Ipsofactoj.com: International Cases [2005] Part 3 Case 5 [NZCA]


COURT OF APPEAL, NEW ZEALAND

Coram

Telecom Auckland Ltd

- vs -

Auckland City Council

RICHARDSON P

BLANCHARD J

GAULT J

THOMAS J

TIPPING J

25 SEPTEMBER 1998


Judgment

Blanchard J

INTRODUCTION

  1. This case concerns the obligation of Telecom Auckland Ltd and Telecom New Zealand Ltd (jointly referred to as "Telecom") to pay rates to the Auckland City Council under its annual value rating system on telephone lines installed under or above the Councilís streets and on telephone booths erected on those streets, in each case pursuant to authority given to Telecom as a network operator under the Telecommunications Act 1987 ("the Act"). Telecom brings an appeal from judgments of Fisher J in the High Court at Auckland on 25 May 1995 (reported at [1995] 3 NZLR 489) and 28 February 1997 in which he

    (a)

    found the lines and booths (excluding the telephones themselves) constituted an interest in land for the purposes of the Rating Powers Act 1988;

    (b)

    found that they did not fall within the "machinery" exemption from rateability, and

    (c)

    dismissed a challenge to the quantum of rates for the 1991/92 to 1993/94 rating years which essentially contended that the property in question should have been the subject of a new differential category which would attract a lower rate in the dollar.

  2. The respondents are the Council and the persons who acted as its valuers in the years in question.

    THE PROPERTY

  3. It is fortunately unnecessary to give a detailed description of the items which are said to be rateable property of Telecom. A fuller description is to be found in Fisher Jís reported decision (at 494). The lines are wires or optic fibres in the form of cables. Overground they are carried on telephone poles. When laid underground they are often in cast-iron pipes or in plastic ducts or tubes with a normal diameter of 110mm. The telephone booths are situated on footpaths and berms. They are either in the form of boxes, with or without doors, or in pedestal style with plastic wings around the telephone equipment.

    PERSON LIABLE FOR RATES

  4. Except as otherwise provided, all land is deemed by the Rating Powers Act 1988 to be rateable property. Land is widely defined:

    "Land" means all land, tenements, and hereditaments, whether corporeal or incorporeal, and all chattel and other interests therein, and all trees growing or standing thereon:

  5. The occupier of any rateable property is primarily liable for rates upon it (s121). The "occupier" is defined in s2 as the owner thereof except where there is a tenancy for twelve months certain (which in this case there was not). "Owner" in relation to any land means "the person for the time being entitled to receive the rack rent thereof or who would be entitled if the land were let to a tenant at a rack rent".

    TELECOMMUNICATIONS ACT 1987

  6. An amendment to the Act in 1988 inserted or substituted the following definitions:

    "Network" means a system comprising telecommunication links to permit telecommunication:

    "Network operator" means the Corporation [Telecom Corporation of New Zealand Ltd and any subsidiary] and any person declared by the Governor-General by Order in Council under s2A of this Act to be a network operator for the purposes of this Act or any provision or provisions of this Act:

    "Line" means a wire or wires or a conductor of any other kind (including a fibre optic cable) used or intended to be used for telecommunication; and includes any pole, insulator, casing, minor fixture, tunnel, or other equipment or material used or intended to be used for supporting, enclosing, surrounding or protecting any such wire or conductor; and also includes any part of a line.

    [This definition is for the purposes of sections 11, 12, 15 and 20 only. There is another definition of "line" applying to other sections.]

    "Existing lines" means any lines constructed by the Corporation before the 1st day of April 1989 and includes any lines that were wholly or partly in existence, or work on the construction, erection or laying of which commenced before the 1st day of April 1989.

    "Works" includes-

    (a)

    A line and any instrument, furniture, plant, office, building, machinery, engine, excavation, or work, of whatever description, used in relation to, or in any way connected with, a line; and

    (b)

    A fixed radio station:

  7. Section 6 provides that no person shall without the agreement of the network operator, connect any additional line, apparatus, or equipment to any part of a network, or to any line, apparatus, or equipment connected to any part of a network "owned by that operator".

  8. Section 12 confers a right of entry upon land to enable a network operator to gain access to existing lines "owned by the operator" and to perform any act or operation necessary for the purpose of inspecting, maintaining or repairing them.

  9. Section 15 is as follows:

    15.

    Construction or repairing of lines on roads

    (1)

    Except as provided in subsection (2) of this section a network operator may from time to time construct, place, and maintain lines in, on, along, over, across, or under any road; and for any of these purposes may open or break up any road, and alter the position thereunder of any pipe (not being a main) for the supply of water or gas; and may alter, repair, or remove any such lines or any part thereof.

    (2)

    No network operator shall exercise the powers contained in subsection (1) of this section otherwise than in accordance with such reasonable conditions as the local authority or other body or person having jurisdiction over that road may prescribe.

  10. Section 15A requires, except in the case of emergency, that notice be given to the local authority before the opening or breaking of any road. The local authority is given 21 days to notify the network operator of any conditions under s15(2). The network operator may appeal to the District Court against the conditions so imposed.

  11. The following provisions are also relevant:

    18.

    Telephone cabinets, etc.

    A network operator may from time to time construct, place, and maintain public telephone cabinets, distribution cabinets, and any appliances of a like nature on any road:

    Provided that no such cabinet or appliance shall be so placed as to interfere with the ordinary traffic, and that not less than 1 weekís notice of the intention to place the cabinet or appliance shall be given to the local authority having control of the road.

    20.

    Protection of existing works

    Any existing works or existing lines, fixed to or installed over or under any land that is not owned by the network operator which owns the works or lines, shall be deemed to be lawfully fixed or installed and shall continue to be fixed or installed until the network operator otherwise decides and no person other than the network operator shall have any interest in any such works or lines by reason only of having an interest in the land.

    INTEREST IN LAND

    The High Court Judgment

  12. Because many of the arguments raised before Fisher J did not re-surface in this Court or were not central to the submissions to us, we do not lengthen this judgment with a full description of the Judgeís reasons for concluding that Telecom enjoyed an interest in land when it exercised its statutory right to install lines and booths. He took this view, first, because of the "broadly permanent and exclusive" right to the use and occupation of the occupied space. Secondly, he detected an intention in the rating legislation to that effect. Finally, there were the New Zealand authorities to which reference will shortly be made.

    The Historical and Statutory Context

  13. The first question is whether the rights enjoyed under the Telecommunications Act by Telecom in respect of the Councilís roads are a tenement or corporeal or incorporeal hereditament or some other interest in land. If they were, Mr. Galbraith QC recognized the futility of trying to argue that Telecom would not then fall within the definition of an "owner". The interest would accordingly be rateable property in respect of which Telecom would be liable for rates unless the network came within an exemption for "machinery" to be found in cl.16 of Part II of the First Schedule to the Act. This second question will be discussed later in the judgment.

  14. Standing in the way of an answer to the first question favourable to Telecom are the decisions of the House of Lords in The Metropolitan Railway Co v Fowler [1893] AC 416, of the Privy Council in Corporation of the City of Toronto v Consumersí Gas Co of Toronto [1916] 2 AC 618 and of this Court in Auckland City Corporation v Auckland Gas Co Ltd [1919] NZLR 561, affirmed by this Court after the passing of the Rating Act 1925 in Hutt Valley Electric-Power Board v Lower Hutt City Corporation [1949] NZLR 611. Since the last of these decisions successively have come the consolidating Rating Act 1967 and now the Rating Powers Act 1988.

  15. The argument for Telecom, pursued by Mr. Galbraith with his usual courtesy and skill, is that the House of Lords and Privy Council authorities are not in point and that the New Zealand cases are wrongly decided. He contended that an analysis of the Telecommunications Act indicates that there was no Parliamentary intention to confer any more than certain limited rights. It could not have been intended to confer upon a network operator any land interest in the roads vested in a local authority. Mr. Galbraith submitted that notwithstanding that they may be imbedded in or affixed to the Councilís roads, the lines and telephone booths remain chattels entirely owned by Telecom. He stressed the personal nature of Telecomís rights. They may not be assigned to anyone; someone wishing to stand in Telecomís place and have the benefit of its network must become licensed under the Act. It is impossible therefore for the rights to be a hereditament because they cannot be inherited by an heir. They are also very limited in their permitted use and the lines and booths are subject to being moved or disturbed by the Council under the Local Government Act 1974, ss337 and 379 and by other utility operators (Gas Act 1992 s25; Electricity Act 1992 s24). Counsel also noted the way in which overhead wires move in the wind, asking whether the land interest moved with them. A hereditament could not, he said, be "ambulatory".

  16. Mr. Galbraith relied heavily upon dicta of Evershed J (as he then was) in Newcastle-Under-Lyme Corporation v Wolstanton Ltd [1947] Ch 92, approved in the Court of Appeal in the same case [1947] Ch 427, and the decision of the High Court of Australia in The Commissioner of Main Roads v The North Shore Gas Co Ltd (1967) 120 CLR 118, for the proposition that it is an error to assume that the exercise of a specific statutory right to construct and maintain mains, pipes or lines under a road operates to vest in the donee of the power any interest in the land; it is no more than a right to occupy space within the local authorityís land. In contrast to the position in England, liability to rates is in New Zealand determined by ownership of the land or an entitlement to receive the rack rent. In England, Mr. Galbraith pointed out, occupancy is the criterion. English cases, except Newcastle-Under-Lyme which was not a rating case, were said to be distinguishable on that basis.

  17. Counsel also observed that the only local authority still seeking to rate utilities in this manner is the first respondent. Hutt Valley ceased to do so in 1988. The Valuer-General has not adopted the practice of including them in valuation rolls except for councils with annual value rating systems (now confined to Auckland City) because of the great difficulty in arriving at an appropriate valuation.

  18. We begin with the Metropolitan Railway case. The railway company had constructed a tunnel under a road pursuant to a statutory authorisation "to appropriate and use the subsoil and undersurface of any roadway or footway". The statute allowed the railway company to do this without purchasing the land. The question was whether the tunnel, which was said to be undoubtedly the property of the railway company, attracted land tax under a statute which imposed that tax on "manors, messuages, lands and tenements and also .... all hereditaments of what nature or kind soever they be ...." The railway company argued that it had no tenement or hereditament but only an easement. The House of Lords rejected that view, concluding that the rights in respect of the tunnel constituted a hereditament or a tenement. The use of the word "appropriate" clearly pointed to a right of property becoming vested in the railway company. Lord Watson remarked (at 425-6):

    As matters stand the owners of the soil, whoever these may be, are practically divested of interest in that part of it which has been converted into tunnel. They have no right to occupy or to interfere with it in any way whatsoever; and their exclusion is not for a period limited, but for all time coming.

    Later he added:

    .... so long as the tunnel is used for railway purposes, the interest of the owner from whom it was appropriated appears to me to be entirely ousted.

    Lord Ashbourne described what the railway company had as "an interest in land - taking a practically perpetual right of exclusive possession in the tunnel." (p.428).

  19. In The Consumers Gas Co of Toronto v City of Toronto (1897) 27 Can SCR 453, 457 the Canadian Supreme Court regarded the Metropolitan Railway case as conclusively showing that gas pipes laid by a utility company under a street pursuant to a statutory power were

    not to be considered as chattels placed beneath the public streets and highways, in the exercise of a mere easement, but being affixed to the land, as actual real property within the meaning of the interpretation clause. No matter in whom the fee in the soil of the surface of the streets was vested, so much of the subsoil as is occupied by the appellantís pipes must be held to constitute part of the land, unless we are altogether to disregard the decision of the House of Lords in the case cited.

  20. The first of the Australian High Court decisions in this field is Borough of Glebe v Lukey (Australian Gaslight Co) (1904) 1 CLR 158. It was a rating case concerning gas mains laid under the streets of the Borough. The rating statute defined rateable property in terms of, inter alia, lands, tenements or hereditaments. The Court said that the first question arising was whether that portion of the soil occupied by a gaslight or similar company for the purpose of carrying its mains was land and held that it was. The focus of the case is on occupation of the land, rather than on whether there was ownership of an interest in it by the utility company.

  21. Next came the decision of the Privy Council in the Toronto case. It involved the question of whether the local authority or the utility must bear the cost of lowering the utilityís gas main so that a public sewer could be installed above it under certain streets. The gas company had been given by statute power to lay mains and pipes under streets and to maintain, renew, alter and repair them. The Board said that once pipes were laid they became partes soli, citing the Metropolitan Railway case. Referring to a statement from Lord Watson that the tunnel was as much "land" as the highway itself or any part of the soil beneath, the Privy Council said that the same principle appeared to apply to the gas main. The City had done the work. Its claim for reimbursement failed because another statute required it to pay compensation where it expropriated or injuriously affected any land in the exercise of its powers. "Land" was defined as including a right or interest in, and an easement over, land. Lord Shaw of Dunfermline said (at 624):

    The reasons have already been assigned for holding that the space occupied by the gas mains and the gas mains themselves of the respondents are of the nature of land in its ordinary sense. It must, however, be added that in any view the definition of "land" in the Municipal Act unquestionably includes them. For it can hardly be denied that the words "a right or interest in, and an easement over, land" would embrace the right of the gas company to have their pipes remain, and to have the interest and use of them and the space occupied by them undisturbed; ....

  22. Lord Shaw referred also to the definition of "owner", which included an occupant, but the decision does not, in our understanding of it, rest upon this point.

  23. That brings us to the first of the two decisions of this Court, Auckland City Corporation v Auckland Gas Co Ltd, in 1919. It was an action for rates on mains and pipes under the streets of the City, on appeal from a judgment of Cooper J which is to be found at [1918] NZLR 1028. The Auckland Gas Companyís Act 1871 gave the company power to lay, repair, alter or remove pipes under streets and erect pillars and lamps and other works; if the Council deemed it necessary "to raise sink or otherwise alter the situation of any gas-pipes or other works laid" in the streets, it could require the company to do so as the Council directed, but at the Councilís expense.

  24. Cooper J had held that the companyís statutory right was a tenement and a hereditament and therefore rateable property, but that mains and pipes were exempt from rates as "machinery". The Court of Appeal was unanimous in affirming the first of these findings but, by a majority of 3 to 1, overturned the second.

  25. The definition of rateable property in the Rating Act 1908 referred to "all lands, tenements or hereditaments." There was no separate definition of land. The Court said that the gas companyís right was a corporeal hereditament because it was a right in possession; and some of the Judges opined that, even if it had to be regarded as no more than an easement, it would be an incorporeal hereditament. The flavour of the judgments is captured in the following passage from Chapman J (p.581):

    I am quite satisfied that the title which the statute gives to the respondent company is an interest in the land, and that it is a corporeal hereditament; and, as I agree with the manner in which other members of the Court have dealt with this subject, I need say very little. The special Act gives the definition of "lands" as including messuages, lands, tenements, and hereditaments, and the Acts Interpretation Act, 1908, s.5, gives a similar definition. Unless the interest is a corporeal hereditament I do not know what it is. It seems to me to come exactly within the familiar definitions given by learned writers on real property law. The company is not a mere licensee. It has a fixed and definite right in the soil below the street and the support given to the soil. The circumstance that it may be made to give up the location and take a different line in the same street is no more a derogation of this right than if any one had a permanent right of way across a field subject to the right of the owner of the field to define its locality and to alter the definition. Here the location may be altered, but when the line is located it is until altered occupied by the company as if granted in terms of the Act, and that occupation is permanent and exclusive.

    At p.593 Hosking J commented:

    It thus appears that as soon as the right is exercised in any defined part of the soil the company can be properly described as the owner not merely of an incorporeal tenement or hereditament, but also of a corporeal tenement or hereditament of an exclusive and permanent character in the space and soil occupied under the right.

    He added (p.594):

    Then it is contended that the company is not within the definition of "owner of rateable property" because, so it is said, it is not a "person entitled for the time being to receive the rack-rent" of the tenement. The argument is that the company is not entitled to lease, and therefore is not in a position to receive rack-rent. Assuming for the occasion that the company is not entitled to lease the tenement I do not think the suggested consequence follows. It appears to me that the person referred to means the person who if the land were let would be entitled for the time being to the rack-rent, and that the question whether the owner has power to let is not taken into consideration in the definition. No one ever heard of a lessee prohibited from underletting being able to escape on that ground from liability to rating.

  26. The approach of the Court, it seems to us, was entirely consonant with the cases which we have already mentioned. It did, however, give rise immediately to a problem of valuation which was brought back to the Court three years later in The Valuer-General v Auckland Gas Co Ltd [1923] NZLR 187. It was there determined that the gas companyís interest in the land had no unimproved value. The pipes could not be severed from the improvements, the hereditament having been created by the laying of the pipes. Once they were laid, Hosking J said (at 198), the hereditament which came into being consisted in the space occupied by them and it existed only whilst they were maintained in situ. The judgment of Salmond J expresses his understanding of the earlier decision. The Court had not said that the statutory authority to lay pipes constituted in itself and prior to its actual exercise a present estate or interest in the streets capable of being rated or valued. It was merely a right to take or acquire an estate or interest in the land by the process of laying mains under the street (p.200):

    The hereditament to be valued is so anomalous in its character that it is created by the very act of making the improvements; and it continues to exist only so long as those improvements exist. If the company were to remove its mains from the space occupied by them, that space would, ipso facto, cease to be a hereditament or tenement owned by the company.

  27. The Legislature appears not to have thought it to be an unacceptably "anomalous" situation, for the Rating Act 1925 made no alteration in the position.

  28. In 1940 the High Court of Australia determined that gas mains or pipes under a road were not "goods, wares and merchandise" for the purpose of stamp duty on a conveyance (The North Shore Gas Co Ltd v Commissioner of Stamp Duties (New South Wales) (1940) 63 CLR 52). For present purposes the decision is notable for dicta of Dixon J (at 70):

    So much of the earth as the pipes displaced formed a space in the occupation of the company and that space constitutes land. The companyís occupation of the space is as of right and is exclusive.

    And:

    Two legal qualities belong to the pipes which ordinarily do not belong to part of the soil, viz, the existence of independent ownership in another person and removability. But these qualities arise from statutory provisions, and removability at all events is a well-known characteristic of tenantsí fixtures, which until removal are considered part of the realty.

  29. Next in chronological order came one of the cases relied upon by the appellants, Newcastle-Under-Lyme Corporation v Wolstanton Ltd. It was a claim by the local authority in its capacity as owners of gas mains under public highways for the damage done to the mains by the defendantís mining operations. The result in the Court of Appeal, where Evershed J was reversed, turned on whether a right of support existed. But Evershed J made some observations about the nature of the local authorityís rights which were expressly approved in the judgments of the Appeal Judges. He said that the property in the mains and pipes, "in the chattels themselves", was clearly vested in the plaintiff corporation, but there was no interest in land created by the empowering statute which authorised the gas undertakers to break up streets, lay pipes and repair and remove them. These powers were limited to the supply of gas and would come to an end if the undertaking ceased (p.103):

    In these circumstances, and bearing in mind the general rule that no greater rights or interests should be treated as conferred on the undertakers than are necessary for the fulfilment of the object of the statute, it seems to me reasonably clear as a matter of the construction of s.6 of the Act of 1847, that the terms of the section are not intended to confer, and are not apt to confer, upon the undertakers any right of ownership or proprietorship of the land affected. Equally in my judgment is the language of the section inappropriate to create in favour of the undertakers any tenancy or any easement or interest analogous to an easement. It is true that the rights of the undertakers are the creatures of statute, and that it is within the competence of Parliament to confer or create interests without regard to those incidents which are regarded as requisite to an agreement inter partes. Thus, Parliament may create an easement in gross as it may, I assume, create a tenancy without provision for the payment of rent and notwithstanding the absence of any term certain. But the absence of the incidents ordinarily appropriate to the existence of a tenancy or of an easement is, at the least, an important consideration for the determination of the question whether, upon the true construction of the statute, the creation of any such interest was intended. It is indeed somewhat tempting to conclude that some right in the nature of an easement ought to be inferred; and I have in mind the reference to a wayleave in the speech of Lord Atkinson in New Moss Colliery Ltd v Manchester Corporation [[1908] AC 117,124]. But in my judgment these considerations are insufficient to give to the language of s.6 of the Act of 1847 a meaning and intent which that language - particularly in the light of the contrasts to which I have already referred - cannot naturally or properly bear.

  30. His Lordship concluded that the interest of the undertakers was that of licensees without any title, legal or equitable, in the land itself. Nor was there an easement.

  31. This statement was considered by this Court in Hutt Valley Electric-Power Board v Lower Hutt City Corporation [1949] NZLR 611 which in essence was a re-run of the Auckland Gas case, but in relation to an electricity supplier. The Court unanimously affirmed its prior decision and found that poles, cross-arms, insulators and wires used for transmission of electricity and installed under authority of a 42 year licence conferred by an Order-in-Council were "lands, tenements or hereditaments." When the rights were exercised the Board was in possession of a hereditament and the items were rateable property. The Court endorsed the correctness of Auckland Gas. It considered that Evershed Jís approach had been influenced by the inability in England of a landowner to create an easement in gross (as s13 of the Property Law Act 1908 permitted and declared to be "to all intents and purposes an incorporeal hereditament" - see now s122 of the Property Law Act 1952). Finlay J commented (at 630) that the law as laid down in the Auckland Gas case had "become an integral part of the law of New Zealand" from which the Court had no right or authority to depart.

  32. The Rating Act 1967 contained definitions of "land" and "owner" which evinced a clear Parliamentary intention to confirm this result. Whereas in the Acts of 1908 and 1925 "rateable property" was defined as "all lands, tenements and hereditaments with the buildings and improvements thereon", now there was inserted a definition of "land" as "all land, tenements and hereditaments whether corporeal or incorporeal, and all chattel and other interests therein, and all trees growing or standing thereon." The definition of "owner" now explicitly confirmed what Hosking J had said in Auckland Gas, stating that it "means the person for the time being entitled to receive the rack rent thereof, or who would be so entitled if the land were let to a tenant at a rack rent." Both of these changes were carried forward into the current Rating Powers Act 1988.

  33. The other case upon which great reliance was placed by the appellants was decided by the High Court of Australia about a month before the consolidation and amendment of the New Zealand rating legislation. The Commissioner of Main Roads v The North Shore Gas Co Ltd (1967) 120 CLR 118 was about compensation for the resumption of certain streets and parks for the construction of an expressway. The gas company had previously supplied customers through mains and service pipes laid beneath them pursuant to rights given by statute. It sought compensation, inter alia, for the value of its rights in respect of the mains and pipes and for their severance. The company had already received compensation for the cost of relocating its services and the High Court was, perhaps as a consequence, obviously unsympathetic to this additional claim relating to mains and pipes which were not relocated but had been destroyed or buried in the construction of the expressway.

  34. It was necessary for the company to establish that its rights in respect of these items had constituted land or an interest in land within the meaning of the Public Works Act 1912 (NSW). "Land" was defined in the Interpretation Act 1897 (NSW) as including "tenements and hereditaments, corporeal and incorporeal, of any tenure and description, and whatever be the estate or interest therein."

  35. Two judgments were delivered. In the joint judgment of Barwick CJ, McTiernan, Kitto and Taylor JJ the correctness of the conclusion to which Dixon J had come in the first North Shore Gas case was doubted (notwithstanding that McTiernan J had concurred some 27 years previously). It was said that the presumption that whatever is fixed to the freehold becomes part of it and is subjected to the same right of property as the land itself is rebuttable; and that it is rebutted (p.127)

    .... when a statute empowers someone other than the owner of land to affix to or embed things in the soil and yet retain ownership of the things so affixed or embedded. In such circumstances why should it be assumed that the exercise of a specific statutory right to lay and maintain pipes, as in the present case, operates to vest in the donee of the power an interest in the land in which the pipes have been laid? The conclusion that it does seems to us to result from a lawyerís inherent tendency to assimilate such a right to some category known to the common law. It is, of course, a very special right. The exercise of the right to lay pipes in anotherís land is not intended to make, and does not make, for the better and fuller enjoyment of the land and the right, when exercised, confers a right to occupy some part of the land in a very limited and special way.

  36. The judgment then quoted from and approved the same passage from Evershed Jís judgment in Newcastle-Under-Lyme. The Judges rejected the view that the gas company had an interest in the land in which the mains and pipes were embedded, but allowed for the possibility that, as those items were its property, they might have some compensatable value as chattels. There was no reference to the New Zealand cases (the earlier of which had been cited) or to the decisions of the House of Lords in the Metropolitan Railway case and Privy Council in the Toronto case, which had also not been mentioned in Newcastle-Under-Lyme.

  37. In a separate judgment Windeyer J reached the same conclusion. He noted that the gas-pipes remained vested in the person who placed them under the roads and that such a person had no absolute right to have them remain always in the same state and in exactly the same position under the road. The council could require them to be altered as it thought the public interest required. It seemed to Windeyer J futile to try to classify and describe the gas companyís rights according to traditional categories and terminology of the law of real property. He referred to the changed character of a modern public highway now that utility companies commonly have statutory rights to carry services by poles or pipes above or below its surface. Upon the resumption of a highway members of the public who were wont to travel on it could not claim compensation on the basis of having lost an interest in land. Were the public utilities who lose their privilege to use it in a different position? (We interpolate that this debating point does not impress us. The utilitiesí user is clearly of a different order to that of motorists and pedestrians).

  38. Windeyer J accepted that for rating purposes the utility was in occupation. He thought that it was "pedantic logic-chopping to suggest that because a pipe is hollow the space of earth which it occupies when embedded in the soil is not "land"." (p.132) But it did not follow that the gas company had an estate in that land. He then distinguished the rating position in New South Wales from that in England. In New South Wales the owner is primarily liable for rates (as in New Zealand). On this basis he distinguished Borough of Glebe v Lukey which had been decided before that position existed. Gas companies were now rateable in New South Wales under a special provision which carried, in his view, no implication that possession, occupation or enjoyment of gas pipes was to be regarded as an estate in land. The Judge considered that "the hereditament of the whole of the street" was in the council. "The word "hereditament" and the word "estate" both appear to me inapt for the respondentís mere right of occupation." He also rejected the argument that if the right was not a corporeal hereditament, it was an easement (p.133):

    .... an easement is now regarded as a species of incorporeal hereditament although in Cokeís time the name hereditament was denied it: see Challis, Law of Real Property, 3rd ed. (1911) (by Sweet), pp.54,55. But this can only be said of a true easement, for it is because the dominant tenement descends to the heir that the rights over the servient tenement are an hereditament. The gas company has however no true easement; for there is no true dominant tenement unless it be said to be the gas works.

  39. Windeyer J saw an analogy to an easement, but thought a "statutory easement" was sui generis (p.134):

    The North Shore Gas Act of 1875 gave no name to the rights it created. However the respondent hopes that by putting some known label on them they will be shown to create an "estate" or "interest" in "land" within the meaning of the Public Works Act. If one were to resort to Roman law terms, the right to have pipes run under public roads would be described as a ius in re aliena: it would be a servitude, but of a personal, not a praedial, character. But Lord St. Leonardsí statement that "the category of servitudes and easements must alter and expand with the changes that take place in the circumstances of mankind" (Dyce v Lady James Hay [(1852) 1 Macq. 305, at 312, 313]) must be read bearing in mind that English law does not, apart from statute, recognize an easement in gross. It is thus, I think, fallacious to say that because the privilege of the respondent can be called, or miscalled, an "easement" the rights of the gas company are an incorporeal hereditament and therefore an estate or interest in land.

  40. The Judge said that the company had "something more than a mere revocable licence". Then, in his only reference to it, he distinguished the Privy Councilís decision in the Toronto case on the basis, which we confess we find difficult to follow, that it was a dispute about the cost of relaying pipes and that in the present case there was no dispute about that point.

  41. In the year after the Telecommunications Act was passed the Rating Powers Act replaced the 1967 Act but made no change to the definitions of "land", "occupier" and "owner". In subsequent statutes governing the operation of gas and electricity utilities the liability to pay rates is expressly recognised. There are provisions prohibiting a local authority from charging for access to a road reserve, but that restriction does not apply to any rate or charge under the Rating Powers Act (s31 Gas Act 1992, s32 Electricity Act 1992).

    Conclusion

  42. The foregoing survey of the case law and the New Zealand rating statutes leads us to the conclusion that, unless there is a clear indication in the Telecommunications Act that telephone lines and booths are to be treated differently from gas and electricity lines, this Court should apply to them its decisions in the Auckland Gas and Hutt Valley cases. We are satisfied that in concluding that the particular utility companies had for rating purposes an interest in land, those cases were consistent with the prior decisions of the House of Lords and the Privy Council. Furthermore, Parliament must be taken, in the 1967 consolidation, to have endorsed the position taken by the Court. Evershed J was not made aware of any of the authorities which we have discussed and which this Court had followed in Auckland Gas. As for the Australian cases, we prefer the approach taken by Dixon J. We also do not accept Mr. Galbraithís argument that Evershed J and the High Court of Australia in the second North Shore Gas case were not substantially influenced by the absence of any general recognition in those jurisdictions of easements in gross. We think they were; and the position in that respect has at all relevant times been different in New Zealand, a point noted by Cooper J in Auckland Gas. Counsel suggested that the existence of a power to create an easement in gross under the Property Law Act was of no assistance in construing a statutory grant of rights. But it seems to us that, understanding such a power to exist generally, our Parliament is likely to have intended an analogous situation.

  43. The English and Australian cases on which the appellants rely are critical of the tendency to assimilate rights created by statute with rights known to the general law. This criticism cannot simply be dismissed as a means adopted by those Courts to avoid an inconvenient conclusion in particular cases; but where a relevant statute contains a broad definition of an interest in land and our Courts have previously found one to exist in markedly similar factual circumstances, it seems to us that Parliament is to be taken to have intended the same result. Putting the matter another way, in such circumstances it is to be expected that if Parliament intends not to grant an interest in land it will say so with some precision. It could have done this by following the pattern of the English statutes relating to utilities which are discussed in Gale on Easements 16ed, paras 1-110 to 1-117, or by speaking in terms of a licence to occupy and specifying that no interest in land is to arise.

  44. Even if there were some attraction in what was said in these English and Australian cases we would not be minded to depart from Auckland Gas and Hutt Valley unless the situation of a network operator was shown to be quite different. It is not an appropriate case for the Court to do so if the differences are relatively minor, not only because of what Parliament has subsequently done in enacting successive rating statutes, but also because Auckland Gas has been relied upon for so many years by the Auckland City Council (and previously by some other local authorities). The rating by the Council of gas and electricity utilities is a long established practice which should not be disturbed just because a New Zealand Court might reach a different view if the matter were coming before it for the first time. What was decided by this Court in the two cases must be taken to be a matter of settled law unless there is a clear pointer to the contrary under the statute governing telephone network operators.

  45. Turning, then, to the Telecommunications Act, it is necessary to inquire whether there is any significant difference in the statutory scheme which might suggest that Parliament wanted to treat network operators differently from other utilities in relation to their rights to install parts of their system on or under roads. It has to be said at once that there is no obvious difference in the fundamental character of the items in question when compared with the electricity lines in the Hutt Valley case. In fact, at the time when that case was decided telephones were legislated for by the Post and Telegraph Act 1928, which described telephone and telegraph lines as "electric lines". We appreciate that there is greater complexity in the transmission of impulses for telephone conversations and other traffic on a telephone line system but the lines themselves, as distinct from the equipment generating, boosting or receiving the impulses, are passive means of conveyance like electricity lines. The telephone booths are simply shelters for equipment and, in some cases, for people who use the equipment. All such items are properly regarded as permanently affixed to land, until and unless the local authority or another utility company seeks relocation.

  46. A network operator is clearly to be regarded as the owner of its line system until revocation under s2A(5) of the declaration that it has that status. Sections 6 and 20 speak in terms of ownership. Section 20 precludes any other person from having an interest in existing lines and works. That must be true also for lines installed by Telecom since there is no good reason for any distinction in this respect, and the same must apply to telephone booths, which fall within the description of "works". It is thus apparent that when lines and booths are installed they remain the exclusive property of Telecom. But it does not follow that they are still chattels, nor that the space they occupy is not land.

  47. There is nothing in the Act to indicate that lines under the ground are to be treated differently from lines above ground and telephone booths. For at least the past 30 years lines have normally been put underground, so it is appropriate to focus on buried lines. A chattel affixed to land, or to a building which is part of the land, ordinarily thereby becomes in law part of the land and belongs to the landowner (Bain v Brand (1876) 1 App Cas 762; Melluish (Inspector of Taxes) v BMI (No 3) Ltd [1996] AC 454). The Telecommunications Act provides for ownership of the lines by the network operator when they are in the soil but, because their owner has an exclusive right to occupy the portion of the soil where they lie, that space is properly, and consistently with what was said in this Court in Valuer-General v Auckland Gas Co Ltd and by Dixon J in the first North Shore Gas case, also to be regarded as owned for the time being by the operator. (In the case of overhead wires capable of movement, the space must encompass the area of their movement which cannot in consequence be in shared occupation.) An exclusive right of occupation of this kind, even for a limited purpose, is more than an easement, because the owner of the rest of the soil is ousted (Metropolitan Railway v Fowler). And since an easement in modern times is classified as an incorporeal hereditament, even that more limited interest would be within the definition of "land" in the Rating Powers Act. That being so, it is most unlikely that Parliament intended that a greater right, conferring exclusive possession of part of the soil, should be accorded no more than the status of a mere licence. It is, moreover, the distinguishing feature of a licence that it does not confer any right to exclusive possession (Street v Mountford [1985] AC 809), or does not do so on more than a very temporary basis.

  48. We have not mentioned ss15 and 15A but regard the powers they confer and the restrictions they impose on Telecom as being of the same character as those found in the cases to which reference has been made in which interests in land have been held to have been enjoyed by utility companies. Section 15 gives Telecom a right to take exclusive possession of a part of the Councilís land. It may later have to relocate its lines, but in the meantime there has been an appropriation and use just as there was of the space occupied by the tunnel in the Metropolitan Railway case, albeit of much lesser physical dimension. It is to be noted that the definition of "line" in the Telecommunications Act includes a tunnel.

  49. Neither the limitation as to user nor the provision enabling the imposition of conditions by the Council, subject to Court supervision, which in practice seems to have been a means of enabling the Council to recover some costs from Telecom, indicates to the contrary. Hereditaments may exist for limited usages and subject to the payment of usage fees or compensation; and also to requirements for relocation of the servient tenement, as Chapman J observed in Auckland Gas. Nor is there any significance in the inability of Telecom to assign its statutory rights, for in the Metropolitan Railway and Toronto cases the rights were under special Acts and seemingly personal to the grantees. There is no doubt that a non-transferable lease of limited duration constitutes an interest in land. Why then should a right of exclusive possession for an unlimited duration not do so? Inability to lease also does not take Telecom outside the definition of an "owner" since it would be the party entitled to receive the rack-rent if the land could be and were let (Auckland Gas at 594 per Hosking J).

  50. For these reasons we are satisfied that under the Telecommunications Act Telecom has an interest in land while it remains a network operator and to the extent that it has lines and telephone booths in situ on, over or below the Councilís roads. Notwithstanding Mr. Galbraithís submission to the contrary, such an interpretation does not make the statute do more than is necessary to fulfil its purpose. It simply recognises the legal reality of what Parliament has done in the context of the settled law in this country relating to similar utilities.

    THE "MACHINERY" EXEMPTION

  51. The appellants submitted that even if the lines and booths would otherwise be rateable property they fall within an exemption under s6 of the Act because they are within the following description in cl.16 of Part II of the First Schedule:

    16.

    Machinery, whether fixed to the soil or not:

    Provided that, in the case of a hydro-electric power station, the term "machinery" shall include only the turbines, the generator, and associated equipment through which electricity produced by the generator passes.

  52. Arguments that gas mains and electricity lines were covered by the "machinery" exemption failed respectively in Auckland Gas and Hutt Valley. The proviso was inserted upon the passing of the Rating Powers Act but, aside from that qualification which has no direct bearing on the present case, the re-enactment of the machinery exemption suggests legislative satisfaction with the position established by those cases. It is apparent that case law was carefully considered by those who drafted the Act. The proviso partially reversed the decision of the Supreme Court in Grey County v Grey Electric-Power Board [1936] NZLR 247. And it is also of some present significance that in Grey the works included a conduit or water pipeline, which would not fall within the proviso.

  53. The two judgments of this Court proceeded upon the basis that the word "machinery" was being used in its popular and ordinary sense. In Hutt Valley Kennedy J summarised the position (p.619):

    The word "machinery" will not cover the transmission lines which merely convey electrical energy, any more than it would cover the mains and pipes, which merely convey gas.

  54. Following that approach, which this Court recently confirmed in The Otago Central Electric Power Board v Central Otago District Council [1994] NZVJ 49,51, and applying to the word a meaning which is popular or ordinary in the 1990s, we have no doubt that Telecomís lines are not machinery as the word is used in the context of the Rating Powers Act. (It was not suggested that booths fell within the exemption.) Mr. Galbraith was able to refer to evidence supporting the view that engineers and scientists may see a telephone system as a whole as a machine, but that is a technical or non-popular meaning and, indeed, is more a metaphor than an attempt at definition.

  55. Fisher Jís judgment contains a full discussion on this point. It is enough to say that we agree with what he said, adding only that in the Telecommunications Act itself the definition of "works" distinguishes between a line and machinery.

    FAILURE TO CONSIDER A RATING DIFFERENTIAL

  56. Mr. Galbraithís final argument assumed Telecomís failure on the issues which have to this point occupied this judgment. On the assumption that the lines and booths are rateable, he argued that the Council failed to consider the possibility of creating a separate differential for utilities and that it therefore failed to consider a relevant factor when exercising the statutory power of striking a rate to apply to them. In the alternative, it is said that Telecomís decision was unreasonable in administrative law terms.

  57. Part V of the Rating Powers Act, and in particular s80, authorises a local authority to make and levy rates differentially so that the rates can vary for different types or groups of property determined according to any one or more of the criteria in s81. A local authority wishing to do this, as the Auckland City Council has done for many years in connection with its annual value rating system, must first by resolution make a special order complying with s84. That order must contain a statement specifying, inter alia, the proposed types or groups of property. In other words, the special order classifies or puts into separate categories all the rateable properties to which it relates. Public notice is required to be given not less than 60 days before the date fixed for the confirmation of the resolution to make the special order (s84(1)(e)), and there is provision in s116 for ratepayers to object, just as there is in ss18(2) and 19 of the Valuation of Land Act 1951 for objection to the valuation attributed to a property.

  58. Telecom did not give notice under the Rating Powers Act of its objection to any special order. A notice of valuation was given by the City Valuer under the Valuation of Land Act, but instead of taking issue with the valuation, Telecom elected to debate with the Council its contention that its lines and booths were not rateable at all. The reported judgment of Fisher J records (p.495) that Telecom does not challenge the quantum of the values placed upon its utilities for the three years in question.

  59. The rates which it now seeks to challenge in this part of its case were for the years 1991/92, 1992/93 and 1993/94. For each of those years the Council carried out a review of its differentials. In terms of special orders confirmed prior to or early in each rating year utilities were placed into a group including all non-residential property within the City of Auckland, excluding the Central Area and certain islands in the Hauraki Gulf. Telecomís challenge on the ground which we are now considering was not put forward until the fourth amended statement of claim was filed in these proceedings in June 1995. At no earlier time did Telecom propose to the Council that its utilities should be differently treated, assuming they were rateable.

  60. That omission to challenge the special orders presents Telecom with an insuperable obstacle in the form of s716D of the Local Government Act 1974:

    716D.

    Time within which proceedings to quash special order must be commenced

    Subject, in the case of a special order making a bylaw to the Bylaws Act 1910, no special order shall be quashed by any proceedings in any Court or otherwise, unless the proceedings are commenced within 6 months from the making of the special order.

  61. We differ from Fisher J in taking this view. He accepted an argument on behalf of Telecom that the present proceedings are technically not a challenge to the making of the differential special orders but rather to the Councilís subsequent decisions in each year to make and levy rates without reconsidering the classification anew at that time and then remaking the differentials so as to place utilities in a separate category.

  62. It seems to us that this distinction is not sustainable. It is the clear purpose of s716D to provide certainty to the local authority about its special orders. It may rely upon them if they are not challenged within six months. Certainty is particularly important to a local authority in the rating context because of the potentially dire consequences of having its revenue gathering process belatedly impeached. Provision now exists in Part VIIIA of the Rating Powers Act for replacement of invalid rates, but a late challenge would still have the potential to be financially embarrassing for the local authority.

  63. Here Telecom has not timeously challenged the valuation of its rateable property nor its classification for the levying of rates. It cannot then object to the level of rate in the dollar which has been applied to all properties within the same classification on a ground which is essentially personal to Telecom and its property.

  64. The appellants say that the Council was under a duty, which is not to be found expressed in the legislation, to reconsider the differentials previously notified before proceeding to strike the rate in each year, and that it should have made a new special order to separate out the utilities. That must, it seems to us, involve the very thing in respect of which s716D imposes a time limit. It is an indirect attack on the existing differentials and thus on the special order by which they were made. A collateral challenge made out of time to a special order is not permitted (Tucker v The Inhabitants of the Kaiti Road District (1901) 20 NZLR 607). If it were, the purpose of s716D could always be frustrated.

  65. The Council has cross-appealed Fisher Jís judgment on this point and its cross-appeal must succeed, subject only to a point about to be considered which is relevant to the 1991/92 year only.

  66. The point is that until Telecom was privatised no question of the rating of its properties arose. They were not on the rating roll. That step occurred on 26 July 1991, the day after the confirmation of the special order for the rating year running from 1 July 1991 to 30 June 1992. The rates were struck for that year on 15 August 1991. It is Telecomís argument that it cannot have been intended by s716D to deny to someone not on the roll when the special order was made, whose land is for the first time brought within a differential category after the category has been established, any right to raise objection to the classification. This point is not available to Telecom in respect of the subsequent years because the Council reconsidered the differentials at the beginning of each year and fresh special orders were made. Also, it is not argued that the Council had any general duty to reconsider its differentials more frequently than once a year.

  67. When making the special order the Council must surely have had in mind the immediate inclusion of Telecom with the other utilities which were already being rated. As Fisher J said, there is an air of unreality about a complaint which is addressed solely in terms of the considerations which the councillors ought to have brought to mind when they passed the rating resolution, as distinct from the antecedent differential resolution. By the time they came to the rating resolution they had just traversed the subject of differentials and embodied their decision in a publicly notified special order. It is therefore more than a little artificial for Telecom to argue that the Council acted without proper regard for Telecomís position or otherwise in breach of some duty to Telecom in the way in which it came to impose the 1991/92 rates, particularly since Telecom itself had been forewarned by letter from the Council dated 2 July 1991 about what was to occur and elected to take no steps to challenge the decision on this ground until long afterwards.

  68. When Telecom was notified on 9 August 1991 of the inclusion of its property on the rating roll by the City Valuer under s12 of the Valuation of Land Act there was most of the six month period under s716G left for it to bring an objection to the special order. It did not do so.

  69. It is to be remembered that the rating of utilities by the Council had a long history. It simply treated Telecom in the same way. Even now the extensive evidence does not suggest any vital matter which obviously differentiates Telecomís lines from Mercury Energyís electricity lines or the gas mains of Enerco (formerly Auckland Gas Co); and there is no evidence of any complaint about the differential in the year in question, or earlier or later years for that matter, from either of those entities. There is no analogy either to the unusual position existing in Mackenzie District Council v Electricity Corporation of New Zealand [1992] 3 NZLR 41. In 1991/92 the utilities together accounted for only 0.07% of the Councilís rates. Telecomís rates for that year on about 1400 kilometres of lines and approximately 700 booths were approximately $130,000, and this sum was itself a very small part of Telecomís rates on all its properties in the Auckland City.

  70. We agree with Fisher Jís assessment that the assumption underlying Part V of the Rating Powers Act is that it is permissible to ignore individual differences unless they are truly extraordinary. Even assuming the existence of the duty for which the appellants contend, the evidence in this case does not demonstrate that, considering the necessarily generalised nature of the decision-making process, the Council failed to have regard to a matter which was relevant. Nor was the Councilís decision imposing the rates unreasonable in the circumstances. There was no apparently large disproportion between the benefits flowing to Telecomís line system and booths from Councilís services as compared with the burden imposed by the rates upon them. Admittedly, many of the Councilís general services are of no use to a telephone network, and presumably of no use also to gas mains and electricity lines. But, as an example only, the provision and maintenance of the roading system, including an unobstructed corridor in which to locate lines, must be a substantial benefit to the line system of a utility company. Councilís administrative services, such as the functioning of its district plan or its control over traffic, particularly when works are being carried out on the roads, also produce benefits. Street lighting is relevant to telephone booths. It was therefore open to the High Court to find that substantial direct and indirect benefits were being provided by the Council.

  71. It is possible that if the question of relative benefits and burdens were in the future to be re-examined the Council might see things differently and might wish to alter its differentials. But, whether or not that may be so, from the standpoint of July/August 1991 when Telecom had been silent on this question, it cannot be said that any disproportion must have been so obvious as to call into question the reasonableness of what the Council did at that time.

    RESULT

  72. The appeal is dismissed and the Councilís cross-appeal allowed, with costs to the respondents in the sum of $10,000 together with reasonable disbursements, including travel and accommodation expenses of both counsel as fixed by the Registrar.


Cases

The Metropolitan Railway Co v Fowler [1893] AC 416; Corporation of the City of Toronto v Consumersí Gas Co of Toronto [1916] 2 AC 618; Auckland City Corporation v Auckland Gas Co Ltd [1919] NZLR 561; Hutt Valley Electric-Power Board v Lower Hutt City Corporation [1949] NZLR 611; Newcastle-Under-Lyme Corporation v Wolstanton Ltd [1947] Ch 92; Newcastle-Under-Lyme Corporation v Wolstanton Ltd [1947] Ch 427; The Commissioner of Main Roads v The North Shore Gas Co Ltd (1967) 120 CLR 118; The Consumers Gas Co of Toronto v City of Toronto (1897) 27 Can SCR 453; The Valuer-General v Auckland Gas Co Ltd [1923] NZLR 187; The Commissioner of Main Roads v The North Shore Gas Co Ltd (1967) 120 CLR 118; Borough of Glebe v Lukey (Australian Gaslight Co) (1904) 1 CLR 158; The North Shore Gas Co Ltd v Commissioner of Stamp Duties (New South Wales) (1940) 63 CLR 52; Bain v Brand (1876) 1 App Cas 762; Melluish (Inspector of Taxes) v BMI (No 3) Ltd [1996] AC 454; Street v Mountford [1985] AC 809; Mackenzie District Council v Electricity Corporation of New Zealand [1992] 3 NZLR 41

Legislations

Rating Powers Act 1988: s.2, s.6, s.12, s.15, s.15A, s.18, s.20, s.121, cl.16 (Part II, Schedule I)

Local Government Act 1974: s.337, s.379, s.716D

Gas Act 1992: s.25, s.31

Electricity Act 1992: s.24, s.32

Property Law Act 1908 [UK]: s.13

Property Law Act 1952 [UK]: s.122

Public Works Act 1912 [NSW]

Authors and other references

Gale on Easements, 16ed

Representations

A R Galbraith QC and S F S Saul for Appellants (instructed by Chapman Tripp Sheffield Young, Auckland)

R J Craddock QC and G D Palmer for Respondents (instructed by Simpson Grierson, Auckland)


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