Projects constrained by 'functional need' and 'operational need' tests

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Over the last 12 years policy makers have increasingly come to rely on the concepts of ‘functional need’ and ‘operational need’ to create allowances for activities to occur in locations which would otherwise be protected. The trend began with the National Policy Statement on Electricity Transmission in 2008, was expanded on in the New Zealand Coastal Policy Statement (2010) (NZCPS), and has since been used in national policy direction on freshwater and biodiversity. Regional and district councils have also picked up the concepts in their planning documents.

‘Functional need’ and ‘operational need’ are terms that are used in district and regional plans and national policy statements to justify a project’s need to locate or operate in a particular location.

Confusingly, the two terms (often referred to as ‘tests’) are similar but have subtle yet important differences. The key difference is whether the activity can only be located in a particular environment (functional need) OR whether the activity could locate elsewhere but the need to be in a particular environment is created due to logistical or technical practicalities and constraints (operational need).

The key definitions are:

  1. ‘Functional need’: “the need for a proposal or activity to traverse, locate or operate in a particular environment because the activity can only occur in that environment” (in the National Planning Standards 2019, National Policy Statement for Freshwater Management 2020 (NPS-FM) and the National Policy Statement for Indigenous Biodiversity exposure draft (NPS-IB).

  2. ‘Operational need’: “the need for a proposal or activity to traverse, locate or operate in a particular environment because of technical, logistical or operational characteristics or constraints” (in the National Planning Standards 2019 and the NPS-IB).

To add to the confusion, we’re seeing the tests used in different ways in different national policy documents. Sometimes, only one term is used, whereas sometimes both terms are used (in an ‘either/or’ scenario).

Why should you care?

The two tests are ambiguous and often difficult for infrastructure providers and developers to meet, sometimes resulting in either a decision to re-design the project to avoid sensitive areas (i.e. wetlands and areas of indigenous biodiversity), or to argue the case with the high risk of ending up in court. Both options often result in major cost increases for infrastructure and other projects.

Activities in wetlands

The NPS-FM and the National Environmental Standards for Freshwater (NES-F) (and latest exposure draft changes) prevent activities occurring in (and in some cases, within 100m of) wetlands, except for ‘specified infrastructure’ (for example, state highways) and development. Those activities may only be allowed in or near wetlands if they can show there is a functional need for the activity to locate there.

The Ministry for the Environment (MfE) has recently released draft changes to the NPS-FM. These changes would add mineral extraction and quarrying to the list of exceptions, based on a functional need to locate in the particular location (however these changes have not been confirmed yet).

Activities in areas with indigenous biodiversity present

Soon, activities within areas of indigenous biodiversity (called ‘significant natural areas’) will be similarly restricted. MfE has released an exposure draft of the NPS-IB for public feedback. The draft NPS-IB contains similar provisions for specified infrastructure (called ‘specific infrastructure’) and mineral extraction, except that the test includes whether there is either a functional need OR an operational need to locate there.

Activities in the coastal marine area

Functional need is also a relevant consideration in relation to the coastal environment. Although not defined in the NZCPS, it is mentioned in Policy 6 (1) and (2), which reads:

(1) In relation to the coastal environment;

(e) consider where and how built development on land should be controlled so that it does not compromise activities of national or regional importance that have a functional need to locate and operate in the coastal marine area;

(2) Additionally, in relation to the coastal marine area;

(c) recognise that there are activities that have a functional need to be located in the coastal marine
area, and provide for those activities in appropriate places;

(d) recognise that activities that do not have a functional need for location in the coastal marine area generally should not be located there;

Difficulties in meeting the functional and/or operational need tests

For the majority of infrastructure and developments, the functional need test is more restrictive than the operational need test, as it does not allow the cost or practical constraints of alternative options to be considered. The difficulty arises from the fact that some infrastructure, such as a hydro dam, obviously has a functional need to be located in a river, whereas it is more difficult to say that any particular type of infrastructure needs to be in a wetland or areas with indigenous biodiversity in order to function. This is the issue which the Courts have recently grappled with, as discussed below.

Generally, the operational need test is easier to meet. It sets a lower bar and enables some projects to take place in a particular environment in situations where operational or technical constraints (e.g. engineering, safety, and potentially cost factors) mean it is not practical to put it elsewhere. For example, if a new state highway is being built and the alternatives have site access issues, increased health and safety concerns, and would require significantly more resources and time to build, the operational test would arguably be met.

For a few activities, the functional need test may in fact be easier to meet – for example, certain materials that need to be quarried or mined may only be found in very specific locations. The effects of the quarrying or mining activity would still need to be managed.

Functional need in the courts

The ‘functional need’ test has recently been considered in the case of Poutama Kaitiaki Charitable Trust v Taranaki Regional Council (commonly referred to as ‘Mt Messenger’) in the context of the freshwater regulations.1 One of the key issues was whether Waka Kotahi could prove there is a ‘functional need’ for a state highway (bypass) to be built through the lower Mangapepeke Valley on the west coast of the North Island, through an area containing multiple wetlands.

The High Court acknowledged that the strict language of “can only occur” within the “functional need” definition employs a high threshold.2 With that in mind, the Court then sought to broaden the application of ‘functional need’ in this particular factual situation. The Court held that:

  • The presence of alternative routes for a proposal is not in itself a sufficient argument to indicate a lack of “functional need”, because with linear infrastructure, alternatives will always exist and their existence could not have been intended to make the specified infrastructure exception otiose.3
  • The “location” in which the activity occurs does not mean the specific wetland in question, but the broader environment (as defined in s 2 of the Resource Management Act 1991) that is subject to the activity (in this case, a valley environment).4

The Court concluded that the Environment Court was correct in its finding that there was a functional need for the state highway to go through the valley due to the nature of the linear infrastructure, the distance of the project, the particular (valley) environment, and the fact that the alternatives were constrained by cost, distance, terrain and constructability issues.5

In our view the Court’s wider interpretation of ‘functional need’ was pragmatic and allowed the functional need exception in the regulations to operate effectively. However, the interpretation arguably shaded into an ‘operational needs’ assessment, looking at issues such as cost and constructability of alternatives, instead of exclusively highlighting aspects such as the nature of the project.

Will this same reasoning apply to future cases in relation to wetlands? The decision is certainly helpful in that it broadens the ‘particular environment’ to wider than just the relevant wetland, but its wider application may be limited given the circumstances of the case (a very confined valley with multiple wetlands). The Court made it clear that the question of whether the project can only occur in that relevant environment, would be a context and fact specific inquiry.

What next?

In the past, the bar for the ‘functional need’ test has been set very high, making it very difficult for most infrastructure providers to meet. Arguably, the Mt Messenger decision provides a more pragmatic interpretation of ‘functional need’.

The meaning of ‘operational need’ has yet to be tested. A number of infrastructure providers have requested that ‘operational need’ be included in the wetland regulations on the basis that this concept more closely aligns with the kinds of considerations that proved determinative in Mt Messenger. Ultimately, as seen with the Mt Messenger case, the lines between the two tests are arguably becoming blurred, leaving both terms clouded in ambiguity and subject to further testing in the courts which leaves infrastructure/development in an uneasy and inopportune position.

Submissions have now closed on the exposure drafts for both the wetland regulations and the NPS-IB, so watch this space – we anticipate that MfE will release its final version of both documents before the end of this year.

  1. Poutama Kaitiaki Charitable Trust v Taranaki Regional Council [2022] NZHC 629.
  2. At [48].
  3. At [57].
  4. At [52-55].
  5. At [57-58].

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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