Air New Zealand Ltd v Wellington International Airport Ltd
[2009] NZCA 259
•29 June 2009
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IN THE COURT OF APPEAL OF NEW ZEALAND
CA268/2008
CA737/2008
CA156/2009
[2009] NZCA 259
BETWEENAIR NEW ZEALAND LIMITED
First AppellantANDAIR NELSON LIMITED
Second AppellantANDEAGLE AIRWAYS LIMITED
Third AppellantANDZEAL 320 LIMITED
Fourth AppellantANDMT COOK AIRLINE LIMITED
Fifth Appellant
ANDWELLINGTON INTERNATIONAL AIRPORT LIMITED
Respondent
CA295/2008
CA502/2008AND BETWEEN WELLINGTON INTERNATIONAL AIRPORT LIMITED
Appellant
ANDAIR NEW ZEALAND LIMITED
First RespondentANDAIR NELSON LIMITED
Second RespondentANDEAGLE AIRWAYS LIMITED
Third RespondentANDZEAL 320 LIMITED
Fourth RespondentANDMT COOK AIRLINE LIMITED
Fifth Respondent
Hearing:22 and 23 April 2009
Court:Chambers, Arnold and Baragwanath JJ
Counsel:J A Farmer QC and D J Cooper for Air New Zealand Limited, Air Nelson Limited, Eagle Airways Limited, Zeal 320 Limited and Mount Cook Airline Limited
D J Goddard QC, L A O'Gorman and P J Niven for Wellington International Airport Limited
J Every-Palmer and K Wevers for Auckland International Airport Limited as Intervener
Judgment:29 June 2009 at 3 pm
JUDGMENT OF THE COURT
A The appeals in CA268/2008, CA737/2008 and CA156/2009 are dismissed.
BIn light of our decision in respect of the foregoing appeals, the appeals in CA295/2008 and CA502/2008 are moot and are formally dismissed.
CAir New Zealand Limited must pay costs to Wellington International Airport Limited for a single complex appeal on a band B basis, together with usual disbursements. The daily recovery rate is uplifted by 50 per cent. We certify for two counsel.
DBy consent, we order that any person wishing to search or inspect affidavits, exhibits or bundles of documents on the Court files in respect of any of the above mentioned appeals may do so only with the leave of a Judge, given following an application made with notice to the parties to this appeal.
REASONS OF THE COURT
Chambers and Arnold JJ [1]
Baragwanath J [104]CHAMBERS AND ARNOLD JJ
(Given by Arnold J)
Table of Contents
PARA NO
Introduction [1]
BACKGROUND [5]
Principal issues on appeal [19]
Summary of parties’ positions on principal issues [22]
Discussion: the strike out appeals [29]Was WIAL under a statutory obligation to price as if in a competitive
market? [32]
What are the limits on the scope of judicial review of a pricing decision
under s 4(3)? [45]
Stepped charges lawful? [77]Conclusion [81]
Decision [88]
Postscript [94]
Introduction
[1] Wellington International Airport Limited (WIAL) is an airport company in terms of the Airport Authorities Act 1986 (the Act), operating Wellington International Airport. Under the Act it is directed to operate the airport as a “commercial undertaking” (s 4(3)). It has the power to set the landing charges to be paid by airlines using its facilities (s 4A), but must consult with them before it does so (s 4B).
[2] Following a consultative process, WIAL set landing charges for the period 1 July 2007 to 30 June 2012. Air New Zealand Limited and its associated airline companies (the second to fifth appellants) objected to the charges (for convenience we will refer to the appellants as Air NZ). Air NZ issued judicial review proceedings challenging WIAL’s charges on various bases.
[3] A key element of Air NZ’s claims was the allegation that, because it is required under s 4(3) to operate the airport as a commercial undertaking, WIAL had a statutory obligation to price on a basis that would occur in a competitive market. Air NZ claimed that in fixing the landing charges WIAL had breached this obligation and that the charges were accordingly unlawful. There then followed a somewhat complex series of events, in the course of which Wild J struck out Air NZ’s judicial review claims: see [2008] 3 NZLR 87 and [2009] NZAR 138. The five appeals presently before us emerged from this sequence of events.
[4] Despite the somewhat complicated procedural background, the principal question before us is whether Wild J was right to strike out Air NZ’s claims. The answer to this depends on the meaning given to s 4(3) and the extent to which judicial review is available in respect of a pricing decision made under s 4A.
Background
[5] As we have said, WIAL operates Wellington International Airport. It is authorised under s 3(3) of the Act to perform the functions of an airport authority in relation to the airport.
[6] Section 4(3) of the Act provides that “[e]very airport operated or managed by an airport authority must be operated or managed as a commercial undertaking”. The meaning of this statutory direction is a key issue in the appeals.
[7] One of WIAL’s responsibilities is to set landing charges for the airport under s 4A(1) of the Act. That subsection relevantly provides:
4A Charges
(1)Subject to section 4B, every airport company may … set such charges as it from time to time thinks fit for the use of the airport operated or managed by it, or the services or facilities associated therewith.
[8] Subsections (3) and (4) of s 4A provide:
(3)Nothing in section 43 of the Commerce Act 1986 applies in relation to the setting and charging of prices by an airport company.
(4)This section does not limit the application of regulation under Part 4 of the Commerce Act 1986.
Sections 4A(1) – (3) were inserted by the Airport Authorities Amendment Act 1997, with effect from 26 November 1998, and s 4A(4) by the Commerce Amendment Act 2008, with effect from 14 October 2008. Section 43 of the Commerce Act 1986 provides that nothing in Part 2 of the Commerce Act (which deals with restrictive trade practices) applies in respect of “any act, matter, or thing that is, or is of a kind, specifically authorised by any enactment” (among other things). As s 4A(3) of the Act makes clear, airport companies do not have the benefit of that exemption when fixing their charges.
[9] Sections 4B and 4C deal with consultation, the former in relation to charges and the latter in relation to capital expenditure. Section 4B(1) provides:
4B Airport companies must consult concerning charges
(1)Every airport company must consult with every substantial customer in respect of any charge payable by that substantial customer to the airport company in respect of any or all identified airport activities–
(a) Before fixing or altering the amount of that charge; and
(b)Within 5 years after fixing or altering the amount of that charge.
The term “substantial customer” is defined in s 2A of the Act and includes Air NZ.
[10] Having consulted with Air NZ and other airlines, WIAL made its pricing decision on 20 June 1997. The mechanism adopted was to fix a specific price for the period 1 July 2007 to 31 March 2008 and to provide for annual increments of 2.85 per cent on the previous year’s price for each of the remaining four years, to take effect on 1 April of each year (we will refer to these as the stepped charges).
[11] Air NZ did not accept WIAL’s decision and refused to pay the stepped charges, although it continued to pay charges at the previous level. It issued judicial review proceedings containing three causes of action. The first alleged predetermination by WIAL – that it failed to consult with an open mind and in good faith. The second alleged that WIAL had exceeded its statutory power by setting charges that sought a monopoly return and were unreasonable. The third challenged the stepped charges, alleging that they could not be implemented in any year without further consultation with Air NZ.
[12] WIAL applied to strike out the second and third causes of action. It also issued separate proceedings seeking to recover the unpaid portion of its new charges from Air NZ, and applied for summary judgment or, in the alternative, a mandatory interim injunction requiring Air NZ to pay the unpaid portion. Air NZ opposed WIAL’s application for summary judgment, on the basis that it had a set off and that summary judgment would pre-empt the relief it sought in its judicial review proceedings. It opposed the application for an interim injunction on the basis that the Court did not have jurisdiction to grant the injunction, and even if it did, there were no special circumstances justifying the granting of a mandatory injunction. Further, damages would be an adequate remedy.
[13] These various applications were heard together by Wild J. In a judgment dated 24 April 2008 the Judge struck out the second and third causes of action: [2008] 3 NZLR 87 (the April judgment). However, in light of this Court’s decision in Waipa District Council v Electricity Corporation of New Zealand [1992] 3 NZLR 298, Wild J refused to grant summary judgment because the judicial review proceedings remained alive in respect of the predetermination cause of action. However, the Judge said that, in the absence of authority, he would have done so: at [62].
[14] Wild J did not deal with the application for a mandatory interim injunction in the April judgment. He dealt with that in a subsequent judgment, dated 30 July 2008. The Judge declined to issue an interim injunction, essentially on the basis that damages would be an adequate remedy and because of the higher standard that applies where a mandatory injunction is sought: at [6] – [7] and [14].
[15] Both parties filed appeals against these decisions, Air NZ against the decision to strike out (CA268/2008), and WIAL against the decision to refuse summary judgment (CA295/2008) and the decision to refuse an interim injunction (CA502/2008).
[16] Then, having undertaken discovery in relation to the remaining cause of action (predetermination), Air NZ filed a second amended statement of claim. In that it repeated the two causes of action that had been struck out (to preserve its position pending the determination of its appeal), dropped the predetermination cause of action and added four new causes of action. These alleged respectively unreasonableness, substantive unfairness, failure to take account of relevant considerations and breach of legitimate expectation.
[17] WIAL filed a further strike out application in respect of the four new causes of action. In his decision dated 18 November 2008 Wild J struck out those causes of action as well (the November judgment): [2009] NZAR 138.
[18] Air NZ filed an appeal against that decision (CA737/2008). Subsequently on 26 February 2009, Wild J entered judgment for WIAL on its claim for the unpaid portion of the landing charges, on the basis that Air NZ had no remaining defence to it. Although judgment was not entered by consent (except as to quantum), the process was an agreed one. Given that the earlier appeals had not been determined, Air NZ filed an appeal against that decision to preserve its position (CA156/2009).
Principal issues on appeal
[19] The principal focus of the argument before us was on Wild J’s two strike out decisions, that is, the April and November judgments. Mr Farmer QC for Air NZ advised us that Air NZ did not pursue its appeal in respect of the substantive unfairness or breach of legitimate expectation causes of action. Rather, the appeal concerned the causes of action alleging unlawful setting of monopoly prices, unreasonableness, failure to take account of relevant considerations and failure to consult in relation to the stepped charges.
[20] All parties accepted that, as a matter of principle, judicial review was available in respect of a pricing decision made by an airport company under s 4A. The dispute concerned the scope of judicial review in respect of such a decision.
[21] It was accepted that a failure to consult appropriately under s 4B or predetermination would be a proper basis for judicial review. Similarly, it was accepted that judicial review would be available where there was corruption, fraud or bad faith (Mercury Energy Ltd v Electricity Corporation of New Zealand Ltd [1994] 2 NZLR 385 at 391 (PC)) or something analogous (Lab Tests Auckland Limited v Auckland District Health Board [2009] 1 NZLR 776 at [91] (CA)). What was in dispute was in what further circumstances judicial review would be available. In this context, the meaning of the statutory direction to WIAL to operate the airport as a commercial undertaking assumed considerable importance.
Summary of parties’ positions on principal issues
[22] In essence there were two strands to Mr Farmer’s argument for Air NZ. First he argued that WIAL was under a statutory duty not to set prices in excess of those that would be obtained in a competitive market. This duty was derived from the obligation in s 4(3) to operate the airport as a commercial undertaking. If WIAL did set prices in excess of this level, its decision was unlawful and accordingly open to review.
[23] In advancing this argument, Mr Farmer relied in particular on the judgment of McGechan J in earlier litigation between these parties: Air New Zealand Limited v Wellington International Airport Limited HC WN CP829/92 & CP13/93 15 October 1993 (we will refer to this decision as Air NZ v WIAL (No 2)). He also relied on the judgment of this Court (partially reported: see Wellington International Airport Ltd v Air New Zealand [1993] 1 NZLR 671) on appeal from an earlier judgment of McGechan J in similar proceedings: Air New Zealand Limited v Wellington International Airport Limited HC WN CP403/91 6 January 1992 (we will refer to this latter decision as Air NZ v WIAL (No 1)). On this basis, Mr Farmer submitted, the cause of action alleging that WIAL had set charges that sought a monopoly return should not have been struck out.
[24] The second strand was that, as a matter of principle, judicial review should be available in respect of an airport company’s pricing decisions under s 4A on conventional judicial review grounds, such as irrationality or failure to take account of relevant considerations. Mr Farmer said that the pleading (which we will describe in more detail in the discussion which follows) was conventional in that it identified specific aspects of irrationality and specific considerations which WIAL had failed to take into account.
[25] In relation to the stepped charges cause of action, Mr Farmer focussed on the use of the word “altering” in s 4B(1)(a). He argued that the percentage change to the charges which took effect on 1 April of each year was an alteration to the charges, which could not be implemented without further consultation.
[26] Mr Goddard QC for WIAL argued that the statutory direction to operate or manage the airport as a commercial undertaking did not mean that WIAL was obliged to set prices that would occur in a competitive market. Such issues were to be addressed through the Commerce Act, in particular Part 4 which deals with price control. To allow judicial review on the basis pleaded by Air NZ would be contrary to legislative policy and to earlier decisions of this and other courts, including in particular Vector Ltd v Transpower New Zealand Ltd [1999] 3 NZLR 646 (CA) (Vector) and Vector Limited v Transpower New Zealand Limited HC AK CL 1/98 17 August 2000 (Vector (No 2)). It would draw the courts into what was effectively the control of prices in a procedural context which was singularly ill-suited to the task (i.e. judicial review).
[27] In relation to the stepped charges, Mr Goddard argued that WIAL had made a decision to set the stepped charges on 20 June 2007, which were to apply as from set dates within the upcoming five year pricing period. WIAL was obliged to consult before that decision was made, but not before each new charge took effect within the relevant period. He relied on McGechan J’s judgment in Air NZ v WIAL (No 2).
[28] Mr Goddard’s submissions were supported by Mr Every-Palmer, who appeared for Auckland International Airport Limited, which was granted intervener status.
Discussion: the strike out appeals
[29] We will discuss the arguments in relation to the strike out appeals in the context of three questions:
(a)Does the requirement in s 4(3) of the Act to operate the airport as a commercial undertaking mean that WIAL is under a statutory obligation to price as if in a competitive market?
(b)What are the limits on the scope of judicial review of a decision to set prices under s 4A of the Act?
(c)Is WIAL required under s 4B(1)(a) of the Act to undertake further consultation before it implements the stepped charges in any year?
[30] We acknowledge that there is some artificiality in discussing the first issue in isolation from the second as each raises similar considerations. Despite that, we consider that there are advantages in addressing the two issues separately.
[31] We do not propose to discuss the principles applicable to strike out applications. They are too well known to require reiteration, and there was no dispute about them.
Was WIAL under a statutory obligation to price as if in a competitive market?
[32] The first cause of action in Air NZ’s second amended statement of claim alleges that WIAL acted beyond the scope of its statutory powers by fixing charges that sought a monopoly return. The critical pleading is in paragraph 18:
The Increased Charges are excessive and include monopoly profits in that they include a return in excess of a reasonable return on the capital invested and in excess of a return that could be achieved in a normally competitive market.
Particulars:
WIAL calculated and set the Increased Charges:
(a)without regard to the revenues it receives from all its commercial activities;
(b)attributing a value to its relevant airport assets of $247.8 million as at 30 June 2007 which value is excessive and itself incorporates the monopoly earning potential of the assets;
(c)without providing an appropriate credit for unforecast revaluation gains;
(d)using a post-tax WACC of 9.3% and 9.5% which exceeds WIAL’s actual post-tax WACC; and
(e)by forecasting zero domestic passenger growth for 2008.
[33] Air NZ’s argument was that by virtue of its obligation to operate the airport “as a commercial undertaking”, WIAL was under a statutory obligation to set prices that would occur in a competitive market, and breached it. To support this argument, Mr Farmer relied in particular on McGechan J’s judgment in Air NZ v WIAL (No 2). There the Judge said (at 21):
Airport companies (and particularly Wellington) would be natural monopolies. There is obvious potential for monopolistic abuse. In that light, Parliament faced two problems. First, it must ensure the companies did not recreate the former regime of haphazard costing. Companies must operate in a proper business-like cost-conscious fashion, making economies where achievable. Second, companies must not take advantage of monopoly position to extract excessive profits. The direction to act as a “commercial undertaking” clearly enough was intended to cover both aspects. (It certainly was not intended as a perverse direction to exploit monopoly to the full in manner of the 19th century). The airport company was to operate no worse from a cost viewpoint and no better from a profit viewpoint, than an efficient private enterprise in a normally competitive market. The clear Parliamentary aim was to equate the competitive norm. That norm was not the economic purity of marginal costing. It was covering costs, held efficiently to normal and acceptable levels, and obtaining a return on capital commensurate with risk and prevailing market expectations.
[34] Further, Mr Farmer said that this Court made similar comments in its judgment on the appeal from McGechan J’s decision in Air NZ v WIAL (No 1), when it said (at 19 of the unreported portion of the judgment: CA23/92 and CA73/92 24 September 1992):
If [WIAL] were in a truly competitive situation these arguments would have some force. The fact is, however, that it is not. It has higher unit costs than other airports because of its single runway and limited runway length, while at the same time offering advantages to its users in its proximity to the city. The legislation clearly intends that the company will continue to operate the airport, and requires it to do so as a commercial undertaking. The valuation should not be based on an assumed abuse of its monopoly position, but the company must be expected to fix its charges at a level which will enable it to recover its proper costs, and will enable it, if efficient, to obtain a reasonable return on its capital.
(Emphasis added.)
[35] Wild J did not agree with McGechan J’s view as to the meaning of s 4(3), for three reasons (the April judgment at [22] – [39]). These were:
(a)The language of s 4A(1), specifically the fact that the power conferred by the subsection is expressed to be subject only to s 4B, the consultation obligation.
(b)The legislative background to s 4A, which was inserted by the Airports Authorities Amendment Act 1997. The Judge referred to the Parliamentary debates on the Amendment Bill, which he considered explained why price setting restraints and review provisions which had been sought by the airlines were not included when the Amendment Bill was enacted.
(c)Various decisions, including Mercury Energy, Vector and Vector (No 2) which, the Judge said, supported the view that the principal mechanism for control of WIAL’s pricing lay in Part 4 of the Commerce Act.
[36] We agree with Wild J. As a matter of construction the statutory direction to WIAL that it is to operate the airport as a commercial undertaking is not a direction to price as if it operates in a competitive market. We say this for the following reasons.
[37] First, the economy is characterised by a range or spectrum of markets, from highly competitive at one end to monopolised at the other. Commercial undertakings operate in markets across that spectrum. So to describe an entity as a commercial undertaking does not say anything about the nature of the market within which it operates. In effect, Air NZ’s submission is that the words “operate or manage the airport as a commercial undertaking” must be construed as meaning “operate or manage the airport as a commercial undertaking in a normally competitive market” (the italicised words reflect Air NZ’s pleading). As a matter of construction we see no justification for the addition of the italicised words.
[38] Second, if Parliament had intended the statutory direction to be a direction to an airport company to price as if in a competitive market, the Act would surely have contained not only more explicit directory language but also some guiding principles to be considered or applied by airport companies. Yet there are none. For example, an airport company would have to determine what assumptions should be made about the intensity of competition in the assumed market as this is likely to have significant implications for issues such as pricing. But there is no legislative guidance on this, either for an airport company or for a court on a judicial review application. Air NZ’s reference to a “normally” competitive market is not helpful in this context. We consider that the absence of any legislative guidance on important issues of this type tells against the imposition of the statutory obligation for which Mr Farmer contended.
[39] Third, the circumstances in which the Act was enacted, and the airport companies were created, also tell strongly against the implication of a statutory obligation to operate airports as if in a competitive market, with judicial review being available if the obligation is breached. The Act was passed in 1986, the same year as the State-Owned Enterprises Act 1986 (SOE Act) and two years prior to the Port Companies Act 1988. These Acts were part of the Fourth Labour Government’s far-reaching reform of governmental trading activities, and were linked to a broader set of public sector reforms, as reflected in the State Sector Act 1988.
[40] Under the three Acts, trading activities previously carried out by agencies of government were to be carried out by corporate entities with a clear focus on commercial objectives and methods. So, under s 4(1) of the SOE Act the principal objective of every state-owned enterprise (SOE) is “to operate as a successful business”. To that end they are, among other things, to be “as profitable and efficient as comparable businesses not owned by the Crown” (s 4(1)(a)). Under s 5 of the Port Companies Act the principal objective of every port company is “to operate as a successful business”. And under the Act an airport company must operate its airport “as a commercial undertaking”.
[41] These statutory directions involve two important elements. First, the relevant entities must attempt to operate profitably. That is inherent in the notion of being a successful business or operating as a commercial undertaking. Second, they must follow generally accepted commercial practices and disciplines. This suggests, for example, they must understand their underlying cost structures and create cost centres (so as to understand the extent of any cross-subsidisation in their businesses). But the directions say nothing about the competitive characteristics of the markets within which the various entities are expected to operate.
[42] At this point, another important feature of the reforms introduced by the Fourth Labour Government becomes relevant, namely, the establishment of the so‑called “light-handed” regulatory regime: see Bollard & Pickford “New Zealand’s ‘Light-Handed’ Approach to Utility Regulation” (1995) 2 Agenda 411. This form of regulation was a reaction to the heavy-handed regulation that had operated in New Zealand for many years. In relation to essential facilities, utilities and such like, highly prescriptive industry specific regulation was replaced with regulation by means of:
(a)general competition law, in particular Parts 2 and 3 of the Commerce Act and the Fair Trading Act 1986;
(b)information disclosure and/or consultation obligations; and
(c)the threat of further regulation, in particular the imposition of price control under Part 4 of the Commerce Act.
For a discussion of these characteristics of the light-handed regulatory regime in the context of the electricity industry see Power New Zealand Ltd v Mercury Energy Ltd and Commerce Commission [1996] 1 NZLR 686 at 695 (HC) and Vector (which we discuss in more detail below).
[43] It would be inconsistent with the light-handed regime to interpret s 4(3) of the Act as imposing a statutory obligation on airport companies to price as if they were operating in a competitive market, so that judicial review would be available in respect of breaches of the obligation. Rather, it is clear that Parliament intended that the light-handed approach apply. This emerges from:
(a)Section 4A(3), which provides that the exemption in s 43 of the Commerce Act does not apply to the charging activities of airport companies. Accordingly they are subject to the Commerce Act (see [42](a) above).
(b)Section 4B, which imposes a consultation obligation on the airport companies before they set prices (see [42](b) above). Consultation under s 4B must be real and is one mechanism for countering the market power of airport companies. As this Court said in Wellington International Airport Ltd v Air New Zealand Ltd [1993] 1 NZLR 671 at 676:
…[O]ne of the purposes of requiring consultation was to place some restraint on the airport company, which would be in a monopoly position as the only provider of airport facilities in Wellington. The airport charges had previously been fixed by statutory regulations, and we were told that they were similarly controlled in virtually all other countries. The obligation to consult can be seen as providing some protection to the airlines and to the public against an abuse of monopoly power. Other constraints are the fact that the airport is dependent for by far the greater part of its revenues on the three major airlines, that it is a public utility whose charges are eventually passed on to the public, and the fact that if it were to act irresponsibly it would be open to the Government to impose price control under s 53 of the Commerce Act 1986.
…
The airport company is given the power to fix charges. Before doing so it must consult, and for consultation to be meaningful, there must be made available to the other party sufficient information to enable it to be adequately informed so as to be able to make intelligent and useful responses.
(Emphasis added.)
(c)Section 4A(4), which provides that s 4A does not limit the application of Part 4 of the Commerce Act (see [42](c) above). As we said at [8] above, this provision was not included in the Act until 2008, and was simply confirmatory of the existing position.
[44] Finally, we note that Wild J considered that the authorities are against interpreting s 4(3) so as to impose an obligation of the type urged on us by Mr Farmer. We will address those authorities in greater detail in the next section of this judgment. It is sufficient to say at this point that we agree with the Judge. Consistently with the light-handed approach to regulation, the authorities to which we will refer rejected the view that the courts should take an active role in price‑fixing disputes or controlling the earning of monopoly rents. In the present case, the Court would have to address complex economic, valuation and accounting evidence within the constrained procedural framework that applies to judicial review proceedings. It would not have the assistance that, for example, the cross-examination of expert witnesses, or the involvement of a lay member, provides. We think it inconceivable that Parliament intended any such outcome.
What are the limits on the scope of judicial review of a pricing decision under s 4(3)?
[45] As we said at [20] – [21] above, no party disputed that judicial review of an airport company’s decision to set prices under s 4A(1) was available in principle. The disputed point was in what circumstances.
[46] Mr Farmer submitted that judicial review was available on the conventional grounds. The causes of action alleging irrationality and failure to take account of relevant considerations were conventional claims.
[47] To understand this argument it is necessary to understand the claims. The irrationality or unreasonableness claim is set out in paragraph 22 of the second amended statement of claim. It alleges:
WIAL’s decision to set the Increased Charges was unreasonable and irrational and was a decision that no reasonable airport company could or would have made.
The particulars of this allegation are the same five particulars as were given in respect of the monopoly profits claim (see [32] above).
[48] The basis of the “failure to consider relevant considerations” claim is set out in paragraphs 28 and 29 of the second amended statement of claim, as follows:
28.Under sections 3, 4A and 4B of the Act, it is impliedly necessary for WIAL to take account of the following factors when exercising its statutory power to set charges:
(a) the revenues it receives from all its commercial activities;
(b)unforecast revaluation gains realised in the period prior to the implementation of the Increased Charges; and
(c)the pricing principles for monopoly businesses set out by the Commerce Commission, including those set out in its Final Report on the Part IV Inquiry into Airfield Activities at Auckland, Wellington and Christchurch International Airports dated 1 August 2002.
29.WIAL failed to take these factors into account when setting the Increased Charges.
[49] We make two immediate observations about this pleading:
(a)Paragraphs 28(a) and (b) repeat two of the five particulars given in respect of the monopoly pricing and irrationality claims.
(b)There is, as Mr Goddard submitted, something of an inconsistency between paragraphs 28(a) and (c). One of the Commerce Commission’s recommendations in the report relied upon was that, to avoid the risk of cross-subsidisation, airport companies should not take account of revenues from other activities when setting their landing charges. Given that it adopted the Commission’s recommendation on this point, it is difficult to see how it can sensibly be alleged that this was a decision that no reasonable airport company could have made.
[50] Much of the argument before us concerned the significance in the present context of various cases which discussed the role of the courts in relation to claims involving excessive pricing. We now turn to those authorities.
[51] We begin with the decision of the Privy Council in Mercury Energy. Mercury Energy and Electricity Corporation of New Zealand Limited (ECNZ), a SOE, were parties to a transitional arrangement under which ECNZ sold electricity to Mercury Energy for on-sale to its customers. Over several years they attempted to negotiate a long-term supply contract but were unable to reach agreement. Eventually, ECNZ gave Mercury Energy 12 months notice of its intention to cancel their transitional arrangement. Mercury Energy issued proceedings alleging, among other things, breach of statutory duty (under the SOE Act) and abuse of monopoly power (at common law). There was also a claim for judicial review of ECNZ’s decision to terminate the transitional arrangement.
[52] In this Court, Mercury Energy’s application for judicial review was struck out, on the basis that ECNZ’s decision to terminate was not amenable to judicial review: Auckland Electric Power Board v Electricity Corporation of New Zealand Ltd [1994] 1 NZLR 551 at 560 – 561. On appeal, the Privy Council rejected that view. Delivering their Lordships’ advice, Lord Templeman accepted that decisions of SOEs were in principle amenable to judicial review, but then said that it seemed unlikely that a SOE’s decision to enter into or terminate a commercial contract to supply goods or services “will ever be the subject of judicial review in the absence of fraud, corruption or bad faith” (at 391).
[53] Next comes the decision of this Court in Vector. Vector Limited (Vector), formerly Mercury Energy Limited, was a customer of Transpower New Zealand Limited (Transpower), a SOE which owns and operates the national electricity grid. The grid connects generators to electricity distributors such as Vector and to other major electricity users. In the course of a dispute about Transpower’s pricing, Vector issued proceedings against Transpower alleging that it was subject to the common law doctrine of prime necessity. Under that doctrine, Vector alleged Transpower was obliged, as a monopoly supplier of an essential service, to supply its customers on fair and reasonable terms, including as to price. Vector alleged that Transpower’s pricing breached this obligation. Vector also alleged that Transpower had breached s 36 of the Commerce Act in fixing its prices.
[54] Transpower applied to strike out Vector’s pleading and succeeded in the High Court in respect of the prime necessity claim (the Court ordered that the s 36 claim be re-pleaded): (1998) 8 TCLR 554. Vector appealed. This Court held that, although the doctrine of prime necessity was part of the common law of New Zealand, in relation to the Vector/Transpower dispute it had no role to play. This was as a result of the Commerce Act and, to a lesser extent, the SOE Act (at [59]).
[55] Richardson P, speaking for himself and Gault, Blanchard and Tipping JJ, said:
[61] We turn first to the Commerce Act. By that legislation Parliament clearly and deliberately moved away from earlier regulatory approaches to light-handed regulation. The selection of a particular form of regulation involves consideration by government and Parliament of fundamental issues of social and economic policy and obviously includes assessments of the tradeoffs between the costs associated with particular regulatory regimes and the benefits they are expected to deliver. If upheld in this case prime necessity would involve heavy-handed regulatory intervention on Transpower’s pricing, through the Courts and potentially on a day-to-day basis at the suit of individual customers of Transpower, of a type which Parliament decided it did not wish to impose; and to do so would be inconsistent with the purpose and scheme of the Commerce Act.
[56] Having discussed the price control provisions in Part 4 of the Commerce Act and emphasised that they were inconsistent with the courts having a price fixing role (at [62] – [63]), the Judge concluded:
[64] In short, it is inherent in those features of the statutory scheme that Part IV is the exclusive means of achieving price control over the transmission of bulk electricity by Transpower. That conclusion is reinforced by consideration of the limited private remedies for misuse of monopoly power provided under s 36. First, … s 36 does not impose an obligation to supply as such, Parliament having deliberately departed from the 1975 legislation and having deliberately discarded the initially proposed paragraph to that effect. If supply is refused, s 36 applies only where constraints on supply are for one of the specified anti competitive purposes. Second, … there is no control under s 36 over monopoly rents, the Privy Council [in Telecom Corporation of New Zealand Ltd v Clear Communications Ltd [1995] 1 NZLR 385 at 407 – 408] seeing their elimination in the short term as being within the province of Part IV.
[65] There are two other considerations which support these conclusions. First, the major thrust of the statement of claim is that Transpower has not adhered to its obligations under the Government’s s 26 economic statement (effectively incorporated in the statement of corporate intent) and the statements of corporate intent. In that regard the statement of claim smacks of judicial review in another guise in circumstances where, as indicated by the Privy Council in [Mercury Energy], judicial review is not likely to be available because it must be assumed Vector cannot establish fraud, corruption or bad faith on the part of Transpower. In these circumstances it is for the shareholders of Transpower, not an aggrieved customer, to ensure the SOE properly observes its statement of corporate intent and the s 26 statement which it incorporates.
(Emphasis added.)
[57] The second consideration which Richardson P noted was that a court considering Transpower’s pricing at the suit of Vector would have to look at Transpower’s pricing across the board, and would thus have to allow for the joinder of other parties (at [66]). In the result, the Court dismissed the appeal.
[58] Vector did not give up, however. It recast its pleadings, replacing the prime necessity cause of action with an application for judicial review and re-pleading the s 36 claim. Transpower applied again to strike the proceedings out, and succeeded: HC AK CL1/98 17 August 2000.
[59] Vector’s judicial review claim alleged that Transpower’s pricing decisions were unlawful or made in bad faith for various reasons, principally relating to Transpower’s alleged failure to adhere to its statement of corporate intent (which effectively incorporated a Government policy statement issued under s 26 of the Commerce Act). The s 36 claim alleged that Transpower had used its dominant position in the national market for electricity transmission services for anti-competitive purposes.
[60] Having reviewed the authorities in some detail, the High Court held that, as a matter of principle, judicial review was available in respect of a pricing decision by Transpower (at [32] – [35]). Despite that, however, it struck out the judicial review claim. The Court considered that, although the pleading referred to the statement of corporate intent and the s 26 statement, which were statements of principle and policy for the whole of Transpower’s operations, it was clear that Vector envisaged a detailed consideration of both the process and components of Transpower’s pricing decisions. This type of price fixing activity was not appropriate for the courts, particularly in judicial review proceedings (at [37] – [43]). The Court concluded:
[47] …[E]ven if Transpower’s pricing decisions are arguably reviewable, Vector’s claim for judicial review of what is in essence the setting by a virtual monopoly of the commercial prices which it charges for its product is not one which should be permitted to proceed. Vector’s avenues of redress are through Transpower’s shareholding ministers and Part IV of the Commerce Act 1986 not by way of judicial review.
It therefore struck out Transpower’s judicial review cause of action.
[61] The Court then considered the s 36 cause of action, and struck that out also.
[62] Mr Farmer sought to distinguish these cases on three principal bases. He submitted that:
(a)The cases concerned statutory entities with a power to contract, whereas the present case concerns a statutory entity with a power to fix prices. While both powers derive from statute, a statutory power to fix prices was qualitatively different from a statutory power to contract. In the contracting situation, the relevant entity must, like any private entity, negotiate prices for its services.
(b)The plaintiffs in these various cases were asking the courts to fix prices. By contrast, in the present case Air NZ was not. It was asking the Court to undertake a narrower inquiry, namely, to consider whether the monopoly supplier, WIAL, was exceeding its statutory powers by charging monopoly prices. The Court would be asked to consider points of legal or accounting principle (the first four particulars supporting the monopoly pricing and irrationality claims), a matter of fact (the fifth particular supporting the monopoly pricing and irrationality claims) and the pricing principles established by the Commerce Commission (the third particular in the relevant considerations claim).
(c)Although Vector’s proceedings against Transpower were cast in various ways, they essentially sought to enforce obligations which Vector said Transpower had under its statement of corporate intent and under the Minister’s s 26 policy statement. The courts held that any such obligations could not be enforced by way of proceedings such as judicial review, but only through other accountability mechanisms. However, in the present case the pleadings did not attempt to rely on obligations alleged to arise from such documents.
Mr Farmer also relied on the interlocutory decision of Wild J and the substantive decision of Miller J in Air New Zealand Ltd v Nelson Airport, HC NEL CIV 2007-442-584 16 June 2008 and 27 November 2008 respectively (Nelson Airport).
[63] We do not accept that the earlier cases can properly be distinguished on the various grounds urged by Mr Farmer.
[64] First, we do not accept that the exercise confronting the Court if the present proceedings are allowed to continue will be materially different from what was proposed in the earlier cases. Mr Farmer argued that Air NZ will be focussing on discrete points rather than asking for a top to bottom analysis of WIAL’s pricing. But some of the particulars go to the heart of the price-fixing exercise (for example, the valuation of airport assets and the choice of the WACC). They are difficult issues to deal with in any proceeding, but much more difficult in judicial review proceedings, given the limits that have traditionally applied to them (in relation to cross-examination, for example).
[65] In addition, it was clear from Mr Farmer’s submissions that, whatever the position in this case, in principle all aspects of WIAL’s pricing are potentially at issue. By way of illustration, one of Air NZ’s complaints is that in setting its landing charges WIAL did not take account of revenues received from its other commercial activities. When questioned about the possibility of a cross-subsidy flowing from WIAL’s landing charges to its other commercial activities, Mr Farmer accepted that such a result was possible on Air NZ’s approach. He went on to say that, if that occurred, Air NZ might seek to challenge the basis of WIAL’s pricing in respect of those other commercial activities. This demonstrates the potential scope of the exercise upon which the court is being asked to embark.
[66] Further, as Mr Goddard said, to reflect that fact that WIAL’s final price is the result of decisions on numerous individual pricing components, the ultimate concern must be with the final price rather than the individual components. For example, WIAL may have selected an asset valuation at the higher end of the available range but a WACC at the lower end of the available range. So, it would be misleading to consider simply the valuation (or the WACC) in isolation. Accordingly, while Air NZ may choose to focus on areas where it considers that WIAL has been too aggressive, WIAL will counter by focussing on areas where it will argue it has been more concessionary than it needed to be. Inevitably, then, the court will be drawn in to a consideration of WIAL’s pricing overall.
[67] Second, as the Privy Council said in Telecom (cited in the extract at [56] above) and this Court said in Vector, Parliament has decided that price control will be undertaken through the mechanisms in Part 4 of the Commerce Act rather than through the courts. That is a feature of the light-handed regulatory regime. There are good reasons for it. Delivering the advice of the Privy Council in Telecom Lord Browne‑Wilkinson noted that monopoly prices may recover both supra-competitive returns and inefficiently incurred costs (at 407 – 408). Accordingly undertaking an assessment of whether or not an entity such as WIAL is charging monopoly prices will be time-consuming, difficult and contentious, requiring a thorough examination of all the elements that go to make up its prices. Such exercises are “the daily diet of a regulatory body” (at 408). By contrast, as the High Court said in Vector (No 2), the courts are ill suited to such exercises particularly in the context of judicial review proceedings (at [43]).
[68] As to Mr Farmer’s point concerning the role of Transpower’s statement of corporate intent and the Minister’s s 26 statement in Vector’s claims against Transpower, we accept that they were an important element of Vector’s pleadings. But as the extracts quoted from Richardson P’s judgment in Vector indicate (at [55] and [56] above), the primary reason for striking out Vector’s claims was that they sought to involve the courts in a price control process that was inconsistent with the light-handed regulatory regime; the availability of other accountability mechanisms in respect of Transpower’s compliance with its statement of corporate intent and the s 26 statement was a secondary, albeit a significant, consideration.
[69] Finally in this context, we note that the particulars given in support of the irrationality claim are identical to those given in respect of the monopoly pricing claim. This indicates that the irrationality claim is really just another way of expressing the monopoly pricing claim, a claim which, as we have said above, has no legal basis.
[70] We turn now to the decisions of Wild J and Miller J in the Nelson Airport case, upon which Mr Farmer relied. Air NZ issued judicial review proceedings against Nelson Airport Limited (NAL) in which it sought to challenge NAL’s decision under s 4A to increase its charges. There were six causes of action alleging in turn failure to consult appropriately, procedural unfairness, breach of legitimate expectation, unreasonableness, substantive unfairness and failure to take account of relevant considerations. NAL applied to strike out all but the first cause of action.
[71] Wild J heard the application to strike out. He held that, in principle, an airport company’s pricing decisions were reviewable. NAL argued that the five causes of action should be struck out because they sought to draw the Court into an assessment of commercial decisions made by NAL in circumstances where there was no legal yardstick against which the Court could measure those decisions. Wild J rejected that submission for a number of reasons. In the course of doing so he said:
[61] Third, I accept that the 4th and 5th grounds differ significantly from the second cause of action I struck out in my 24 April 2008 judgment in Air NZ v WIAL, on the basis that it involved an allegation of monopoly pricing. These two grounds challenge NAL’s charging decision as unreasonable and substantively unfair because of:
a) NAL’s refusal to optimise runway width; and
b)NAL’s inclusion of the $1.2 million capex of acquisition of houses in the airport’s noise zone.
[62] As [counsel for Air NZ] submitted, those are two discrete matters. I accept they are amenable to review.
[63] Fourth, the same applies to the 6th ground, in that it alleges NAL did not take into account three allegedly relevant considerations:
a)All potential sources of revenue;
b)The costs required to be covered; and
c)The Commerce Commission’s pricing principles for monopoly businesses.
[64] The issues on the 6th ground will be:
a)Is each of these three considerations relevant?; and
b)If yes, did NAL ascertain it and take it into account in its charges decision?
[65] If these are relevant considerations, and if NAL did take them into account then that will be the end of the review. The Court will not be drawn into NAL’s treatment of these considerations in its charging decision. That would be to draw the Court impermissibly into NAL’s commercial decision-making.
…
[67] Sixth, the cases in which the Court has declined to review on the grounds that it was being invited to second-guess a commercial decision, are factually distinguishable. In Mercury Energy Ltd v ECNZ [1994] 2 NZLR 385 (PC), Mercury had attempted to challenge the termination, upon 12 months’ written notice of an interim agreement for the supply of bulk electricity by ECNZ to Mercury. [Schedle Marinebouw BV v Attorney-General [2005] NZAR 356] involved an attempt by an unsuccessful tenderer to challenge the tender process conducted by the Ministry of Defence for the supply of several naval vessels. Southern Community Laboratories v Healthcare Otago [HC DUN CP30/96 19 December 1996] concerned a challenge to Healthcare’s decision not to accept a proposal for the supply of pathology services. In none of those cases was the decision-maker exercising a power comparable to that in s 4A(1).
(Emphasis in original.)
[72] The matter then went to trial before Miller J. Air NZ was successful on one aspect of its claims. Part of Air NZ’s case was that although NAL had said it would adopt an optimised depreciated replacement cost valuation methodology (ODRC) for its airport assets, it did not apply that methodology correctly in respect of its runway. NAL’s runway was 45 metres wide. Air NZ said that, on an ODRC valuation approach, it should have been treated as being only 30 metres wide. NAL tried to defend its valuation of the runway as a proper application of an ODRC methodology, but Miller J found for Air NZ on the point. He concluded that “no reasonable airport in [NAL’s] position would include the extra 15m runway width in an optimised asset base using the ODRC methodology that it had adopted” (at [61]).
[73] In our view, there is an issue as to whether these decisions are consistent with the approach adopted by Wild J, and confirmed by us, in the present case. In the November judgment, Wild J referred to his judgment in the Nelson Airport case and expressed the view that the decisions were consistent. Essentially this was because of the more limited scope of the pleadings in the latter case, which focussed on matters that were “assessable in their own right” where as the matters at issue in the present case were not (at [17] – [18]). We have some difficulty with that analysis.
[74] Be that as it may, in the Nelson Airport case NAL’s counsel had accepted in argument that, having adopted an ODRC methodology, NAL could not adopt some other method of valuing assets (or some of them) without notice, and characterised the dispute as a factual one. We agree that, having adopted an ODRC methodology, NAL was not free to change it, or to use a different methodology in relation to some assets, without proper consultation with the airlines. That is a result of the requirement for consultation in s 4B. This may explain why Miller J was prepared to consider whether NAL had properly applied the ODRC approach which it said it had adopted. In any event, we do not consider that there is any relevant principle to be drawn from the case and we reserve our position as to whether it was correctly decided.
[75] In our view, Air NZ’s pleadings will require the Court to embark on a wide-ranging analysis of WIAL’s pricing decisions and all that lies beneath them. It is difficult to see how a court could conduct such an enquiry effectively within the constraints that have traditionally been applied to judicial review claims. As Mr Farmer frankly acknowledged, extensive cross-examination, particularly of the experts, would be necessary to enable the Court to understand and adjudicate on the issues.
[76] In summary, then, we agree with Wild J that judicial review is not available in respect of Air NZ’s irrationality and relevant considerations causes of action and that these claims were properly struck out. We accept, of course, that judicial review of pricing decisions under s 4A will be available in the circumstances referred to at [21] above.
Stepped charges lawful?
[77] Section 4B (quoted at [9] above) requires an airport company to consult with substantial customers before fixing or altering its charges, or within five years of having fixed or altered them. WIAL consulted with the airlines from August 2006 until June 2007 before announcing on 20 June 2007 that it would increase charges with effect from 1 July 2007. At the same time it announced that there would be further compounding increases of 2.85 per cent per annum on 1 July in 2008, 2009, 2010 and 2011. As WIAL did not propose any further consultations before these increases took effect, Air NZ submitted that it was in breach of its obligation to consult before altering its charges.
[78] Air NZ argued that there were good reasons to require consultation in these circumstances because the price fixing process involved forecasts of matters such as passenger numbers, changes in cost structures and changes in valuations. Making such forecasts three or four years in advance was difficult and likely to produce errors in pricing.
[79] In the April judgment Wild J dismissed this argument and struck out the cause of action. He did so on the basis that s 4B(1) permits stepped charges, provided that WIAL consults about them before fixing them. He said (at [51]):
The fixing is a single – not an annually recurring – act. No further action is required on WIAL’s part: each annual step kicks in automatically.
[80] We agree. On 20 June 2007 WIAL fixed its charges as from 1 July 2007, and from 1 July of each succeeding year, with the last increase taking effect on 1 July 2011. It was a single charging decision and no further consultation was required, absent any subsequent alteration to the percentage increase in any particular year.
Conclusion
[81] Given the conclusions we have reached in relation to the issues discussed above we need not go on to consider the remaining appeals. We do, however, want to make some brief remarks about the issue raised in CA295/2008.
[82] That issue may be summarised as follows. Where a body, whose pricing decisions are potentially susceptible to judicial review, seeks to enforce a pricing decision against a non-payer by issuing proceedings and seeking summary judgment, can the non-payer resist summary judgment on the basis that he or she has issued, or will issue, judicial review proceedings challenging the decision?
[83] As we note at [13] above, Wild J declined to grant summary judgment to WIAL in its proceedings against Air NZ for the unpaid portion of its increased charges. Although he would have granted summary judgment had he been free to do so, he was bound by the decision of this Court in the Waipa District Council case. There the Court allowed such a defence on an application for summary judgment, on the basis that if it did not do so, the non-payer might be left without remedy because the entry of summary judgment would pre-empt its review proceedings (see 302 – 303). A similar view has been taken in England – see Wandsworth London Borough Council v Winder [1985] AC 461 (HL).
[84] Mr Goddard submitted that this approach was wrong. He argued that WIAL’s charges should be treated as valid and enforceable unless and until set aside, in accordance with the doctrine of “relative invalidity” (or legal relativity). In accordance with this doctrine, allegedly unlawful decisions are treated as valid until successfully challenged: see the discussion in Joseph Constitutional and Administrative Law in New Zealand (3ed 2007) at [21.9.3] – [21.9.5]. Mr Goddard submitted that the entry of summary judgment would not constitute an issue estoppel or res judicata in respect of the subject matter of the judicial review application. Further, he submitted that Air NZ could apply for interim relief under s 8 of the Judicature Amendment Act 1972, which was the appropriate way to deal with cases of this type.
[85] We consider that there is considerable force in Mr Goddard’s submission that s 8 provides the proper mechanism for dealing with this type of situation. That section is, after all, expressly designed to deal with questions of interim relief in judicial review proceedings and directs the Court to the relevant considerations.
[86] The Court in the Waipa District Council case did not refer to s 8. We think there is a strong argument that a charging decision by a statutory body should be treated as being lawful until declared unlawful, so that if an entity wants to be relieved of the obligation to pay until a judicial review challenge is determined, it should apply for interim relief under s 8. If it fails to do so, it is at risk of having summary judgment entered against it should the statutory body seek to enforce its charges. Analytically, this seems to us to be the preferable way of addressing situations of this type.
[87] We do not propose to determine the question finally in the present case, however, as it was not the primary focus of the argument before us. But it should not be assumed that we will necessarily continue to apply the approach adopted in the Waipa District Council case.
Decision
[88] Accordingly:
(a)We dismiss the appeals in CA268/2008, CA737/2008 and CA156/2009.
(b)In light of our decision in respect of the foregoing appeals, the appeals in CA295/2008 and CA502/2008 are moot and are formally dismissed.
[89] Clearly, Air NZ must pay costs to WIAL. In the circumstances, we think the five appeals are best treated as a single appeal. Rough fairness will be achieved if we characterise each step of the notional single appeal as band B in terms of r 53D of the Court of Appeal (Civil) Rules 2005. There can be no doubt that this was a complex appeal in terms of r 53B. Indeed, this was an appeal which because of its complexity and significance warranted highly specialised senior counsel from the commercial bar. Such counsel are simply not available at the deemed reasonable rate for complex appeals. If we were to apply simply the normal daily recovery rate for complex appeals, we would not come close to achieving a two-thirds recovery, which is an underlying philosophy of the new costs regime: see r 53A(d). This is a case for an uplift of the normal daily recovery rate for complex appeals, as allowed for by r 53C(1)(b). Accordingly, we consider that the normal daily recovery rate should be uplifted by 50 per cent.
[90] In the result, then, NZ must pay costs to WIAL for a single complex appeal on a band B basis, plus usual disbursements. There will be an uplift of 50 per cent in the daily recovery rate. We certify for two counsel.
[91] So that we are not misunderstood, we make two comments. First, the uplift has nothing to do with the particular counsel who argued this case or what their fees may have been to their clients (figures unknown to us). Rather, our reasoning is based on the sort of counsel who would be reasonably required to argue an appeal of this complexity, and our knowledge that such counsel would not be obtainable at $3,555 a day (the deemed reasonable daily rate for a complex appeal, to which the “two-thirds” guideline is applied to produce the appropriate daily recovery rate for complex appeals of $2,370 a day).
[92] Second, it is important to recognise that this uplift on the normal daily rate for complex appeals has nothing to do with increased costs under r 53E. This is not a r 53E case. The reason for the uplift on the daily recovery rate is solely influenced by the specialised nature and complexity of this proceeding and the cost of obtaining senior counsel with skills appropriate to it.
[93] By consent, we order that any person wishing to search or inspect affidavits, exhibits or bundles of documents on the Court files in respect of any of the above mentioned appeals may do so only with the leave of a Judge, given following an application made with notice to the parties to this appeal.
Postscript
[94] Since writing the above, we have had the benefit of considering Baragwanath J’s judgment. We comment on three aspects of it.
[95] First, we do not see the Supreme Court’s decision in Unison Networks Ltd v Commerce Commission [2008] 1 NZLR 42 as being inconsistent with the decision of the Privy Council in Mercury Energy. Unison Networks had a different setting. It concerned certain initial and revised thresholds set by the Commerce Commission under s 57G(1) of the Commerce Act for the purpose of price control of electricity lines companies. Unison Networks brought judicial review proceedings alleging that these thresholds were contrary to the statutory purpose set out in s 57E of the Commerce Act, and that, because it had misconstrued the requirements of the legislation, the Commission had applied the wrong legal test when exercising its threshold-setting power. These claims were rejected.
[96] In the course of delivering the Court’s judgment McGrath J said:
[50] …[I]n the end, the ultimate question is whether the Commission exercised its powers in accordance with the requirements of the statute. It must act within the scope of the authority conferred by Parliament and for the purposes for which those powers were conferred.
[51] Public bodies must exercise their statutory powers in accordance with the statutes that confer them. If they make decisions that are outside the limits of their powers they abuse them. The courts control any misuse of public power through judicial review.
[52] It is unnecessary in this case to attempt a comprehensive definition of all the circumstances in which the exercise of a statutory power will amount to abuse. Two conventional instances have been raised for consideration. The first is where the power is exercised for a purpose that is not within the contemplation of the enabling statute. The second…is where the decisionmaker applies the wrong legal test in exercising the power.
[53] A statutory power is subject to limits even if it is conferred in unqualified terms. Parliament must have intended that a broadly framed discretion should always be exercised to promote the purpose and policy of the Act. These are ascertained from reading the Act as a whole. …
McGrath J then went on to make the statement referred to at [122] of Baragwanath J’s judgment.
[97] Had the Supreme Court intended to signal a move away from the Privy Council’s approach in Mercury Energy in cases concerning pricing decisions by statutory entities, we would have expected it to do so explicitly. Mercury Energy is, after all, a well-known decision, which has been widely commented upon and has been followed on numerous occasions. For our part, we do not see the Supreme Court’s decision in Unison Networks as being inconsistent with Mercury Energy, particularly in light of the very different settings of the two cases.
[98] In any event, Air NZ’s claim, based on its interpretation of s 4(3), that WIAL may not lawfully fix prices under s 4A(1) which recover monopoly rents may be characterised as an improper purpose argument. In our view, the argument fails because s 4(3) does not impose the alleged obligation, nor does it arise from any other provision of the Act. It is not a purpose or policy of the Act to ensure that airport companies price only at a level that would be observed in a competitive market. Accordingly we see no scope for an improper purpose argument in this respect.
[99] Second, we do not consider that the possibility that an airport company may be privatised, either in whole or in part, is relevant to the current issue. Baragwanath J gives prominence to the fact that WIAL is incorporated under the Companies Act 1993 and is not an SOE or a crown entity. He says:
[138] Since in my view the principles relevant to judicial review of commercial conduct of a state-owned enterprise and a Crown entity cannot be simply lifted across to price-setting by a privately-owned company acting in its own interests, it is necessary to start afresh and consider how the relevant principles of review apply to what, because of the absence of Parliamentary safeguards, I see as a very different case.
[100] As we see it, there are several problems with this view:
(a)SOEs were established so that they could emulate private sector businesses in key respects. They were set up as companies under the companies legislation and were directed to operate as successful businesses, including as to profitability (s 4(1) of the SOE Act). In relation to non-commercial activities, s 7 of the SOE Act requires that the Crown and the relevant SOE enter into an agreement for the supply of the relevant goods or services, and that the Crown pay the SOE for the provision of those goods or services, either in whole or in part. The reason for this is to isolate and make transparent the non-commercial activities of SOEs. So while SOEs are subject to public accountability mechanisms beyond those applying to private sector companies (especially through the shareholding Ministers and statements of corporate intent), the differences between SOEs and private sector companies in the present context are not as dramatic as Baragwanath J suggests.
(b)As we understand Baragwanath J’s position, it is that, because airport companies may be privatised, the Act must be interpreted in a way that allows the courts to exercise greater control over their pricing activities than would be necessary or appropriate if they were publicly owned. But an airport company may be publicly owned, or partly or wholly privatised. Obviously the Act cannot be interpreted differently depending on the ownership structure of particular airport companies. The primary reasons given by this Court in Vector and by the High Court in Vector (No 2) for striking out Vector’s claims remain compelling whatever the ownership structure of the relevant airport company. In principle, the light-handed regulatory regime applies both to private sector enterprises and to SOEs and similar publicly owned enterprises equally. That was part of the philosophy of the reforms of the 1980s.
[101] In this context, we should say that we disagree with Baragwanath J’s observations at [118] and [135] that “the policy of light-handedness” is not directed at the courts but at politicians. Courts do, of course, play an important role in the light-handed regulatory regime. For example, they have the responsibility of determining whether the trade practices provisions of Part 2 of the Commerce Act have been breached. But in the area of control of prices, as the Privy Council recognised in Telecom (in relation to a private sector company) and this Court and the High Court recognised in the Vector/Transpower litigation (in relation to a SOE), the regime does not envisage that the courts will examine the “reasonableness” or “rationality” of pricing decisions. As Richardson P noted in Vector (see [55] above), intervention in pricing decisions, whether by regulators or courts, imposes costs. The light-handed regulatory regime, through Part 4 of the Commerce Act, provides mechanisms for assessing whether the benefits of intervention outweigh its costs. Such mechanisms are not available to the courts. It is noteworthy that in some areas where Parliament has seen deficiencies in the capacity of the regime to address pricing issues, it has introduced industry specific regulatory mechanisms (for example, in relation to telecommunications). And the new Part 4 of the Commerce Act (introduced by the Commerce Amendment Act 2008), which applies to airports, offers a convincing demonstration of the complexity of the process.
[102] Finally, we see an inconsistency between the Judge’s statement that “whether the payments exacted in this case were no more than was reasonable for the services rendered, or by exceeding that amount constituted unlawful tax, is par excellence an issue properly justiciable by the courts of general jurisdiction” (at [165]) and his statement that the High Court, as a non specialist institution will avoid “being sucked into the kind of factual merits reappraisal for which the expert and multidisciplinary Commerce Commission with its resources is the convenient forum” (at [182]). In our view, the former necessarily involves the latter, and employing “a broad brush with a long handle” does not avoid the difficulties (at [182]). Furthermore, the distinction between a price that is unreasonably or irrationally high but does not justify judicial intervention and one which is extortionately high and does is not easy to discern, particularly if the only way of making the assessment is by a detailed investigation of the relevant prices.
[103] That said, it may be that in practice there is little difference between our respective approaches. If an airport company were to set its prices by, say, plucking figures out of the air and doubling them, it would be unable to meet its obligations under s 4B to consult in a meaningful way and, apart from that, would almost certainly be found to have acted in bad faith. In such a case, judicial review would be available. The same outcome would be likely if an airport company were to adopt a WACC of, say, 25 per cent, which is so arbitrary and extravagant in this context that it is equivalent to plucking a figure out of the air. As we see it, cases of this type would involve the court in a limited and relatively straightforward inquiry. If this is what Baragwanath J has in mind when he refers to “extortionate” prices, there may be little practical difference between us. But if the Judge has in mind something more, then clearly we are at odds.
BARAGWANATH J
Table of Contents
Para No.
THE DISPUTE [104]
CONTEXT [107]
THE AIRPORT AUTHORITIES ACT [111]
THE COMPANIES ACT [112]
THE COMMERCE ACT [114]
THE DECISION OF THE MAJORITY [117]
APPROACH [139]
CRITERIA [147]
(A) THE LEGAL CONTEXT
IMPOSITION OF CHARGES ON CITIZENS: THE LAW’S POLICIES [148]
POLICY 1: THE LAW DISAPPROVES OF ABUSE OF MONOPOLY POSITION [159]Policy 2: the charge for a service must not exceed its
reasonable costs or it will be an unlawful tax [163]
Policy 3: freedom of movement [166]
Policy 4: the law frowns upon unconstrained self-dealing [167]
(B) THE SCHEME OF THE ACT [169]
(C) THE SUBJECT-MATTER [170](d) The implications of the decision [171]
(e)The capacity of the Court compared with that of the
decision-maker [173]
(f) The factual context [175]
Application of principles [176]
The facts pleaded [184]
Decision [195]
The dispute
[104] On 20 June 2007 the board of the respondent Wellington International Airport Ltd (WIAL) announced increased charges. The appellant Air New Zealand Ltd contends that they are subject to judicial review, being unlawful:
(a)as including monopoly profits in excess of a return that could be achieved in a normally competitive market and for that reason the charges are unlawful; and
(b)as being unreasonable and irrational and such as no reasonable airport company could have imposed.
[105] WIAL argues and the majority of this Court holds that in principle neither argument may be advanced. I agree that the appeal must be dismissed. But that is because in my view:
(a)while I agree with the principle it expresses, Air New Zealand’s first contention tends to suggest that the Court’s role extends beyond the limited factual enquiry appropriate on judicial review of a price setting function;
(b)on the facts pleaded it has not met the relatively high standard required on either ground to make out an arguable case for judicial review.
On both points of contention I am of a different opinion from the majority. They would exempt a commercial operator, with monopoly control over air transport in Wellington, from the conventional safeguard of rationality review by the court. That decision hands to the board of a company registered on the stock exchange an immunity previously accorded only to state-owned enterprises with shares held by Ministers of the Crown, who have no incentive to place the self-interest of shareholders ahead of the interests of the travelling public. Such result is without precedent. The majority judgment at [102] assumes that my first proposition - an unlawful tax is justiciable - is inconsistent with my second - the justiciability is by a non-intense form of judicial review. As will appear, I do not accept that assumption. I argue that the two propositions are both sound and mutually compatible. For the reasons that follow I consider that the approach of the majority, by rejecting both the first proposition and the second, that an irrational charge is justiciable by non-intensive review, infringes settled principles of law.
[106] I agree with the majority judgment in respect of stepped charges. I also agree that s 8 of the Judicature Act 1972 provides the appropriate procedure for an interim challenge to allegedly unlawful charges.
Context
[107] I adopt with gratitude Arnold J’s account of the background at [5] – [18].
[108] WIAL is an airport company under the Airport Authorities Act 1986 (AAA), the first of three relevant statutes. The others are the Companies Act 1993 and the Commerce Act 1986.
[109] The definition of airport company is provided by s 2 of the AAA:
Airport company means a company registered under… the Companies Act 1993… that is for the time being authorised under section 3(3) of this Act to exercise the functions of a local authority under that section:
[110] Parliament’s policy that all airport companies are governed both by the AAA and, as limited liability companies, by the Companies Act carries with it a two-fold result.
The Airport Authorities Act
[111] First, WIAL may exercise functions of a local authority under the AAA, which include two major powers:
(a)by s 3(1) airport authorities may establish and carry on airports:
(1)Any local authority, with the prior consent of, and in accordance with any conditions prescribed by, the Governor-General by Order in Council, may establish, improve, maintain, operate, or manage airports …
...
(3)The powers conferred on local authorities by this section may, with the prior consent of, and in accordance with conditions prescribed by the Governor-General by Order in Council, be exercised by any person or association of persons referred to in the Order in Council.
It is common ground that s 3(1) powers were duly conferred on WIAL.
(b)WIAL may set charges for the use of the airport or associated services or facilities:
4A Charges
(1)… every airport company may… set such charges as it from time to time thinks fit for the use of the airport operated or managed by it, or the services or facilities associated therewith.
…
I also note, as material to later discussion of s 4A(1), s 4(3):
Every airport operated or managed by an airport authority must be operated or managed as a commercial undertaking.
The Companies Act
[112] Secondly, WIAL remains subject to the general provisions of the Companies Act. While by s 3A AAA the Minister of State-Owned Enterprises, local authorities, or both may form a company intended to operate an airport, WIAL is not a SOE or a local authority. Rather, and importantly, it is listed on the sharemarket with directors elected by its shareholders.
[113] The purposes of the Companies Act, stated in its long title, include:
(a)reaffirming the value of the company as a means of achieving economic and social benefits through the aggregation of capital for productive purposes, the spreading of economic risk, and the taking of business risks;
…
(d)encouraging efficient and responsible management of companies by allowing directors a wide discretion in matters of business judgment while at the same time providing protection for shareholders and creditors against the abuse of management power
While the vehicle of the Companies Act may be used to facilitate public sector ownership, that exceptional practice has no relevance to this case. The function of a limited liability company with private shareholders is to allow shareholders to pool their investments in the expectation of realising profit. From the standpoint of the shareholders WIAL is an investment opportunity among many others. While societal benefits are expected as well as economic, the company is a trading entity (see eg s 35) whose shareholders (s 10) are entitled to a share of dividends (s 36(b)) or surplus assets (s 36(c)). In a real sense they own the company and, through that vehicle, its assets. Those assets include, in the case of an airport company, the s 4A power to fix charges which must be paid by all whose air travel takes them to or from Wellington.
The Commerce Act
[114] The third statute to be considered, the Commerce Act, has as its purpose to promote competition in markets for the long-term benefit of consumers within New Zealand (s 1A). While s 43 of the Commerce Act excludes its application in respect of conduct authorised by statute, that exclusion has no application to the setting and charging of charges by an airport company: AAA s 4A(3). So the Commerce Act generally, and not just Part 4 on which the majority rely, is of potential relevance.
[115] The question for this Court is how the constitutional responsibility of the courts of general jurisdiction should be exercised in the light of:
(a) the facts;
(b)the three relevant statutes;
(c)the principles of the common law and statute (Interpretation Act 1999; Judicature Amendment Act 1972) as to interpretation of legislation and as to judicial review.
[116] I first explain why I write separately.
The decision of the majority
[117] The majority reach two conclusions of law. The first focuses on s 4(3), which may be repeated:
Every airport operated or managed by an airport authority must be operated or managed as a commercial undertaking.
[118] They conclude that “the light-handed approach to utility regulation”, which underlies their approach (as at [42] – [44], [67] – [68] and [100](b)) excludes any interpretation that, when setting prices under s 4A(1), airport companies are subject to a statutory obligation to act as if they were operating in a competitive market ([43]). But as is noted at [135], the policy of light-handedness is not directed at the courts, to which that policy inevitably directs issues, but at politicians. While the courts will, applying settled principle, adopt in such cases what might be called a “light-handed” or non-intensive approach to review, to confuse what are two quite distinct concepts leads to error.
It will only be in exceptional cases that judicial review should be granted where the challenges can be addressed in the statutory objection procedure. Such exceptional circumstances may arise most typically where there is abuse of power: Harley Developments Inc v Commissioner of Inland Revenue at p 736. But they have also been held to arise where the error of law claimed is fatal to the exercise of statutory power and where it would be wasteful to require recourse to the objection procedure: Golden Bay Cement Co Ltd v Commissioner of Inland Revenue at p 671.
There however the statutory scheme provided for participation by the courts in the statutory process; indeed there were before the Privy Council statutory appeals as well as appeals from judicial review. But it is notable that the Privy Council took care to ensure that suitable controls were in place across the board.
[145] The courts will always insist that the rule of law applies, by ensuring that illegality is controlled; the discretionary power to order judicial review will be employed wherever other means are inadequate. Even where, as here, the court is not (as in tax litigation) a convenient forum for factual evaluation, it will insist on a method, albeit non-intensive or light-handed, to review allegedly unlawful conduct.
[146] The function of reviewing the legality of conduct by directors of a limited liability company under a statutory power to set charges, of which a proportion is expected to benefit the shareholders (who may well include those directors), is not to be second-guessed by the courts as if it involved fundamental human rights. But nor is it to be interpreted in the same manner as a like power exercisable by directors of state-owned enterprises and Crown entities, who are not subject to such conflict of loyalties and are subject to ministerial control and parliamentary oversight. The law, which in other contexts takes such care to protect against self-dealing by those with authority over other's fortunes, will take due (although not undue) account both of that factor and of the lack of ministerial and parliamentary oversight.
Criteria
[147] The law of statutory interpretation and of judicial review are closely related. The rule of law requires the courts of general jurisdiction to review the legality of all public sector conduct. The nature and the intensity of the review will depend on various factors: see Taggart Proportionality, Deference, Wednesbury [2008] NZ L Rev 423. In Mihos v Attorney-General [2008] NZAR 177 (HC) at [107] a series of factors was suggested. They are included and augmented in the following list:
(a) the legal context;
(b) the scheme of the Act;
(c) the subject-matter;
(d) the implications of the decision;
(e) the capacity of the Court compared with that of the decision-maker;
(f) the factual context.
(a) The legal context
Imposition of charges on citizens: the law's policies
[148] Despite the subjective language of s 4A(1) (“may… set such charges as it… thinks fit”), Parliament will not be taken to have conferred carte blanche on WIAL. Where public affairs are concerned there is no such thing as unfettered discretion.
[149] That is so even in the case of high officers of state. In Reade v Smith [1959] NZLR 996 (SC) the Governor-General had power under the Education Act 1914 to make regulations:
generally for all purposes which he [the Governor-General] thinks necessary in order to secure the due administration of the Act.
Turner J rejected the contention that the words "in the opinion of the Governor-General" gave to the Governor-General a complete and unexaminable discretion and struck down the regulations as unauthorised by the statute (at 1000).
[150] That principle applies a fortiori to a company board, established under the Companies Act, when exercising the s 4A powers that impose charges on the community.
[151] By not stipulating the limits of its discretion Parliament has left to the courts the question how they should set the limits.
[152] The first task is to interpret the AAA in general and s 4A in particular. That is not done in isolation from the legal and factual context but, on the contrary, giving full recognition to those realities, so as to bring justice and common sense to give effect to the legislative policies. That is required by the second limb of s 5 of the Interpretation Act 1999, requiring consideration of the purpose of the measure, which in turn is presumed to be read against the background of wider principles of the common law: see Reg v Home Secretary ex p Simms [2000] 2 AC 115 (HL).
[153] The specific legal context includes both the Commerce Act, which was amended during the period in question, and the principles of the common law which prohibited profiteering by monopolies in essentials. Outside the area of human rights the law is slow to interfere with decision‑making by experts. That is very much the case here:
(a) The language of s 4A is expressed wholly subjectively.
(b)The “business judgment” rule applied to decision-making by company boards has an important role in this case. Parliament has selected the limited liability company as the vehicle authorised by s 3(3) to exercise the powers of local authorities, subject to the consent of and in compliance with conditions prescribed by Order in Council. The board is required, as are SOE boards, to act commercially. The business judgments required entail assessments of issues of difficulty and complexity, as is seen from the 2 volume Commerce Commission report (cited at [134] above).
(c)The legal context includes the availability of Part 4 of the Commerce Act as a method of constraining abuse. The 2008 amendment tying s 4A specifically to the new Part 4 spells out the point. Its stipulation of two assessors to sit with a High Court judge underlines Parliament’s assessment that expert help will be required to adjudicate on the merits. The context also includes the jurisprudence in the SOE cases: see Vector v Transpower New Zealand Ltd at [62].
[154] It is however common ground that WIAL is not immune from judicial review. The issue here is what approach the court should take and what result Air NZ might secure if its allegations are established.
[155] In Emmens v Pottle (1885) LR 16 QBD 354 (CA) Lord Esher MR stated of the common law at 357-8:
The question does not depend on any statute, but on the common law, and, in my opinion, any proposition the result of which would be to shew that the Common Law of England is wholly unreasonable and unjust, cannot be part of the Common Law of England.
The common law Wednesbury principle adopts a similar approach to bodies exercising public powers which act unreasonably. The reason for that ground of judicial review of conduct by such bodies is that, like the common law, exercise of public authority is presumed not to lead to an unreasonable result. If the result is unreasonable the conduct will be declared unlawful because it is outside the legitimate scope of what the statutory or common law (for example, prerogative) power permits. The principle has been updated by a series of decisions which recognise that the nature and intensity of review will depend on the context.
[156] Because the principle is flexible, “unreasonable” receives a different construction in different classes of case; there is a continuum. In human rights cases the court will interfere if it disagrees on the merits of the decision: R (Daly) v Home Secretary [2001] 2 AC 532 (HL). In rating cases it will be slow to interfere but will do so on grounds of irrationality: Wellington City Council v Woolworths New Zealand Ltd No 2).
[157] But courts must not undertake judicial review when to do so would infringe the very tenets of reasonableness that underlie it. By exceeding their authority that would place them in breach of the very rule of law they are required to promote. That is why the court may exercise a judgment not to embark upon a particular enquiry, as into the rationality of an Executive decision on defence policy. And it is why review in the present case must be non-intensive. It is to be emphasised that due respect for the court’s limited capacity to engage in intensive review does not, as the majority consider, require the court to abdicate its review function. The court will fashion the mode of control that suits the occasion and is capable of a more nuanced approach than that of all or nothing: that unless it is intensive there can be no review at all. The requirement, which the court will impose on itself, is rather simply to confine the review within the non-intensive scope so familiar in respect of other areas of policy-making, of which I have emphasised rates setting.
[158] The statutory imposition of charges on citizens is a particular candidate for judicial review; a conclusion that leaves for further consideration the issue of intensity of such review. The reasons for subjecting such imposition of charges to review are:
(a)When the charges exceed the reasonable costs of a service they infringe constitutional principle.
(b)In the case of an airport company, when they tend to interfere with the freedom of movement of other members of the community they breach s 18 of the New Zealand Bill of Rights Act 1990. That is the effect of excessive charges.
(c)When performed by a monopolist so as to affect the public, conduct which combines (a) and (b) infringes common law principles now endorsed by the Commerce Act. Because this topic lies at the heart of the majority's decision it is convenient to begin with it.
Policy 1: the law disapproves of abuse of monopoly position
[159] The law will intervene against one who abuses a position of authority and acts unreasonably to inhibit another’s legitimate activity. An example of the principle is the rule inhibiting restraint of trade, stated by Lord Macnaughten in Maxim Nordenfeldt Guns and Ammunition Co v Nordenfeldt [1894] AC 535 at 565 (HL):
All interference with individual liberty of action in trading, and all restraints of trade of themselves, if there is nothing more, are contrary to public policy and therefore void.
Only if the conduct is reasonable is it justifiable: see Brown v Brown [1980] 1 NZLR 484 at 491 (CA) per Richardson J.
[160] The common law was stated by this Court in Auckland Electric Power Board v Electricity Corporation of New Zealand Ltd [1994] 1 NZLR 551 at 557:
Abuse of dominant position
Because it can be disposed of quite shortly and also because it colours to an extent the other two impugned causes of action which are grounded in the SOE legislation, it is convenient to deal with this cause of action first.
The board does not invoke the Commerce Act 1986. It relies on the obligation imposed by the common law on monopoly suppliers of essential commodities. Those common law obligations are generally traced back to passages from Lord Hale's "Treatise de Portibus Maris", which are set out, conveniently, and substantially, in various leading cases, such as Allnutt v Inglis, Treasurer of the London Dock Company (1810) 12 East 527, and Munn v Illinois 94 US 113 (1877). Lord Hale, writing of a wharf to which the public must come, either because it is the only licensed wharf in the district or because there is no other wharf, said:
"A man for his own private advantage may in a port town set up a wharf or crane, and may take what rates he and his customers may agree for cranage, wharfage, etc; for he doth no more than is lawful for any man to do, viz makes the most of his own . . . If the King or subject have a public wharf, unto which all persons that come to that port must come and unlade or lade their goods, as for the purpose, because they are the wharfs only licensed by the Queen, or because there is no other wharf in that port, as it may fall out where a port is newly erected; in that case there cannot be taken arbitrary and excessive duties for cranage, wharfage, etc, neither can they be enhanced to an immoderate rate; but the duties must be reasonable and moderate, though settled by the King's licence or charter; for now the wharf and crane and other conveniences are affected with a public interest, and they cease to be juris privati only."
[161] It has been noted that (by s 1A: [114] above) the purpose of the Commerce Act is to promote competition in markets for the long-term benefit of consumers within New Zealand and its application is confirmed by s 4A(3) AAA. That legislative policy accords with the common law principle.
[162] It is true, as was held in Vector, that the Court will not seek to convert itself into an alternate Commerce Commission. But its constitutional function is to construe s 4A(1). Section 1A of the Commerce Act is inconsistent with a construction that would permit rapacity on the part of a s 4A(1) decision-maker.
Policy 2: The charge for a service must not exceed its reasonable costs or it will be an unlawful tax
[163] In Attorney-General v Wilts United Dairies Ltd (1921) 37 TLR 884 (CA) the Crown charged distributors of milk a fee for the licence required to purchase it. Atkin LJ stated at 886:
There is … no suggestion that the charge made in this case is part of a price payable by the [Crown] defendants for milk bought by them… [I]f an officer of the executive seeks to justify a charge upon the subject made for the ue of the Crown…he must show, in clear terms, that Parliament has authorised the particular charge. The intention of the Legislature is to be inferred from the language used…; but in view of…the elaborate means adopted by the Representative House to control the amount, the conditions and the purposes of the levy, the circumstances would be remarkable indeed which would induce the Court to believe that the Legislature had sacrificed all the well-known checks and precautions, and, not in express words, but merely by implication, had entrusted a Minister of the Crown with undefined and unlimited powers of imposing charges upon the subject for purposes connected with his department.
The decision was upheld on appeal: (1922) 38 TLR 781 (HL).
[164] In Air Caledonie International v Commonwealth (1988) 165 CLR 462 the High Court of Australia stated:
5. In Lower Mainland Dairy Products Sales Adjustment Committee v. Crystal Dairy, Ltd. [1933] AC 168 at p 175, the Privy Council identified three features which sufficed to impart to the levies involved in that case the character of a "tax". Those features were that the levies: were compulsory; were for public purposes; and were enforceable by law. In Matthews v. Chicory Marketing Board (Vic) (1938) 60 CLR 263, at p 276, Latham C.J. adopted those three features as the basis of what has subsequently been recognized in this Court as an acceptable general statement of positive and negative attributes which, if they all be present, will suffice to stamp an exaction of money with the character of a tax:
"a compulsory exaction of money by a public
authority for public purposes, enforceable by law,
and ... not a payment for services rendered"
(see, e.g., Browns Transport Pty. Ltd. v. Kropp(1958) 100 CLR 117, at p 129).
[165] Whether the payments exacted in this case were no more than was reasonable for the services rendered, or by exceeding that amount constituted an unlawful tax, is par excellence an issue properly justiciable by the courts of general jurisdiction. What approach it should take on review (intensive or non-intensive) is a separate question considered at [153] above and [175] and following below.
Policy 3: freedom of movement
[166] Self-evidently, excessive charges will tend to infringe the entitlement recognised by the Bill of Rights to freedom of movement. The importance in modern society of access to airport services on reasonable conditions needs no emphasis. Nor does the fact that they cannot readily be duplicated by a competitor.
Policy 4: the law frowns upon unconstrained self-dealing
[167] A further question concerns the procedural response to an allegation of the foregoing conduct. Each is prima facie a potential candidate for judicial review. There is also in this case the important factor absent from Mercury Energy and Lab Tests: of personal advantage to WIAL and its shareholders, likely to include directors as well as an absence of the political safeguards present in those cases.
[168] The law tends to regard potential self-dealing as a key to intervention. In equity the “self-dealing” rule is that if a trustee sells the trust property to himself, the sale is voidable by a beneficiary, however fair the transaction: Tito v Waddell (No 2) [1977] Ch 106 241 per Megarry V-C. In public administration the rule in Dimes v Grand Junction Canal Co (1852) 3 HLC 759; 10 ER 301 (HL) sets the highest standards for judicial disinterest. While in administrative decision-making the necessity principle will often require a decision-maker to accept responsibility to decide on matters in which is has an interest (see for example Friends of Turitea Reserve Society Inc v Palmerston North City [2008] 2 NZLR 661 (HC)), no authority was cited where potential self-dealing was exempted from judicial review on grounds of reasonableness. On the contrary, the fact of personal interest is an obvious pointer to insistence on review.
(b) The scheme of the Act
[169] Sections 1A of the Commerce Act and 4A(3) of the AAA are obvious pointers to review. So too s 52Z of the Commerce Act, introduced with effect from 14 October 2008, which gives a right of appeal to the High Court against input methodology determinations. As to intensity of review, the requirement of s 52Z (3 – 4) that the High Court sit with lay members suggests that the issues are not such as may conveniently be determined by standard procedures. That is an indication that the High Court should not on judicial review attempt the kind of intensive reappraisal that is contemplated to need expert assistance.
(c) The subject-matter
[170] The point overlaps with the last and with (e) and (f). The subject-matter of the challenge is such that the Court should stand well back from the kind of detailed involvement appropriate on s 52Z type of appeal. The great degree of time and resources required when the expert Commerce Commission performed its inquiry for the purpose of its report under s 56 of the Commerce Act, on whether airport services at New Zealand’s international airports should be subjected to price control under Part 4, is a further powerful pointer the same way.
(d) The implications of the decision
[171] The decision has important economic effects. But there are no effects of the kind that would lead a court to engage in the kind of intensive review, which Professor Taggart would subject to a proportionality test, appropriate for issues of fundamental human rights (see Mihos v Attorney-General cited at [147] above).
[172] Rather, the effects are analogous to those of a rating authority (at [156] above).
(e) The capacity of the Court compared with that of the decision-maker
[173] The topic has been touched on at (c) and overlaps with (f). Where fundamental human rights are not engaged the courts of general jurisdiction are not equipped to deal with such issues at a high level of intensity.
[174] The board of WIAL is selected for its commercial capacity. It may be expected to possess intimate familiarity with and ability to manage the kind of issues which took the Commerce Commission 600 pages and more than four years to complete. The courts do not claim such capacity. In Mountfort v Tasman Pacific Airlines of NZ Ltd [2006] 1 NZLR 104 at [31] (HC) it was said to be:
well settled by authority that the success of the limited liability company is to be encouraged by judicial deference to the standards of the responsible business community. That is spelt out in para (d) of the long title and emphasised in such judgments as Peoples Department Stores Inc v Wise [[2004] 3 SCR 461; (2004) 244 DLR (4th) 564]… because the Court does not claim particular specialist expertise, it will not lightly substitute its own opinion for that of the directors. They are to be judged by a standard that is deferential to them…
Here the combined legal/factual matrix requires that the court accord a high degree of autonomy to the company’s board.
(f) The factual context
[175] The report of the Commerce Commission on the Auckland, Wellington and Christchurch airports, dated 1 August 2002, is sufficiently up to date to afford some perspective. The Commission identified considerable costs of applying Part 4 of the Commerce Act and advised against its application to the Wellington and Christchurch airports. The Government declined to accept its advice to apply Part 4 in Auckland.
Application of principles
[176] The role of the court on judicial review, especially in the present class of case which involves business and economic issues, is not to act as an appellate authority. Professor Taggart’s rainbow (Proportionality, Deference, Wednesbury at 452) provides a valuable guide. It is perhaps because this case approaches the opposite extreme from cases involving human rights and personal status that the majority regard the claim as non-justiciable. In those cases there tend to be two distinguishing features:
(a)the issues warrant application of whatever resources are needed to ensure correctness of result;
(b)the judiciary has the experience and knowledge that equip them to act as primary decision-makers.
[177] For the reasons already given the present class of case falls near although not at the other extreme. I have rejected the argument that the narrow test of “fraud, corruption or bad faith” can properly be applied outside the peculiar context of the SOEs and the like.
[178] I do not accept Air New Zealand’s submission, based on the judgment of McGechan J in Air NZ v WIAL (No 2) cited by the majority at [33] above, that s 4A does not permit WIAL to include monopoly profits in excess of a return that could be achieved in a normally competitive market. That is a test which is beyond the capacity of the Court to apply.
[179] I do however accept that it may not include monopoly profits which may be described as grossly excessive or rapacious. That is precisely what this Court said in Air NZ v WIAL (No 1) cited at [34] above:
The valuation should not be based on an assumed abuse of its monopoly position…
[180] An alternative way of expressing the same concept is to accept that it may not impose charges that are unreasonable and irrational and such as no reasonable airport company could have made.
[181] If the facts pleaded in this case showed that the fees fixed were outrageous by any rational test, they could in my view be set aside for that reason alone without need to meet the standards of moral corruption employed in Mercury Energy. It would be enough that they had been set incompetently. That would concurrently establish plain abuse of a monopoly.
[182] It would however be a rare case where that could be demonstrated. The High Court, as a non-specialist body, will take good care to avoid, in the guise of a Wednesbury judicial review contention, being sucked into the kind of factual merits reappraisal for which the expert and multidisciplinary Commerce Commission with its resources is the convenient forum. In this context the courts of general jurisdiction will employ a broad brush with a long handle.
[183] The rates assessment case Wellington City Council provides a good example of the proper approach.
The facts pleaded
[184] The allegations here are:
(a) WIAL acted beyond the scope of its statutory powers:
18.The Increased Charges are excessive and include monopoly profits in that they include a return in excess of a reasonable return on the capital invested and in excess of a return that could be achieved in a normally competitive market.
Particulars:
WIAL calculated and set the Increased Charges:
(a)without regard to the revenues it receives from all its commercial activities;
(b)attributing a value to its relevant airport assets of $247.8 million as at 30 June 2007 which value is excessive and itself incorporates the monopoly earning potential of the assets;
(c)without providing an appropriate credit for unforecast revaluation gains;
(d)using a post-tax WACC of 9.3% and 9.5% which exceeds WIAL’s actual post-tax WACC; and
(e)by forecasting zero domestic passenger growth for 2008
(b)WIAL’s decision to set the increased charges was unreasonable and irrational and was a decision that no reasonable airport company could or would have made, being made. The same five factors are pleaded.
(c) WIAL failed to consider relevant considerations, namely:
28.Under sections 3, 4A and 4B of the Act, it is impliedly necessary for WIAL to take account of the following factors when exercising its statutory power to set charges:
(a) [repetition of 18(a) above];
(b) [repetition of 18(c) above] and
(c)the pricing principles for monopoly businesses set out by the Commerce Commission, including those set out in its Final Report on the Part IV Inquiry into Airfield Activities at Auckland, Wellington and Christchurch International Airports dated 1 August 2002.
29.WIAL failed to take these factors into account when setting the Increased Charges.
[185] Air New Zealand’s difficulty is that the facts pleaded do not meet the high standard of unreasonableness and abuse of monopoly required to survive strike-out. I deal with the contentions in turn.
[186] The first contention is:
WIAL calculated and set the Increased Charges:
(a)without regard to the revenues it receives from all its commercial
activities;
But the allegation is refuted by WIAL’s evidence that the topic of taking account of all revenues was considered. In the event, WIAL rejected it, as the Commerce Commission had done.
[187] The second contention is:
WIAL attributed a value to its relevant airport assets of $247.8 million as at 30 June 2007 which value is excessive and itself incorporates the monopoly earning potential of the assets.
But the methodology was that adopted by two of the five members of the Commerce Commission (see [134] above) and by the Hon Sir Ian Barker QC in an arbitral award on that very topic (23 September 2002).
[188] The third contention is:
WIAL failed to provide an appropriate credit for unforecast revaluation gains
That issue was duly considered. It was the subject of competing expert opinion.
[189] The fourth contention is:
WIAL used a post-tax WACC of 9.3% and 9.5% which exceeds WIAL’s actual post-tax WACC
The methodology accorded with expert advice which was not shown to be irrational.
[190] The fifth contention is:
WIAL forecast zero domestic passenger growth for 2008
The parties had agreed on forecasts for international traffic for five years and agreed on domestic forecasts for all years but 2008 in respect of which the differences were small.
[191] The sixth contention is:
the pricing principles for monopoly businesses set out by the Commerce Commission, including those set out in its Final Report on the Part IV Inquiry into Airfield Activities at Auckland, Wellington and Christchurch International Airports dated 1 August 2002.
[192] But these pricing principles were considered by WIAL which in part adopted them and in part rejected them.
[193] The contentions advanced get nowhere near the pleading of facts establishing irrationality of the high order required to meet the standards required for judicial intervention.
[194] Equally they fail to establish abuse of monopoly position needed for that purpose.
Decision
[195] I would therefore dismiss the appeal on the ground that Air New Zealand has failed to advance an arguable case and its proceedings were properly struck out.
[196] I agree with the majority judgment as to costs.
Solicitors:
Bell Gully, Auckland for Air New Zealand and Others
Buddle Findlay, Wellington for Wellington International Airport Limited
Russell McVeagh, Wellington for Intervener
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