "parts" does not require the land on which the wind farm facilities are constructed to be physically separated from the land used for rural purposes when the Council set the differential rates."
As such, at :
"Requiring the Council to isolate 'separately identifiable and physically discrete parts' of the land under which the wind farm facilities are constructed before setting a differential rate in relation to those facilities would offend one of the basic purposes of the Rating Act."
The Court concluded that WCC acted lawfully when it created the divisions to the rateable units and thereby created separately rateable parts to reflect the different land uses. The Court also emphasised that the intention of the Ratings Act is to provide local bodies with flexibility and broad powers to set differential rates.
Meridian's second ground for judicial review alleged that WCC erred in law when it decided not to place the rateable units entirely in the Base Differential, but rather place the wind farm portion of the rateable units into the Commercial, Industrial and Business Differential (as defined in WCC's funding impact statement for rating mechanisms in its long-term plan).
The Court took the view that the wind farm portion of the rateable units fit squarely within the Commercial, Industrial and Business Differential, emphasising that the wind farm facilities are a significant commercial enterprise. As such, the second ground for review was also dismissed.