Wool Board Disestablishment Co Ltd v Saxmere Co Ltd
[2010] NZCA 513
•17 November 2010
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IN THE COURT OF APPEAL OF NEW ZEALAND
CA784/2009
[2010] NZCA 513BETWEENWOOL BOARD DISESTABLISHMENT COMPANY LIMITED
Appellant
ANDSAXMERE COMPANY LIMITED
First RespondentANDTHE ESCORIAL COMPANY LIMITED
Second RespondentANDRICHARD KING
Third RespondentANDRUSSELL STEWART EMMERSON AND FOREST RANGE LIMITED
Fourth Respondents
Hearing:30 June - 1 July 2010
Court:Hammond, Chambers and Ellen France JJ
Counsel:J S Kos QC, D H McLellan and J L Bates for Appellant
S J Grey and L M Ritchie for Respondents
Judgment:17 November 2010 at 10 am
JUDGMENT OF THE COURT
A The appeal is allowed.
B The cross-appeal is dismissed.
C The declarations made in the High Court are quashed.
DThe finding that the appellant was liable in damages for breach of statutory duty and in negligence is quashed.
E The finding that the respondents were entitled to costs in the High Court is quashed. Costs in the High Court are remitted to that Court for consideration by it in light of this Court’s judgment.
F In respect of costs in this Court, the respondents must pay to the appellant costs for a complex appeal on a 2B basis with usual disbursements. We certify for second counsel. The respondents’ liability is joint and several.
REASONS
Hammond J (dissenting in part) [1]
Ellen France J [214]
Chambers J [242]HAMMOND J
Table of Contents
Para No
Introduction [1]
A fresh appeal is ordered [4]
The status of the prior judgment of this Court [9]
Factual background
Introduction [15]
The wool industry in New Zealand [16]
Wool marketing in New Zealand [19]
Saxon sheep and the promotion of Saxon wool [22]
The central complaint [29]
The relevant legislation
Prior to the Wool Board Act 1997 [30]
The Wool Board Act 1997 [49]
Saxmere’s administrative law claims, in broad terms [60]
The first challenged decision: the Merino New Zealand decision [62]
The second challenged decision: the May 1998 decision [65]
The third challenged decision: the capitalisation decision [69]
A fourth challenged decision: retrospective funding [72]
An obliquely challenged decision: November 1998 [73]
The Merino New Zealand decision [74]
Factual context [75]
The impugned decision [80]
Was the decision lawful?
(i) Introduction [84]
(ii) The plaintiffs’ submissions in the High Court [86]
(iii) The defendant’s submissions in the High Court [93]
(iv) The High Court Judge’s treatment of the construction of s 6(6) [97]
(v) The first appeal [101]
(vi) The Supreme Court [105]
(vii) Summarising the competing arguments [106]
Evaluation of the construction arguments(i) Who is to decide? [113]
(ii) The proper construction and its application [119]
(iii) Relief [138]
The May 1998 decision
The factual context [146]
A lawful decision? [152]
Relief [161]
The capitalisation decision [162]
The lawfulness of the decision [166]
A summary on the public law claims [170]
Restitution of levies [174]
Breach of statutory duty [182]
Negligence [194]
Some points in response [200]
The proper approach to s 6 [201]
The Merino New Zealand decision [205]
The May 1998 decision [206]
The capitalisation decision [208]
Conclusion [209]Introduction
[1] Saxmere Company Ltd, and the other respondents, produce and market super-fine wool.[1] They claimed that the appellant, the Wool Board Disestablishment Company Ltd as statutory successor to the Wool Board,[2] acted unlawfully when declining certain applications of theirs to the Board in the late 1990s and early 2000s for assistance in promoting and marketing their wool.
[1] I refer to the respondents compendiously as Saxmere.
[2] I refer to the appellant as the Board.
[2] Their proceeding, commenced on 17 December 2003, came to trial in the High Court in August and November of 2005. In the result, Miller J substantially agreed with the respondents’ claims.[3] The Judge held that the Board failed to comply with certain provisions of the Wool Board Act 1997 (the 1997 Act), in two respects. The Judge did not agree that certain other alleged breaches of the 1997 Act had been made out. He declined an application by the respondents for restitution of levies paid by them to the Board. The Judge further held that the Board was liable in damages for breach of statutory duty and in negligence to the respondents. That liability was limited to certain periods of time; to certain growers; and the question of what damages were payable was to be ascertained at a subsequent hearing of the Court.[4]
[3]Saxmere Company Ltd v The Wool Board Disestablishment Company Ltd HC Wellington CIV- 485-2003-2724, 6 December 2005.
[4]A judgment was not sealed in the High Court until 22 June 2010. This panel insisted that a judgment be sealed, prior to the hearing of this appeal.
[3] Neither party was satisfied with the decision of the High Court. The Board appealed on 22 December 2005. By its notice of appeal it contends that the Judge was wrong to have found any liability on its part. The Saxmere interests cross-appealed on 26 January 2006, broadly on the footing that the High Court findings as to liability had not gone far enough.
A fresh appeal is ordered
[4] The appeal to this Court (to which we will refer, to the extent we need to refer to it, as “the first appeal”) was heard in April 2007. In August 2007 this Court delivered a judgment allowing that appeal, dismissing the cross-appeal, and setting aside all the orders made by the High Court.[5]
[5]Wool Board Disestablishment Company Ltd v Saxmere Company Ltd [2007] NZCA 349.
[5] On 12 November 2007 the Supreme Court of New Zealand dismissed an application for leave to appeal to that Court from the decision of this Court on the first appeal.[6]
[6] Saxmere Company Ltd v Wool Board Disestablishment Company Ltd [2007] NZSC 88.
[6] Subsequently the Supreme Court, after certain recusal proceedings which we need not detail here, directed that “[the appeal be] remitted for [re]hearing in the Court of Appeal by a new panel of Judges”.[7]
[7]Saxmere Company Ltd v Wool Board Disestablishment Company Ltd [2009] NZSC 122, [2010] 1 NZLR 76 at [20].
[7] None of the Judges on this panel has had any prior involvement in any aspect of this litigation. This panel was formed by selecting in order of seniority from those Judges of this Court who were available to sit.
[8] It is convenient to record here that counsel accepted that the hearing before us was by way of rehearing. That is, the rehearing was on the record of evidence taken in the High Court; and the pleadings on which the case went to trial. Counsel further accepted that the law to be applied on the rehearing is as it stands at the date of the hearing before us.[8] Although in the run up to the rehearing certain applications were made for the Saxmere interests for the admission of further evidence, those applications were subsequently abandoned.
The status of the prior judgment of this Court
[8] See Pratt v Wanganui Education Board [1977] 1 NZLR 476 (SC).
[9] There is an issue as to how far, if at all, this panel can look at what has previously fallen from this Court on the first appeal, or for that matter from the Supreme Court in proceedings subsequent to that.
[10] When the panel was first assigned to this appeal and began to case-manage it, we did not read the prior judgment of this Court as part of our preparation. We did not then find it necessary. We advised counsel that we did not propose to read that judgment without first hearing from them on this issue. We later indicated to counsel that we wished to hear from them on this issue and we did so, at the outset of the oral hearing.
[11] We accept that we are charged with reaching a fully independent view of the matters which fall for our determination. That may suggest that as a prudential measure we should not look at the judgment of this Court on the first appeal. It might be argued that to do so could lead to the first appeal unduly influencing this panel in some way. And perhaps equally important, in the context of this appeal in particular, to do so might be said to give rise to the impression (even if wrongly founded) that the panel was so influenced.
[12] On the other hand, the crux of the case involves questions of statutory construction. The essential questions are, “what were the statutory obligations of the Board?” And, “were they observed?” For the panel not to know why the previous panel took the view of the legislation it did would be to deprive the panel of one source of insight into the problems it has to confront. Professional judges routinely have to look at the work of other judges and ask themselves whether that is the view they take of the relevant legislation. There is nothing unusual about such an enterprise. Then too an appropriate measure of judicial humility is required. If there is something in the prior judgment which strikes the panel as being compelling then it would be thoroughly unfortunate for this panel not to know about that argument, or even to overlook it. And finally, if there were arguments that commended themselves to the panel on the first appeal, it seems inconceivable that those arguments would not have been picked up and advanced by counsel before us. The precise terms in which those arguments have been put might turn out to be important. Recourse to the prior judgment may assist this panel in better understanding the subtleties of the arguments advanced.
[13] As to any prior authority on this issue, in R v Bow Street Metropolitan Stipendiary Magistrate, Ex parte Pinochet Ugarte (No 3)[9] (another case of a rehearing after a recusal problem) the House of Lords thought it to be the proper practice for the new panel to consider and refer to the earlier decision. Several of their Lordships, none of whom had sat in the earlier (No 1) decision,[10] referred to
that decision in giving their reasons in the subsequent case.[11]
[9]R v Bow Street Metropolitan Stipendiary Magistrate, Ex parte Pinochet Ugarte (No 3) [2000] 1 AC 147 (HL).
[10]R v Bow Street Metropolitan Stipendiary Magistrate, Ex parte Pinochet Ugarte [2000] 1 AC 61 (HL).
[11]As only some examples see Lord Browne-Wilkinson at 200 referring to Lord Slynn’s dissenting speech; likewise the Senior Law Lord referred to Lord Lloyd’s dissenting speech at 194 and Lord Nicholls’ speech at 206. Lord Hope referred to Lord Steyn’s prior speech at 242. The report of counsel’s speeches at 152-188 also suggests that counsel had proceeded on the basis that it was proper to refer to the earlier judgment.
[14] We therefore indicated to counsel that to the extent that we might find it appropriate, we propose to look at the prior judgment, though whatever weight we give to the particular point at issue is entirely a matter for this panel.
Factual background
Introduction
[15] To understand how this proceeding came about it is necessary to first say something of the wool industry in New Zealand and the challenges it has faced. These triggered the events which came to trial. It is also necessary to say something about the Saxon sheep which the Saxmere interests promote.
The wool industry in New Zealand
[16] For much of its history New Zealand has, not inappropriately, been described as living on the sheep’s back. Timber, whaling and sealing were the earliest export industries in this country. But from the 1850s sheep drove the New Zealand economy. First it was wool, on its own. But then after the refrigerated cargo revolution of the 1880s meat joined wool to form an industry that produced well over half of the country’s export earnings until late in the twentieth century. And wool was the senior partner. According to one standard reference work, it produced almost 90 per cent of the country’s total export income in 1860 and as late as the 1950s it was still producing two thirds of New Zealand’s export earnings.[12]
[12]Bill Carter and John MacGibbon Wool: A History of New Zealand’s Wool Industry (Ngaio Press, Wellington, 2003) at Introduction.
[17] The last quarter century has been a turbulent period for the wool industry. Sheep numbers have declined dramatically. In 1948 soldiers on rehabilitation blocks could earn a living with 600 breeding ewes. Sheep farms today have upwards of
3,000 sheep and concentration of landholdings has gone on apace. Whereas in the 1880s there were about 31,000 farms with sheep, by the mid-1970s that number had declined to under 20,000.[13][13] Carter and MacGibbon at 339.
[18] Not only have farm numbers and numbers of sheep declined, but wool as a product has come under fierce competition from alternative fibres and fashions, although it remains widely regarded as a standard to aspire to, particularly in the apparel and luxury wool carpet markets.
Wool marketing in New Zealand
[19] Historically, New Zealand agricultural products faced unique marketing challenges. For a start, the country is at a considerable distance from its export markets. A collective response and a collaborative effort in the various agricultural sectors was adopted to help overcome this and other challenges. This approach became fundamental to the producer board model developed to market New Zealand’s primary produce. In the case of wool, shearers’ unions and shippers brought the 19th century run-holders together. Then there were the problems of war time stock piles and the market collapse after the First World War. But a collective response had led naturally to a collaborative effort in funding research and publicity. Indeed, centralised marketing and regulation of the industry grew largely from the days of orderly disposal of the commandeer stocks from the two World Wars. A minimum floor price of last resort evolved into full market intervention with a levy being paid by woolgrowers to the Wool Board for wool promotion.
[20] These responses reflected the broad social and economic conditions of their time. But social conditions and institutional and personal responses began to change. As to the latter, it came to be seen across the various agri-businesses of New Zealand that more personal decision-making, individual choice and individual responsibility was required.
[21] There was however an ongoing conundrum which was not always readily apparent to highly individualistic farmers. There was the need collectively and collaboratively to respond to matters of industry-wide significance, but individual or groups of farmers were highly reluctant to pay for such activities. The economic problem was that it would either cost too much or the benefits would be shared with farmers who had not contributed. Statutory and institutional change was inevitable. We detail the statutory changes underlying this litigation in a subsequent section of this judgment.[14]
Saxon sheep and the promotion of Saxon wool[15]
[14] At [49]–[59].
[15]The facts informing this part of the judgment are set out in greater detail at [1]–[6] of the High Court judgment.
[22] Saxon sheep have a royal lineage. The breed originated in North Africa. It was taken by Berbers to Spain in the 11th century. It became part of the Royal Escurial flock. These animals were carefully bred for their very fine wool.
[23] Some of these royal sheep were exported to Australia in the 1830s and cross-bred with Merino sheep. There remained only a relatively few pure bred Saxon sheep in the world, including some in Tasmania.
[24] Mr Radford, the prime mover in this litigation, established his own Saxon flock in New Zealand in 1984 as a daughter flock of the Winton Stud in Tasmania.
[25] The High Court Judge found that Saxon wool possesses a distinctive combination of curvature, crimp and fineness.[16] This differentiates it from other wool. The fibre is classed as super-fine and its diameter is 12–18 microns. Merino wool on the other hand covers a wider range from 12–24 microns. More than 95 per cent of the Merino clip in 1996 was around 18–23 microns.
[16] At [4].
[26] By comparison, a medium crossbred sheep is around 30–35 microns; carpet wool 35–45 microns.
[27] Fibre diameter is regarded as the single most important wool characteristic determining quality and price. The claimed advantages of the Saxon fleece are that it possesses superior mechanical and aesthetic properties arising out of its super-fineness. The Judge found that “It is light yet bulky, soft, and has high lustre. Fabrics woven from it are soft yet have a high spring and elasticity.”[17]
[17] At [4].
[28] Mr Radford developed his pure Saxon wool into a distinctive luxury fabric called “Escorial”. He promoted this wool first in New Zealand and then to English and Italian weavers, spinners and fashion houses. It came to be recognised as an exclusive product that could allow clothing producers to meet the increased competition from mass-produced natural fabrics and the newer and more sophisticated man-made fibres. The Judge found that Mr Radford’s:[18]
... remarkable efforts ... resulted in Escorial being used as a branded fabric in suits by Brioni and other leading fashion houses and in the formation of a guild comprising six English weavers, one leading French topmaker (Chargeur) and one Italian spinner (Drago).
[18] At [5].
The central complaint
[29] In a nutshell, Mr Radford’s complaint in this litigation is that the Board, which had the statutory function, among others, to increase demand for New Zealand wool, unlawfully refused to differentiate and assist with some of the substantial promotion and development costs of Saxon wool. Indeed, for him and the other respondents there was a double whammy: grower levies imposed by the Board on Saxon wool in New Zealand were used to fund generic Merino marketing efforts by Merino New Zealand Ltd (Merino New Zealand), a joint venture between the Board and Merino New Zealand Incorporated (MNZI), a society of Merino growers. Mr Radford and his colleagues viewed Merino New Zealand as a competitor. In the respondents’ view it was seeking to control marketing of all New Zealand Merino wool, including Saxon wool. But what the respondents regarded as inept marketing efforts gave them at best no assistance; and at worst actually damaged their business by passing off, as it were, other Merino wool as Saxon wool.
The relevant legislation
Prior to the Wool Board Act 1997[19]
[19] See also [15]–[29] of the High Court judgment.
[30] In 1937 four grower nations including Australia and New Zealand formed the International Wool Secretariat (IWS). From about 1964 IWS promoted wool products under the “Woolmark” brand.
[31] The New Zealand Wool Board has a long history. It was responsible for promotion and research. It is unnecessary to go into the early legislative history, except to say that the then Board and a Wool Marketing Commission were amalgamated under the Wool Industry Act 1977.
[32] That statute provided that “[t]he general object for which the Board is established is to obtain, in the interests of growers, the best possible long-term returns for New Zealand wool.”[20] The functions of the Board under that Act were to give sheep farmers a united organisation responsible for promoting, marketing, and research with respect to their wool.
[20] Wool Industry Act 1977, s 16.
[33] So the Board, through its international marketing division, had the responsibility for marketing all New Zealand wool. It should be added that overseas marketing of New Zealand wool is of the greatest importance because New Zealand has itself no major weaving facilities for apparel fabrics: the wool has to be exported.
[34] Under the model then in force, growers controlled only a fraction of the value chain. An auction system was employed. Under that scheme quality could not be assured and it was difficult to establish a customer-orientated marketing programme. This in the context of increasing competition from other apparel fibres including man-made fibres.
[35] These factors all contributed to New Zealand withdrawing from the IWS in 1996. The Board was looking for more specific and targeted marketing with an emphasis on New Zealand origins. Its international marketing division was accordingly renamed Wools of New Zealand. It adopted the “Fernmark” brand. Whilst this changed the brand, it did not depart from the traditional model of wool being sold at auction to traders who on-sold it to other parties for processing.
[36] By now however growers were becoming increasingly dissatisfied with the traditional marketing approach. And Merino growers were concerned to control the marketing of fine wools.
[37] The relationship between the Board and the Merino growers appears to have been distinctly fractious at times. In March 1996 the Board and MNZI entered into an agreement under which the Board sought MNZI’s assistance with the marketing and industry development of Merino wool. This agreement acknowledged that the Board had a statutory responsibility for the promotion and marketing of New Zealand wool, but provided that MNZI would carry out the marketing and industry development of Merino wool for three years from 1 July 1996.
[38] The agreement provided that MNZI had a goal of breaking free of Australian and other Merino prices. More specific objectives were also set out in the agreement, covering the volume of wool to be produced, price and New Zealand processing.
[39] The agreement contained no provision for the appointment of other agents to promote Merino wool, although there was provision for termination in the event of breach. The grounds for termination included MNZI failing to achieve any one or more of its specified objectives by more than 10 per cent. MNZI was required to report quarterly and annually against its objectives. It was also to provide the Board with an annual marketing plan with quite detailed information.
[40] Part of the levy paid to the Board in respect of “all Merino breed wool” was to be channelled to MNZI. The amount paid to MNZI was to be the total levy in respect of Merino wool less the cost of services provided by the Board to MNZI (as determined by the Board). This arrangement led to the Board altering its levy collection practices, because it was necessary that levy collection agents thereafter identified Merino wool in their returns.
[41] The practical consequence of this arrangement was that Wools of New Zealand continued, under the 1996 agreement, to market Merino wool alongside MNZI. The Judge appears to have accepted the evidence of the Board Chairman that “having been given an inch MNZI was hell-bent on taking a mile”.[21]
[21] At [22].
[42] In 1997 the Board entered into mediation with MNZI in an endeavour to address the difficulties over control of Merino marketing.
[43] Alongside all of this, the government of the day had become concerned about the role and intrinsic effectiveness of producer boards generally. It introduced the Producer Board Acts Reform Bill. The Primary Production Select Committee held hearings in 1997 at which a number of grievances were aired.
[44] In relation to wool, one of the problems was that super-fine woolgrowers (such as Mr Radford and Mr Emmerson, who represented 44 growers in the original proceeding and as fourth respondent here) thought that their wools should be differentiated in a way that MNZI would not recognise. There was too an economic aspect to their concerns. All wool was levied at a rate of 5 per cent of its value, but super-fine wool was more valuable, so that the Saxon growers saw themselves as subsidising, to some extent, the Merino growers.
[45] Where things should go for the future plainly gave the Select Committee some real difficulties. What the Judge described as “the overwhelming majority”[22] of those making submissions wanted the Board to carry on. One alternative was to allow minorities, such as Saxmere, an “opt-out” mechanism. Another alternative – with the Board continuing in its role – was a statutory consideration mechanism under which minorities’ position would have to be taken into account. I use the term “statutory consideration mechanism” advisedly; the provision actually adopted is at the heart of this litigation, and will be recited in full shortly.
[22] At [25].
[46] The Select Committee said:[23]
We looked at a range of options on levels of involvement and, by majority, reject those involving a radically new role for the Wool Board. The overwhelming majority of submissions supported the board’s continuation. We decided on a composite model to optimize the flexibility of the Wool Board to take advantage of opportunities and challenges, as well as to foster flexibility and innovation for industry services and activities. We also want to encourage greater producer involvement with the marketplace. The opportunities for producer input in the development of strategic directions by the Wool Board and to make the board more accountable also need to be increased.
We are also recommending that each Board should be required to satisfy itself that the mechanism employed for giving effect to each of the functions it undertakes is likely to be the most efficient and effective means of doing so. This will ensure that, for example, consideration of such options as contracting out within the overall programme of services to its producers. While difficult to anticipate the precise requirements of particular situations, we believe strongly that the boards must be flexible and take special care with regard to the commercial sensitivities of parties with whom they are contracting.
[23]Primary Production Committee “Report on the Producer Board Acts Reform Bill” [1996–1999] LXIV AJHR I at 526.
[47] The Minister said:[24]
The legislation now requires the boards, when there is a function to be carried out, to address first whether any other organisations could more effectively or more efficiently carry out that function. The legislation requires that if they make a decision that does not properly reflect which organisation can best carry out any given function, then that decision is challengeable.
I think the Committee of the whole House was persuaded that the way the select committee has organised that part of the legislation was a more robust and satisfactory way of dealing with sub-group interests than providing for an opt-out provision. Certainly, the opt-out provision had a superficial attraction. I think all of us have thought very long and hard about it, but the select committee was not persuaded. The Committee of the whole House was not persuaded either, so that proposed amendment did not go ahead.
(Emphasis added.)
[24] (9 December 1997) 565 NZPD 6363.
[48] It was in this context that the Wool Board Act 1997, to which I now turn, was enacted.
The Wool Board Act 1997
[49] The Wool Board Act 1997 came into force on 17 December 1997. It was repealed, as from 15 September 2003, by the Wool Industry Restructuring Act 2003. This had the effect of converting the Board into a company. It is only the 1997 Act that we are concerned with in this litigation. The Wool Industry Restructuring Act received Royal assent on 7 July 2003. The Board was disestablished on 15 September 2003 and residual winding up activities were transferred to the Wool Board Disestablishment Company Ltd (the appellant in this proceeding). It was at that point that 67 years of statutory funding of promotion and research for New Zealand wool ended, after the passage of the original Wool Promotion Act 1936.
[50] It is worth noting here, in passing, that by 2003 woolgrowers had contributed approximately $1.3 billion of levies to the Board and its predecessor organisations. Of that $830 million had been paid to the IWS (of which $785 million came from grower levies).[25]
[25] Carter and MacGibbon at 340.
[51] Section 5 of the 1997 Act sets out the Board’s objects:
(1)The object of the Board is to help in the attainment, in the interests of growers, of the best possible net ongoing returns for New Zealand wool.
(2)In pursuing its object, the Board must have regard to the desirability of the wool industry's making the best possible net ongoing contribution to the New Zealand economy.
[52] Section 6 prescribed the Board’s functions:
(1) The functions of the Board are,—
(a)With a view both to increasing the volumes sold and to obtaining higher returns for each unit sold, to increase the demand for New Zealand wool and wool products (in existing and new markets); and
(b)To maintain the confidence of buyers and users of wool and wool products in the New Zealand wool industry; and
(c)To help obtain improved access to overseas markets for New Zealand wool and wool products; and
(d)To conduct (whether alone or jointly with other bodies) research and development into sheep and wool, including research and development into—
(i) The rearing of sheep; and
(ii)Increasing the quantity or quality of the wool produced by sheep in New Zealand; and
(iii)The harvesting, handling, preparation, and processing of wool; and
(iv) The manufacture of wool products; and
(v)The handling, marketing, packaging, product development, and transport, of New Zealand wool and wool products; and
(e)To encourage the adoption of more efficient processes and practices for—
(i) The rearing of sheep in New Zealand; and
(ii)Increasing the quantity or quality of the wool produced by sheep in New Zealand; and
(iii)The harvesting, handling, preparation, and processing of New Zealand wool; and
(iv)The manufacture of New Zealand wool into products; and
(v)The handling, marketing, packaging, product development, and transport, of New Zealand wool and wool products; and
(f)To collect, process, maintain, and make available, information for the purposes of assisting production, investment, processing, product development, and marketing decisions in respect of—
(i)Market requirements for wool and wool products; and
(ii)Other matters relevant to the New Zealand sheep and wool industries; and
(g)To account to growers on the Board's activities and its use of levy money and other resources; and
(h)To discuss the Board's activities with any persons and organisations in the New Zealand wool industry the Board thinks fit; and
(i)To perform such other functions as are conferred on the Board by this Act or any other enactment.
(2)The Board may perform any of the functions specified in paragraphs (a) to (f) of subsection (1) (or any element of any of those functions) alone, or—
(a) In a partnership or joint venture with; or
(b) By arranging for its performance by—
any other person or persons (including a company or companies in which the Board holds shares).
(3)The Board may perform any of the Board's functions, or arrange for its performance, to the extent only that its performance is consistent with the Board's object.
(4)It is also a function of the Board to report regularly to the Minister on—
(a)The performance and present state of the New Zealand wool industry; and
(b) The Board's achievement of its object; and
(c) The Board's performance of its functions; and
(d)Any other matters the Board thinks fit or the Minister requests.
(5)In the exercise of its functions, the Board must have regard to the need for it to have adequate financial reserves.
(6)The Board must not determine that a function or element of a function is to be performed by a particular mechanism and entity (that is to say the Board, a partnership or joint venture, or some person other than the Board) unless it has—
(a)Considered other mechanisms and kinds of entity that might reasonably be expected to be able to perform the function or element efficiently and effectively; and
(b)Satisfied itself that the mechanism and entity are likely to be the most efficient and effective means of performing the function or element.
As shall be seen, s 6(6) in particular is at the heart of this case.
[53] The Board had extensive consultation obligations. Section 7(1)(b) of the Act provided:
(1)The Board must prepare, from time to time reconsider and (if appropriate) amend, and maintain a written statement of—
...
(b)How and to what extent the Board intends to consult growers on the Board's activities, and (to the extent, if any, that it intends to arrange for people to consult growers on its behalf) how grower concerns should be reported back to it by people consulting growers on its behalf.
...
[54] Further to those obligations, s 8 required consultation with growers “about the Board’s activities”; s 9 required the Board to consult representative organisations, and s 10 required the Board “in performing its functions, or preparing, reconsidering, or amending its statement of strategic and consultative intent, [to] take account of grower concerns”.
[55] As to the constitution of the Board, it had ten directors: six elected by growers and four appointed by the Minister on the Board’s recommendation.[26] The Board was required to hold an annual general meeting[27] at which its statement of strategic and consultative intent had to be discussed and an opportunity afforded to growers to participate in the discussion. Directors were expressly required to participate responsibly in the discussion, and respond to all reasonable questions and concerns raised by growers about the statement of strategic and consultative intent.[28] Each annual general meeting was also required to consider whether growers should be elected to represent other growers in their regions.[29]
[26] Section 13(2).
[27] Section 20(1)(a)–(b).
[28] Section 20(1)(c).
[29] Section 20(2)(b)–(c).
[56] The Board’s powers to levy wool are important in this litigation. Under ss 39 to 51 of the Act the Board was empowered to collect a levy from all woolgrowers, using collection agents appointed for that purpose. A levy became payable on any wool when it was sold to or through a collection agent or was subjected to a specified activity by collection agents or exported from New Zealand.[30] The specified activities generally concerned the processing of wool.[31]
[30] Section 39(2).
[31] Schedule 3.
[57] The levy money was paid to the Board and formed part of its funds.[32] Of note is that the Board’s assets were expressed to be held and administered for the benefit of wool growers.[33] The levy was to be calculated at a rate and on a basis to be prescribed by the Board and Gazetted, and it could be set in relation to wool of a particular kind.[34]
[32] Section 39(8).
[33] Section 4(4).
[34] Section 39(4).
[58] Until June 2001 the Board levied all wool at a uniform rate of 5 per cent of its value. At that time it ceased to levy for marketing purposes. The levy was reduced to 2 per cent and thereafter those monies were used for industry good purposes only.
[59] Section 39(7) of the Act appeared to give the Board a power to omit to levy wool of a “particular kind”. It was suggested to us, when this was drawn to the attention of counsel in argument, that this power was used with respect to such things as “crutchings” (wool off-cuts from the rear area of the sheep). However the provision is expressed in general terms, and might conceivably have been applied to any kind of wool.
Saxmere’s administrative law claims, in broad terms
[60] Saxmere advanced its administrative law claims on the footing that the Board had breached the 1997 Act on four occasions. I will now set out the first three of these claims in short form, and the outcome in the High Court with respect thereto, in order to give an appreciation of the overall picture, before examining in detail each of these claims and the construction of the legislation. The fourth claim has fallen away, and is not before us.
[61] There is however a unifying thread through these claims, which should be remarked at the outset. The Saxmere interests saw, and still see, s 6(6) of the 1997 Act as being what they termed “the Saxon clause”. Their proposition is that this provision was enacted by Parliament as a concession, in favour of persons in their kind of position, for Parliament not enacting an opt-out clause. They maintain that the Board did not lawfully apply the legislation in relation to the three discrete decisions. Their essential complaint is that the Board breached its obligations under s 6(6) by favouring a joint marketing venture with Merino New Zealand for all Merino wool, over Saxmere’s separate proposals for niche marketing of Saxon wool. They consider they were unlawfully discriminated against in that the Board put them entirely to one side, and never considered, or properly considered, their position, as the 1997 Act required.
The first challenged decision: the Merino New Zealand decision
[62] On 20 February 1998 the Board entered into a heads of agreement with MNZI. This gave MNZI, through the joint venture company, Merino New Zealand Ltd, responsibility for the marketing of all wool up to 24 microns. This meant that Merino New Zealand would be responsible for marketing Saxon wool. It also gave Merino New Zealand the share of the levy stream generated by Saxon wool after deducting the Board’s other funding requirements. The complaint here is that before deciding to enter into this agreement the Board did not engage in the sort of exercise contemplated and required by s 6(6) of the Act.
[63] The High Court Judge found that, at least in respect of this decision, the Board did comply with the Act. Saxmere cross-appeals against that holding.
[64] I will term this claim the Merino New Zealand decision.
The second challenged decision: the May 1998 decision
[65] From the outset Mr Radford was interested in securing funding assistance from the Board. Indeed on the very day the new Act came into force (17 December 1997) he had a meeting with Mr Jackson, who was the Chief Executive Officer of the Board. Mr Jackson agreed to at least fund the preparation of a business and marketing plan for Saxon wool. Mr Radford developed a plan. It went before the Board at a meeting on 5 and 6 May 1998. The Board declined to provide funding assistance to Saxmere in relation to the implementation of this plan.
[66] The High Court Judge found the statute was not here complied with. The central appeal point for the Board is that:
... the Saxmere business plan, confined as it was to an almost infinitesimally tiny proportion of total wool production, and with doubtful differentiation from other Merino fine wool, was not an “element of a function” of the Board which engaged s 6(6) at all.
[67] In effect, the appeal point is that the Board was not required by s 6(6) to consider Saxmere as an alternative to Merino New Zealand for promoting and marketing Saxon wool.
[68] I will term this the May 1998 decision.
The third challenged decision: the capitalisation decision
[69] Difficulties between the Board and the Saxmere interests continued. By September 1999 Saxmere had begun to withhold levies payable on the wool that it acquired. They were held in a trust account. Negotiations continued through 2000 into 2001 in an attempt to settle the dispute. A consultancy report by a respected international consultancy (McKinsey & Company) was prepared for the Board. At a meeting on 1 August 2001 the Board resolved to carry out a restructuring of Merino New Zealand. A new grower-oriented company, New Zealand Merino Company Ltd (NZMCL), was to be formed to give effect to the recommendations in that report. NZMCL was to perform certain of the Board’s functions. And the Board was to pay NZMCL an initial sum of $1 million and two further payments of $500,000 each. In economic terms this was a capitalisation of NZMCL. That decision is the third matter challenged by Saxmere.
[70] The Judge found this decision was unlawful, but that, in respect of the negligence claim, Saxmere suffered no loss, because the Judge found the Board would have made the same decision in any event.[35] Saxmere cross-appeals on this point
[35] At [194].
[71] I will call this the capitalisation decision.
A fourth challenged decision: retrospective funding
[72] A further claim relating to retrospective funding was advanced at trial relating to events in June 2002. It was rejected by the Judge. It was dealt with by the panel on the first appeal, but it was not the subject of a cross-appeal, and counsel did not address us on it. We therefore say nothing more about it.
An obliquely challenged decision: November 1998
[73] In one sentence of her submissions, Ms Grey for Saxmere appears also to have challenged the Board’s decision in November 1998 to formalise its agreement with Merino New Zealand. We do not accept that the lawfulness of that decision is properly on the table. It is clear from Miller J’s judgment that the challenge to the Board’s failure to appoint Saxmere as the promoter of Saxon wool focused on the Board’s actions on two dates, May 1998 and June 2002.[36] In this Court first time round, the discussion centred on the four challenged decisions to which I have referred. Before us, the Board concentrated on the first three decisions to which I have referred, since it believed only those three decisions were properly alive. Ms Grey did not suggest that the Board’s counsel had overlooked a challenged decision. In those circumstances, it is not within our remit to embark on an enquiry into the lawfulness of what the Board did in November 1998. It would be unfair to do so in circumstances where no one has concentrated on what the evidence was at that point in time.
The Merino New Zealand decision
[36] At [10].
[74] The 1997 Act came into force on 17 December 1997. It was therefore critical how the Board proposed to proceed with respect to a scheme for the marketing of New Zealand wool thereafter. A practical difficulty however was that the future was distinctly clouded by the past. I first deal with the factual context in greater detail; then the actual decision; and I will then address its lawfulness.
Factual context
[75] It will be recalled that there had been a fractious relationship between the Board and MNZI, and a mediation between the Board and MNZI. Arising out of that there had been an agreement recommending that all Merino wool and other wool up to 24 microns was to be the responsibility of what became Merino New Zealand. That would operate as the fine wool division of the Board. In essence it would be a subsidiary of the Board, but growers would elect the majority of its directors.
[76] It was this background which led to the Heads of Agreement dated 20 February 1998. Merino New Zealand would have access to the levy stream for wool less than 24 microns after allowing for the Board’s other funding requirements and Merino New Zealand would have “sole responsibility” for marketing such wool. Merino New Zealand was to be funded in the Board’s discretion from reserves and investment income. Clause 6 of the agreement provided that the process of “agreeing absolute funding from year to year” would be done under a principle of contestable service delivery and transparency. Merino New Zealand required a level of contractual certainty but the Board wished to ensure Merino New Zealand remained accountable for its performance. That point became of considerable significance for the High Court Judge. I will return to it shortly. As the High Court Judge recorded, “... it became common ground in closing that the decision to appoint MNZI had been taken when the Heads of Agreement had been signed”.[37] In other words, the Board had made up its mind at that point.
[37] At [42].
[77] What happened thereafter was further development and refinement of the basic principles enunciated in the Heads of Agreement. The final joint venture agreement in 1998 included a marketing and industry development agreement. This contracted out to Merino New Zealand the marketing and industry development of Merino wool and consultation with Merino growers on its behalf. There was a funding agreement as to the levies to be received by Merino New Zealand (with room to apply for additional reserves funding).
[78] The Board agreed that before appointing anyone else to carry out a marketing or industry development function it would give Merino New Zealand the opportunity to present its case to the Board for its continuing performance of that function, and would consider the interests of the Merino section as a whole. The agreement had a term, including automatic renewals, of 30 years. There was provision for termination in the event that Merino New Zealand failed consistently to achieve its objectives, marketing plan, business plan or budget.
[79] In practical terms, the Board firstly divided wool marketing into three broad categories: fine, mid-micron and coarse wool elements. This was a continuation of the status quo, notwithstanding the passage of the 1997 Act. Secondly, in economic terms, it did not decommodify wool. The effect was to leave innovative niche growers very much to their own devices.
The impugned decision
[80] At this point it is necessary to interpolate something about the pleadings relating to this claim.
[81] There is a general averment in paragraph 37 of the Third Amended Statement of Claim, on which the proceeding went to trial, that the Wool Board “... acted unlawfully, unreasonably, unfairly and/or with procedural impropriety” in ways which are particularised, but pleaded widely enough to encompass this initial decision to appoint Merino New Zealand.
[82] And as the Judge correctly noted, “When considering Saxmere’s application for funding in May 1998” (the second challenged decision, to which I will come in due course), “the Board undoubtedly proceeded on the basis that the decision [relating to the Merino New Zealand appointment] had been made”[38] in February 1998.
[38] At [42].
[83] The issue then becomes: was that initial decision – which was extremely important because it would patently determine the shape of marketing of fine wools for a long time to come – lawful?
Was the decision lawful?
(i) Introduction
[84] Despite the centrality of s 6(6) (reproduced at [52] above) to the proceeding, and the fact that the interpretation of the section is likely dispositive of the three claims, neither the High Court nor this Court in the first appeal entered into extensive interpretive analysis of its terms. The analyses in the High Court and this Court on the first appeal, although they reached different conclusions, were both closely tied to the factual context. In the circumstances, I think it important to traverse the various arguments as to its construction as they have evolved throughout the proceeding.
[85] First however, for convenience, I summarise the general effect of s 6. It prescribed the Board’s functions, which were broadly about promoting and marketing wool.[39] Then, s 6(2) gave the Board some discretion as to how it performed those functions: it could perform them itself, it could enter into a joint venture or partnership, or it could contract them out. These options were described as “mechanisms” or “entities”. However it did so, the functions were to be performed in a manner consistent with the Board’s objects as set out in s 5.[40] The Board was also to report regularly to the Minister,[41] and in exercising its functions had to have regard to the need for it have adequate financial reserves.[42] Subsection (6), the crucial provision, provided that before determining which mechanism or entity was to be adopted in performing a function or element of a function, the Board was to consider the reasonable alternatives and choose that which was likely to be the most efficient and effective.
(ii) The plaintiffs’ submissions in the High Court
[39] Section 6(1).
[40] Section 6(3).
[41] Section 6(4).
[42] Section 6(5).
[86] Mr Cooke QC for the plaintiffs (Saxmere) commenced his interpretive analysis of s 6(6) by reviewing the policy behind the 1997 Act, as derived from the parliamentary materials. He first sought to establish the “mischief” the Act was to remedy. According to his argument, there was recognition in the primary industries that the role of producer boards had to change in a global context of increasingly liberalised trade and a correspondent reduction in state intervention in marketing primary produce. Producer boards were to become facilitators rather than directors of private endeavour. In general the Board was to adopt a flexible stance as to how it could best serve the needs of industry players. It was submitted that Saxmere’s programmes were exactly the type of activity the reform was designed to encourage.
[87] Mr Cooke’s argument emphasised two features of the parliamentary debates. The first feature was the dispute between Merino New Zealand and the Board, which s 6(6) was to resolve by forcing decisions about fund allocation to be made on a disciplined commercial basis, for the benefit of producers. The second feature was the evidence in the debates at various stages of the Bill’s passage that members considered Saxon’s proposals were an example of how s 6 would allow the Board to divest its functions where appropriate and for the benefit of the producers concerned.
[88] Turning to the construction of s 6(6) itself, Mr Cooke submitted that a four-stage analysis was required to comply with what he termed “the s 6(6) duty”. The first stage was to identify the scope of any evaluation to be conducted under s 6(6). The Board had to apprise itself of what exactly was required of it to comply with s 6(6). In this respect there were two possibilities: either the Board was required to conduct a complete review of all its functions upon the Act coming into force, or it was only required to conduct a s 6(6) evaluation whenever it was contemplating making a decision as to how one of its functions should be carried out. The latter implied an incremental approach to industry reform. For the plaintiffs it was submitted there was no difference in terms of its claims which approach was correct because on the facts each of the challenged decisions independently triggered s 6(6).
[89] The second stage was to identify which of the Board’s functions were subject to evaluation. That is, of those functions listed in s 6(1), which were touched by the decision facing the Board? Mr Cooke submitted that characterising the Board’s role broadly as “marketing and promotion” was a relic of the old regime and failed to give effect to the carefully defined functions of the Board under the 1997 Act. A disciplined analysis of the precise functions to be performed by another mechanism or entity was necessary because without such analysis the comparative effectiveness and efficiency of that mechanism or entity under s 6(6) could not be properly assessed.
[90] Section 6(6) referred to “function or elements of a function”, so that in some cases stage two would require the Board to identify the element of the function. In Mr Cooke’s submission “element” meant simply “a smaller part of the activities incorporated within the functions”. For example, an “element” might be the marketing and promotion of all wools less than 24 microns. One consequence of this interpretation is that identifying elements of functions goes beyond the words of the statute. The practical effect, in Mr Cooke’s submission, was that identifying the element could have a decisive impact on the effectiveness and efficiency analysis. Identifying the element in an expansive way would exclude small players, an approach, as shall be seen, accepted by this Court in the first appeal as within the Board’s discretion.
[91] Having identified the scope of analysis required and the precise functions or elements thereof to be allocated, the third stage was to identify the mechanisms or entities that might reasonably be expected to be able to perform the function or element efficiently and effectively. This was a precursor to the comparative exercise fundamental to the operation of s 6(6).
[92] That comparative exercise was the fourth stage. It required a comparison between or among the alternative mechanisms or entities to determine which was the most efficient and effective. By s 6(6) the Board had to satisfy itself that the mechanism or entity it selected was the most efficient and effective. In Mr Cooke’s submission efficiency was a matter of cost/benefit analysis and in the case where comparators were each able to achieve the objective, that which could do so at the least cost was to be preferred. Effectiveness was concerned with a mechanism or entity’s capacity to achieve the desired outcome. Assessing effectiveness involved asking how the objective was to be achieved and, necessarily, whether it could be achieved.
(iii) The defendant’s submissions in the High Court
[93] Mr Dobson QC (as he then was), commenced his analysis by setting little store to the parliamentary history to the enactment of s 6(6). He considered there was “something in the debates for everyone” and so they were not to be relied on as disclosing any clear parliamentary intent.
[94] Aside from that, the key difference in approach to the question of what s 6(6) required, was that it was for the Board to determine the scope and nature of the task (or in the statute’s words “the function or element”) before the obligation arose to consider all the options to perform that function or element. As the Board retained this discretion, an “aspirant” could not force the Board to redefine the function or element it was considering. In the present context, that meant that Saxmere was excluded as an alternative because the Board was considering as a class all wool of 24 microns or less without further breaking that class down.
[95] The Board thus perceived the alternatives to be retaining responsibility for promoting merino wools; contracting out the responsibility to Merino New Zealand; and entering into a joint venture with Merino New Zealand. Saxmere was clearly not in a position to carry out the function or element so defined (promotion of all Merino wool). This part of the argument was in a sense the administrator-centric take on the same point Mr Cooke had made.
(iv) The High Court Judge’s treatment of the construction of s 6(6)
[96] There is no distinct analysis devoted to the meaning of s 6(6) in the judgment appealed from. Rather, there are conclusions on its application to certain factual findings.
[97] As s 6(6) was applied to the Merino New Zealand decision of February 1998, the Judge considered that the Board did consider that Merino New Zealand would be the most efficient and effective marketer of all merino fine wool.[43] Although the Board did not conduct a comprehensive comparative exercise including Saxmere, it did not have to, as Saxmere’s business plan at that point demonstrated it was not a reasonable alternative to Merino New Zealand, even in relation only to the marketing of Saxon wool.[44] However the Judge accepted Mr Cooke’s submission that the Board, “having decided to contract out fine wool marketing, ... could not confine itself to only those groups capable of performing the entire task alone”.[45]
[43] At [46].
[44] At [47].
[45] At [42].
[98] Then, applying s 6(6) to the May 1998 decision declining Saxmere’s application, the Judge found that the Board simply did not conduct any s 6(6) analysis. Instead, he found that the Board, in applying its own criteria to assess the Saxmere application, declined the application predominantly on the basis of an irrelevant consideration: namely, that Saxmere was a commercial entity rather than a grower group.[46] Saxmere was subsequently told to approach Merino New Zealand, instead of the Board, for funding. By implication Saxmere’s application did trigger the requirement that the Board undertake a s 6(6) analysis.
[46] At [65].
[99] The capitalisation in 2001 of the NZMCL following the recommendation of the McKinsey Report was found by the Judge to be a decision taken with s 6 firmly in mind. The Judge records that the various resolutions of the Board giving effect to that decision were couched in the language of s 6(6).[47] However, in deciding to capitalise NZMCL, the Board did not consider Saxmere as an alternative. This was in clear breach of s 6(6), in the same way the previous challenged decision had been: the Board was “prohibited ... from making the decision to appoint NZMCL without first examining alternatives”.[48]
[47]Wool Board Disestablishment Company Ltd v Saxmere Company Ltd [2007] NZCA 349 at [91].
[48] At [120].
[100] It seems clear that the Judge preferred a construction of s 6(6) more closely resembling that put forward by Mr Cooke. That is apparent from the fact that for each of the decisions the Judge considered unlawful his Honour found that the Board had failed to conduct a s 6(6) comparative exercise. On the Judge’s reasoning therefore, Saxmere could trigger the s 6(6) requirements simply by way of application. However the failures to consider Saxmere would have been lawful on the approach taken by Mr Dobson, because that approach essentially reserved to the Board the power to define for itself the scope of a function or element, to the exclusion of some aspirants.
(v) The first appeal
[101] This Court, in allowing the first appeal, impliedly rejected the analysis of s 6(6) advanced by Mr Cooke (although without any reference to it) and seemingly accepted by the Judge. William Young P, for the Court, considered that the Board had a wide discretion as to the performance of its functions. It was “for the Board to decide to what extent it should promote wool or particular classes of wool on a generic basis”.[49] If Saxmere could initiate the s 6(6) process then that “would in effect be the sort of opt out mechanism which the legislature rejected when the Act was passed”.[50] That was because on that view “any trading organisation in the wool industry” would be able to nominate its sphere of activity as a function or element of a function and, assuming that the nominated sphere was sufficiently well-defined, it would be a natural consequence that the organisation would be the most efficient and effective provider.[51] This was, in the Court’s judgment, contrary to the scheme of the Act reserving strategic decisions to the Board.[52]
[49] At [46].
[50] At [45].
[51] At [47].
[52] At [47].
[102] In addressing the cross-appeal on the first challenged decision, the Court elaborated on the application of s 6(6):[53]
In our view, the Board was entitled to make a decision that treated fine wool as a discrete class of wool for marketing and promotion. The “element” of the Board’s functions under consideration was, accordingly, the promotion of fine wool. When making a decision under s 6(6) as to how that particular element of its functions could be most efficiently and effectively performed, the Board was not required to engage in further subdivision of this element (ie the promotion of Saxon wool and the promotion of other fine wools). Instead it was entitled to look for an efficient and effective mechanism for the marketing of fine wool generally.
[53] At [56].
[103] The Court further elaborated on this when dealing with the second challenged decision. In that instance the Board was not bound to conduct a s 6(6) analysis: “Because the Board had not decided to engage in specific promotion of Saxon (or Saxmere’s) wool, such promotion was not itself an element of a function.”[54] Much the same analysis was applied in the Court’s treatment of the third challenged decision.[55]
[140] Section 4(4).
[141] Section 2 (emphasis added).
[267] It was quite unclear from the business plan, which Mr Radford allowed Mr Jackson only to summarise for the Board, the extent to which any funding would benefit New Zealand Saxon growers as opposed to the company and Australian growers. Indeed, who exactly were the New Zealand growers? How much were they contributing by way of levy? On a view most favourable to Saxmere, what was being sought by way of funding had to be far in excess of what these unnamed growers had contributed. What commitment did these growers have to Saxmere?
[268] Ms Grey submitted that the Board’s concern, had it been raised, could have been “readily addressed ... by seeking equivalent support from [the] Australian Board”. First, contrary to her submission, the Board did raise the point. It was made clear in the first criterion that applicants had to represent “a specific group of New Zealand wool growers”. Saxmere was not such a representative. Further, in the letter Mr Jackson sent to Mr Radford on 22 May 1998, advising of the Board’s decision on Saxmere’s request, he specifically referred to the Board’s concern as to the provenance of the Saxon wool.
[269] Further, although arguably the New Zealand Board might have considered some form of joint venture with the Australian Board, that suggestion has, so far as I am aware, never been made prior to these submissions.
[270] I can quite understand Mr Jackson’s concern that he had been misled when he offered financial support to Mr Radford for the development of a business plan. Had Mr Radford disclosed that most of the wool was Tasmanian, the cost of preparing the business plan would, at the very least, have had to be shared in some way which was fair to New Zealand growers, who were the ultimate owners of these funds. I can also fully understand the Board’s frustration in being expected to fund a proposal when it had not been allowed to view the business plan. Saxmere had put the Board in an impossible situation.
[271] I am clear that the Board’s consideration of s 6(6) when considering Saxmere’s funding application was lawful and reasonable in the circumstances. Indeed, no decision other than the one the Board made would have been appropriate. In the circumstances, since Saxmere’s proposal, as presented, was not viable, there was nothing at that stage to cause the Board to be diverted from the course that had been provisionally agreed with MNZI in February.
[272] At the same time, Mr Jackson explained to Mr Radford that, if Saxmere were to change its proposal so that it met the Board’s criteria, the Board would “be happy to revisit the matter upon request”. In my view, nothing could have been fairer. This offer was repeated by Mark O’Grady, by then the Board’s Chief Executive, in a letter dated 25 January 2000, after the finalisation of the marketing agreement with Merino New Zealand. That letter made clear that the Board’s association with Merino New Zealand did not preclude it also having a relationship with Saxmere.[142] Contrary to Hammond J’s view, the Board’s mind was not closed, Saxmere had not been “sidelined and left at the mercy of Merino wool interests”, and Saxmere had not been “defined out of existence”.
[142] That letter set in train the process leading to the settlement agreement in 2001.
[273] For these reasons, for the reasons set out at [259]–[261], and also for the reasons Ellen France J gives at [231]–[232], I would allow the Board’s appeal with respect to this decision and would quash the declaration Miller J made in Saxmere’s favour with respect to it.
Decision 3: the capitalisation decision
[274] At its meeting on 1 August 2001, the Board resolved to carry out a restructuring of Merino New Zealand to establish a new grower-owned company, the New Zealand Merino Company Limited (NZMCL). That decision followed the recommendations of a report prepared by McKinsey & Co, which had been commissioned by the Board to consider the future options for the wool industry in terms of improving returns and reducing costs. Its final report had been delivered in June 2000. Its principal recommendation was that levy-funded promotion be discontinued and that some of the assets of the Board and Merino New Zealand be used as a foundation for new commercial wool-marketing companies. The report recommended that growers should be given the option to invest a portion of their share of the Board’s reserves in the proposed companies or to have their share of those reserves. The reserves were at that stage very substantial.
[275] McKinsey & Co was well aware of what Saxmere had been achieving. Indeed, it was very complimentary and held Saxmere up as an example of successful niche marketing.
[276] The McKinsey report was the subject of extensive consultation with growers, who strongly supported its recommendations. Nearly 70 per cent of Merino growers supported the use of reserves to provide capital for the new company. Such consultation was a statutory requirement.[143] In addition, the Board was required to take account of grower concerns when performing its functions.[144] In line with the views of the overwhelming majority, the Board resolved to cease levying growers for promotional purposes. The levy for the year from 1 July 2001 was set at two per cent instead of five per cent. The reduced levy was reserved exclusively for funding “industry good” initiatives.
[143] Section 8.
[144] Section 10.
[277] The Board also resolved, in line with the McKinsey recommendations, to pay to NZMCL by way of seed money more than $2 million.[145] Effectively, the Board was returning to Merino growers some of the levies those growers had over time paid to the Board.[146] Henceforth, it was to be NZMCL’s job to promote Merino wool. No further money from the Board could be expected in that regard, as the Board had determined, in advance of its foreshadowed demise, to get out of the business of wool promotion. For the short time the Board expected to remain, its focus was to be on research and development.
[145] The structuring of the sum invested does not matter for current purposes.
[146]According to the McKinsey report, $2 million of reserves, which it recommended should be allocated to the new entity, was “the equivalent of six months levy funding”; see further Miller J’s judgment at [87].
[278] Saxmere’s complaint about the capitalisation decision is strange. It did not at that stage have a specific application for funding before the Board. There is no reason to think, however, that a Saxmere application was precluded by the capitalisation decision: the Board after all at 30 June 2001 held growers’ reserves of about $109 million.[147] Of course, Saxmere would have been hard pressed to persuade the Board that more should be paid to it, given that, by this stage, pursuant to an agreement entered into earlier that year, the Board had repaid to Saxmere $91,000, being a refund of “the total of levies paid on Saxon Merino fibre purchased by and on which levies [had been] paid by Escorial”. (Escorial Co Ltd had by this stage taken over Saxmere’s business.) In a sense, the capitalisation decision achieved a similar refund of levies for Merino growers. The sum paid under the capitalisation decision was very much greater because there were many more Merino growers, who had paid over the years substantially greater levies than Saxon growers had. In fact, Saxon growers in one sense did better than Merino growers, as the Saxon growers would have been eligible for shares in NZMCL, which they could sell if they did not wish to be part of the new Merino promotional structure.
[147] Some of that was committed.
[279] Miller J found that the capitalisation decision was unlawful in that the Board had failed to carry out a proper s 6(6) analysis. There was no dispute that the Board had purported to carry out a s 6(6) analysis, but the Judge found it defective because “the Board gave no consideration to appointment of Saxmere or anyone else to perform an element of marketing services”.[148] I cannot accept that criticism. It ignores the fact that the decision was in line with the McKinsey report’s recommendations, which were the product of detailed consultation and expert analysis. The criticism ignores the fact that growers had been consulted about the plan and overwhelmingly approved it. It ignores the fact that what the Board was effectively doing was giving back to Merino growers some of their past levies so that the new marketing company had sufficient capital from which to continue Merino New Zealand’s promotional and marketing efforts, in much the same way that the Saxmere interests had had returned to them all their levies since 1999 so that they could promote, as they saw fit, Saxon wool. It was fundamental to the decision that the Board would not in future be levying for promotional purposes: how promotion was to be undertaken in future was very much up to NZMCL and Saxmere and their respective growers. They would have more money in their pockets with which to undertake promotion of the kind they thought best.
[148] At [93].
[280] Miller J went on to criticise the Board for giving “no consideration to the question whether Saxmere ought to receive reserve and investment funding in respect of Saxon wool that it acquired from its accredited growers”.[149] With respect, that is not correct. It overlooks the refund Saxmere interests had got earlier that year. Secondly, the Board’s Merino capitalisation decision did not preclude further decisions in favour of Saxmere or anyone else. A s 6(6) analysis did not require that all wool interests be treated equally and at the same time.
[149] At [95].
[281] For these reasons, I would allow the Board’s appeal with respect to this decision and would quash the declaration Miller J made in Saxmere’s favour with respect to it.
Private law causes of action
[282] I now turn to consider Saxmere’s private law claims, on some of which it was successful. All these claims were dependent on findings that the Board had acted unlawfully or unreasonably. Like Ellen France J, I have found that the Board’s actions were at all times lawful and reasonable. All the private law claims must therefore fail.
[283] In the circumstances, I prefer to express no view on the interesting issues of law which fell to be considered by Miller J, given his different findings as to the lawfulness of the Board’s actions. In choosing to say nothing on the law, I adopt the approach that commended itself to this Court on the first hearing.[150]
[150]Wool Board Disestablishment Company Ltd v Saxmere Company Ltd [2007] NZCA 349 at [73]–[74].
Solicitors:
Quigg Partners, Wellington for Appellant
Sue Grey Lawyer, Nelson for Respondents
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