Air New Zealand Ltd v Wellington International Airport Ltd HC Wellington CIV 2007-485-1756

[2008] NZHC 570

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IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

CIV 2007 485 1756

BETWEEN  AIR NEW ZEALAND LIMITED First Plaintiff

ANDAIR NELSON LIMITED Second Plaintiff

ANDEAGLE AIRWAYS LIMITED Third Plaintiff

ANDZEAL 320 LIMITED Fourth Plaintiff

ANDMOUNT COOK AIRLINE LIMITED Fifth Plaintiff

ANDWELLINGTON INTERNATIONAL AIRPORT LIMITED

Defendant

CIV 2007 485 2221

AND BETWEEN            WELLINGTON INTERNATIONAL AIRPORT LIMITED

Plaintiff

ANDAIR NEW ZEALAND LIMITED First Defendant

ANDAIR NELSON LIMITED Second Defendant

ANDEAGLE AIRWAYS LIMITED Third Defendant

ANDZEAL 320 LIMITED Fourth Defendant

AIR NEW ZEALAND LIMITED AND ORS V WELLINGTON INTERNATIONAL AIRPORT LIMITED HC WN CIV 2007 485 1756  24 April 2008

ANDMOUNT COOK AIRLINE LIMITED Fifth Defendant

Hearing:         17 April 2008

Counsel:         D J Goddard QC and L A O'Gorman for Wellington International

Airport Limited (in support)

J A Farmer QC, D Cooper and R Woods for Air NZ Ltd & Ors (to oppose)

Judgment:      24 April 2008

JUDGMENT OF WILD J

Introduction

[1]      Two applications are for decision, one in each of two related proceedings.

[2]      In  the  first  proceeding  the  defendant,  Wellington  International  Airport Limited (WIAL) applies to strike out two of the three causes of action pleaded by Air New Zealand Limited and the other plaintiffs (I will refer to them jointly as Air NZ).  In this proceeding Air NZ seeks judicial review of a decision WIAL made on

20 June 2007 setting charges for Wellington International Airport.

[3]      In the second proceeding WIAL applies for summary judgment against Air NZ for the unpaid portion of those charges.   In that way, the two proceedings are connected.

[4]      Air NZ opposes both applications.  As to the summary judgment application it says:

a)        It has a set-off to the claim.

b)Summary judgment would pre-empt it obtaining the relief it seeks in its  application  for  judicial  review  of  WIAL’s  decision  fixing  the

charges.

2

[5]      In response to the strike out, Air NZ says that each of the two challenged causes of action is tenable, and the cases relied upon by WIAL, in contending to the contrary, distinguishable.

Background

[6]      WIAL is  an  “airport  company”,  and  also  an  “airport  authority”,  both  as defined in s2, and within the meaning of s4A(1) Airport Authorities Act 1966.   It owns and operates Wellington International Airport.  Air NZ is the largest customer of WIAL.  It is a “substantial customer” within the meaning of s2A of the Act (i.e. it contributes at least 5% of WIAL’s revenue).

[7]      On 20 June 2007, following consultation, WIAL set landing charges for the five  year  period  1  July  2007  to  31  March  2012.    These  charges  are  stepped, increasing 2.85% at the end of each year.  Those increases are compound.  I will call this “WIAL’s charging decision”.

[8]      Air NZ has not paid the increased charges:  it has continued paying WIAL as if the charges had not increased from 1 July 2007 (and now, again, from 1 April

2008).

[9]      On  14  August  Air  NZ  applied  for  judicial  review  of  WIAL’s  charging decision.

[10]     WIAL filed its strike out application on 7 September.

[11]     WIAL sued Air NZ on 5 October, applying for summary judgment for the unpaid portion of its charges i.e. the whole of the increases effected by WIAL’s charging decision.

Strike out

[12]     This is the logical starting point, since the summary judgment application should be determined on the basis of what survives of Air NZ’s statement of claim in its application for judicial review.

[13]     WIAL accepts its charging decision was an exercise of its s4A(1) power to set charges, and thus the exercise of “a statutory power” and “a statutory power of decision” in terms of s3 of the Judicature Amendment Act 1972, and amenable to judicial review.

[14]     There is no contest about Air NZ’s first cause of action which alleges that WIAL failed to consult with an open mind and in good faith, in that it had predetermined intentions in various respects.  Predetermination is a factual question for determination upon the evidence at trial.

[15]     It is the second and third causes of action which are challenged as untenable.

Second cause of action:  monopoly pricing

[16]     Air NZ’s second cause of action alleges:

Second cause of action:  acting beyond scope of power by setting charges that seek a monopoly return and are unreasonable

…

20.      The statutory power under section 4A of the Act does not confer on

WIAL a power to set charges that result in monopoly profits.

21.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.

22.No reasonable airport company could or would set such charges under section 4A of the Act.

Particulars

WIAL acted unreasonably in that it calculated and set the Increased

Charges:

[Particulars (a)-(e) pleaded under paragraph 21 are then again set out, followed by this particular]:

(f) at a level that is excessive and includes monopoly profits providing 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.

23.The Increased  Charges  are  accordingly beyond  the  scope  of  the power conferred on WIAL by section 4A of the Act.

[17]     The relief claimed is a declaration that the 20 June 2007 charges are invalid, and accordingly are not due and payable.

[18]     With two exceptions, strike out principles are too well known to require recitation.  The exceptions are:

a)       To   note   that   the   principles   apply   equally   to   judicial   review proceedings:   Southern Ocean Trawlers Ltd v Director-General of Agriculture and Fisheries [1993] 2 NZLR 53 (CA).

b)To accept WIAL’s submission that the allegation in paragraph 22 of Air NZ’s statement of claim need not be assumed to be proved, because it is a question of mixed fact and law.

[19]     In  outline,  WIAL’s  argument  is  that  there  is  no  restriction,  express  or implicit, in the Airport Authorities Act on WIAL’s power to set charges.  Control of monopoly pricing by WIAL is through Parts 4 and 5 Commerce Act 1986.  The case law predominantly supports this.   The one case holding otherwise is wrong.   And there are compelling practical reasons for keeping regulation of prices out of the Courts and firmly in the hands of the Commerce Commission.

[20]     Parts of three sections of the Airport Authorities Act are relevant to the first, interpretation point:

4.  Additional powers of airport authorities

…

4(3)Every airport operated or managed by an airport authority must be operated or managed as a commercial undertaking.

…

4A      Charges

4A(1)Subject to section 4B, every airport company may, notwithstanding the provision of any regulations in force under section 38 or section

100 of the Civil Aviation Act 1990, 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.

…

4B      Airport companies must consult concerning charges

4B(1)Every airport company must consult with substantial customers 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.

…

[21]     Air NZ relies on the words “commercial undertaking” in s4(3), and upon the interpretation McGechan J put on these words in Air New Zealand Ltd & Ors v Wellington International Airport Ltd HC WN CP829/92 and CP13/93, 15 October

1993 at 21-22:

Airport companies (and particularly Wellington) would be natural monopolies.  There was obvious potential for monopolistic abuse.  In that light, Parliament faced two problems.  First, it must ensure that 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 the 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.

(Air NZ’s emphasis)

[22]     For three reasons, I accept WIAL’s submission that there is no restriction in the  Airport  Authorities  Act  on  WIAL’s  power  to  set  charges,  beyond  the consultation requirements in s4B.

[23]     The first reason is the wording of s4A(1).  The section is subject only to s4B. Section 4A(1) gives WIAL the power to set “such charges as it from time to time thinks fit …”.  I therefore do not share McGechan J’s view that the s4(3) requirement that WIAL operate Wellington Airport as a “commercial undertaking” imports into s4A a restraint on monopoly pricing.  Such a restraint is not contained in the wording of s4A(1).

[24]     Nor do I consider such a constraint is to be implied.  In an earlier judgment,

Wellington International Airport Ltd v Air New Zealand Ltd HC WN CP303/91, 6

January 1992, starting at p12, McGechan J had traced the background to the operational structure of commercial aerodromes/airports in New Zealand.  At p14 the Judge referred to the “pointed submissions” Air New Zealand and other airlines had made in 1986, expressing concerns that the about-to-be corporatised airports would charge excessively.   McGechan J thought those concerns were the genesis of the consultation provision, now s4B.

[25]     The present ss 4A-4C were inserted by the Airport Authorities Amendment Act 1997, coming into force on 26  November 1998.   That is some  years after McGechan J’s 1992 decision, so I am not suggesting the Judge overlooked the Parliamentary materials I am about to refer to.

[26]     Sections 4A to 4C did not include principles that airports were required to adhere to in setting charges, nor did they provide for substantive review of charges, including components essential to setting them e.g. the valuation of an airport’s assets.  The airlines had sought both.

[27]     Although the following passages from Hansard recording the debate about the third reading of the Airport Authorities Amendment Bill are lengthy, I set them out because they support WIAL’s submission.  Moving that the Bill be read a third time, The Hon. Maurice Williamson, on behalf of the Minister of Transport, said:

…

The Bill, when passed, will ensure that airport users can contest airport company charges regularly through consultation, unlike the existing regime when consultation is required only when charges are indeed changed.   All airport companies will need to consult substantial customers on charges at least every 5 years. …

…

…   Information disclosure has been used in other industries to assist in guarding against monopoly pricing.

…

During the select committee process … it became clear that some parties believed that consultation and information disclosure was not sufficient to deal with potential monopoly abuse.   Others, of course, have argued the exact opposite viewpoint.  I have never come across any certainty in these debates. …

… the raising of this concern led to the select committee’s recommendation that the Minister of Transport consider introducing a supplementary order paper … to allow for a review of the valuation of airport company assets when the major parties were in significant disagreement.    This recommendation was given careful consideration, but it was determined that such review mechanisms were not necessary at this time.

…

…   These are the two things that we will be requesting:   a report to the

Minister of Commerce by the end of December 1999 on whether there is

evidence of monopoly pricing by the three major international airports, and whether he should recommend to the Governor-General an Order in Council invoking price controls over the aeronautical charges at those three airports.

So it is there in black and white.  If there is any evidence, if the Commerce Commission  can  be  persuaded  that  there  is  an  abuse  of  the  monopoly position,  of  monopoly  pricing  and  airport  companies  seeking  monopoly rents, then (an interruption)

…

…  I think the airlines have enormous countervailing powers, because they just will not pay the landing charges.  When that has happened at any time in the past no airport has ever stopped the airline from landing, so the company can be sent broke by refusal of payments.  So I think that airlines do have some very strong countervailing powers, but we still have some concerns regarding those issues raised by the Opposition.  I know that those issues are felt strongly by Air New Zealand, for example, so the reason for this Bill was to make sure that by December 1999 we could ask the Commerce Commission to report to the Minister of Commerce on whether there was a need to invoke price control.

…

…   That locks it all up.   The Commerce Act is specific, the Commerce Commission has powers and it can use them.  These additional measures will meet the concerns of those who feel that the Bill does not go far enough, by providing what amounts to a review of its efficacy.  When enacted, this Bill will see enhanced protection for airport users and it will ensure that any monopoly pricing is indeed exposed.

…

…  The airport companies do not want to go as far as this.  They think this is an abuse of their right to run a business without all the disclosure and the consultation.  The airlines think it does not go far enough.  That is a classic issue that we strike politically all the time:   one thinks it does not go far enough, the other thinks it goes too far – in which case, given the level of disagreement, it is possible that we have got the balance right.

But I say to members opposite that if we have not, we will be watching that behaviour so closely, the Commerce Commission’s review will kick in, and anybody who did get too smart with a monopoly pricing regime will pay the price.   The airport companies know that very clearly and, accordingly, I believe  that  they  will  act  responsibly,  just  as  any  business  knows  that someone will come down on it like a ton of bricks if it starts to misbehave.

…

[28]     Supporting the Bill, The Hon. Mr Peter Brown (New Zealand First) added:

…

The second option was to introduce a pricing formula into the legislation. That was an option that New Zealand First looked at very seriously as there

are such regimes in airports in the United Kingdom and in Australia. However, we eventually concluded that such an approach was unnecessarily heavy-handed, and that at this stage it was best to give the light-handed approach contained in the Bill a chance.

…

To summarise, New Zealand First is not convinced that this Bill goes far enough.   But we are also aware that heavy-handed regulation of airports would be inconsistent with the coalition Government’s regulatory policy in other sectors.  So New Zealand First is happy to support the Bill as it now stands, knowing that there is potential for further regulation if the Commerce Commission finds that the light-handed approach in this Bill is being abused. There are overseas models of price control that New Zealand could look at if need be.

…

[29]     Those  passages  contain  an  explanation  to  Parliament,  on  the  Minister’s behalf, as to why the Bill does not contain the price setting restraints and review provisions the airlines had sought.  The explanation is that they are in the Commerce Act.   Parliament obviously accepted the position as explained, because the  Bill became law.  The enactment of ss 4A-4C overtakes McGechan J’s 1992 judgment, and indicates that Parliament’s aim in directing airport authorities to operate as “a commercial  undertaking”  was  only  to  address  the  first  of  the  two  problems McGechan J identified, to require them to operate (as McGechan J put it) “in a proper business-like cost-conscious fashion, making economies where achievable”. The “commercial undertaking” mandate dates from 1986 when airports were corporatised (see s4 Airport Authorities Amendment Act 1986).   The enactment, earlier in the same year, of the Commerce Act 1986 should not be overlooked.  That is my second reason:  that no restraint on pricing is implied in s4A(1).

[30]     Third, to varying extents, other judgments support WIAL’s submission that there are no pricing constraints in the Airport Authorities Act, beyond consultation. The first is the Court of Appeal’s decision in WIAL v Air NZ [1993] 1 NZLR 671, deciding appeals from McGechan J’s 6 January 1992 judgment. WIAL appealed against the Judge’s finding that its consultation had been inadequate; Air NZ appealed the finding on a vesting value issue. The Court of Appeal at 676 said this:

We  readily accept Mr Fardell’s  submission that  one of the  purposes  of requiring consultation was to place some restraint on WIAL company, which would be in a monopoly position as the only provider of airport facilities in

Wellington.   …   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 that WIAL company 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 s53 of the Commerce Act.

[31]     It is perhaps significant that this passage follows one (at p675) in which the Court expresses caution about resort to Hansard as an aid to interpretation of an enactment.   I have referred to Hansard primarily because I am disagreeing with McGechan J’s interpretation of what is now s4(3).

[32]     Next is the Court of Appeal’s judgment in Vector Ltd v Transpower NZ Ltd [1999] 3 NZLR 646. Upholding the decision of Williams J and Dr Maureen Brunt in this Court, the Court of Appeal rejected Vector’s argument that it could invoke the common law doctrine of prime necessity to control prices Transpower charged to transmit bulk electricity to Vector. Emerging from paragraphs 61-65 of the majority judgment (Thomas J delivered a concurring judgment) are these points:

a)       Price control through the Courts is a form of state control.  The only state control of prices contemplated by the legislation is in Part 4

Commerce Act, and is available only if the Part 4 criteria are satisfied.

b)It is the Commerce Commission and not the Courts which authorises prices, under Part 4, for controlled goods and services.

c)      Regulation under Part 4 Commerce Act requires consideration by Government and Parliament of fundamental issues and social and economic policy, and includes tradeoffs between the costs and the benefits of particular types of regulation.   Section 26, requiring the Commission to have regard to the economic policies of the Government, is particularly notable.

d)In comparison, Court intervention and control of prices through the prime necessity doctrine would be “heavy-handed” and “blunt”, and thus  would  be  inconsistent  with  the  purpose  and  scheme  of  the

Commerce Act.  It is “an unsuitable instrument for price regulation in a multi-dimensional setting” (para [66]).

[33]     In 2000,  Vector  was back before this Court, opposing an application by Transpower to strike out all of Vector’s (new) statement of claim on grounds including that Transpower’s pricing methodologies were not reviewable, in the light of the Court of Appeal’s judgment in Vector and the Privy Council’s decision in Mercury Energy Ltd v ECNZ [1994] 2 NZLR 385. After summarising some of Vector’s assertions about Transpower’s pricing, the Court said this:

[43]     … enough material has been placed before the Court at the two hearings to make it clear that the evidence for and against the various assertions would be lengthy, complicated and recondite.   It follows in the light of Mercury Energy and Vector, both in this Court and the Court of Appeal, that it is difficult to see the issues as being properly determinable in judicial review proceedings.  At bottom, though phrased as judicial review, if this case is permitted to proceed it has all the hallmarks of being one where Vector is asking the Court to fix the prices which should be charged by Transpower, it having failed to achieve what it regards as a satisfactory price by negotiation.  There is a wealth of authority to the effect that price- fixing in circumstances such as those which exist between these parties is not an appropriate function for this Court, particularly in judicial review proceedings.  …

[34]     That  paragraph  continues  to   cite  various  authorities,  to  reiterate  the unsuitability of Vector’s case for judicial review (“it would be a protracted matter of considerable complexity, ill-suited to the adversarial process and one which would require to be regularly if not continuously repeated”), and states that Vector’s remedies lay in the accountability provisions of the State Owned Enterprises Act

1986 and in Part 4 of the Commerce Act.

[35]     The  reference  in  that  paragraph  to  Mercury  Energy  is  to  the  case  that concluded with the Privy Council’s judgment  Mercury  Energy  Ltd  v  Electricity Corporation of New Zealand  Ltd [1994] 2 NZLR 385. Mercury (subsequently renamed Vector) sought judicial review of ECNZ’s decision to terminate an interim supply agreement between the two companies. At first instance (reported at (1998) 8

TCLR 554) this Court had rejected the prospect of judicial review in these terms:

…  Whilst the Court is not unaccustomed to dealing with matters of complex economic theory, pricing methodologies and the like, and whilst it has mechanisms available to assist it in deciding those questions, it was common

ground that the setting of pricing principles would be a protracted matter of considerable complexity, ill-suited to the adversarial process and one which would require to be regularly if not continuously repeated.   It may not be overstating the position to say that if the Court became involved in such a process, it could become permanently involved.   … it would be startling innovation for this Court now to assume and devote a considerable amount of resources to an ongoing supervisory if not regulatory role of major complexity in this sector of the electricity industry.  No doubt other sectors of the industry would wish to participate.   So would other sectors of the economy.   Had Parliament intended the Court to fulfil such a role, in our view it would have said so unmistakably clearly.

[36]     Relevant  to  the  concerns  expressed  in  that  passage  that  the  Court  may become regularly if not permanently involved, is the fact that these two proceedings are the fourth round of litigation in this Court between Air NZ and WIAL over the latter’s charges.

[37] Lord Templeman’s judgment of the Privy Council, dismissing Mercury’s appeal against the Court of Appeal’s decision (reported at [1994] 1 NZLR 551), includes this observation (at p391):

…   Industrial disputes over prices and other related matters can only be solved by industry or by government interference and not by judicial interference in the absence of a breach of the law.  …

[38]     The Privy Council said much the same thing in Telecom Corporation of NZ Ltd v Clear Communications Ltd [1995] 1 NZLR 385 at 407-408, agreeing with this Court’s view at first instance that the Courts were not the appropriate forum to determine whether prices set by a company with market power (Telecom) included monopoly profits.

[39]     To summarise, I hold that there is no restraint on monopoly pricing in the Airport Authorities Act.  If there be any doubt about that, the Hansard passages I have set out dispel it.   Had McGechan J had those passages available as an interpretative aid, I am confident he would not have held that s4(3) imported such a restraint.  All the other case law supports the view that control of WIAL’s charges is available only under the Commerce Act.

[40]     Perhaps anticipating the ruling just summarised, paragraph 22 of Air NZ’s second cause of action alleges that:

No reasonable airport could or would set such charges …

[41]     The particulars given are all assertions of monopoly pricing – prices in excess of those which would be reasonable.   They repeat the particulars given under paragraph 21, with one addition.

[42]     Testing WIAL’s charges against the standard of ‘reasonableness’ would not, in practical terms, be a different exercise from determining whether WIAL’s charges breach s4A, because they result in monopoly profits.  Both exercises would involve the Court undertaking a task which the case law establishes is for the Commerce Commission and not for the Courts.

[43]     Mr Farmer sought to persuade me that this task would be comparatively confined, and well within this Court’s capability.   In asserting that, he placed particular reliance on McGechan J’s 1992 judgment, where the Judge did embark on a substantive review of WIAL’s charges.  I am not persuaded.  My recent experience is that a single Judge, unsupported by an expert lay Court member(s), and without the benefit of cross-examination of expert witnesses (or an experts’ “hot tub”) is not well placed to decide the questions raised by the pleadings here.  I have really just repeated what I said in Powerco & Vector v Commerce Commission HC WN CIV

2005 485 1066 & CIV 2005 485 1220, 24 December 2007, particularly at [407]- [408].

[44]     Mr Farmer also complained that the processes available to Air NZ under the Commerce Act had not provided it with an effective remedy.   There is some justification  for  this  complaint.    The  Commission’s  inquiry into  airport  charges spanned some four  years.   It resulted in the Commission  recommending to  the Minister that price control be imposed on Auckland Airport, and that consideration be given to imposing price control on Wellington if it set its charges at a level it had foreshadowed, which the Commission regarded as excessive.  The Minister did not impose price control on Auckland.  According to Mr Farmer, Wellington then set its charges at the ‘excessive’ levels, and was also spared price control.   However, a complaint that the proper (Commerce Act) processes have proved ineffective, is not a sound basis for the Court to enter the fray.

[45]     Insofar as it alleges a statutory restraint on WIAL’s power to set charges, Air NZ’s second cause of action is untenable.  Insofar as it alleges unreasonableness on WIAL’s part, Air NZ’s second cause of action is not one which this Court should entertain.  To do so would be to usurp the function of the Commerce Commission. For those two reasons, I strike out Air NZ’s second cause of action.

Third cause of action: stepped charges

[46]     Air NZ’s third cause of action pleads:

Third  cause  of  action:    failure  by  WIAL  to  consult  before  future increases to charges

25.      The plaintiffs repeat paragraphs 1 to 15 above.

26.The consultation obligations in sections 4B of the Act require WIAL to consult with every substantial customer before fixing or altering the amount of its charges.

27.      WIAL intends to alter all of its domestic and international charges

(excluding the international departure fee) on 1 April 2008, 1 April

2009, 1 April 2010 and 1 April 2011 without further consultation with Air New Zealand and other substantial customers.

28.      The Increased Charges proposed to be implemented by WIAL on 1

April 2008, 1 April 2009, 1 April 2010 and 1 April 2011 will be invalid and of no effect and a breach of s4B of the Act without further consultation by WIAL in respect of each alteration.

[47]     I reject Air NZ’s contention that the stepped charges WIAL has set breach s4B(1), and thus also 4A(1).

[48]     The requirement in s4B(1) is to consult before fixing or altering a charge, and then within 5 years after fixing or altering it.  WIAL did that.

[49]     Mr Farmer submitted that WIAL’s charging decision deprives Air NZ of any opportunity to be heard about the appropriateness of each annual step-up in the charge, in the light of conditions at the time the step kicks in.

[50]     He submitted that WIAL is, year by year, altering the charge, and it cannot circumvent its s4B(1) consultation obligation by setting stepped charges as it has done.

[51]     The answer  to  both  these points  is  that  s4B(1)  permits  stepped  charges, provided WIAL consults about them before fixing them.  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.

[52]     This was the point made by McGechan J in dismissing a similar challenge by

Air NZ in his judgment in Air NZ & Ors v WIAL HC WN CP829/92; CP13/93, 15

October 1993.  There, WIAL set a charge effective from 1 January 1991, expressed to be subject to a 10% discount expiring on 30 June 1991.  Air NZ challenged this as breaching s4B(1), in that the charge altered on 30 June 1991.   Rejecting this, McGechan J said at p53:

As a consequence, of course, the 1 January 1991 charges simply ran on. They did so out of their previously created indefinite character.  They did not do so by virtue of statutory process activity in June or July 1991.  As a like consequence, the 10% discount came to an end on 30 June 1991.  It did so of its own character …   In reality, the discount discontinued itself.   Its time simply ran out.   In  marked contrast to the statutory charging procedure inherent in (now, s4A(1)) – as exemplifed in 1992 – around 1 July 1991 there was no proposal put forward; no consultation; no decision; and no announcement. That was not a (s4A(1)) setting of charges.

[53]     I gratefully adopt this analysis, which applies equally to the stepped charges challenged by the third cause of action.

[54]     As I consider the third cause of action to have no prospect of success, I strike it out.

Summary judgment

[55]     In [4] above I mentioned the two bases on which Air NZ resists summary judgment:

a)       It has a set-off to the claim.

b)Summary judgment would pre-empt it obtaining the relief it seeks in its application for judicial review of WIAL’s decision fixing the charges.

[56]     The claim to a set-off raises as defences to WIAL’s claim two of the three causes of action Air NZ pleads in its application for judicial review.  For example, as a first set-off, Air NZ asserts WIAL’s failure to consult with an open mind.   It repeats the allegations set out in its statement of claim in application for judicial review and then pleads:

25.If judgment is entered for all or part of the sum claimed by the plaintiff, the defendants are, as a result of the allegations contained in paragraphs 21 to 24 above, entitled to set off against the sum for which judgment is entered an equivalent sum.

[57]     This misconceives and misuses set-off, which is confined to money claims. The definitive statement about set-off in  Somers  J’s  judgment  for  the  Court  of Appeal in Grant v NZMC Ltd [1989] 1 NZLR 8 at 11-13 includes this:

…  Set-off affords a defence to an action wholly or in part depending upon the amount and is by its very nature limited to money claims.  …

[58]     The relief claimed by Air NZ in respect of each of the three causes of action in its judicial review proceeding is declaratory (although each prayer for relief also contains a prayer for general relief).  But in no way can any of those causes of action be regarded as money claims.  Indeed, the whole dispute arises from the fact that Air NZ has not paid the money (charges) in issue.  It follows that none of those causes of action can found a claim by Air NZ to set-off in respect of WIAL’s claim for its unpaid charges.

[59]     Even were that not the case, I would hold against Air NZ on its claim to set- off.   As Air NZ does not claim set-off for a liquidated sum of money, its set-off could only be equitable, and thus maintainable if:

…  it  would  be  unjust  to  allow  the  plaintiff  to  have  judgment  without bringing the cross-claim to account.  The link must be such that the two are in effect interdependent:   judgment on one cannot fairly be given without regard to the other; the defendant’s claim calls into question or impeaches the plaintiff’s demand …

Again, that passage comes from Somers J’s judgment for the Court of Appeal in

Grant at 12-13.

[60]     It would not be unjust to require Air NZ to pay WIAL’s charges in full pending determination of its judicial review proceeding, given:

a)       Air NZ has incurred the charges, and continues to do so i.e. it has and continues to use Wellington Airport.

b)If the charges are set aside by this Court on the ground that WIAL had predetermined them, they can be repaid with interest (albeit interest capped at 7.5% by s87 Judicature Act 1908), or off-set against then current charges.

c)        WIAL is good for any refund it may be required to make. [61]          I hold that Air NZ has no right of set-off.

[62]     If the matter were free of authority, I would not have thought that summary judgment pre-empts Air NZ obtaining the relief it seeks in its application for judicial review:   an order declaring WIAL’s charges invalid, and therefore not due and payable.

[63]     At present the charging decision is valid.  No Court has held otherwise.  To hold that the charges are due and payable, and to give judgment accordingly, does not pre-empt Air NZ pursuing its proceeding and obtaining a declaration that the charging decision is invalid.  Summary judgment would not stand in the way of that because it would be predicated upon – it would assume – that the charging decision is valid.  The summary judgment would not decide that, because the validity of the charging decision is not an issue which the summary judgment Court would be required to decide.  So no res judicata or issue estoppel would arise.

[64]     That approach gives effect to the relative doctrine (or theory) of invalidity.  A

simple and authoritative statement of the doctrine is to be found in Lord Reid’s

judgment in Hoffman-La Roche v Secretary of State for Trade and Industry [1975] AC 295 (HL) at 341:

It must be borne in mind that an order made under statutory authority is as much the law of the land as an Act of Parliament unless and until it has been found to be ultra vires.  …

[65]     Closer  to  home,  in  her  judgment  in  this  Court  in  Murray  v  Whakatane

District Council [1999] 3 NZLR 276, Elias J explained the doctrine in this way at

320:

It is settled law that every unlawful administrative act, except perhaps in extreme cases of clear usurpation of power, is operative until set aside by a Court.  Even where a decision is challenged by a plaintiff entitled to do so in appropriate legal proceedings, the Court is not compelled to set aside the decision …

[66]     Thus, if the position were free of authority, I would enter summary judgment for WIAL.  But, standing in the way of that, are the Court of Appeal’s decision in Waipa  District  Council  v  ECNZ  [1992] 3 NZLR 298, the decision of Master Venning in this Court, and the decision of Master Venning in this Court in Dunedin Airport Ltd v Mt Cook Group Ltd & Anor HC DUN CP34/96, 10 October 1996, and the decision of the House of Lords in Wandsworth London Borough Council v Winder [1985] AC 461, which Master Venning relies on.

[67]     In  Waipa  the  appellant  Council  (Waipa)  had  sought  summary  judgment against ECNZ for the unpaid portion of rates it had levied for ECNZ’s Karapiro Power Station on the Waikato.   ECNZ counterclaimed for relief based on the invalidity of the rate.   Its pleading was broadly based on the Court of Appeal’s judgment in Mackenzie District Council v ECNZ [1992] 3 NZLR 41. In response, Waipa relied on s138 Rating Powers Act 1988 which prevents a ratepayer raising the general invalidity of the rate as a defence to an action for recovery. Although Master Gambrill accepted that s138 appeared to deprive ECNZ of any defence to Waipa’s claim for summary judgment, in the exercise of her discretion she refused summary judgment. She held it would be improper to enter judgment until the ECNZ’s judicial review proceedings had been determined.

[68]     In the Court of Appeal counsel for Waipa submitted that a challenge to the validity of the rate could not be raised in Waipa’s proceeding seeking summary judgment for the unpaid rates, and could not provide a defence.  He accepted that the validity of the rate could be challenged in a judicial review proceeding, and that the Court in that proceeding, if it declared a rate to be invalid, could then grant an injunction against the rating authority restraining it from attempting to collect the invalid rate.

[69]     The Court of Appeal could see no distinction between that situation and the case before it, where the validity of the rate was yet to be determined.  At p302 it took the view that:

It  must surely be  equally appropriate by injunction to  restrain the local authority from suing or obtaining a judgment before a bona fide arguable issue as to validity can be determined in appropriate proceedings.

[70]     The judgment then contains this passage (at pp 302-303):

(ECNZ) would have no remedy if its proceedings for review were to be pre- empted by the entry of summary judgment.   If summary judgment were allowed to be entered that would seem to amount to a final determination of (ECNZ’s) liability.  It is difficult to see how, in the face of such a judgment, (ECNZ) could maintain review proceedings to attack the validity of the rate on which the judgment was based.  If proceedings for review were brought by some other ratepayer, they could be similarly pre-empted by the council. It could immediately issue proceedings for the recovery of the rates from that ratepayer and seek summary judgment.  Counsel suggested that if as a result of review proceedings the rate was held to be invalid, the summary judgment  could  be  set  aside.    He  was  unable, however,  to  suggest  any recognised principle on which an application to set aside could be based.

[71]     The Court dismissed Waipa’s appeal.   It held that, having regard to  the intention of s138, to the consequences of an entry of judgment, and to the authorities it had referred to, it was satisfied that “this was a proper case for the exercise of that discretion (to decline to enter summary judgment)”.

[72] I have difficulty with the passage set out at [70]. First, not only does it not refer to the doctrine of relative invalidity, but its reasoning rather cuts across the doctrine. Second, it seems that the Court could not see any principled basis on which a summary judgment in Waipa’s favour for the rates could be set aside, if ECNZ subsequently obtained a declaration that the rate was invalid. If ECNZ

wanted that judgment set aside, then could it not apply for special leave to appeal out of time, pursuant to r29(4) Court of Appeal (Civil) Rules 2005.  In the face of the rate being declared invalid, would not such an application be irresistible?  I would be surprised if, leave having been granted, Waipa did not acknowledge the inevitable outcome,  and  consent  to  the  appeal  being  allowed  and  the  summary  judgment vacated.

[73]     If ECNZ was unconcerned about the judgment, and simply wanted its money back, then restitution would be an available remedy, in the unlikely event that Waipa did not voluntarily refund it.

[74]     The facts in Dunedin Airport Ltd v Mt Cook Group Ltd are very similar to those here.  After Mt Cook had refused to pay increased landing charges, Dunedin Airport sued it for summary judgment.  Mt Cook asserted, by way of defence, that the landing charges were invalid because they had been set without proper consultation, had been predetermined, were excessive monopoly rentals and, finally, that the airport had failed to operate as a commercial undertaking.

[75]   Master Venning commented that those defences were perhaps more appropriately raised in judicial proceedings, but noted that Mt Cook had  yet to decide whether to bring such proceedings.

[76]     The Master took, as his starting point, the fact that the landing charges were valid until set aside or declared invalid by a Court.   He referred to Hoffman-La Roche and other relative invalidity authorities.  Although he accepted that Mt Cook’s defence of  invalidity was  “effectively a  collateral  attack” on  Dunedin  Airport’s decision, he accepted at p9 that:

A defendant is entitled to raise the invalidity of a public law decision in his defence to private law proceedings:  Wandsworth LBC v Winder [1985] AC

461.

[77]     The Master considered that the appropriate way to deal with the case was to consider the defences raised by Mt Cook.   If he considered Dunedin Airport had failed to establish Mt Cook had no defence to its claim, then summary judgment would be declined in the usual way, and the parties could decide whether to go to a

substantive hearing, or whether Mt Cook wished to bring a proceeding seeking judicial review.  He added, at p9:

If on the other hand I am satisfied that the defendant has no defence to the plaintiff’s claim on the grounds raised, then judgment will be entered and the defendant will have to consider whether it wishes to challenge the plaintiff’s decision in administrative review proceedings, insofar as that challenge may affect its liability for future landing charges.

[78]     The result of that exercise was that the Master considered Mt Cook did have arguable defences to Dunedin Airport’s claim, and he dismissed the application for summary judgment.

[79]     Application  to  this  case  of  Master  Venning’s  approach  must  result  in summary judgment being refused, since WIAL concedes that Air NZ’s first cause of action is tenable, and can only be decided at trial.

[80]     Because I regard it as a key step in the Master’s judgment, I go back to the House of Lords’ decision in Wandsworth London Borough Council v Winder. The Council had sued Mr Winder, who had refused to pay increased rent for his Council flat. Mr Winder defended that claim alleging that the Council’s decision increasing his rent (and those of many other Council weekly secure tenants) was ultra vires and void, and he counterclaimed for a declaration accordingly. The Council applied to strike out Mr Winder’s defence and counterclaim as an abuse of the process of the Court. The strike out claim had an interesting journey through the Courts. The Registrar of the County Court refused to strike out Mr Winder’s defence and counterclaim, but the County Court Judge allowed the Council’s appeal and struck them out. The Court of Appeal allowed Mr Winder’s appeal, restoring his defence and counterclaim. The Council again appealed. Lord Fraser delivered the leading judgment in the House of Lords, the other four Law Lords simply concurring. Lord Fraser began by stating (at 504):

… the question in this appeal is whether it is an abuse of process for an individual, who claims that his existing rights under a contract have been infringed by a decision of a public authority, to challenge the decision in defence to an action at the instance of the public authority for payment, instead of by judicial review …

[81]     Much of Lord Fraser’s judgment is taken up with a consideration of the House of Lords’ decisions in O’Reilly v Mackman [1983] 2 AC 237 and Cocks v Thanet District Council [1983] 2 AC 286. Delivering the leading judgment in O’Reilly, Lord Diplock at 285 had stated:

… it would in my view as a general rule be contrary to public policy, and as such an abuse of the process of the court, to permit a person seeking to establish that a decision of a public authority infringed rights to which he was entitled to protection under public law to proceed by way of an ordinary action and by this means to evade the provisions of Order 53 (the English procedure for judicial review) for the protection of such authorities.

[82]     Lord Diplock had then added that there may be exceptions to that general rule, and suggested one or two.

[83]     Lord Fraser did not accept that the O’Reilly principle was applicable.  As I understand his judgment, he thought the principle applied to citizens who wanted to bring a proceeding challenging a decision of a public authority.   Such potential plaintiffs should be required to follow the Order 53 procedure.

[84]     Lord Fraser then distinguished Mr Winder’s position in the following terms:

It would in my opinion be a very strange use of language to describe the respondent’s behaviour in relation to this litigation as an abuse or misuse by him of the process of the court.   He did not select the procedure to be adopted.  He is merely seeking to defend proceedings brought against him by the appellants.  In so doing he is seeking only to exercise the ordinary right of any individual to defend an action against him on the ground that he is not liable for the whole sum claimed by the plaintiff.  Moreover, he puts forward his defence as a matter of right, whereas in an application for judicial review, success would require an exercise of the court’s discretion in his favour.

[85]     The Law Lords were unanimous in dismissing the appeal.

[86]     I have made clear my reservations about applying Waipa here.  Were it the only authority in point, I might find the courage to distinguish it as a rating case.  But I find the combined authority of Waipa, Wandsworth London Borough Council v Winder and Dunedin Airport Ltd v Mt Cook Group decisive against WIAL’s application for summary judgment.  The result of applying those cases here is that Air  NZ is  entitled  in  this  proceeding to  raise  predetermination  as  a  defence  to WIAL’s claim for summary judgment.  And WIAL concedes it is a tenable defence

which must go to trial.  Certainly, predetermination is not available as a set-off.  But that is a pleading point which is easily cured and which should therefore not be decisive.

[87]     Accordingly, I dismiss WIAL’s claim for summary judgment.

Result

[88]     In Air NZ’s proceeding seeking judicial review, I strike out the second and third causes of action in Air NZ’s amended statement of claim.

[89]     In WIAL’s proceeding for judgment against Air NZ for the unpaid part of its charges, I dismiss WIAL’s application for summary judgment.

[90]     I direct Air NZ to file and serve an amended statement of claim reflecting the strike out orders I have made, and also attending to the pleading point referred to in [86], by 8 May.

[91]     I will hold a teleconference with counsel at 9 am on Tuesday 13 May to timetable both the proceedings toward the earliest practicable trial.  Given the refusal of summary judgment, I consider urgency now attaches to the proceedings.   Trial time may be available in September this year, and it certainly will be in October.

Costs

[92]     I am inclined to regard the result as a draw for costs purposes.  If either party disagrees, it can file a memorandum, and promptly please.

Solicitors:

Buddle Findlay, Wellington for Wellington International Airport Ltd

Bell Gully, Auckland for Air NZ Ltd & Ors