Research and Education Advanced Network New Zealand Limited v Commerce Commission
[2018] NZHC 2724
•13 November 2018
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE
CIV-2018-485-72
[2018] NZHC 2724
BETWEEN RESEARCH AND EDUCATION ADVANCED NETWORK NEW ZEALAND LIMITED
AppellantAND
NEW ZEALAND COMMERCE COMMISSION
Respondent
Hearing: 17 July 2018 Appearances:
R H Patterson and J Hambleton for the Appellant P J Radich QC and T Mijatov for the Respondent
Judgment:
13 November 2018
JUDGMENT OF ELLIS J
(Public, redacted version)
Confidentiality
An unredacted version of this judgment (dated 19 October 2018) was distributed to counsel and the parties. Following that, REANNZ’s counsel filed a memorandum concerning the redaction of certain information contained in the judgment which are said to be confidential and commercially sensitive. With the consent of the Commerce Commission, permanent confidentiality orders have now been made in relation to that information. The effect of those orders is that none of this confidential material will be publicly available either in the content of the public version of this judgment, or by search of the Court file.
The redacted (public) version of the judgment was re-issued on 13 November 2018. Places in which redactions have been made are shown by the use of square brackets, thus: […].
RESEARCH AND EDUCATION ADVANCED NETWORK NZ LTD v NZ COMMERCE COMMISSION [2018] NZHC 2724 [13 November 2018]
[1] Research Education Advanced Network New Zealand Ltd (REANNZ) is a Crown-owned company whose purpose is to operate a specialised research and education network (the Advanced Network) on behalf of New Zealand’s research and education communities. The Advanced Network enables REANNZ members to send and receive large data sets quickly across the globe and to collaborate with other researchers and educators in New Zealand and in overseas institutions. The Advanced Network is part of a global National Research and Education Network (NREN) confederation.
[2] The only issue with which this judgment is concerned is whether REANNZ is liable to pay the Telecommunications Development Levy (TDL) which was established by an amendment in 2011 to the Telecommunications Act 2001 (the Act).1 The TDL is used by the Crown to fund telecommunications infrastructure and services which are not commercially viable, including the relay service for the deaf and hearing-impaired, broadband for rural areas, and improvements to the 111-emergency service.
[3] For present purposes, REANNZ’s liability to pay the levy turns on whether it can be said to be providing a telecommunications service by means of some component of a Public Telecommunications Network (PTN) which it operates. And s 5 of the Act defines “PTN” as:
… a network used, or intended to be used, in whole or in part, by the public for the purposes of telecommunications…
[4] In 2013 the Commerce Commission (the Commission) determined that REANNZ was a liable person for TDL purposes. The Commission has maintained that view in its determinations in subsequent years, including the year ending 30 June 2017.2 REANNZ now appeals against this latest determination.3
1 Telecommunications (TSO, Broadband, and Other Matters) Amendment Act 2011.
2 Commerce Commission Final liability allocation determination under sections 87 and 88 of the Telecommunications Act 2001 for 1 July 2016 to 30 June 2017 (7 December 2017) [2017] NZCC 28.
3 There is no dispute that if REANNZ is a liable person, it earns the minimum telecommunications revenue (through its connection with other Crown-owned companies) and is liable to pay its portion of the TDL, being $109,702.91 or about 0.22% of the overall levy for the 2016/17 year.
[5]REANNZ has appealed that determination under s 100 of the Act.
[6] Before turning to consider the relevant statutory regime, REANNZ and its interaction with the regime, it is necessary to begin by saying a little more about telecommunications generally. Because appeals under s 100 are confined to questions of law, the facts in this and other sections of this judgment are agreed between the parties.
Telecommunications generally
[7] A telecommunications network is a system made up of telecommunication links to permit telecommunication.
[8] The internet is a network of telecommunications networks whereby tens of thousands of individual/independent networks of computers and other devices owned, operated and maintained by different entities interconnect to other networks, using standard protocols such as the Internet Protocol (IP) and the Transmission Control Protocol (TCP). These protocols provide for interoperability between networks, and ensure data reach their destination.
[9] Each internet user has a unique IP address, governed by the Domain Name System (DNS) protocol. A person wishing to send or receive data from another person sends a request to that person’s IP address.
[10] A person typically sends such a request to its Retail Service Provider (RSP). The RSP’s network reads the address of the intended recipient and, through application of a routing table, identifies a communication device to which it is interconnected and which is closer to the recipient’s address than the RSP is. The packet is then passed on to that device. This process may be repeated a number of times as the packet is passed from network device to network device until it reaches its destination.
[11] The entire process is automated, and designed to find the least congested pathway to the end recipient. This means that the same pathways will not always be selected and used between the same addresses.
Overview of the TDL and the Act
[12] The TDL was established in June 2011 by the Telecommunications (TSO, Broadband, and Other Matters) Amendment Act 2011 (the Amendment Act). It replaced the Telecommunications Service Obligations (TSO) levy that previously existed under the Act.
[13] As noted earlier (and like the TSO levy before it) the TDL’s purpose is effectively to fund the subsidisation of rural and other community telecommunications facilities. Section 90 of the Act provides that the TDL may, but need not be, used at any particular time to pay for TSO charges, non-urban telecommunications infrastructure development, and upgrades to the emergency service calling system. The TDL may also be used for:4
… any other purpose that the Minister considers will facilitate the supply of certain telecommunications services to groups of end-users within New Zealand to whom those telecommunications services may not otherwise be supplied on a commercial basis or at a price that is considered by the Minister to be affordable to those groups of end-users.
[14] Under the previous TSO regime, levies were paid by anyone who interconnected to the country’s single national telephone network, then operated by Telecom. Consequently, determining liability for the levy was straightforward. But as Telecom’s network was unbundled, and as technology transitioned from telephone to broadband, the TSO regime was replaced with the new TDL regime. The new regime was intended to be technology-neutral and to focus, in an unbundled environment, on businesses generating telecommunications revenue from end-users.
[15] The Bill introducing the TDL noted that the levy would “be collected from industry participants annually and be used for the payment of TSO related compensation, non-urban telecommunications infrastructure development, and upgrades to the emergency services calling system”.5
4 Telecommunications Act 2001, s 90(1)(d).
5 Telecommunications (TSO, Broadband, and Other Matters) Amendment Bill 2010 (250-1) at 3.
[16] One of the policy objectives of the new regime was to ensure that funding was raised in a “fair, transparent and efficient manner”.6 A general taxation option was not adopted as it was considered that it would be more appropriate to recover the levy from the beneficiaries of the funded activities:7
The funding to meet these needs should be sourced from users of telecommunications services as they (rather than taxpayers generally) benefit from them.
[17] The same point was made when the Bill was introduced to the select committee before its second reading:
… as the expenditure of these funds will primarily be for the benefit of end users of telecommunications services in New Zealand, it was considered that they, rather than the general public, constituted the appropriate base for levying the TDL amounts. By adopting a proportional-revenue approach to allocating levy liabilities, the TDL minimises economic distortions and allows telecommunications service providers to pass through the costs of the TDL to end-users.
[18] The TDL was set at $50 million per annum for the 2016/2017 financial year. From the 2019/2020 year, the TDL will be reduced to $10 million, then adjusted for inflation annually thereafter.
Liability for the TDL under the Act
[19] Part 3, subpt 2 of the Act requires the Commission to apportion the TDL between all liable persons who meet the minimum telecommunications revenue, in proportion to the amount of “qualified revenue” they rear. The terms “liable person”, “minimum telecommunications” revenue, and “qualified revenue” (and associated terms) are all defined in the Act, as follows.
Liable person
[20] I have already noted above that s 5 defines a liable person as “a person who provides a telecommunications service in New Zealand by means of some component of a PTN that is operated by the person”.
6 Ministry of Economic Development Regulatory Impact Statement: Reform of the Telecommunications Service Obligation Framework and Industry Levy (23 November 2010) at [78(d)].
7 At [194].
[21] Critically, for present purposes a PTN is defined as “a network used, or intended to be used, in whole or in part, by the public for the purpose of telecommunication”, and includes a PSTN and a PDN.8
[22]As well:
(a)a “telecommunications service” means “any goods, services, equipment, and facilities that enable or facilitate telecommunication”;
(b)“telecommunication” relevantly means:
… the conveyance by electromagnetic means from one device to another of any encrypted or non-encrypted sign, signal, impulse, writing, image, sound, instruction, information, or intelligence of any nature, whether for the information of any person using the device or not;
(c)“network” means “a system comprising telecommunication links to permit telecommunication”; and
(d)“telecommunication link” means “any line, radio frequency, or other medium used for telecommunication”.
Minimum telecommunications revenue
[23] The Act does not apply to a liable person in the case of a particular financial year if the person was not trading in the preceding financial year, or if the person's telecommunications revenue for the preceding financial year was less than the minimum telecommunications revenue.9
8 A PSTN or public switched telephone network means “a dial-up telephone network used, or intended for use, in whole or in part, by the public for the purposes of providing telecommunication between telephone devices” and a PDN or public data network means “a data network used, or intended for use, in whole or in part, by the public”.
9 Telecommunications Act, s 81(1)(a) and (b).
[24] Under s 80, “minimum telecommunications revenue” is relevantly defined as “$10 million ... of gross revenue ... that a liable person receives during a financial year for supplying” various listed telecommunications services.10
[25] Section 79(1) provides that more than one potentially liable persons “must be treated as 1 person” where they are interconnected bodies corporate. This provision applies (inter alia) where one of the bodies corporate is a subsidiary of the other, all are associates of each other, or there is common shareholding as described in the section.11
Calculation of qualified revenue
[26] The Commission is required to calculate each liable person’s qualified revenue. Qualified revenue is defined in s 5 in terms which enable the Commission to set specifications for the calculation of qualified revenue. The Commission has set specifications for the calculation of that revenue.
[27] The Commission may require a potentially liable person to provide it with financial statements and further information.12 Parties may correspond with the Commission, and must comply with any requirements to provide information.
REANNZ
[28] REANNZ was formed in 2005 as a Crown-owed Company. Its shareholders are the Minister of Finance and Minister of Science, Research and Innovation, who hold the shares on behalf of the public. REANNZ now receives approximately
$4 million in public funding each year.13 It is subject to the Public Finance Act 1989.
10 Namely “telecommunication services by means of its PTN” and “telecommunications services by means that rely primarily on the existence of its PTN or any other PTN”.
11 It is because of its common Ministerial shareholdings with Kordia, Northpower, and Transpower, that REANNZ is to be treated as having received more than $10 million of such revenue.
12 Telecommunications Act, s 81(2).
13 This figure was put at $3 million in the agreed statement of facts.
REANNZ’s purpose
[29] Clause 6 of the REANNZ Constitution states that the purpose of the company is to “establish and operate the Advanced Network in order to promote education, research and innovation for the benefit of New Zealand”. The “Advanced Network” is defined in the REANNZ Constitution to mean:
… the New Zealand research and education network that provides research and education users with high speed, wide bandwidth, and domestic and international connections to enable new forms of research and new research collaborations.
[30]REANNZ’s Constitution states that its other related purposes are to:
·operate in a financially sustainable manner and manage foreseeable upgrades and increases in Advanced Network capacity through the accumulation of reserves;
·establish and operate the Company in such a way that it:
- enables leading-edge e-research;
- facilitates universal connectivity throughout the New Zealand and international research and education community;
- encourages broad participation by the research and education sector in New Zealand through accessible technology and cost-effective pricing;
- connects the research and education sector to the broader innovation sector for pre-commercial, research-based collaboration;
- facilitates participation by multiple telecommunications-sector partners so as to ensure the greatest possible flexibility for on-going evolution; and
·endeavour to obtain a commitment from users of the Advanced Network (for example, Tertiary Education Institutions and Crown Research Institutes) to acquire the Crown’s shares in the Company within a reasonable timeframe.
[31] Membership of REANNZ is limited to education, research and innovation organisations, and businesses that support them. These include New Zealand universities, polytechnics, wananga, Crown Research Institutes and innovation businesses. As at 31 December 2017, REANNZ had 46 members.
[32] Eligible organisations wishing to become members must apply and be approved for membership.
The REANNZ network
[33] As just noted, REANNZ’s principal purpose is to own and operate the Advanced Network. The Advanced Network is a high-performance research and education network to provide data services to New Zealand’s research and education communities, supporting the worldwide exchange of data between researchers, educators and innovators, and providing an “international express-path for science research and education”. The REANNZ network is specifically designed for “big data” and most members are connected at 10Gbps to the REANNZ network.
[34] The network runs from Invercargill to Warkworth. It connects New Zealand research, education and innovation organisations with each other, and to the rest of the world.
[35] The REANNZ network has 26 Points of Presence (PoPs) in New Zealand. A PoP is a point on the network where equipment is located which allows REANNZ members to connect to it. In Auckland, Hamilton, Palmerston North, Wellington and Christchurch the PoPs are also connected to the internet through interconnection links provided by third parties, including Vodafone and Vocus. In Auckland, the network is linked to international gateways via Australia to the west and the United States to the east. International internet traffic is handed over to a third-party provider at one of the demarcation points between the REANNZ network and public networks in Australia and the United States.
REANNZ’s services
[36] Once approved for membership of REANNZ, a member’s premises must be connected to the nearest REANNZ PoP. REANNZ members are connected to a REANNZ PoP by a link provided by a third party provider, and either operated for the member by that third party directly or by REANNZ (who buys the link from the third party).
[37] Members must also obtain a REANNZ specific IPv4 address to access the REANNZ Network. [................................................................................................................... ].
[38] REANNZ provides two categories of network connectivity services to its members:
(a)access to the REANNZ network to connect with other REANNZ members in New Zealand and, through REANNZ’s international links, with research and education organisations throughout the world (the Research and Education Service). This service is funded by an annual membership fee that REANNZ charges its members; and
(b)an optional additional service providing domestic and international internet connectivity between the REANNZ network and public networks via interconnection links provided by third party providers (the Internet Connectivity Service). [.............................................................................................................. ].
[39] Typically, REANNZ members (who are organisations) make network connectivity available to individuals (authorised individuals). But through its contract with members, REANNZ restricts those individuals who can have access to the REANNZ network. For example, universities, polytechnics, or institutes of technology who are REANNZ members can only make access to REANNZ’s network available to their students, staff and permitted guests on campus. REANNZ members are not permitted to on-sell access to the REANNZ network.
[40] Some REANNZ members are also part of eduroam™ (education roaming) which allows students, researchers and staff from participating institutions world-wide to access that participating institution’s internet services, via an approved identity credential which is associated with the roaming user. This replaces the need for “guest wifi access”. The internet service used by the roaming user will be whoever is providing internet to the participating institution, ie the REANNZ network may be used if the institution has REANNZ internet services, or another RSP may be used.
[41] Once a member has connected its network to the REANNZ network, the REANNZ network then enables collaboration between any REANNZ members by allowing the exchange of traffic between the two parties. Such traffic never leaves the REANNZ network.
[42] In order for REANNZ members and authorised individuals to collaborate and exchange traffic with parties who are not members of REANNZ (or individuals to whom members make access available), the REANNZ network is interconnected with the public internet in a limited number of locations. This is typically enabled through an “Internet Exchange” - a facility operated by third parties that enables the exchange of traffic between anyone connected to the exchange. The REANNZ network is interconnected through these exchanges with other parties such as commercial ISPs.
[43] The interconnection at these points is for the benefit of REANNZ members (and authorised persons). At no point can traffic be exchanged between two parties who are not members of REANNZ (or authorised persons) using the REANNZ network itself. For example, traffic can flow between the REANNZ Member 1 and customers of ISP1, but traffic between ISP1 and another ISP cannot flow via the REANNZ network. But if a member of the public visits an internet site hosted by a REANNZ member and that member takes the Internet Connectivity Service, the internet traffic may enter, travel across the REANNZ network and terminate at a member’s server. That member’s server will then send a response back to the person who made the request of the server (such traffic is referred to below as “other internet traffic”.)
[44]As noted earlier, the Internet Connectivity Service is optional. So:
(a)some REANNZ members acquire all their internet services directly from an RSP, in which case other internet traffic will not travel across the REANNZ network;
(b)some members take the Internet Connectivity Service, but also acquire internet services directly from an RSP, in which case other internet traffic may or may not travel across the REANNZ network;
(c)some members use the Internet Connectivity Service for all their internet requirements, in which case other internet traffic will travel across the REANNZ network.
REANNZ’s fees and funding
[45] The cost of building and operating the REANNZ network is funded by government grant [ ].
[46] Each REANNZ member pays an annual membership fee for use of the REANNZ network. [ ]:
(a) [............................................................................................................ ].
(b) [............................................................................................................ ].
(c) [........................................................................................................... ].
[47]
[……………………………………………………………………………..].14
[48] […………………………………………………………………………….].
[49] REANNZ earned fees of $1,448,961 from providing international Internet Connectivity Services during the 2016/2017 financial year. The Research and Education Service is the major source of REANNZ’s income and paid approximately
$7,854,860 in membership fees during the 2016/2017 financial year.
REANNZ’s assessment as a liable person
[50] The Amendment Act provided for the transition from the TSO regime to the TDL regime for the 2010/2011 financial year (the first year of the TDL’s operation). Under the transitional provisions, only Telecom and persons identified as liable
14 […………………………………………………………………………………………………..].
persons in the Commission's TSO cost allocation determination for the financial year ended 30 June 2010 were liable persons for the transitional year.15
[51] In April 2012, the Commission issued a discussion document entitled “Draft Notification of Potential Liability for the Telecommunications Development Levy 2012”. It contained the Commission’s preliminary views on liability for the TDL but sought further submissions. REANNZ was not identified as a liable person. In its discussion of the ambit of the statutory definition in s 5 of the Act the Commission stated:16
68. The Act requires that the network be a ‘public’ telecommunications network, that is, it must be used, and intended for use, by the public.
69 There was little in the way of direct submissions on this subject, but a number of positions put forward in submissions by necessity turn on the definition of public and private.
…
71.The Commission's view is that there is there is a demarcation point between the public and private sides of a PTN. For example, customer premises equipment (CPE) is located on the private side of a network
- it needs to be connected to the PTN in order for the end-user to obtain telecommunications services, but the CPE itself is not a “component of a PTN” as it is not a public component of the network.
72.In addition, the use of the network must not be proprietary to a single party. For example, networks used by emergency services are clearly not intended for use by the public, and are therefore not a PTN. There must be means by which a member of the public (used in a broad sense, but not necessarily including every possible member of the public) can feasibly obtain access to the network and use it to communicate with other persons.
73.Consequently, equipment in private networks that enable an end-user to make use of a PTN (be it an individual or web site or content provider) is not a component of the public telecommunications network. Consequently, a phone, fax machine, personal wi-fi hotspot, web server, or a network of content servers, such as a CON (content delivery network), are not components of a PTN.
74.The Commission therefore considers that Sky, when making available its content on a server (either owned and controlled by Sky, or managed on its behalf by a third party), is not operating a public component of the PTN, and is therefore not on this basis a liable
15 REANNZ could not, therefore, have been assessed as a liable person in the first year of the TDL’s operation.
16 Commerce Commission Draft Notification of Potential Liability for the Telecommunications Development Levy 2012 (19 April 2012) at 68 – 69 and 71 – 54 (emphasis added).
person. The service is in effect one of the devices between which telecommunications are conveyed.
[52] In July 2012, the Commission issued a document entitled “Notification of Potential Liability for the Telecommunications Development Levy 2012”. Under the heading “A public versus private demarcation point is still appropriate”, the Commission essentially repeated the views expressed at paragraphs 71 – 73 of the April document, which I have set out above.17
[53] REANNZ was not identified as a “liable person” in that document and therefore (as I understand it) did not therefore receive a copy of the notification until January 2013, when it was sent a “Notice to Supply Information” issued by the Commission.18 The purpose of the Notice was to “source information” to determine the amount of the 2011/12 TDL the recipient was liable to pay.
[54] Receipt of the Notice prompted a response from REANNZ’s Corporate and Finance Manager stating that while REANNZ would supply the financial information that had been requested, it had not been previously notified of liability and so had not had the opportunity to consider its position. She said that the provision of the information sought:19
… should not be read as an admission by REANNZ that it is a liable person. REANNZ may seek to challenge whether it is a liable person should it be subject to a levy that materially affects its business.
[55] On 27 June 2013, the Commission issued a liability allocation determination for the TDL for 1 July 2011 to 30 June 2012. REANNZ was named as a liable party. Under the heading “Terminology” it stated:20
20.Following submissions on the February 2012 discussion document, we clarified who was a liable person (or potentially liable person) in our July 2012 notification. A service provider is a potentially liable person for the purpose of the TDL if it:
17 Commerce Commission Notification of Potential Liability for the Telecommunications Levy 2012
(24 July 2012) at [52] – [57].
18 Under s 15(f) of the Telecommunications Act and s 98 of the Commerce Act 1986.
19 Emphasis in original.
20 Commerce Commission Liability allocation determination for the Telecommunications Development Levy for 1 July 2011 to 30 June 2012 (27 June 2012) at [20].
20.1provides a telecommunications service, which may include the transmission of voice, data, SMS, or any other content but excludes broadcasting (ie, the transmission of programmes for the reception by the public);
20.2provides the telecommunications service in New Zealand;
20.3operates a component of the PTN over which the telecommunications service is provided;
20.4operates a component of a PTN that falls within the public side of the network demarcation point – the component must be operated by the service provider, not a third party; and
20.5operates a network that is publicly available, ie, not limited to private use.
[56] And later, under the heading “Private versus public telecommunications network”, the Commission stated:21
148.As per our qualified revenue notice, we consider that revenue earned from operating a physically private telecommunications network is not qualified revenue. This is because, and only when, the private network is not physically able to connect to another telecommunications network, and therefore is not part of the PTN.
149.We consider that if the network is physically capable of being accessed by the public for any purpose (even private uses of the public network) then revenue that the qualifying liable person derives from providing the services by means of a PTN (or that rely primarily on the existence of a PTN) is qualified revenue.
150.This means that the qualifying liable persons do not need to know (or incur the costs of knowing) how their clients use the services they provide. If the qualifying liable person derives revenue from providing telecommunications services over a publicly accessible telecommunications network, then it is qualified revenue.
…
[57] Identical reasoning was repeated in the determinations for subsequent years, including in the determination that is the subject of the present appeal. Over time, however, the amount of qualified revenue earned by REANNZ and so its assessed share of the TDL has increased. What began as a more or less de minimis TDL liability has become more substantial.22 This can be seen from the following comparison:
21 Emphasis added.
22 Although no formal steps have previously been taken to appeal earlier determinations, as discussed below, REANNZ did reserve its position when it was first advised of its liability in January 2013.
(a)in the 2011/2012 year REANNZ was assessed as having $2,407,000 qualified revenue, which required it to pay $27,51.51 towards the TDL; but
(b)in the 2016/2017 year REANNZ was assessed as having $9,327,000 qualified revenue, which required it to pay $109,702.91 towards the TDL.
The appeal
[58] As noted earlier, the only issue raised by the appeal is whether the Commission was right to assess REANNZ as a liable person in terms of the TDL and, more particularly, whether it was correct to conclude that REANNZ provides a telecommunications service by means of some component of a PTN that it operates. There is no dispute that that issue turns solely on the proper interpretation and application of the definition of “PTN” which, to reiterate for convenience, is:23
… a network used, or intended to be used, in whole or in part, by the public for the purposes of telecommunications…
[59] It may be observed at the outset that while the determination under appeal does address these interpretive issues in a generalised way, it is not clear on the face of the document precisely how the Commission then applied those terms to the particular facts and circumstances relating to REANNZ. Neither REANNZ nor any other liable person is the subject of discrete consideration in the determination.24
[60] As I understand it, the Commission now says that this eligibility criterion is satisfied because:
(a)REANNZ’s network is available to and is used by its members (and their approved users) who comprise a segment of the public that is sufficiently broad to constitute “the public” for the purposes of the critical PTN definition; but in any event
23 Telecommunications Act, s 5.
24 I hasten to add that this is not a criticism of the determination but merely a function of it.
(b)in some situations, any member of the public is able to access websites that are hosted by some REANNZ members and when they do so, data is transmitted across REANNZ’s network. This means that REANNZ’s network is used, in part, by the public for the purpose of telecommunication; and
(c)the REANNZ network provides connectivity to the internet, substituting, in the hands of users, a TDL-liable service provided by another ISP.
[61]I consider each contention in turn.
Does use by REANNZ members and approved users constitute use by “the public”?
[62] As Mr Radich QC said, the meaning of the term “the public” must be ascertained from the statutory text and in the light of its purpose.25 The word “public” is not defined in the Act and it has not (in the context of the Act) been the subject of judicial consideration.
[63] I was, nonetheless, referred to a number of authorities in which the ambit of the term (or of similar words) has been considered. What is clear is that its meaning is highly fact specific and that context is everything. For that reason, I mention only a few of the decisions of them here:
[64] First, in Geo Henderson Ltd v Assessor for Dumfries and Galloway the question (in a ratings context) was whether a tractor repair shop was a “retail shop” which, at common law, meant premises that “are premises to which the public can resort for the purpose of having particular wants supplied and services rendered therein”.26 The Court held that “the public”:27
... does not mean the public at large at all. There are very few premises of the nature of a retail shop which invite the public at large to resort to them. What they do is to invite such members of the public as are seeking the goods they
25 Interpretation Act 1999, s 5(1).
26 Geo Henderson Ltd v Dumfries and Galloway Assessor [1962] SLT 301 (LVAC) (emphasis added).
27 At 303.
supply or the services they render to resort to them for the purchase of such goods or the supply of such services. I read the word “public” in this connection as meaning anyone who wants the type of article sold in the shop or the type of repair provided on the premises.
[65] It may usefully be observed that the relevant choice here was a choice made by customers (ie members of the public) to seek out and avail themselves of the services offered by the shop; it was not the shop owner that dictated the relationship and controlled use.
[66] Next there is R v Waters, in which the Court of Criminal Appeal (United Kingdom) held that a privately owned car park restricted to customers of a hotel but which was used also as a layby by the public was a public place.28 That decision seems primarily notable as a demonstration that the facts of the matter are controlling. The fact of public use overrode any restriction on entry purportedly imposed by the owner of the layby.
[67] Thirdly, there is the decision of the full Victorian Supreme Court in Re Income Tax Acts.29 There, the issue was whether a benevolent asylum to which only Freemasons and their wives and widows were eligible for admission was a “public benevolent asylum”,
[68]In holding that it was not, Macfarlan J said:30
The authorities, I think, bring out what is after all merely a matter of English- that “the public” does not mean necessarily the whole community. “Public” may mean a section of the community, that is, a section of the “public” in the larger sense. What is meant by a section of the public? Now in one sense every considerable body or collection of persons in a community is a section of the public, a section of the community. But many of such bodies are neither public nor a section of the public in the sense intended by the authorities. The exact discrimen may be difficult to formulate, and is best brought out by an illustration. Seamen are a section of the public whereas the Seamen's Union is not. Any member of the community who happens to have the necessary natural qualification may become a seaman, but before he can become a member of the Union he must obtain the consent of the Union. … There are cases of greater difficulty. For example, the members of Gray’s Inn might not constitute a section of the public, whereas all barristers might, although ultimately the right to be called to the bar might only be obtained by enrolment in an Inn or similar institution. It may be that the common characteristic of the
28 R v Waters (1963) 47 Cr App R 149.
29 Re Income Tax Acts (No 1) [1930] VLR 211, (1930) 36 ALR 192 (VSC).
30 At 216.
sections of the community which can properly be described as “sections of the public” in the relevant sense is, roughly speaking, that the right to membership of, or inclusion in them depends only on the possession of natural attributes or attributes, which any member of the community may acquire, and does not depend on the consent of the other members of that section. What is clear is that, generally speaking, if admission to membership of a body or inclusion in a class depends on the consent of the other members or of some of the members (eg a committee) of the body or class it is not “a section of the public” in the relevant sense of the term: and I prefer to express it in that negative form.
[69]Lowe J made a similar point:31
Having regard to the composition of the public, certain large groups may readily be recognized, the members of which have a common calling or adhere to a particular faith or reside in a particular geographical area. There is no bar which admits some members of the public to those groups and rejects others. Any member of the public may, if he will, follow a particular calling, adhere to a particular faith, or reside within a particular area. Of the members of such a group it may be said in a real sense that they are primarily members of the public, and such a group may well constitute a section of the public. They stand on one side of the line. Each group, it is true, may consist of many individuals, but number alone is not the criterion by which to determine whether the group constitutes a section of the public. A club, a literary society, a trade union may all have numerous members, but I think that none of these could properly be called a section of the public. They stand on the other side of the line. The distinguishing feature of each of these latter bodies is that it is an association which takes power to itself to admit or exclude members of the public according to some arbitrary test which it sets up in its rules or otherwise. Each of them does oppose a bar to admission within it. It is not one of the groups into which the community as a matter of necessary organization or by convention is divided, but it is in a sense an artificial entity which exists for the benefit of its members as members thereof and not as members of the public.
[70] In light of these cases, therefore, it seems to me that whether or not “the public” can be interpreted to mean just one section of the wider community may well depend on whether:
(a)it is the service provider (for want of a better generic term) who controls the class of persons who may use the relevant service, by way of the imposition of some mandatory and limiting group purpose or member characteristic; or
31 At 222 - 223.
(b)the members of the group/users of the service are essentially “self-selecting” in that they can choose whether to avail themselves of the service or not.
[71] In the present case, Mr Radich QC submitted for the Commission that, unlike the Freemasons in Re Income Tax, REANNZ’s members and authorised users share no discrete common purpose. But I am unable to agree with that proposition. It seems to me that the Constitution of REANNZ and the express objects of the Advanced Network (which is the relevant service) evidence just such a purpose.32 That purpose is the provision of high speed, wide bandwidth domestic and international connections to research and education users in order to facilitate new forms of research and new research collaborations.
[72] Not only is the REANNZ network’s specific aim of facilitating research and research collaboration not shared by “ordinary” RSPs (retail providers of network services) such as Vodafone and 2degrees, but the service provided by the REANNZ network is materially different from the services provided by those other providers. More particularly the speed and bandwidth of the REANNZ network is deliberately superior to that offered by other providers, for reasons intrinsically linked to its specific purpose. It may also be observed that general internet connectivity cannot fairly be said to be the principal aim of the REANNZ network. These differences (and REANNZ’s discrete purpose) are further underscored by the fact that REANNZ does not have a commercial/profit focus and, indeed, is partly funded by the Crown.
[73] Relatedly, the REANNZ network is designed for use by a specific and identifiable group of individuals and/or entities, and access to the network is limited to such a specific and identifiable group. Thus:
(a)the REANNZ Network is a “members only” network (it has 46 members);
32 While I accept that the network is (sometimes) used for the ancillary purpose of accessing the internet, that is not its principal purpose and, more importantly, nor is it something that the network can, by and of itself, achieve.
(b)members must be part of a defined class with particular characteristics (the New Zealand research, education and innovation sector);
(c)REANNZ must approve an entity for membership; and
(d)any passing on of access to the Network by members (to authorised persons) must be within approved parameters (consistent with network’s principal purpose) and is to a defined class of people.
[74] By contrast, access to the telecommunications services offered by the “ordinary” commercial network/service providers are open essentially to all, subject only to having the means to pay and entry into and compliance with standard form contracts. While access to their networks are limited to those customers who are willing to pay and meet other generic criteria for access, almost anyone in New Zealand can access the Vodafone or 2degrees networks if they have the means and choose to do so. So while it is correct to say (as the Commission does) that every liable person listed by the Commission in its final liability determination limits their users in some way, for example, by requiring customers to enter into a contract or pay for services, the relevant choice remains (almost exclusively) with the customers. As I have said, that appears to me to be the signal distinguishing characteristic arising from the cases discussed above.
[75] Again, the above is underscored by the fact that the REANNZ network is not physically accessible by members of the public generally. Only members (or their approved users) are able to physically access (and use) the REANNZ Network and, as noted earlier, access is predicated on the member arranging a physical interconnection at one of the REANNZ Network’s PoPs and funding the network connection from its site. There is no means by which a member of the public can feasibly obtain access to the REANNZ Network to communicate with other persons.
Does access by the (wider) public to websites that are hosted by REANNZ members and the transmission of data across the network constitute “use” by the public?
[76] It is accepted that, as made clear at [44] above, traffic on the REANNZ Network may in some cases originate on a public network from a member of the public
who is not a REANNZ member (or authorised user). But I agree with Mr Patterson that this does not constitute use or intended use “by the public” of the REANNZ network in the required sense. I agree that “use” of a network here must mean direct and intentional use, not indirect and accidental use that is a consequence of happenstance.33 That an element of intention is required seems to me to be inherent in the idea that the relevant use must be “for the purpose” of telecommunication. The routing of internet traffic over an interconnected network to reach its termination point cannot constitute “use” by the public of that network here. Moreover, the fact that such incidental “users” would (and could) not be charged by REANNZ for such “use” seems to run contrary to the legislative purpose noted at [15] – [17] above, namely that it was intended that service providers would pass on the costs of the TDL to end-users.
Does the fact that the REANNZ network provides connectivity to the internet make REANNZ a liable person?
[77] In my view, the answer to this question must be “no”. A network is only a PTN if the network itself can be used or is intended to be used by the public. A network’s capability to connect to another network that is itself a PTN does not suffice. Such connectivity does not make an otherwise private network a “component of” that PTN. I agree with Mr Patterson that, if it were otherwise, the word “public” would be redundant, because any private network (such as a company’s Local Area Network) would then (by virtue of its interconnection) become a public network. Moreover, that result would be inconsistent with the Commission’s own statements (quoted above) that there must be a demarcation point between those components that are part of a PTN and those that are not.
[78] Although REANNZ members can acquire Internet Connectivity Services from REANNZ, the relevant component or interconnection point is operated by other service providers and REANNZ has no control over the interconnection point. There are clear demarcation points between the REANNZ network and the public networks to which it is interconnected. The Commission has (in the documents discussed earlier) expressly recognised that such demarcation points must exist. And here, all
33 As explained at [10] and [11] above.
network components of the public side of those demarcation points are operated by the third-party telecommunications provider of those links, not by REANNZ.
The legislative purpose
[79] Lastly, I record that although both the REANNZ and the Commission submitted that the context and purpose of the TDL regime supported their positions, I have (unusually) found that to be of marginal assistance. It seems to me that the most that can be said is that:
(a)it is the object of the TDL that the beneficiaries of the TDL funded services (who seem to have been regarded as synonymous with the users of telecommunications services) provide the funding of those services; and
(b)that is achieved by collecting the levy from the providers of telecommunications services with qualifying revenue who will pass the cost onto their customers.34
[80]As I understand it, however:
(a)those members of REANNZ who provide an Internet Connectivity Service will be contributing to the levy by way of payment made to the third party providers who makes that connectivity possible; and
(b)those individuals who are authorised to use the REANNZ network by a REANNZ member will also almost certainly be separately contributing to the levy by way of payments made under their own contracts with an ISP (for access to domestic broadband).
[81] Beyond those simple points there is an element of randomness inherent in the TDL regime because telecommunications service providers who otherwise meet the definition of “liable person” (in that they provide the service by means of a PTN or a
34 A point I have found of some interpretive assistance at [76] above.
component of a PTN that they operate) will not be caught if their qualifying revenue is less than the $10 million cap. Members of the public who receive telecommunications services from those providers will not be contributing to the TDL. Moreover, the fact that REANNZ has qualifying revenue over that amount is only by virtue of its common shareholding (the reasons for which have nothing to do with the TDL).
[82] I am therefore unable to see that the “purpose” of the TDL is undermined by a conclusion that REANNZ is not a “liable person”.
Conclusion
[83] For the reasons I have given, I consider that REANNZ is not a “liable person” in terms of s 5 of the Act. The appeal is allowed accordingly.
[84] Mr Patterson asked to be heard on costs, which would ordinarily be on a 2B basis. But if agreement between counsel cannot be reached, memoranda may be submitted.
Rebecca Ellis J
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