Alinta Asset Management Pty Ltd v Essential Services Commission (No 3)
[2007] VSC 353
•21 September 2007
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
COMMERCIAL LIST
No. 8453 of 2006
| ALINTA ASSET MANAGEMENT PTY LIMITED | Plaintiff |
| v | |
| ESSENTIAL SERVICES COMMISSION | Defendant |
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JUDGE: | HOLLINGWORTH J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 13 September 2007 | |
DATE OF JUDGMENT: | 21 September 2007 | |
CASE MAY BE CITED AS: | Alinta v Essential Services Commission (No 3) | |
MEDIUM NEUTRAL CITATION: | [2007] VSC 353 | |
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Judgments and orders – Declaratory relief – Declarations in relation to past conduct - Nature of declarations sought – Utility – Whether declaratory relief should be granted
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr J Delany S.C. Mr P J Booth | Blake Dawson Waldron |
| For the Defendant | Mr C M Scerri QC | Brand Partners as agents for Gilbert & Tobin |
HER HONOUR:
On 22 August 2007, I handed down my principal reasons for decision in this proceeding.[1] I found in favour of the defendant (“the ESC”). In particular, I held that at all material times since 23 July 2003:
(a) The plaintiff (“AAM”) has provided relevant services by means of the Multinet gas distribution system, either as principal or agent, such as to bring it within section 22(1) of the Gas Industry Act 2001 (“GIA 2001”); and
(b) AAM has been a “service provider” within the meaning of the Access Law and therefore obliged to comply with the requirements of the Code.[2]
[1][2007] VSC 210.
[2]The Code is the National Third Party Access Code for Natural Gas Pipelines Systems, being schedule 2 to the Gas Pipelines Access (South Australia) Act 1997, which is enacted as a law of Victoria by the Gas Pipelines Access (Victoria) Act 1998.
The parties sought an opportunity to address me as to the appropriate form of relief and as to costs, once they had considered my reasons for decision.
The parties subsequently filed detailed written submissions about the form of relief. AAM also sought to rely on five affidavits[3], the contents of which will be considered shortly. The ESC did not oppose the tender of this late evidence. I also heard oral submissions on 13 September 2007.
[3]Being the affidavits of Alistair Charles Lehman and Tina Tin Gan Ooi, both sworn 30 August 2007, the affidavit of John Fintan O’Callaghan sworn 31 August 2007, and two affidavits of Shaun Anthony Reardon sworn 31 August and 12 September 2007, respectively.
The parties agree that orders in the following terms would be appropriate:
(1) AAM’s claim be dismissed.
(2) The ESC’s counterclaim be allowed.
(3) AAM pay the ESC’s costs of and incidental to the proceeding, including reserved costs.
The parties disagree as to what, if any, declaratory relief should be granted. The ESC asks the court to make most of the declarations sought in its counterclaim. AAM contends that no declarations should be made, alternatively, that any declarations should be stayed until 1 January 2008. AAM’s objections to the various declarations are discussed below.
The ESC seeks the following declarations:
(1) AAM is, and has been at all material times since 23 July 2003, within the meaning of section 22(1) of the Gas Industry Act2001, providing services (other than the sale of gas by retail) by means of a distribution pipeline, namely the Multinet gas distribution system, as either principal or agent.
(2) AAM:
(a) Is, and has been at all material times since 23 July 2003, an operator of a pipeline, namely the Multinet gas distribution system, within the meaning of the definition of “Service Provider” in the Gas Pipelines Access Law enacted as a law of Victoria by section 7 of the Gas Pipelines Access (Victoria) Act 1998; and
(b) Is, and has been at all material times since 23 July 2003, required to comply, as a Service Provider, within the meaning of the Gas Pipelines Access (Victoria) Law, with the National Third Party Access Code for Natural Gas Pipeline Systems.
Utility
The jurisdiction to grant or refuse a declaration is a very wide one. It is common ground that the court should not make declarations unless it is satisfied that there is utility in doing so, and the ESC bears the onus of establishing such utility. “Utility” is a broad concept in this context.
AAM argues that there is no utility in granting the relief sought in respect of either legislative scheme. It says the declarations would be of little benefit to the ESC and would cause hardship and embarrassment for AAM.
AAM relies upon the statement in Attorney General v Scott,[4] that it is not the practice to grant a declaration if it is “embarrassing or useless for any good purpose.” But the court in that case was using “embarrassing” in the traditional sense in which it is used in pleadings and orders. An order would be embarrassing if it was unintelligible, if it placed a person in a position where they did not know what their status was, or what they were required to do.
[4][1905] 2 KB 160 at 169.
AAM says it would be embarrassed if declarations were made that it had engaged in criminal conduct. For the reasons discussed below, the proposed declarations are not in fact declarations that AAM has engaged in criminal conduct. In any event, they are not “embarrassing” in the relevant sense.
Insofar as the declarations relate to past conduct, AAM says they would serve no purpose. In the case of both the GIA 2001 and the Code, it says that “the past cannot be re-written”. If it did not comply with the relevant provisions in the past, it cannot now do so retrospectively. Apart from the fact that the declarations do not of themselves require AAM to do anything, that argument ignores the fact that declarations are regularly made as to past conduct and events. Such declarations clarify what the relevant legal position was at a particular point in time. Evidence was led as to AAM’s various activities since July 2003. There is utility in making declarations as to its legal status during that period.
As far as the present is concerned, AAM argues that the dispute has ceased to be of practical significance. Because it is now taking steps to comply with the GIA 2001 and the Code, it says there is no utility in granting declaratory relief. But that ignores the fact that the very controversy which was the subject of these proceedings was whether its activities are (and were) such as to bring it within the relevant provisions. Unless declarations are made in the terms sought by the ESC, the controversy between the parties (as reflected in the pleadings and the correspondence which preceded the commencement of the proceeding) will not be “quelled”.
I agree with the ESC that, unless those declarations are made, the following consequences would occur:
(a) It would be left open to question whether AAM is positively to be treated as falling under the GIA 2001 and the Code;
(b) There would be no binding disposition of all the matters contested in the proceeding, only an advisory opinion in the form of my original reasons for decision; and
(c) The court’s conclusions would not be stated clearly and authoritatively, in a way which might have an educative purpose for others in the industry.
AAM raises the following additional arguments in relation to the specific legislation.
Declarations concerning the GIA 2001
Criminal conduct
AAM says that the proposed declaration concerning the GIA 2001 would involve a declaration that it has engaged in criminal conduct over an extended period. Whilst not disputing that the court has power to make such a declaration, AAM argues that, as a matter of discretion, it would be entirely inappropriate to make such a declaration in a civil proceeding.
But, the ESC does not seek a declaration that AAM has contravened or is contravening the law. It merely seeks a declaration to the effect that AAM is a person who provides services of a type covered by section 22.
Under section 22(1) of the GIA 2001, it is an offence for a person to “provide services (other than the sale of gas by retail) by means of a distribution pipeline, either as principal or agent”, unless the person is either licensed to do so or exempt from the licensing requirements. AAM concedes that no criminal penalty can be imposed until the ESC has served a notice of contravention under the section. No such notice has been served.
In its written submissions, AAM also argued that the declarations would expose officers of AAM to penalties under section 230 of the GIA 2001, in respect of conduct from 23 July 2003. Section 230 creates an offence for an officer of a body corporate to be directly or indirectly knowingly concerned in or a party to the commission of an offence against the GIA 2001. There is no notice requirement in respect of section 230. However, in the course of oral argument, AAM’s counsel properly conceded that section 230 only creates accessorial liability, and there could be no question of liability under section 230 unless and until an offence was committed under section 22.
Furthermore, no question of issue estoppel arising from any declarations in this proceeding would apply in any proceeding against officers, because no officer is a party to the proceeding.
Subsequent conduct
AAM also argues that no declaration should be made in relation to section 22, because of the steps it has taken to comply with the section since judgment was reserved on 30 May 2007. In particular, it relies upon the following matters:
(a) On 27 June 2007, AAM sought clarification of the licence conditions the ESC would seek to impose on it if the court were to find against it;
(b) On 13 July 2007, the ESC advised that it was prepared to negotiate licence conditions with AAM;
(c) On 22 August 2007, the court delivered reasons for decision;
(d) AAM has been gathering information needed to make a licence application;
(e) On 28 August 2007, AAM wrote to the ESC, seeking a meeting to discuss licence conditions, and requesting an undertaking that ESC would not issue a section 22 contravention notice;
(f) On the same day, it wrote to the relevant Minister seeking an exemption from the requirements of section 22, upon its undertaking to pursue the issue of a licence;
(g) On 3 September 2007, AAM received a letter from the ESC stating that it was prepared to meet to discuss the licence issues. The letter also stated that the ESC “has no current intention of issuing a notice of contravention”, but declined to give an undertaking that it would not do so in the future;
(h) Representatives of AAM and the ESC met on 12 September 2007 to discuss the licence issues; and
(i) No formal response has been received from the Minister. Informal responses from some of his staff suggest that it is unlikely that an exemption would be granted.
The fact that AAM is taking steps, consequent upon the court’s finding that it provides relevant services within the meaning of section 22, would no doubt be very relevant to a court hearing a criminal charge under the section. It would be particularly relevant to questions of penalty. But that is not this court’s task here. The fact that AAM is taking steps to obtain a licence, or an exemption, does not provide a reason for not making the relevant declaration.
AAM suggests that if the court has concerns as to what action AAM will take, absent the grant of declaratory relief, it may reserve liberty to apply to the ESC in the event, for example, that AAM does not prosecute the licence application with due diligence. But that suggestion would involve open-ended supervision by the court. It is not this court’s role to supervise the licence application process.
Declarations concerning the Access Law and Code
AAM argues that:
(a) As to the past, and as at the date of trial, there is no utility in the court granting the declarations sought. To do so will expose AAM to civil penalties pursuant to the Code, but will serve no useful purpose; and
(b) As to the present, AAM is taking steps to put an access arrangement in place, so there is no need for declarations to be made and no purpose will be served by the court so doing.
Declarations as to the past
First, AAM argues that to make declarations as to the past will expose it to civil penalties, which are punitive provisions. It says that to expose it to punishment when it took the proceeding to clarify its status under the Code is inappropriate.
AAM’s argument is misconceived. This is not a proceeding alleging contravention of the Code. The court is not being asked to make a declaration of contravening conduct, pursuant to section 37 of the Access Law (discussed below). The proceeding concerns whether AAM was and is a “service provider” in relation to the Multinet distribution system. AAM’s own pleadings sought declarations (albeit negative ones) in relation to that very issue, at least as at the time of trial.
The ESC concedes that the declarations would not be irrelevant to any future prosecution. That is to say, if a contravention proceeding were later to be commenced by the ESC under Part 5 of the Access Law, then the affirmative declarations in this proceeding would give rise to issue estoppels on the threshold questions of whether AAM was and is a service provider. But that is not a reason for declining to make such declarations.
AAM’s next argument about past declarations relates to their utility. It is common ground that AAM could not now retrospectively comply with most of the ring-fencing requirements of the Code. AAM’s evidence also suggests that it would not be possible for it to re-write its historical accounts so as to accurately allocate expenditure in the manner required by the Code. AAM argues that there would be no utility in the court making declarations that would require AAM to comply with financial and ring-fencing obligations with which it cannot retrospectively comply.
That argument misconceives the nature of the proposed declarations. They do no more than state that AAM was a “service provider” at particular points in time. They do not in themselves compel AAM to do anything, particularly anything retrospective.
The declarations would quell the relevant controversy between the parties and have an educative effect.
Declarations as to the present
As with the GIA 2001, AAM has put forward detailed evidence of the steps it has been taking since the conclusion of the trial to comply with the Code. Those steps include:
(a) Liaising with the ESC and Multinet about the possibility of a joint access arrangement;
(b) Commencing preparation, in parallel, of both joint and stand-alone access arrangements;
(c) Obtaining expert accounting advice from PwC as to accounting issues; and
(d) Commencing the process of developing and re-writing accounting software.
AAM argues that “there is no need” to grant declaratory relief, because it is moving in accordance with the court’s reasons to put an access arrangement in place, to ring-fence and to comply with regulatory requirements.
Once again, those are matters which may be very relevant were the ESC to commence proceedings for breach of the Code. They are not a reason for refusing the declarations.
Section 37 of the Access Law
AAM argues that if, contrary to its primary submission, the court is minded to grant declaratory relief in respect of the Access Law, such relief should reflect and be consistent with section 37(3)(b) of the Access Law.
Section 37(1) empowers a court to declare whether or not the person to which the application relates has contravened certain types of provisions. Relevantly, those provisions include matters such as access arrangements and ring-fencing. If the court declares that such a contravention has occurred, its orders may include a requirement that the person take action or adopt practices to remedy the contravention or prevent a recurrence of it (section 37(3)(b)).
I accept AAM’s argument that the clear intent and scope of section 37(3) is to enable a court to defer the impact of finding of contravention so as to:
(a) Enable a reasonable time for compliance and remedying of contraventions; and
(b) Minimise any risk of disruption to access and gas supply as a result of court findings.
If, at some stage in the future, the ESC were to issue proceedings against AAM, seeking a declaration of contravention of relevant provisions, no doubt the court hearing the matter on that occasion would have regard to all the steps which AAM is taking to comply with the Code. AAM could rely on the sort of evidence it has placed before this court to argue that it requires more time for compliance. In deciding what orders would be appropriate, the court on that occasion could also have regard to whether or not AAM could now take steps to remedy past contraventions (for example, AAM’s assertion that it cannot retrospectively ring-fence).
But this is not an application under section 37(3)(b). This proceeding involves a far more limited range of issues than would arise in contravention proceedings under the Access Law. There is no reason in principle to limit the court’s general declaratory powers by reference to a specific statutory prosecution scheme which is not the subject of this proceeding.
Stay
In the alternative, AAM argues that any declarations should be made so as not to take effect until 1 January 2008 or further order. By that date, AAM envisages that there will be no ongoing breach of either the GIA 2001 or the Code.
The date has, to a certain extent, been chosen arbitrarily. Although it is the date on which the existing Multinet access arrangement expires, it is far from clear on the evidence that AAM will in fact have obtained a licence and be in a position to comply with the Code by that date.
AAM baldly asserts that a stay would give effect and due recognition to the court’s reasons for decision, whilst “balancing the community interest in security of gas supply and on-going access to the Multinet distribution network”. In fact, there is no evidence that the making of the declarations without a stay would in fact jeopardise the gas supply or access to the network. The declarations do not require AAM to do anything; they merely declare its legal status at particular points in time.
Even if I had power to stay the declarations in the manner sought, I am not persuaded that it would be appropriate to do so.
Conclusion
For these reasons, I will make declarations in the terms sought by the ESC.
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