| IN THE HIGH COURT AT WELLINGTON | ||
| BETWEEN | WAIKATO REGIONAL AIRPORT LTD | |
| Plaintiff | ||
| AND | HER MAJESTY'S ATTORNEY-GENERAL | |
| Defendant | ||
| Hearing: | 6, 7, 8, and 9 June 2000 | |
| Coram: | Wild J | |
| Appearances: | C M Wainwright and V O Tipoki (Buddle Findlay, Wellington) | |
| for the plaintiff. | ||
| H S Hancock and D R Ferrier (Crown Law Office, Wellington) | ||
| for the defendants | ||
| Judgment: | 14 February 2001 | |
[1] This judgment encompasses four proceedings heard together. All arise out of charges imposed by the Director-General of Agriculture and Forestry (the Director-General) for border control services provided at the regional international airports at Hamilton, Palmerston North and Dunedin (I will refer to these as "the regionals"). Two of the plaintiffs are the airport companies which, respectively, operate Hamilton and Palmerston North airports. The third plaintiff is South Pacific Air Charters Ltd, more commonly known as Freedom Air (Freedom), which operates scheduled international air services from all three affected airports.
[2] In the first proceeding (CP 156/98) Waikato Regional Airport Ltd (WRAL) seeks judicial review of two decisions by the Director-General fully to recover from WRAL the costs of border control services provided at Hamilton airport. Orders quashing those decisions are sought on various administrative law grounds, primarily that the charges were exacted unlawfully.
[3] In the second proceeding (CP 359/98) WRAL seeks to recover the $557,825.14 of charges it has paid to the Director-General. There are five causes of action. The first is money had and received, the second payment ex colore officii. I need not refer to the remaining causes of action. The Director-General counterclaims for judgment for the $275,221 of charges invoiced to WRAL, but which WRAL has declined to pay pending the outcome of these proceedings. The Director-General claims under s 135 of the Biosecurity Act 1993 (the Act), for breach of his contract with WRAL, and upon a quantum meruit.
[4] The third proceeding (CP 151/99) mirrors the first, but this time the plaintiffs are Freedom and Palmerston North Airport Ltd (PNAL). A similar range of causes of action is pleaded.
[5] The fourth proceeding (CP 152/99) is similar to the second, with Freedom and PNAL seeking to recover the $515,454.11 charges they have paid the Ministry of Agriculture and Forestry (MAF), and on similar causes of action. Again, the Director-General counterclaims for judgment for the charges he has invoiced to Freedom and PNAL, but which they have refused to pay. His causes of action are the same as those against WRAL, save that he adds a claim against Freedom for contractual indemnity and under the Contracts (Privity) Act 1982.
[6] MAF provides border control services free of charge at the three metropolitan international airports (Auckland, Wellington and Christchurch) and at two defence bases from which international flights are made (Whenuapai and Ohakea). It requires all regionals, and the airlines operating from them, to pay the full cost of the border control services it provides at those airports. The plaintiffs say that this differential charging is as unfair as it is unlawful. It is this complaint which lies at the heart of this case.
[7] Ten issues arise on the pleadings for determination. When it comes to considering the parties' opposing arguments, and to making decisions on them, I intend dealing in turn with each of these ten issues.
[8] The old legislative regime encompassing New Zealand's biosecurity comprised seven different statutes and many regulations made under them. Prominent among that legislation were the Animals Act 1967 and the Plants Act 1970. Although both contained typically wide regulation-making powers, including to impose fees and charges for anything authorised under the Acts, no such regulations were promulgated. Charging by MAF for services provided under the seven former Acts was discretionary, and represented an exception rather than the rule. The Crown funded the cost of services.
[9] The Biosecurity Act 1993 came into force on 26 August 1993. As its long title provides, it is an Act:
. . . to restate and reform the law relating to the exclusion, eradication, and effective management of pests and unwanted organisms.
[10] Part III deals with the importation of risk goods with the purpose of providing "for the effective management of risks associated with the importation of risk goods". Sections 17 - 19 deal specifically with the arrival of craft into New Zealand and s 30 and following with inspections of arriving craft.
[11] Section 135 is central to this case. It appears in Part VI, "Administrative Provisions", first in a section headed "Recovery of Costs". It provides:
135. Options for cost recovery
(1) The Director-General, every other chief executive, and every management agency, (hereafter in this section and in section 136 of this Act referred to as a recovering authority) shall take all reasonable steps to ensure that so much of the costs of administering this Act, including costs incurred as the management agency of a pest management strategy, as are not provided for by money appropriated by Parliament for the purpose are recovered in accordance with the principles of equity and efficiency in accordance with this section and the regulations.
(2) In determining appropriate mechanisms for the recovery of costs of a particular function or service, a recovering authority shall ensure that there is recovered any amount by which -
(a) The sum of -
(i) The costs of the function in the current year; and
(ii) Any shortfall in the recovery of the costs in the preceding year;
exceeds
(b) Any over-recovery of costs in respect of the preceding year.
(3) A recovering authority may recover costs of administering this Act and performing the functions, powers, and duties provided for in this Act by such methods as he or she or it believes on reasonable grounds to be the most suitable and equitable in the circumstances, including any one or more of the following methods:
(a) Fixed charges:
(b) Charges fixed on an hourly or other unit basis:
(c) Estimated charges paid before the provision of the service or performance of the function followed by reconciliation and an appropriate payment or refund after provision of the service or performance of the function:
(d) Actual and reasonable charges:
(e) Refundable or non-refundable deposits paid before provision of the service or performance of the function:
(f) Charges imposed on users of services or third parties:
(g) In the case only of the Director-General or some other chief executive, liens on property in the possession of the Crown.
[12] It is common ground that s 135(1) requires the Director-General to recover costs not covered by parliamentary appropriations, but to do so in accordance with "the principles of equity and efficiency in accordance with this section and the regulations". There are no directly relevant regulations. The Director-General may delegate his s 135 powers, but he must do so properly, in accordance with s 41 of the State Sector Act 1988. Cost recovery and resulting accountability are important areas.
[13] Section 135(2) specifies how the Director-General is to calculate the cost to be recovered. I accept the plaintiffs' submissions that, effectively, the Director-General must undertake a yearly accounting of the cost of each separate function for which he seeks to recover costs to ensure that there is not an historical over-recovery which continues undetected. Only the actual costs not covered by parliamentary appropriation are to be recovered.
[14] Section 135(3) requires the Director-General to recover costs by the method he believes on reasonable grounds to be most suitable and equitable in the circumstances. An inclusive list of options is set out.
[15] The plaintiffs correctly submit that the requirement of "equity" has the characteristics of fairness and even-handedness. It involves the Director-General considering relativity between users of the same services, particularly when they are in the same industry. The Director-General needs to consider whether it is fair for some users to pay, whilst payment is not required of others in the same business for identical services.
[16] The "efficiency" requirement requires little elaboration, and is not central to this case. It requires the Director-General to recover costs in a streamlined or business like manner. For example, a system where the costs of recovery exceed the amounts recovered would obviously not meet the requirement of efficiency.
[17] New Zealand currently has ten airports authorised as ports of first arrival. They include Auckland, Wellington, Christchurch (I will refer to these as "the metropolitans") and the regionals (Hamilton, Palmerston North and Dunedin).
[18] The three metropolitans and two defence bases are listed in the Eighth Schedule to the Act, with the consequence that, upon the passing of the Act, the Director-General was deemed to have approved them as ports of first arrival, pursuant to s 37(1) of the Act.
[19] Under the Act, the Director-General approved the three regionals (and others) as ports of first arrival.
[20] The scheme of the Act is that an approved place of first arrival cannot operate unless border control services are provided. They are provided by MAF whose officers have the role of inspecting passengers and luggage or freight arriving from overseas, looking for any risks to New Zealand's biosecurity.
[21] Parliament funds MAF's statutory functions by money appropriated under Vote Biosecurity, pursuant to s 4 of the Public Finance Act 1989. In each of the years relevant to this case, MAF's expenditure on border control has exceeded the moneys appropriated for that purpose by Parliament. Moneys appropriated by Parliament have ranged from 52.4 per cent to 58.7 per cent of total expenditure. In short, MAF has recovered from third parties roughly half of what it has spent on border control services.
[22] As already mentioned, MAF has allocated all the moneys appropriated by Parliament for border control services to the metropolitan airports: none has gone to the regional international airports.
[23] Early in 1994, Mr Bongiovanni, national adviser, border inspector of MAF's Regulatory Authority (MAF RA) delivered, to an industry conference in Wellington, a paper on the issues. In the course of this he advised those present that the new regime would involve full cost recovery for border agency services. In para [5] of his affidavit sworn on 12 February 1999 Mr Bongiovanni deposes that:
. . . All the industry players . . . were well aware that the Government required the new international airports to meet the cost of border control agency services.
[24] Hamilton was designated a port of first arrival on 24 July 1994. Kiwi Travel Air Charters Ltd (Kiwi) began unscheduled international flights from and to Hamilton in August 1994. In August 1995 Kiwi began scheduling those flights. Freedom began scheduled international flights from Hamilton and Dunedin in December 1995, and from Palmerston North in April 1996. Kiwi ceased its operations in September 1996.
[25] MAF did not initially charge for its border control services at Hamilton. On 17 June 1994 WRAL's chief executive officer, Mr O'Connor, wrote to Kiwi noting that MAF was handling those services with local staff and that Hamilton had been "advised that there is unlikely to be a cost recovery required". Mr O'Connor subsequently attended a meeting of border control agencies in Wellington in October 1994 at which MAF did not raise the possibility of charging for the border control services it provided at Hamilton.
[26] On 10 October 1994 Kiwi entered into a contract with WRAL containing a clause obliging WRAL to pay all Customs, aviation security and MAF costs. Mr O'Connor deposed in his 16 June 1998 affidavit that this clause was inserted at the insistence of Kiwi's solicitor, and was not an indication that WRAL expected MAF to start charging.
[27] In March 1995, the Cabinet committee on enterprise, industry and environment invited the Ministers of Agriculture, Customs and Forestry to provide an interim report on the reviews of border control and surveillance services, and sought the cooperation of their respective departments in achieving consistency relating to the funding of those services.
[28] On 21 June 1995 Mr Stone, head of international air services with the Ministry of Transport (the MOT), wrote to Mr Bongiovanni. Noting that Kiwi had applied for an international air service licence, he invited MAF to attend a meeting at the MOT on 28 June to discuss the resource implications, because Kiwi was proposing using airports other than the metropolitans.
[29] A significant exchange of emails within MAF occurred on 26 June:
(a) Mr Alexander (who worked under Mr Bongiovanni in MAF RA) instructed Mr Hyde, the (Auckland based) general manager of MAF Quarantine Services (MAF QS) "to set up a charging regime to cost recover for the services provided at new international airports". He stated:
MAF's position is quite clear:
The facilities required must be provided at no cost to the Crown and the use of staff vehicles, materials etc must be recovered.
"Facilities" appears to be a reference to the language of s 37 of the Act, dealing with approval of (air)ports as places of first arrival.
(b) Mr Hyde replied:
. . . I can understand why airport authorities have to provide facilities at no charge to the Crown but I am much less clear on the background (legal/annex 9/equity issues) of differentiating between the three international airports and two RNZAF airbases and Hamilton and Dunedin airport. Especially given that Kiwi Travel will be operating six scheduled services per week.
Before I attend the meeting I will need to have substantive details to support MAF's position on cost recovery for servicing.
Clearly Kiwi Travel will be seeking to make a political issue of Crown agency servicing if they are treated differently to other airlines/airports. The same sort of pressure will also come from lobby groups in the Waikato/Otago who are strong supporters of Kiwi Travel.
I don't think we should express an opinion on the matter until we make sure that we are on rock solid ground.
I'd appreciate your views.
(c) Mr Alexander responded:
. . .
Anything prior to the Biosecurity Act 1993 has continued on an historical basis.
. . .
The Biosecurity Act 1993 section 37 is clear that the Director General has to be satisfied with the facilities, systems and arrangements that are in place at no cost to the Crown. To my mind the provision of inspectors is part of the arrangements.
Section 135 is also clear in the obligation for MAF to recover as much of the costs as possible as are not provided for by money appropriated by Parliament.
The crown funding provided for the clearance is for AKL, WLG and CHC. This is even in the contracts. Any other arrivals should be cost recovered. (I suspect defence agencies are treated differently.)
. . .
There is no additional money to fund staffing and other resources at other than the three international airports. If it is not cost recovered then MAF cannot service aircraft at those airports.
. . .
Personally, I have difficulty with sending MAF staff up and down the country at the taxpayers expense so Kiwi Airlines can make money.
. . .
[30] On 28 June 1995 a meeting was held at the MOT on the implications for border control agencies of Kiwi's proposal to use Hamilton and Dunedin airports for trans-Tasman services. That meeting was attended by Mr Small, then operations manager (northern region) for MAF QS. In his affidavit sworn on 30 September 1999 Mr Small deposes that he advised the meeting that MAF shared Customs' concerns about the funding implications arising from Kiwi's expanded trans-Tasman scheduled services.
[31] Later in his affidavit, Mr Small states:
As you will be aware, Government agencies at the New Zealand border are concerned at the proliferation of new international airports which includes Hamilton.
These extra facilities are stretching resources and funding while central Government has a policy of decreasing their budget monetary allocations to the Department. The border agencies concerned are approaching the cabinet with a joint paper requesting an increased resource allocation to cover operations such as Kiwi International Airlines.
A development, while the above discussions were taking place, was the Ministry Quarantine Service was informed by the Ministry Regulatory Authority that the Government allocations, through the Authority, only covered the three existing international airports plus RNZAF Whenuapai and Ohakea. This being pursuant to the eighth schedule of the Biosecurity Act 1993. In effect this is interpreted as meaning approved international airports since 1993 are required to fund MAF border operations, either from their revenue or from the international airlines the airport services.
. . .
[After detailing costs of $8601.60 outlaid by MAF to date for providing border control services at Hamilton, the letter continued:] As you will appreciate, the above charges were not envisaged at the time of the Ministry approval of the international flights. It is requested that urgent consideration be given to payment of these charges. The charges per flight will continue pending the cabinet decision.
. . .
[34] An earlier, 13 July 1995, letter from Mr Small to the MOT had made it clear that the costs sought to be recovered were calculated under the regulations.
[35] Replying on 26 July Mr O'Connor said:
Obviously the Airport Company will have to meet these costs in future if that is how the rules operate. . . .
He reiterated that the charges were not envisaged and queried their retrospectivity.
[36] Subsequently MAF agreed to accept payment for past charges by way of proportionately increased charges for future costs.
[37] On 20 July 1995 the Minister of Transport wrote to the Minister of Agriculture advising that Kiwi had applied for an international air service licence (the first for scheduled air services from airports other than the metropolitans) and that Kiwi had advised it would pay for additional border control services its flights necessitated "at least on an interim basis pending a government decision on the funding of border functions at airports other than the current international gateways". The Minister noted that it was the first instance of a proposal to initiate scheduled services from such airports and that:
. . . Accordingly, it is now appropriate that a report on the designation of additional international airports, and associated funding implications, be prepared for consideration by the Cabinet Committee on Enterprise, Industry and Environment.
[38] On 1 August 1995 the Minister of Transport signed his approval to a paper recommending the issue of an international air service licence to Kiwi. This was the day after he had received Kiwi's assurance that it would meet the cost of border control services in the interim, "until the Government has completed its review [of] Government subsidies of border agencies within New Zealand".
[39] Clause 10 of the international air service licence issued to Kiwi provided:
10. Provision of Border Agency Activities The licensee shall ensure that, except for scheduled international services operated to/from Auckland International Airport, Christchurch International Airport and/or Wellington International Airport, all costs associated with the services authorised under this Licence incurred by New Zealand Customs, the Ministry of Agriculture and Fisheries Quarantine Service, the New Zealand Immigration Service, New Zealand Police and the Aviation Security Service, not met by airport companies, shall be refunded in full.
[40] The paper signed by the Minister of Transport had been prepared by Mr Bradbury, general manager of international relations in the MOT. Mr Bradbury noted in his paper:
6(k) . . . The Government will need to consider whether it is prepared to fund additional border facilities at regional airports such as Hamilton and Dunedin, or whether it will approve such use on the basis of full cost recovery, which would place New Zealand in contravention of its international obligations under Annex 9 to the Chicago Convention on International Civil Aviation, and could contravene the Convention itself.
[41] Jumping ahead somewhat, I note the treatment of Freedom's application for an international air service licence was similar, but not identical. Freedom applied on 20 May 1996. The approval of the Minister of Transport, Freedom's agreement to refund the cost of border control services, and the issue of the licence, all occurred on 6 August 1996. Unlike Kiwi's guarantee, Freedom's was not expressed to be interim, pending the government's decision on the funding of border control services at regional international airports.
[42] When Freedom began scheduled passenger services from the metropolitan airports and from Hamilton and Dunedin in December 1995 MAF, in meetings, emphasised to Freedom that MAF's services at Hamilton and Dunedin would be provided on a special and discretionary basis, entirely "user pays". It was explained to Freedom that this was because, unlike the metropolitans, Hamilton and Dunedin "were not formally gazetted as international airports".
[43] Thus, Freedom was paying for border control services at Hamilton and Dunedin but not at the metropolitans, although its operations out of all the airports were the same.
[44] At Hamilton Freedom paid WRAL $10 plus GST per incoming passenger for MAF and Customs charges. At Dunedin, MAF invoiced Freedom directly, the charges totalling about $600 plus GST per incoming aircraft.
[45] MAF emphasised the same position to Freedom when it began flying out of Palmerston North in April 1996. MAF has billed PNAL which has an "on-billing" arrangement with Freedom: a "facilities fee" of approximately $22 plus a landing charge of $3.80 per passenger and a landing charge of $380 per aircraft.
[46] The documentary evidence includes legal opinions provided to MAF by its own lawyers and by the Crown Law Office (the CLO) and subsequently made available to the plaintiffs.
[47] The plaintiffs claim relevance for these as demonstrating:
(a) How and when, in relation to the timing of the impugned decisions, MAF's understanding of the legal framework under which it was operating had developed.
(b) A determination on MAF's part to try and "paper over the cracks", after MAF had been alerted to the doubtful legality of its approach to charging.
[48] An opinion from MAF Legal on 12 February 1996 concluded:
MAF is not entitled to charge for inspection services at Auckland, Wellington, Christchurch, Hamilton, Dunedin or Queenstown on the basis of section 37(1).
Further analysis is required to examine whether cost recovery is possible pursuant to section 135 but it is thought unlikely that MAF's actions are justified under that section either.
[49] The discussion in the opinion contained these passages:
3. Although there are historical reasons for the two sets of airports being treated differently, in my view this difference in treatment is no longer justified. Although the airports have become designated ports of first entry by different methods, they are all now designated ports of first entry pursuant to the Biosecurity Act. This means that the Act applies equally and fully to all of the airports. Accordingly, if cost recovery is permitted pursuant to section 37(1) recovery should take place at all airports. Conversely, if the cost recovery is not justified then no airport should be charged.
. . .
14. Section 135 requires that cost recovery be carried out 'in accordance with the principles of equity and efficiency in accordance with this section and the regulations'. Since the regulations do not at present specifically authorise the required cost recovery it is difficult to see how cost recovery could be possible using section 135.
15. Linked to the above reason is the fact that no mechanism is in place on which to recover costs. Usually this is done in regulations. I have no information regarding how the inspection costs are calculated but the method used must be examined to ensure that whatever method is used is suitable, equitable and efficient. At present the requirement that collection be equitable may be problematic because of the different systems applying.
[50] The response of MAF RA (Mr Alexander) was to note that airlines using Hamilton, Dunedin and Queenstown had "not complained too bitterly about the charging regime imposed, although they must be aware that its legal basis is doubtful" and continued:
. . . They are probably concerned that the only legal option available to MAF in the short term is to withdraw the approval of these three airports as a place of first arrival.
[51] MAF did not consider the possibility of charging the metropolitans.
[52] On 23 February 1996 MAF asked the CLO:
If cost recovery is possible, can a differentiation be made between the two 'sets' of airports, so that some are charged and some are not, as presently happens? This differentiation would not be envisaged as permanent but would exist until a uniform cost recovery regime could be put in place.
[53] The CLO advised on 4 March 1996 that s 37(1) of the Act did not provide a legal basis for cost recovery at Hamilton, Dunedin and Queenstown. Section 135 might, but the CLO sought further information, in particular as to whether any regulations had been promulgated for the purpose, and whether there was any agreement between MAF and those paying for the border control services provided by it. The opinion suggested that various factors eg genuine historical reasons for the differential treatment and "an inevitable transition phase" for the new Act might "in administrative law terms tend to establish that there are genuine reasons for the difference in treatment which are not therefore arbitrary and discriminatory". But the opinion also emphasised that the difference in treatment "should be regularised as soon as practicable so that all parties in a similar position are treated the same".
[54] MAF sought further advice from the CLO on 19 March. The first question put to the CLO was:
Is MAF's action of cost recovery at Hamilton, Dunedin and Queenstown legally sustainable, using section 37(1) or section 135 of the Biosecurity Act 1993 ('the Act') as justification? Do you agree with MAF Legal's opinion dated 12 February 1996 on this issue?
[55] The CLO's second opinion of 28 March contains these conclusions:
(a) Section 37(1) of the Act does not provide legal justification for MAF's action of cost recovery at Hamilton, Dunedin and Queenstown.
(b) Section 135 of the Act provides a sufficient authority for MAF to impose inspection fee cost recovery charges.
(c) Section 135(1) was intended to give MAF maximum flexibility to cater for one-off isolated situations where the frequency/value duration of transactions did not justify promulgating regulations.
(d) "One would expect that in the case of long-term or permanent charging regimes regulations or levy orders would be used. Over time the Ministry should in the interests of equity seek to ensure that like users of consumer services such as inspection fees should be treated alike."
(e) Regulation 3 of the Biosecurity (Costs) Regulations 1993 does not provide a basis for the charges being imposed at Hamilton, Queenstown and Invercargill airports.
[56] On 21 February 1996, after advice from MAF Legal but before receiving the CLO's opinions, Mr Bongiovanni had prepared a briefing paper for the Director-General. He noted that MAF Legal advised there was no power to recover costs under s 37(1) of the Act, and that regulations were needed before recovery could legitimately be made under s 135. He noted also the advice that the current differentiation between the metropolitan and regional international airports was no longer justified: the Act applied equally and fully to all those airports.
[57] Based on his understanding that the Director-General lacked statutory power to recover costs, Mr Bongiovanni outlined four "key options" for the Director-General:
1. 'Status Quo': we'd have to get Ministerial sign-off on this one as it would seem we are ultra vires, plus (probably) formal documented agreement from the airlines and airport companies. The dangers, of course, come from bodies like the Regulation Review Committee, the Auditor-General et al, who would probably come down on us like a ton of bricks if they discovered what was happening. This is a possible short term option at least until we get the wider funding/cost recovery issue sorted out (hopefully by July 96).
2. Stop charging and seek additional Crown funding: Probably the 'correct' option, but a major challenge! This would probably make the airlines, etc happy, but opens the 'refund' can of worms. It may also only be a short term option if we go down the 'user pays' path.
3. Stop charging and find additional $'s within Vote Agriculture: The Minister of Finance solution. Obviously not one which is very palatable to us, but one we are going to have to explore.
4. Withdraw approvals and service: In reality this probably isn't an option.
[58] On 17 April 1996 Mr McKenzie (administrator, MAF RA) updated the Minister. His briefing paper noted that the "Aircraft and Passenger Clearance" contract between MAF RA (the funding body) and MAF QM (the service provider) specifically excluded the regional international airports. It also noted the CLO's advice that s 135 of the Act was available to recover costs "as long as this was done in accordance with the principles of equity and efficiency". The paper noted that "the wider issue of how much longer the inequity can remain . . ." was for discussion at an internal MAF meeting later in the week.
[59] It appears that meeting was held on 19 April. A set of "principles" was identified involving a contract for cost recovery under s 135 of the Act. The notes of the meeting record "our methodology has to be scrupulous".
[60] One of the participants in the meeting and subsequent discussion was Mr Hyde. In an internal MAF email on 13 February he stated "I have always been of the view that the charges are ultra vires" and in a similar email on 21 April added:
If the fees are legally sustainable under s 135 BSA [Biosecurity Act] there should be no need for a written contract between MAF and WRAL. We don't have contracts with any other clients who pay statutory fees. An exchange of letters though may be prudent.
The principal issue is that of the inequity of the charge. They will argue, why do MAF charge for clearing Freedom and Kiwi flights at Hamilton but do not do so when they arrive at Auckland. Not a bad argument but it is not with MQM.
I think Hamilton Airport are now sorry that they agreed to pay anything to MAF in the first place because it has created a precedent.
[61] Mr Bongiovanni deposes that, during April 1996, he and various MAF officials prepared a list of criteria derived from s 135 of the Act to apply to regional international airports. He states:
I also satisfied myself at the time that each of the requirements for cost recovery contained in that section were being met at Hamilton Airport.
[62] In April and May 1996, Mr Hyde wrote identical letters to each of WRAL, Freedom and PNAL enclosing an "agreement to meet the cost of the clearance of overseas aircraft and passengers at [the relevant] airport". The agreement (and I use the one with PNAL) provided:
The MAF Quarantine Service of the Ministry of Agriculture will provide quarantine clearances services at Palmerston North Airport for aircraft arriving from overseas or a co-terminal flight from a domestic airport. The number of officers to service a flight will be determined by the MAF Quarantine Service depending on the circumstances and specifications.
Since the costs of this service are not provided for by money appropriated by Parliament for the purpose, this cost will be recovered in accordance with section 135 of the Biosecurity Act 1993. The hourly charge per officer for these services is as already used in the Biosecurity (Costs) Regulations 1993 . . .
The charge also applies to travel to and from the airport and waiting time.
In accordance with section 136(2)(a) of the Biosecurity Act 1993 where all or part of the charge is unpaid after 20 working days from the date of invoice a 10% penalty may be charged. The Ministry reserves the right to withdraw all or part of the services should the charges not be paid in full.
Would you please sign and return to me an unaltered copy of this document.
Yours sincerely
Neil H Hyde
National Manager
MAF QUARANTINE SERVICE
I agree to meet the aircraft and passenger clearance charges invoiced by the MAF Quarantine Service as specified above. I have noted the conditions applying to late or non payment of charges.
Mr Garry Goodman
Manager
PALMERSTON NORTH AIRPORT LTD.
[63] Mr Goodman signed the agreement, but added:
Palmerston North Airport Ltd reserves the right to seek a review of these charges at a later date.
[64] Mr Robertson of Freedom signed the agreement unaltered.
[65] Mr O'Connor of WRAL responded in an 11 June letter marked "without prejudice" which expressed a number of concerns. These included the discrepancy between MAF's treatment of the metropolitan and regional international airports, MAF's inconsistent approach to cost recovery and what he termed the "confusing and misleading signals" given by MAF to WRAL over the past 15 months, which he stated had placed WRAL "in a position of potential commercial peril". Mr O'Connor added:
. . . The Airport Company might well have made different decisions had the full facts been disclosed by MAF at an earlier stage.
The letter concluded:
Subject to the above points and comments and without prejudice to the ability of the Airport Company to make further representations at whatever levels are appropriate, Waikato Regional Airport Limited agrees to meet the charges as proposed.
[66] Following these agreements both Mr O'Connor of WRAL and Mr Goodman of PNAL continued their attempts to have MAF change its system of cost recovery for border control services. The nub of their complaint to MAF was the unfairness of its different treatment of metropolitan and regional airports. I need mention only one or two aspects. Mr O'Connor provided to MAF in May 1997 a legal opinion WRAL had received, and posed various legal questions to MAF, pursuant to the Official Information Act 1982. He considers that he never got answers to these questions. Following a meeting in Wellington on 23 June 1997 with Messrs Fergusson and Alexander of MAF, Mr Fergusson wrote to Mr O'Connor on 1 July 1997. In this letter Mr Fergusson stated that the CLO had advised MAF that charging under s 135 of the Act for aircraft and passenger clearance was permitted. Mr O'Connor requested, and was eventually provided with, copies of the CLO's two opinions (4 and 28 March 1996) and that from MAF Legal dated 12 February 1996. In the face of those opinions, WRAL again involved its solicitors in correspondence with MAF.
[67] Mr O'Connor also sought political redress through WRAL's local MP and the Minister of Agriculture. On 21 July 1997 WRAL received a reply from the Minister for Biosecurity stating that he was expecting "shortly" to take to Cabinet a paper on costs recovery, following which there would be consultation "with a view to putting in place a more permanent cost recovery regime applicable to all international airports".
[68] On 12 August 1997 WRAL's then solicitors, Swarbrick Dixon of Hamilton, wrote advising the Director-General that they had instructions from WRAL to issue a proceeding seeking judicial review.
[69] In December 1997 a Cabinet committee paper on the "Funding of passenger and aircraft/seacraft clearance services" agreed to recommend that Cabinet:
(a) Note that current government policy provides funding for MAF and Customs only at the three main international airports, with international operations at the regional airports already provided on a full cost recovery basis;
(b) Note that the regional airports were aware when they commenced planning for international flight operations that full cost recovery for the services in question would apply and agreed to the regime;
(c) Agree that passenger and aircraft/seacraft clearance services at the national border be subject to a 100 per cent cost recovery regime;
(d) Agree that costs be recovered by way of a charge to the relevant port company for the costs of providing services at each location, unless significant implementation difficulties arise in the course of consultation with affected parties;
(e) Agree that the cost recovery regime be implemented with effect from 1 January 1999; and
(f) Agree that the current funding arrangements will continue until a new regime is implemented.
[70] Cabinet agreed to these proposals on 15 December 1997.
[71] In February 1998 WRAL was invoiced $25,728.58 (including GST) for border control services.
[72] On 10 March 1998 Buddle Findlay in Wellington, newly instructed by WRAL, wrote to MAF (Mr Fergusson, the assistant Director-General). Two significant paragraphs in this letter are:
9. Section 135 requires that the Director-General take all reasonable steps to ensure that costs are recovered in accordance with the principles of equity and efficiency. This requires that the Director-General fully consider what is required by the principles of equity and efficiency in the circumstances of each case. The decision by the Director-General in each of the 1995/96, 1996/97 and 1997/98 financial years indicates that the Director-General must have either:
(a) Formed the view that it was in accordance with the principles of equity and efficiency to require our client to meet the full costs of border control services while the airports listed in the Eighth Schedule were not required to do so; or
(b) Not considered the principles of equity and efficiency as required by section 135.
10. We would be grateful for your indication as to whether, and, if so, how, the Director-General applied the principles of equity and efficiency in forming the view that our client should meet the full costs of border control services at Hamilton Airport in each of the three financial years, and copies of any documents relating to that decision making process.
[73] The plaintiffs say that this letter may have been the catalyst to a "second decision" taken by the Director-General on 13 May 1998.
[74] This decision is in the form of a policy discussion paper dated 13 May 1998 written by Mr Fergusson for the Director-General. The paper ends with:
Conclusion
12. In conclusion, on balance, and given that Government has decided on a full cost recovery regime for the provision of these services, I recommend that you agree to continue the current state of affairs whereby costs are recovered only from the new airports or airlines (as the case may be) pending the introduction of full cost recovery as foreshadowed.
[75] Below this conclusion the Director-General crossed out "Not Agreed" and signed under the word "Agreed".
[76] Mr Fergusson deposes that this decision was indeed a response to WRAL's insistence for a decision under s 135 of the Act concerning cost recovery at Hamilton airport.
[77] This decision was conveyed by MAF to WRAL's solicitors, Buddle Findlay under cover of a letter dated 26 May 1998. The decision in its entirety was attached to that letter. The decision was not communicated to either of the other two plaintiffs.
[78] Buddle Findlay responded on 28 May alleging that the agreement had been arrived at in breach of the principles of natural justice, in particular because WRAL had had no opportunity to put its viewpoint before the decision was made.
[79] WRAL commenced its proceeding for judicial review (CP 156/98) on 18 June 1998, and its money claim (CP 359/98) on 3 November 1998. In the interim between the issue of the two proceedings, the parties negotiated, but without success.
[80] In February 1999 Freedom ceased paying MAF for border control services at Dunedin airport and in April 1999 PNAL ceased paying MAF for border control services at PNAL.
[81] On 11 June 1999 (ie a year after WRAL) Freedom and PNAL commenced their proceedings seeking judicial review and their money claims.
[82] Although the government had decided to implement a full cost recovery regime from 1 January 1999, that did not occur. There was a change of government in October 1999. I was informed by counsel that the present government does not support a full cost recovery regime for border control. The charging regime challenged by the plaintiffs in these proceedings continues in force.
[83] In summary, the important events are:
(a) June 1995: first decision by MAF (officials) to charge regionals.
(b) July 1995: charging by MAF of regionals begins.
(c) February 1996: MAF obtains internal legal advice.
(d) March 1996: MAF obtains advice from the CLO.
(e) April/May 1996: MAF enters into cost recovery agreements with the regionals.
(f) December 1997: Cabinet committee recommendation and Cabinet decision to recover 100 per cent of costs for border control services at all international airports ie from metropolitans as well as regionals.
(g) May 1998: second decision by MAF (by the Director-General himself) to continue recovering costs only from regionals.
[84] It was common ground that there were two, successive decisions by MAF to recover costs from one or more of the plaintiffs:
(a) A first decision made by MAF officials on or about 26 June 1995 to recover the full costs of border control services from all the plaintiffs.
(b) A second decision made by the Director-General on 13 May 1998 to recover (or continue recovering) full costs from new international airports.
[85] The second decision was conveyed only to WRAL, and the plaintiffs say that it therefore did not apply to Freedom or PNAL.
[86] The evidence in relation to the first decision comprises:
(a) Three internal MAF RA communications on 26 June 1995 Alexander/Hyde or Hyde/Alexander.
(b) The affidavit sworn by the then Director-General, Dr Russell Ballard, on 4 February 1999 in which he deposes:
. . .
17. MAF Regulatory Authority reported to me regularly on issues such as the appropriate level of funding of the level of services it wishes to purchase on my behalf with Government funds. I was aware at all times of the various cost recovery powers available to myself and the Ministry under the Biosecurity Act 1993 and of my obligation to ensure all reasonable steps were taken to ensure that to the extent costs were not covered by appropriations that they were recovered in accordance with the principles of equity and efficiency.
18. I was aware from the outset and approved of cost recovery being made at Hamilton which was, as already indicated, consistent with Government policy and economic constraints.
. . .
24. I have been asked by MAF's Office Solicitor (following inquiries by WRAL's solicitors) whether there is any document formally recording my approval as Director-General to the recovery of border control charges at Hamilton Airport; in particular recording steps taken leading to a decision under a specific part of the Biosecurity Act. I do not, after this length of time, recollect the existence or not of any such document.
25. However I definitely considered and approved the issue of cost recovery at Hamilton on a continuing basis at various times when it was being implemented. I was regularly briefed by my staff on this subject from the beginning of these additional Transtasman services and approved the action taken at each stage in terms of cost recovery. I was also satisfied that MAF's appropriations in the years concerned did not contain any funding for provision of services at the regional airports and could not be stretched to do so without compromising New Zealand's biosecurity. Likewise, I was satisfied that the charging was made in accordance with the principles of equity and efficiency as already discussed . . .
(c) The affidavit sworn on 12 February 1999 by Mr Bongiovanni, from which the following points emerge:
(i) In the initial stages of Kiwi's operation, he thought s 37 of the Act authorised MAF to cost recover at Hamilton airport.
(ii) He was also aware that "other provisions of the Act required MAF to recover the costs of administering its activities under the Act where these were not covered by appropriations".
(iii) In February 1996 he received legal advice about ss 37 and 135 of the Act, or specific new regulations, in relation to cost recovery at Hamilton and other regional international airports.
(iv) These topics were discussed at meetings in February - April 1996 which he attended with the Director-General and other MAF officials, to ensure the cost recovery was being done correctly.
(v) In April 1996, with other MAF officials, he prepared a list of criteria derived from s 135 of the Act to apply to any new designated airports. He satisfied himself at the time that each of the requirements in s 135 for cost recovery was being met at Hamilton airport.
(vi) "During the period" he was in regular contact with the Director-General, Dr Ballard, until Dr Ballard left MAF at the end of February 1996, and thereafter with Dr Ballard's successors.
(d) Mr Hyde's affidavit sworn 7 September 1999 in which (para 14) he confirms that Mr Alexander, working under Mr Bongiovanni, instructed him on 26 June 1995 "to set up a charging regime to cost recover for the services provided at new international airports".
[87] None of the witnesses in this proceeding was cross-examined.
[88] On the basis of this evidence I find that the first decision:
(a) Was made by Mr Alexander and/or his superior Mr Bongiovanni of MAF RA on or about 26 June 1995.
(b) Was not made with any direct input from the Director-General, nor was it approved by him, at least not in writing.
(c) Was probably one of which the Director-General was aware, at least in general terms.
(d) Was a decision to recover the full costs of border control services provided at the "new" (ie regional) international airports.
(e) Was a decision based on five considerations:
(i) Any services provided prior to the Biosecurity Act 1993 had continued on an historical basis, but any (new) services provided since 1993 had been cost recovered.
(ii) Section 37 of the Act required that facilities, systems and arrangements, which included the provision of inspectors, be at no cost to the Crown.
(iii) Section 135 of the Act obliged MAF to recover as much as possible of the costs not provided for by money appropriated by Parliament.
(iv) The moneys appropriated by Parliament were for border control services at Auckland, Wellington and Christchurch, and no additional money was available for services at other airports.
(v) A difficulty on the part of at least one of the decision-making officers at the prospect of employing MAF staff "at the taxpayer's expense so Kiwi can make money".
[89] The evidence of the second decision is straightforward. Mr Fergusson, then assistant Director-General in MAF, deposes that he was primarily responsible for the report upon which the second decision was based. The Director-General signed the report off as "Agreed".
[90] The considerations upon which the Director-General's decision was based are thus those in the report:
(a) No additional appropriations were provided to cover costs at regional international airports and government had decided that a cost recovery regime should apply until Cabinet resolved the issue.
(b) The two basic options were:
(i) A: To spread Crown funding and cost recovery over all international airports.
(ii) B: To continue recovering unappropriated costs from the new regional international airports.
(c) In the absence of a Crown appropriation, the Director-General was required to recover costs in accordance with the (s 135) principles of equity and efficiency, there being no applicable regulations. Equity relates to fairness to users, and efficiency to cost/benefits and efficient use of resources.
(d) Applying equity to these options:
(i) Option A might at first glance appear most equitable.
(ii) However, the metropolitan international airports had been established on the basis of no cost recovery, and would consider it inequitable that they be required to meet part of the costs of their competitors' entry into the market.
(iii) The economic costs of managing the biosecurity risk were appropriately borne by those creating it, and the new regional international airports had both increased the biosecurity risk and imposed additional costs in managing it.
(iv) The government shift to user pays underpins the cost recovery policy at regional international airports.
(v) All international airports are responsible for some mix of cost recovery services, but the new regional international airports were able to factor in the direct costs whereas the established airports could not.
(vi) Airport companies recover these costs from the airlines, which affects their relative attractiveness as service providers.
(e) Applying efficiency:
(i) It is inherently more efficient to recover costs from a smaller rather than a larger number of airports, but that alone does not justify option B.
(ii) Recovery of part of costs at all airports would encourage efficiency.
(iii) The transaction costs of a new regime would be very large relative to the amounts recovered.
(iv) The systems at Auckland, Wellington and Christchurch are well established and enable effective and cost efficient services to be maintained on an ongoing basis.
(v) In contrast, the regional international airports present a discontinuous flow of passengers and are consequently more difficult to service. Thus, the government and MAF were presented with greater risk and less efficient service requirements. It might well have been appropriate to respond that quarantine services would not be extended beyond the established locations. Such a restriction would not be consistent with the government's open skies policy but it does not follow that the Crown should accept reduced efficiency in the provision of essential biosecurity services.
(vi) It would be inefficient for New Zealand to pay for duplicated border clearance at regional international airports when there are adequate services at metropolitan international airports. If the former bear the costs, then the direct costs of inefficiency are borne by those responsible for them.
(vii) With airports bearing a proportion of the costs, there is increased incentive for "best practice" with resulting net economic gains.
(viii) The recovery of costs only from those considering new investment in new airport facilities will encourage rational decision making as to the need for new airports.
(ix) Recovery only of actual and reasonable costs is not a tax.
(f) "12. In conclusion, on balance, and given that government has decided on a full cost recovery regime for the provision of these services, I recommend that you agree to continue the current state of affairs whereby costs are recovered only from the new airports or airlines (as the case may be) pending the introduction of full cost recovery as foreshadowed."
[91] WRAL's case is that costs could be recovered from it only under, and in accordance with, s 135 of the Act, which is a code. WRAL submits that neither of the two decisions to recover from it the full cost of border control services were made in accordance with s 135. It contends that both decisions are accordingly bad in law and should be quashed.
[92] As to the Director-General's first decision, WRAL submits that he made the following errors of law:
(a) It was not made by the Director-General or under proper delegation from him.
(b) The decision-maker (Mr Alexander) was factually wrong in asserting that all new services (ie those at regionals) since 1993 had been cost recovered: those at Hamilton had not been.
(c) Mr Alexander was also wrong to state, or infer, that the Crown's funding was for Auckland, Wellington and Christchurch.
(d) Mr Alexander was wrong to view s 37 of the Act as a legal basis for recovery.
(e) In addition, he was wrong to state that s 135 contained "the obligation for MAF to recover as much of the costs as possible as are not provided for by money appropriated by Parliament".
[93] In respect of both the first and second decisions, WRAL submits that the Director-General made errors of law in viewing s 37 and the Eighth Schedule of the Act as obliging him to apply money appropriated by Parliament only to the Eighth Schedule airports. He also erred in law in failing in both cases to apply s 135 correctly.
[94] WRAL contended that the Director-General's first and second decisions were flawed, both in that he had overlooked relevant considerations and in that he had been influenced by irrelevant considerations. WRAL argued that the following five relevant considerations had been overlooked:
(a) The unfairness of applying charges to WRAL without notice and retrospectively.
(b) The equity of recovering costs of providing border control services only from the regional international airports.
(c) The efficiency of recovering costs only from the regional international airports.
(d) The requirement to reconsider annually whether cost recovery for border control services was necessary, and if so to what extent, and from whom costs should be recovered.
(e) The requirement to select a method of cost recovery by reference to whether it is believed on reasonable grounds to be suitable or equitable.
[95] In addition to these five considerations which were common to both decisions, WRAL alleged that, insofar as the Eighth Schedule airports were a consideration relevant to the second decision, the Director-General had only taken into account the circumstances of the metropolitans. He did not take into account Ohakea and Whenuapai, which, like the regionals, have discontinuous passenger flows but which were nevertheless not considered eligible for cost recovery for border control services.
[96] WRAL alleged that the Director-General took into account two irrelevant considerations in respect of the first decision:
(a) The prevailing government policy to reduce parliamentary allocations, and the Director-General's belief that government had made a policy decision that money voted by Parliament was to be allocated only to the Eighth Schedule airports, and that new international airports were only to be approved at no cost to the Crown, except to the extent that that policy had been enacted in the legislation.
(b) Mr Alexander's disinclination to send "MAF staff up and down the country at the taxpayers' expense so Kiwi Airlines can make money".
[97] As to extraneous matters, WRAL argued that the following influenced the Director-General's second decision:
(a) It had the false premise that government had decided to recover costs at regionals until Cabinet decided upon the issue of costs recovery generally. There was no such government decision.
(b) Parliament had not tagged its appropriation for the metropolitans, but merely for border control services generally. So Mr Fergusson was wrong to refer to "the absence of a Crown appropriation", only in relation to the regionals.
(c) It was factually incorrect to say that only metropolitans had been set up on the basis of no cost recovery: WRAL had been established and had operated for six months before MAF imposed charges, prospectively and retrospectively.
(d) It treated government policy to move toward full cost recovery as justification for continuing to recover costs only from regionals in the interim.
(e) In analysing equity in terms of risk: persons increasing biosecurity risk should meet the costs of controlling that increased risk.
[98] The Director-General submitted this case was about whether the taxpayer should fund the plaintiffs' commercial activity. He argues this is a policy issue to be determined at the political level, and is not an issue of law appropriate for judicial review. He reinforces this submission by pointing to the plaintiffs' lobbying at a political level, which he says was and remains their correct method of redress.
[99] Amplifying, the Director-General argued that it is a legitimate and reasonable policy for government, in a small country like New Zealand with only three and a half million people, to decide that only border control services in the three main international airports will be provided at taxpayers' expense. The plaintiffs have no absolute right to any particular share of limited government funds.
[100] At a legal level, the Director-General focuses on s 135, arguing that the plaintiffs' case misinterprets and misapplies it. Specific points are:
(a) The meaning of s 135 must be ascertained from its context in the Act, which has the purpose of enabling the Crown to safeguard New Zealand from unwanted pests and organisms. See s 5 of the Interpretation Act 1999.
(b) The Act as a whole shows that Parliament has endorsed cost recovery as a biosecurity funding mechanism.
(c) The plaintiffs' interpretation of s 135 is excessively and unjustifiably literal. If upheld, it could well deprive s 135 of much, if not all, of its effect. As a matter of proper and responsible public financial administration, s 135 must be made to work. There is no warrant to interpret it in a way which makes its operation impractical, through "paralysis by analysis".
(d) Section 135(1):
(i) Does not require the Director-General formally to delegate. It is sufficient that he ensure his officials are undertaking the "reasonable steps" required by s 135(1) on his behalf, so that he can report accordingly to the Minister.
(ii) Is expressed in mandatory terms.
(iii) Does not require "some contextual knowledge of Parliamentary appropriation procedures".
(iv) Permits cost recovery even if there are no applicable regulations. Parliament intended the Act to give the Director-General a wide and flexible range of cost recovery options.
(v) The words "principles of equity and efficiency" should not be read up so as to override the Director-General's fundamental obligation to recover costs, but as a guide to his fulfilling that obligation. The words are terminology commonly used by economists in formulating cost recovery models. As explained by Mr Farley, a consulting financial analyst who gave affidavit evidence for the Director-General, these words can have a range of valid interpretations, and the Director-General's application of the principles is well within that range.
(e) The plaintiffs' submission that s 135(2) requires MAF to carry out an annual accounting reconciliation is incorrect. It merely requires that the recovery mechanism selected take into account the possibility of an under/over-recovery enabling catch-up in the following year. In some legitimate cost recovery mechanisms, a periodic overs and unders exercise will be inappropriate eg hourly charge-out rates.
(f) As to s 135(3):
(i) It gives the Director-General a wide discretion as to which cost recovery option he selects: the Director-General is to choose the method he believes "on reasonable grounds to be the most suitable and equitable in the circumstances".
(ii) The combination of methods chosen by the Director-General for charging the plaintiffs is reasonable. It is a "pay as you go" system obviating annual shortfalls in recovery or any over-recovery.
(iii) Section 135(2) therefore does not come into play, as it would if the Director-General had selected, for instance, the method permitted by s 135(3)(c).
[101] Section 136 is important. Its severity (an automatic 10 per cent "surcharge" in the event of non-payment after 20 working days):
(a) Reinforces the imperative of cost recovery (the Director-General reiterates the point made in para [21] that recovery costs approximate 50 per cent of MAF's relevant total revenue) and the protection of public revenue; and
(b) Argues against a rigid interpretation of s 135.
[102] The Director-General does not accept that the plaintiffs' failure to pay is as "a result of a genuine dispute" within s 136(3).
[103] Any breach the Court may find in the requirements of s 135 is insufficient to overcome the strong legislative imperative in the Act of cost recovery, and/or to justify granting the plaintiffs relief. In particular:
(a) The plaintiffs have always known of the requirements of cost recovery and have budgeted for them.
(b) In many cases they have passed on the MAF charges to customers. Where they have, there is no prejudice to them.
(c) Even where they have not, to allow the plaintiffs to avoid paying the charges for the MAF services they have requested and consumed is to give them an unearned bonus. It would be unfair to other taxpayers who would be required to subsidise the plaintiffs' business operations: Wang v. Commissioner of Inland Revenue [1995] 1 All ER 367 (PC) at p 377.
The Director-General relied here on the "sufficient importance principle" of administrative law. As explained in de Smith, Woolf and Jowell's Judicial Review of Administrative Action (5th ed, 1995), at pp 267 - 272, this principle emphasises that not every breach of a statutory provision should warrant judicial intervention. It is a matter of determining the importance of the provision in achieving the objects and purpose of the Act, and of assessing whether the breach has adversely affected the rights or interests of individuals it was intended to protect:
. . . Judicial discretion is employed here to balance fairness to the individual against the general public interest. The task, however, of deciding the force of a statutory provision does not involve judicial discretion. It involves the faithful construction of the objects and purposes of an act of Parliament in the context of the particular decision. Although aspects of public policy may play a part in this exercise, it would be wrong of the courts to impute any general implication that Parliament may intend administrative inconvenience to excuse in advance the violation of its statutes. (de Smith, pp 271 - 272).
[104]
(a) Even where the Court finds that a decision is a nullity, it may in its discretion limit the remedy eg by granting it only prospectively (eg Talley's Fisheries Ltd v. Minister of Immigration (High Court, Wellington, CP 201/93, 10 October 1995, McGechan J)) or withhold it altogether.
(b) Reasons for adopting one or other of those courses here include:
(i) The serious prejudice to the public accounts and unfairness to other taxpayers if payments already made are to be refunded, or invoices rendered but unpaid are not paid.
(ii) The unmeritorious gain to the plaintiffs' businesses where they have been able to pass on charges to their customers.
(iii) The conduct of all plaintiffs amounts to acquiescence ie their delay, negotiation, compromise, agreement and payment of some charges, while seeking relief at a policy level.
(iv) The late arrival of Freedom and PNAL on the "litigation scene", their having seen that WRAL seemed to be getting away without paying, should be viewed as opportunism.
(v) The ability of WRAL and PNAL to pass on charges to the airlines, or "bypass" them altogether. Both WRAL and PNAL did not do this for commercial reasons. For example, writing to Freedom on 10 July 1997 WRAL stated:
This Airport Company has opted to continue meeting the border charges at Hamilton Airport, subject to other arrangements on co-terminal flights, on the basis that we wish to provide a commercially level playing field between Hamilton Airport and the international airports of Auckland, Wellington and Christchurch.
And in his affidavit Mr Goodman of PNAL deposed:
9. I took on the role of dealing directly with the border control agencies so as to relieve Freedom Air of that chore.
(vi) The airlines (Kiwi and Freedom), as a condition of their respective air service licences, were required to meet the costs of border control services.
(vii) The grant of the remedy sought by the plaintiffs is futile. MAF would be left with a shortfall which it would be obliged to recover. Unless the Court directs otherwise, the plaintiffs, as users of the services provided, would be the prime candidates for meeting that shortfall under s 135. Relevant to the exercise, afresh, by the Director-General of his s 135 powers is s 16 of the Interpretation Act 1999 which provides:
16. Exercise of powers and duties more than once
(1) A power conferred by an enactment may be exercised from time to time.
(2) A duty or function imposed by an enactment may be performed from time to time.
[105] There can be no dispute that administrative decisions must be made in accordance with the law. The decision-maker must correctly understand and exercise the decision-making power. Thus, its exercise must be in terms of any criteria laid down in the applicable law. The decision-maker must exclude considerations which are not in the law. As Cooke J said in CREEDNZ Inc v. Governor-General [1981] 1 NZLR 172 at p 179:
The only relevant question can be whether at the time [of the decision] the [decision-makers] genuinely addressed themselves to the statutory criteria and were of the opinion that the criteria were satisfied.
And Richardson J in the same case at pp 196 - 197:
The discretion reposed in the [decision-makers] is to be exercised within the powers conferred on [them] and so in terms of the criteria laid down in the legislation . . . [they] must act according to the law . . . They must call their attention to the matters they are bound by statute expressly or impliedly to consider and they must exclude considerations which are on the same test extraneous.
[106] Other leading cases include R v. Hull University Visitor, ex p Page [1993] AC 682 (HL); Council of Civil Service Unions v. Minister for the Civil Service [1985] AC 374 (HL); Bulk Gas Users Group v. Attorney-General [1983] NZLR 129 (CA); and Secretary of State for Education and Science v. Tameside Metropolitan Borough Council [1977] AC 1014 (HL).
[107] Relevant considerations may be either mandatory or permissible in terms of an Act. Permissible considerations are more common where the legislation gives very broad criteria for the decision-maker to follow. This is the case with s 135, which refers the decision-maker for guidance only to the principles of equity and efficiency. As Joseph points out in Constitutional and Administrative Law in New Zealand (1993) at p 680:
Where the criteria are not exhaustive or where none is specified, considerations relevant to the exercise of discretion may be gleaned from the subject-matter, purpose and scope of the empowering provision in the context of the legislative scheme.
Section 135 does not give an exhaustive list of criteria for the Director-General to take into account when making his decision. Thus, he has a considerable amount of discretion as to which matters he thinks relevant in reaching that decision. However, he is still constrained by the subject-matter, purpose, scope and context of s 135.
[108] The principles of equity and efficiency may come into conflict in the decision-making process. For example, the most equitable method of cost recovery may not be the most efficient. The New Zealand cases regard the weight to be given to competing relevant considerations as generally a matter for the decision-maker: Behari v. Minister of Immigration [1990] 3 NZLR 558 (CA) at p 562; New Zealand Fishing Industry Association Inc v. Minister of Agriculture and Fisheries [1988] 1 NZLR 544 (CA) at p 568; and Valuer-General v. Wellington Rugby Football Union Inc [1982] 1 NZLR 678 (CA). In terms of balance, the plaintiffs submitted that the test is whether the Director-General "focused adequately" on the critical issues: Jenssen v. Director-General of Agriculture and Fisheries (Court of Appeal, CA 313/91, 16 September 1992) at p 8.
[109] New Zealand Society of Physiotherapists v. Accident Compensation Corporation [1988] 2 NZLR 641 (CA) and Wahrlich v. Bate [1990] 3 NZLR 97 were cited by WRAL as demonstrating that the relevance or weight to be given to financial constraints will depend on the nature of the decision and the context in which it is exercised.
[110] I have no difficulty in accepting the Director-General's submission that s 135 is to be interpreted so that it works, avoiding "paralysis by analysis". I do not regard its wording as difficult, and accept that it gives the Director-General considerable discretion, for instance as to the method(s) of recovery he adopts.
[111] I hold that the first decision was not made under, nor in accordance with, s 135. There are two main reasons for this:
(a) I cannot view it as one made by the Director-General, or under proper delegation from him. I accept that formal delegation is not required by s 41 of the State Sector Act nor by s 135 itself. But I consider that the Director-General needed to be involved in the decision making, not simply aware that it was taking place. There is no evidence that he required the decision to be made, directed who was to make it or had any input into its making. The Director-General deposes only to a general awareness that it was made. The stress Mr Hancock placed on the importance - he suggested critical importance - to MAF and the public revenue of cost recovery I think underlines the need for the Director-General to be involved. The decision involved money and therefore financial accountability. I find it significant that the Director-General was involved in the second decision. The financial implications were of considerable, if not equal, importance to those required to meet the cost. The fact that the decision was not made by the person required to make it, or by someone acting under proper delegation from him, is an initial, fatal flaw.
(b) It was based, at least until MAF received legal advice, on s 37(1) and was not made in terms of s 135. The principles of equity and efficiency were not addressed. In fact, they were not even mentioned. Rather, the decision was based on considerations which were erroneous and/or irrelevant. An example of the former is the incorrect assumption that moneys appropriated by Parliament were for Auckland, Wellington and Christchurch. This is not correct. The moneys appropriated by Parliament in Vote Agriculture for Border Inspection and Quarantine Services were never allocated or "tagged" to any specific airport(s). This error meant that Mr Alexander focused only on recovery from the three regionals and never addressed whether there should be partial recovery from all international airports. The consequence was that equity could never properly be addressed. Mr Warren gave affidavit evidence for the Director-General. He is the chief accounting officer of the Treasury. He is a chartered accountant with some 14 years' experience in the area of public finance. He deposed:
17.2 The appropriations make no distinction between the Eighth Schedule airports and subsequent regional airports such as Hamilton's international airport. However the Government's action in not increasing its own funding of MAF's services at the new airports, as noted in Ballard's affidavit, and confirmed in the Estimates of Appropriations themselves, shows that MAF was expected to fund these services by charging the users, that is the airports or airlines concerned.
[112] Whilst I follow Mr Warren's point, I am unable entirely to accept it. Another, and I think equally valid, interpretation of government's action is that it expected MAF, when and to the extent that appropriations fell below costs, to recover in accordance with s 135 the difference from the users of all services.
[113] Mr Farley makes the same point. I will refer to his evidence in more detail in dealing with the second decision. But, again, I do not entirely accept what he says. None of Parliament's appropriations, the Minister's annual purchase agreement with the Director-General, nor the annual MAF RA/QM annual contracts were airport specific. I accept that, by its increased total appropriations (ie total of revenue Crown and revenue other), Parliament authorised MAF to provide border control services at the new regional international airports and made it explicit that cost recovery would provide an essential part of their funding. This is the point made by Mr Farley in para 45 of his affidavit. But I am not able to accept that Parliament intended MAF would recover costs only at the new regional international airports. That is the point Mr Farley makes in para 48:
48. . . . From a consideration of the surrounding circumstances, I consider it is clear that the Parliamentary appropriations intended cost recovery and not Crown funding to be the means of funding MAF passenger clearance at the new regional international airports.
I regard this as a non sequitur.
[114] Another instance of an irrelevant consideration in the first decision is Mr Alexander's "difficulty with sending MAF staff up and down the country at the taxpayers' expense so Kiwi Airlines can make money". It is not easy to see why he should have any less difficulty in deploying MAF staff at Auckland, Wellington or Christchurch airports, since all are commercial enterprises, the first a company listed on the New Zealand Stock Exchange.
[115] The first decision is bad in law and I quash it.
[116] The second decision is a different proposition. It squarely addressed s 135 and its requirements.
[117] I intend approaching this decision in two ways. First, by considering the plaintiffs' challenges to its validity. Secondly, by measuring the decision against the evidence of Mr Farley for the Director-General, as to what an application here of the principles of equity and efficiency would have involved. As I have pointed out, the second decision took the form of a policy discussion paper prepared for the Director-General by Mr Fergusson, and signed by the former as "Agreed". Thus I take, as the considerations influencing the decision, the content of that discussion paper.
[118] I have set out in para [94] above the five relevant considerations which WRAL contends the Director-General overlooked. The first of these really encompasses two considerations, notice and retrospectivity. Although s 135 contains no requirement that a cost recovery decision be notified, the second decision was notified to WRAL (as somewhat obviously it had to be). WRAL submits that if MAF intended the second decision to act retrospectively (which is unclear) then that is unfair. The Director-General appears to have treated the second decision as validating MAF's previous cost recovery: it was sent to WRAL in response to its request for justification of MAF recovering border control costs only from the regionals. Presumably, then, the Director-General intended it to act retrospectively. Decisions of judicially reviewable bodies are not subject to the same presumption against retrospectivity as is legislation. There is an assumption that charges can be fixed retrospectively: Wellington International Airport Ltd v. Air New Zealand [1993] 1 NZLR 671 (CA) at p 681 and Attorney-General v. Steelfort Engineering Co Ltd (1999) 1 NZCC 61,030. However those were not cases where there had previously been a failure to adhere to a statutory decision-making process which the decision-maker was trying to validate retrospectively. To allow the second decision to operate retrospectively would be to condone the lengthy period of unlawful cost recovery that had preceded it.
[119] The second and third considerations essentially allege that the Director-General failed to take into account the principles of equity and efficiency. I intend dealing with those essential considerations when I turn to Mr Farley's evidence, in particular in para [136] below.
[120] The fourth consideration is a reference to s 135(2). I do not accept WRAL's argument that this provision requires the Director-General to make a detailed calculation to ensure he is not over-recovering from service users and that it is a mandatory consideration. The plain reading of s 135(2) is that it places on the Director-General the obligation of ensuring that he recovers the whole amount of any shortfall in funding with reference to amounts recovered from all sources in the previous year. This is an obligation to recover money, not to have regard to who should pay it and in what proportion. That decision should already have been made by the Director-General in accordance with the principles of equity and efficiency.
[121] The fifth consideration refers to s 135(3). MAF officials based the charges imposed on the regulations, although they were not "regulations" in terms of s 135(1). The Director-General took into account the methods suggested in s 135(3), using a combination of them to effect cost recovery and then using existing levels of charging for comparable services as a reference point to determine reasonableness. I do not consider he failed to take into account the s 135(3) requirement.
[122] In terms of the sixth consideration (para [95] above), the circumstances of the Eighth Schedule airports were potentially relevant to the decision-making process, for example in determining what level of cost recovery at each airport would be equitable. But WRAL is correct in observing that, where the issue of a discontinuous flow of passengers was raised as a reason for cost recovery only at the three regionals, Ohakea and Whenuapai were not considered, although they would have been particularly relevant.
[123] The five extraneous matters which WRAL alleges influenced the Director-General in his second decision are set out in para [97] above. As to (a), I accept the plaintiffs' submission that any government decision to recover costs at regionals only until Cabinet decided upon the issue of costs recovery generally must also be one made at Cabinet level. There is no evidence of any such decision, whether at Cabinet or ministerial level, and I find that none had been made. Rather, I accept that successive MAF officials had taken the view that costs should be recovered only from the regionals in the interim. The letter from the Minister of Transport to the Minister of Agriculture which Mr Fergusson attached to his paper is not attached to the copy in evidence before me. As there is no reference to the date of the letter, it is difficult to identify it. The plaintiffs say that the letter was the Ministry of Transport's report dated 31 July 1995 recommending the grant to Freedom Air of an international air services licence. The Minister of Transport approved that on 1 August 1995. That report does not meet the description in the letter attached by Mr Fergusson, and I am unsure whether the plaintiffs' submission is correct. If it is, then I accept that that report refers to the fact that a government decision is pending, rather than itself constituting such a decision.
[124] I accept the plaintiffs' second criticism: Parliament had not tagged moneys appropriated as being only for the metropolitans, but rather as for border control services generally. Mr Fergusson was thus wrong to refer to an absence of "appropriations . . . to cover costs at these (ie the regionals) airports" and/or to "the absence of a Crown appropriation for the regionals".
[125] I accept the plaintiffs' third criticism, that Mr Fergusson was factually incorrect in saying that only metropolitans had been set up on the basis of no cost recovery. Initially, that was WRAL's position also. I see deeper error in this part of the decision. Mr Fergusson's paper states:
The new regional airport companies were able to factor the direct costs into operational and financial planning on establishment whereas established airports could not.
I regard this as confusing establishment with operating costs. As with most commercial operations, airports' operating costs vary constantly and all must have financial systems to handle and factor in costs. Mr Fergusson also stated:
The existing airports would consider it inequitable that they be required to meet part of the costs of their competitors' entry into the market.
This is an odd distortion of option A (spreading Crown funding and the incidence of cost recovery over all international airports). Option A involved metropolitans meeting part of the costs of providing border control services to them ie to the extent that they were not covered by government appropriation. I do not follow how metropolitans could say option A required them to meet part of the costs of providing services to regionals. Having pointed to metropolitans' inability to factor in the costs of border control services, Mr Fergusson then immediately contradicts himself by stating:
It should be noted that the airport companies recover these costs from the airlines . . .
In short, I regard this aspect of the decision as marred by illogical and faulty reasoning.
[126] The plaintiffs' fourth criticism is an overlapping one. It is that the Director-General was wrong to treat government policy to move toward full cost recovery as justification for continuing to recover costs only from regionals in the interim. First, the plaintiffs say that the Director-General's consideration of equity was to be a principled one, unaffected by the reaction of airports to cost recovery. Thus, for metropolitans to "consider it inequitable that they be required to meet part of the costs of their competitors' entry into the market" was as extraneous as it was unjustified. Secondly, any such feelings of inequity were the more irrelevant because of government's intention to move toward recovering 100 per cent of costs from all airports. How could metropolitans consider it unfair for MAF to start recovering from them some of the costs of border control services provided to them, when it was moving toward recovering all of those costs? There is irresistible force in the plaintiffs' submission that, in the interim until full cost recovery was implemented, it would make more sense, and involve no inequity, to start requiring the metropolitans to meet some of the costs of services provided to them. I agree with the plaintiffs that there is erroneous and illogical reasoning on these aspects also.
[127] The plaintiffs' fifth and final criticism of the second decision is in its analysis of equity in terms of risk. Mr Fergusson's paper states:
Cost should be borne by those who create the risk . . . The economic costs of managing the biosecurity risk is appropriately borne by those who create the risk . . . There has been a shift in philosophy from Crown funded to individual responsibility and user pays. This approach underpins the cost-recovery policy for border clearance services at regional international airports . . .
Accepting that, the plaintiffs ask how it argues for, rather than against, continuing cost recovery from regionals only. They point out that the Director-General, in para 22 of the affidavit he swore on 4 February 1999, deposed:
I also considered that my strategic priorities in terms of critical border control and inspection services were at the major international airports, particularly Auckland and Christchurch which had arrivals from high risk destinations. I simply could not diminish or dilute staff and funds from these high risk airports to provide Hamilton, an airport servicing passengers from a lower risk destination (Australia), with a lower or no-cost service. . . .
The plaintiffs say this suggests that a greater part of the cost of border control services should be recovered from the high risk-creating metropolitans, rather than no costs at all. I agree.
[128] The Director-General's second decision may still stand if the irrelevant considerations just discussed did not materially influence it. In Poananga v. State Services Commission [1985] 2 NZLR 385 (CA) at pp 393 - 394 Cooke J said that the acid test can only be materiality: whether those irrelevancies really influenced the Director-General's decision, or whether he would have decided as he did "but for" those extraneous matters.
[129] The Court of Appeal in Poananga made it clear that Courts will be careful to ensure that decision-makers do not feign authorised purposes by concealing the true reasons. Here, I have held that the Director-General was influenced - and wrongly so - by his perception that government policy was to recover border control costs only from the regionals. I say wrongly, because that perceived policy was contrary to the requirements of s 135. In relation to justifying a decision on policy grounds, Davison CJ in Dannevirke Borough Council v. Governor-General [1981] 1 NZLR 129 at p 134 adopted the English approach:
Such policy is not the policy of the Act but is a matter of political policy which does not justify a departure from the purposes and policy of the Act.
[130] Adherence to perceived government policy could not justify, in the interim, cost recovery which was fundamentally inequitable. If the Director-General wanted to await a final decision by government, then he effectively precluded himself from any cost recovery in the interim.
[131] In my view the irrelevant considerations which I have held influenced the Director-General did materially affect the second decision, because they effectively excluded the metropolitans from the Director-General's consideration in terms of s 135.
[132] I consider there is also force in two general criticisms the plaintiffs make of the second decision. The first is that it is a rationalisation of or justification for the status quo, rather than a genuine and open-minded attempt to make a decision in terms of s 135. The plaintiffs' submission put it this way:
. . . MAF was still locked into a mental paradigm of continuing to justify the pre-existing, unsatisfactory (but expedient) differential charging policy.
[133] Secondly, and similarly, its focus on the "interim" position obscured, if not avoided, a decision on the merits. Mr Fergusson gave no consideration - at least his paper contains none - as to when full cost recovery was likely to be implemented. The plaintiffs make the point that, more than five years after full cost recovery from WRAL began in 1995 on an "interim" basis, the regime remains in place. In the meantime, there has been a change of government, and future long-term policy as to the costs of providing border control services is unclear, if indeed it was ever clear. I was informed by counsel that the present government does not favour recovery in full of the cost of border control services.
[134] I turn now to consider the second decision against Mr Farley's evidence as to what a proper application of principles of equity and efficiency involved.
[135] Mr Farley's qualifications to comment on the validity of the second decision from an economic perspective were not challenged and, like other witnesses, he was not questioned. A difficulty I have with his evidence is that he is commenting on an historical decision, not advising at the outset as to how s 135 principles should be applied. No criticism of Mr Farley, but the risks of rationalisation/justification are substantial.
[136] My comments are limited to those points in Mr Farley's 38-page affidavit which I consider significant (I will add at the end of each in brackets a reference to the relevant part of Mr Farley's affidavit):
(a) Mr Farley gives seven reasons justifying, in economic and public policy terms, different treatment by MAF of the regionals and metropolitans. Mr Farley's third point does not feature at all in the second decision. His sixth point does, but without any factual analysis. Other of Mr Farley's points I view as incorrect. I have, for example, already found that there was no government decision to prioritise Crown funding for border control services. Further, the fact that the biosecurity risk was most acute at the metropolitans argues as strongly for requiring them to pay for the services necessary to meet that risk, as it does for allocating all Crown funding to them. Mr Farley refers also to "the Government's view on whether the three [metropolitans] are sufficient to service the population . . .". But he does not refer to government's "open skies" policy, which aimed at encouraging competition and is difficult to reconcile with government subsidising services to some competitors in the market but not to others (para 9).
(b) Mr Farley's conclusion on equity considerations is:
55.9 The difference in treatment between Auckland, Wellington and Christchurch and the regional airports is the result of explicit policy decisions by MAF based on the fact it considers that there are a number of valid and genuine differences between the two categories of airport. For example, differences in the degree of biosecurity risk, volume of passengers (ie: economies of scale), the nature of the airport facilities (itself a function of international passenger numbers) and explicit acceptance of MAF costs as a condition of approval to enter the international aviation market.
I have already dealt with the first factor he mentions. It seems to me that economies of scale could be preserved by allocating available Crown funding on a per passenger basis, and do not argue for allocation only to the metropolitans. Elsewhere in his affidavit (at p 26, responding to para 52(b)(iv) in the amended statement of claim in proceeding CP 156/98) Mr Farley says:
Any simplified system of partial cost recovery, such as ignoring either fixed costs or variable costs, would impact unevenly on different users and could create significant further inequities.
I do not follow this point.
The nature of airport facilities does not feature in the second decision, and seems relevant only to passenger numbers/economies of scale. The last point (explicit acceptance of MAF costs) begs the question rather than assists in answering it (p 21, para 55.9).
(c) In dealing with efficiency considerations, Mr Farley assesses MAF's charges as reasonable and finds little criticism of them by the plaintiffs. It was no part of the plaintiffs' argument to attack MAF's charges as unreasonable (paras 56 - 59).
(d) I do not accept Mr Farley's conclusion "that Parliament intended and required that the [Director-General] supply cost recovery to fund aircraft and passenger clearances at the regional international airports". As I have said in para [112] above, an equally valid interpretation is that Parliament intended MAF partially to recover the costs of border control services from all international airports to which they were provided. Indeed, I think that is a more logical interpretation viewed against the government's policy of moving toward recovering 100 per cent of all costs. It follows that I reject entirely Mr Farley's view that:
It would be perverse for a department to introduce a regime of Crown funding for regional airports when it was aware that pending Cabinet papers were not considering or were unlikely to recommend a change in that direction. . . . (paras 42 and 68, the latter commenting on para 52(c)(ii) of the amended statement of claim in proceeding CP 156/98.)
(e) Although accepting that the differences in MAF charges for border control services at the metropolitans and regionals are significant, Mr Farley expresses the view that they are not material in terms of total airline gateway costs. I take the view that the plaintiffs are the best judges of materiality: would they embark on expensive litigation such as this if they considered MAF's charges immaterial (paras 55.7 and 87 - 99)?
(f) Mr Farley considers it reasonable for the costs of border control services to be borne by the international travellers who necessitate them, and thus for the government to limit public funding of those services to the present level. The plaintiffs do not argue with those points. But they miss the issue which is the fairness and efficiency of the allocation of present public funding (paras 61 - 62).
(g) Mr Farley regards it as reasonable for MAF to note the higher per passenger costs of providing border control services resulting from the low and discontinuous passenger flows at regionals. There is reference to this in the second decision, but with no supporting figures or analysis. This is essentially an "economies of scale" or efficiency point. Allocation of public moneys on a per passenger basis would preserve those economies/efficiencies (para 66).
(h) Referring to the plaintiffs' complaint about the length of time it has taken the government to make and implement permanent policy on the funding of border control services, Mr Farley states
I do not consider a criticism based on the timing of the Government's decision alters the rationale I have described in previous paragraphs.
Yet, in an earlier paragraph, he had referred to the reasonableness of the government recovering costs only from the regionals "pending a final resolution of its position". Further, Mr Farley states that the cost of establishing and operating a partial cost recovery system in the interim would be high in relation to the amount of revenue recovered. It seems to me that the duration of the "interim" in question must be known, and that this point tends to lose validity the longer the "interim" goes on (paras 67, and earlier 62, and 68, responding to para 52(b)(iv) amended statement of claim in CP 156/98).
(i) Accepting that economic efficiency is improved by cost recovery, Mr Farley suggests this argues in favour of the Director-General's decision to recover costs from regionals. That is right, but it does not address the position of metropolitans. Cost recovery would, equally, improve their efficiency (para 68, responding to para 52(b)(iii) of the amended statement of claim in CP 156/98).
(j) Having analysed the plaintiffs' financial statements, Mr Farley states that they have budgeted for MAF's costs and have (in the case of WRAL at least) put aside costs invoiced but not paid, pending the outcome of these proceedings. It is not clear to me from Mr Farley's affidavit how he suggests this assists in deciding the issue, and I do not consider it does (paras 69 - 86).
(k) Mr Farley states that, to the extent that the plaintiffs have recovered MAF charges from their customers, "any refund of past charges to the plaintiffs or forgiveness of unpaid invoices would, from a commercial perspective, constitute a windfall". I regard this as a relevant consideration in considering review and remedy, but not a decisive one (para 107).
[137] A consideration of Mr Farley's evidence has not dissuaded me from the view that the second decision is erroneous, illogical and inadequate, and cannot stand.
[138] For all these reasons, I hold that the Director-General failed to exercise his discretion lawfully in making his first and second decisions in relation to WRAL.
[139] The dispute is not as to the legal requirements, but as to whether they were breached here. The first issue is whether WRAL had a legitimate (ie reasonable) expectation of being consulted by the Director-General before he made his second decision. The test is whether MAF, by its conduct or assurance, had created such an expectation: Te Heu Heu v. Attorney-General [1999] 1 NZLR 98 at p 126.
[140] The second issue is whether the Director-General did adequately consult. Consultation involves:
(a) WRAL knowing what the Director-General proposed.
(b) WRAL having a reasonable opportunity to put its views and arguments.
(c) The Director-General considering those views, and
(d) Deciding with an open mind, ready to start afresh: Wellington International Airport Ltd v. Air New Zealand at pp 674 - 675.
[141] After reviewing the communications between WRAL and the Director-General, the plaintiffs submitted that the following had created a legitimate expectation of consultation:
(a) The extensive interchange between the parties, in terms of correspondence and meetings including in April and May 1998 - shortly before the Director-General's second decision on 13 May 1998.
(b) WRAL's understanding that the Director-General's first decision was an interim one. On 20 July 1995 when it had first advised WRAL that it would be required to pay for border control services, MAF had said it and other agencies were "approaching the Cabinet with a joint paper requesting an increased resource allocation . . .".
(c) The assertion of MAF officials that lines of communication would be improved:
I fully concede that the quality of the past communication has not been satisfactory . . . I have taken steps to ensure that this type of problem does not occur again . . . (Mr Hyde writing on 18 June 1996 to Mr O'Connor of WRAL).
[142] The Director-General argues that he had no duty to consult:
(a) WRAL did not request consultation, he never gave any assurance that he would consult, and s 135 did not require him to do so.
(b) WRAL was in default, refusing to pay for services provided by MAF while rejecting the reasons MAF had given for seeking to recover those costs.
[143] I hold that the Director-General had a duty to consult WRAL here and for the reasons contended for by WRAL. In a situation where WRAL had strongly contested the legality of the first (interim) decision and had entered into quite lengthy correspondence and discussions about the charging options, and where MAF officials had accepted past poor communication and promised to do better in future, I consider WRAL reasonably had an expectation that the Director-General would consult with it before he made any further decision about charging for border control services.
[144] On the second issue, the Director-General argued that he had fulfilled any duty of consultation. The correspondence and meetings which had taken place had adequately apprised the Director-General of WRAL's arguments, and constituted proper consultation. In short, the Director-General knew what WRAL had to say.
[145] The Director-General submitted that his second decision was but an effort to try and satisfy WRAL's continuous demands for a statement of his reasons for charging it for border control services. He also made the point that, after WRAL had complained that it had not been consulted before he made his second decision, the Director-General wrote to WRAL on 9 June 1998 offering to listen to WRAL and reconsider the issue at the beginning of July. WRAL did not take up that offer.
[146] I do not accept the Director-General's arguments. Sensibly, proper consultation here involved the Director-General making Mr Fergusson's 13 May 1998 paper available to WRAL for comment before he made a decision upon it. That paper would have explained to WRAL the range of considerations the Director-General intended taking into account. It contained a number of points WRAL might have wanted to comment upon eg the point that border control services could not be provided as efficiently at regionals as at metropolitans, and the confusion in the paper between establishment or capital costs and operating costs. And no doubt also the suggestion that "existing airports would consider it inequitable that they be required to meet part of the costs of their competitors' entry into the market".
[147] In summary, I find that WRAL had a legitimate expectation of being consulted by the Director-General before he made his second decision, that he failed to consult, and I quash the second decision on that ground also.
[148] The plaintiffs seek a declaration that the Director-General's two charging decisions and the invoices issued consequent upon them were unlawful, and orders quashing those decisions.
[149] Those administrative law remedies are in the Court's discretion, and in paras [103] - [104] above, I have outlined the Director-General's arguments against the grant of them.
[150] Having considered those arguments, I can see nothing disentitling WRAL to the administrative law remedies it seeks, and accordingly I intend granting them. The position may not be the same in respect of WRAL's money claims, where the Director-General's arguments have much more relevance and therefore force.
[151] WRAL's agreement with the Director-General to meet the cost of border control services was comprised in an exchange of letters 31 March and 11 June 1996 and provided that the "costs will be recovered in accordance with s 135 Biosecurity Act 1993". Mr Hancock confirmed in argument that the Director-General did not argue that this agreement was other than one by WRAL to pay charges levied in accordance with s 135. Thus, WRAL agreed to pay charges based on s 135 principles, but not otherwise.
[152] Insofar as issue 4 is premised on there being some contract to pay for services notwithstanding or without regard to s 135, it misconstrues the contract.
[153] I accept Mr Hancock's submission that there is no reason why the Director-General cannot contract for the payment for services provided the costs are arrived at in accordance with s 135(1) principles. He submitted that such an agreement had advantages for the plaintiffs, in particular because it avoided the severe additional payments due under s 136(2) in the event of default. I accept Mr Hancock's submission that there is nothing to prevent the Director-General entering into such a contract.
[154] It is unnecessary to consider Mercury Energy Ltd v. Electricity Corporation of New Zealand Ltd [1994] 2 NZLR 385, which Mr Hancock submitted demonstrated the limitations upon judicial review in a commercial/contractual context. In Mercury the Privy Council held that ECNZ's decision to terminate its contract with Mercury (formerly the Auckland Electric Power Board) was, in principle, amenable to judicial review, because ECNZ was the public body whose decisions in the public interest might adversely affect the rights and liabilities of private individuals without affording them any redress.
[155] An issue here might have been the validity in administrative law of any contract between the Director-General and WRAL for the payment of border control services charged other than in accordance with s 135. But, on the proper construction of the agreement, that issue does not arise. Issue 4 can simply be answered No.
[156] WRAL claims repayment in full of the amount it has paid to MAF for provision of border control services. It claims in restitution for money had and received (the principle in Woolwich Building Society v. Inland Revenue Commissioners (No 2) [1993] AC 70 (HL), under the doctrine of colore officii, and invokes duress, negligence and contractual mistake. In the course of argument, WRAL's counsel agreed that the first two causes of action were the most apposite and conceded that, if WRAL failed on those, it would fail altogether. I therefore do not consider the last three causes of action.
[157] WRAL argues that the Woolwich principle is that money paid pursuant to an unlawful authority is recoverable as of right. Once it established by way of judicial review that the charges for border control services were extracted from it unlawfully, it contended it was entitled to recover them in full.
[158] Alternatively, WRAL claims it is entitled to recover under the doctrine of colore officii, being a special form of payments made under duress. It maintains that the test for determining whether a payment has been made colore officii is less rigorous than that required to satisfy the private law test for duress, as the unequal power relationship between a private citizen and the public official upon whom the citizen relies for performance of a duty goes a distance toward establishing duress in the first place. There was compulsion present in the fact that, in the absence of payment, MAF would refuse to provide border control services and WRAL would not be able to carry on its business. Recovery under colore officii traditionally extends to any amount a public official demands in excess of the amount the official is lawfully entitled to for the performance of the official duty. Here, it is not clear how much MAF would have been entitled to lawfully, as that determination is for the Director-General, but in accordance with s 135.
[159] The Director-General rejects WRAL's claim for money had and received on the grounds that the House of Lords allowed Woolwich's claim because the moneys demanded unlawfully were taxes, unsupported by any form of consideration. The Director-General submits that MAF supplied WRAL with consideration in the form of border control services in exchange for the charges MAF made.
[160] The Director-General submits that WRAL's claim colore officii cannot succeed, because the requisite form of illegitimate compulsion is absent here. Mr Hancock gave examples:
. . . the payment is exacted with a substantial prospect of harm if not paid; the payment is made under a pressing necessity; the payment was made under a very real risk that a refusal to pay would be followed by action that would be ruinous to the plaintiff.
The Director-General argues that no such compulsion was present here.
[161] In either declining or allowing a restitutionary claim, a Court must be satisfied that it is acting in accordance with established legal principles:
The recovery of money in restitution is not, as a general rule, a matter of discretion for the court. A claim to recover money at common law is made as a matter of right; and, even though the underlying principle of recovery is the principle of unjust enrichment, nevertheless, where recovery is denied, it is denied on the basis of legal principle (Lipkin Gorman (a firm) v. Karpnale Ltd [1991] 2 AC 548 (HL) at p 578)
Recent New Zealand cases have rejected the introduction of recovery based on a general principle of unjust enrichment: Rod Milner Motors Ltd v. Attorney-General [1999] 2 NZLR 568 (CA); Equiticorp Industries Group Ltd (In Statutory Management) v. The Crown (Judgment no 47) [1998] 2 NZLR 481.
[162] Lord Goff of Chieveley stated the basic principle thus at p 177:
. . . money paid by a citizen to a public authority in the form of taxes or other levies paid pursuant to an ultra vires demand by the authority is prima facie recoverable by the citizen as of right. As at present advised, I incline to the opinion that this principle should extend to embrace cases in which the tax or other levy has been wrongly exacted by the public authority not because the demand was ultra vires but for other reasons, for example because the authority has misconstrued a relevant statute or regulation. It is not however necessary to decide the point in the present case . . .
[163] The basis for Woolwich can I think be summarised thus:
(a) An ultra vires demand for taxes or other levies made by a public authority;
(b) For which there was no consideration;
(c) The money was paid under protest;
(d) There was an element of compulsion (ie the State's coercive powers); and
(e) Retention of the payment would offend against the principle that taxes cannot be levied without parliamentary authority; or
(f) It would be otherwise unjust for the payee to retain the payment.
[164] Woolwich and colore officii are quite similar in their application. Goff and Jones, The Law of Restitution (5th ed, 1998) consider that the doctrine of colore officii may lose its independent existence and merge with Woolwich. In the meantime, at pp 321 - 322 the authors were able to find sufficient distinctions to warrant the retention of a separate discussion of the two remedies. Chitty on Contracts (28th ed, 1999) Vol 1 at para 30-075 states:
Extortion colore officii If a public officer demands an unlawful fee, or an excessive fee, for performing public duties imposed on him by law, it amounts to extortion colore officii and the fee or excess is recoverable by a claim in restitution. It may also be recoverable under the principle laid down in Woolwich Equitable Building Society v. IRC . . .. It is not yet clear whether that is an additional principle or subsumes colore officii cases.
[165] The application of colore officii in New Zealand was neatly summarised by Skerrett CJ in Julian v. Mayor of Auckland [1927] NZLR 453 at p 458 as applicable:
. . . where the plaintiff is entitled to have some service performed or act done upon payment of a fee, and that service has been performed or the act done, accompanied by the demand of an illegal or illegally excessive fee. In such circumstances the payment is held not to be voluntary, and the money recoverable as having been in substance exacted from the defendant colore officii.
I intend considering the applicability here of Woolwich and/or colore officii together, working through the six elements set out in para [163] above. I will then deal with the defences raised by the Director-General.
[166] Although Woolwich itself was concerned with a tax, the judgments are in broader terms. This is evident from the latter part of the passage in Lord Goff of Chieveley's judgment, which I have set out in para [162] above, although I accept that Lord Goff of Chieveley is stating the principle more widely than the case required, and therefore strictly obiter. At p 204, Lord Slynn of Hadley, referring to the views of two of the Court of Appeal Judges, said they:
. . . were right to conclude that money paid to the revenue pursuant to a demand which was ultra vires can be recovered as money had and received. The money was repayable immediately it was paid.
[167] In Woolworths New Zealand Ltd v. Wellington City Council (High Court, Wellington, CP 385/94, 15 May 1995), Ellis J held that Woolwich applied to rating demands which could not be sustained on any reasonable ground. The Court of Appeal subsequently reversed Ellis J's finding of unfairness, and thus did not need to consider whether Woolwich applied to the case.
[168] In my view, the Woolwich principle applies to payments which could have been lawfully assessed and demanded, but which were unlawful because the correct, statutory procedure for recovering them was not followed. This first element is therefore met here.
[169] Goff and Jones (p 322) point to this as one of the features distinguishing Woolwich from colore officii. Woolwich appears not to apply to cases where consideration is present. It is concerned more with taxes and levies which are collected by a public authority as part of its general revenue and not for a direct or specific service. WRAL could not, and did not, contend that MAF did not provide consideration for the payments WRAL made to it.
[170] Colore officii requires a duty (in other words consideration) to have been performed in exchange for the unlawful payment. In this respect, WRAL's case falls more within the doctrine of colore officii than the Woolwich principle. Woolworths and Whangarei District Council v. Northland Regional Council (1996) NZRMA 445 are distinguishable because in neither was any consideration given for the moneys levied.
[171] The House of Lords seemed to use this limitation in allowing Woolwich's claim. The fact that no other building society had contested the legality of Inland Revenue's tax demands meant that a similar claim by any of them would have failed. Their Lordships raised policy concerns in allowing such claims without limitation. In terms of claims colore officii, whether or not the payments were protested is irrelevant: Goff and Jones, p 324. WRAL certainly protested the payments.
[172] As mentioned, Mr Hancock submitted that the compulsion required had to be of an illegitimate nature. In Woolwich their Lordships were quite explicit in pointing out that the coercive power of the state was itself a form of compulsion for the purposes of recovery. Colore officii cases also treat statutory and monopoly powers as constituting compulsion: Mason v. New South Wales (1959) 102 CLR 108 per Menzies J at p 134.
[173] Here, WRAL would not have been able to operate as an international airport had it not met MAF's charges for border control services. Indeed, part of the Director-General's defence to WRAL's money claims is that MAF was not bound to provide those border control services and would not have done so had WRAL not agreed to pay for them. The aspect of heavy penalties is arguably absent here (although I do not overlook s 136 of the Act), but I hold that WRAL's inability to operate internationally combined with MAF's monopoly on the provision of the necessary border control services qualifies as the type of compulsion required under both Woolwich and colore officii.
[174] Following Woolwich and as I have held that each of the first and second decisions was unlawful, WRAL can recover all the money it paid to MAF for border control services. However, there is the distinguishing feature I have already referred to in that the erroneous decision resulted in payment being demanded unlawfully in a situation where a demand could lawfully have been made.
[175] One of their Lordships' concerns with the payments made in Woolwich was that there was no lawful authority on which those payments could be claimed. Thus, The Revenue was levying taxes without parliamentary authority. In this case there is parliamentary authority: s 135. The probability, indeed I think certainty, is that, although MAF was entitled to recover under s 135 part of the costs of the services it provided to WRAL, it overcharged it as a result of its erroneous decisions. The doctrine of colore officii encompasses this sort of situation.
[176] Dickson J's approach in Nepean Hydro-Electric Commission v. Ontario Hydro (1982) 132 DLR (3d) 193 at pp 210 - 211, with which Laskin CJC concurred at p 195, appealed to Lord Goff of Chieveley in Woolwich. At p 174 he said:
. . . Dickson J subjected the rule against recovery of money paid under a mistake of law to a devastating analysis and concluded that the rule should be rejected. His preferred solution was that, as in cases of mistake of fact, money paid under a mistake of law should be recoverable if it would be unjust for the recipient to retain it.
[177] It would be unjust not to allow MAF to retain a reasonable portion of WRAL's payments to it (reasonable based on a proper s 135 assessment). Section 135 was enacted specifically to enable MAF to recover any shortfall in Crown funding appropriated for the enforcement of the Biosecurity Act. It follows that, on a "reverse-restitutionary" view, it would be unjust for WRAL to succeed on a claim for full repayment.
[178] Woolwich and the doctrine of colore officii both demonstrate the Court's concern with unlawful demands for money by public authorities. A fundamental tenet for this concern is the constitutional right of citizens not to have taxes levied on them without Parliament's consent (Woolwich, per Lord Goff of Chieveley at p 172).
[179] There are public policy considerations in allowing restitution from a "user pays" organisation. Careful attention is also required to the distinction between cases where there was no lawful authority at all for the demand, and cases such as this where authority did exist, but was not used or was used incorrectly. The ability to challenge a user pays system on grounds of unreasonableness could be a dangerous one to introduce into our legal system.
[180] Having weighed up these considerations, and having gone through each of the necessary elements, I consider I ought to require MAF to refund to WRAL as payments extracted colore officii the amounts WRAL paid to MAF insofar as they were excessive.
[181] I turn now to consider the defences raised by the Director-General. Do any of them defeat WRAL's claim?
[182] The Director-General relies on the change of position defence, submitting that the particular facts here strongly support upholding this defence.
[183] Mr Hancock's submission is that MAF, in providing border control services to WRAL, received its payments in good faith and so altered its position in reliance on the validity of those payments that it would be unjust now to require MAF to repay WRAL. In particular, MAF incurred additional expenses in providing such services over a considerable period of time. Absent WRAL's agreement to pay, the services would not have been provided. It is not in the public interest that Crown receipts be lightly set aside and refunded, especially in the face of WRAL's agreement to pay and the back-up undertaking from Freedom in its international air services licence to refund any shortfall to the Crown. Mr Hancock submitted that the surcharges in the event of failure to pay provided for in s 136(2), underline the importance Parliament placed on prompt payment of cost recovery invoices submitted under s 135.
[184] The change of position defence is available in New Zealand both at common law and under s 94B of the Judicature Act 1908. The Supreme Court of Canada upheld the defence in Storthoaks v. Mobil Oil Canada Ltd (1975) 55 DLR (3d) 1. After referring to American authority and to the Restatement of Restitution, Martland J, delivering the Court's judgment, said at p 13:
In my opinion it should be open to the Municipality to seek to avoid the obligation to repay the moneys it received if it can be established that it had materially changed its circumstances as a result of receipt of the money . . .
[185] More recently, the defence was expounded by Lord Goff of Chieveley in Lipkin Gorman. In recognising this defence to claims of restitution, Lord Goff of Chieveley said he was anxious not to say anything to inhibit the development of the defence on a case-by-case basis. He then stated at p 580:
At present I do not wish to state the principle any less broadly than this: that the defence is available to a person whose position has so changed that it would be inequitable in all the circumstances to require him to make restitution, or alternatively to make restitution in full.
[186] WRAL argued, and Mr Hancock conceded, that this defence has frequently been dismissed in restitutionary claims against governments. This point is made by Hill in his article "Restitution from Public Authorities and the Treasury's position: Woolwich Equitable Building Society v. Inland Revenue Commissioners" (1993) 56 Mod LR 856. But the primary reason is that governments will seldom be able to prove expenditure on the faith of a particular receipt: Wells, "Restitution from the Crown: Private Rights and Public Interest" (1994) 16 Adel L Rev 191 - 213 at pp 199 - 213.
[187] There is force in Mr Hancock's counter that this is one of those rare cases where the government can prove expenditure in reliance on WRAL's payments to MAF. I have already referred in detail to the position. Briefly, the annual estimates of appropriations in each of the relevant years demonstrate that Parliament relied for the funding of border control services partly on public moneys (revenue Crown) and partly on payments from WRAL and other users (revenue other). The latter was derived by recovering costs from the users of the services.
[188] A more problematical aspect of this defence for the Crown is that it is not available to a wrongdoer. Lord Goff of Chieveley in Lipkin Gorman put it this way at p 580:
It is, of course, plain that the defence is not open to one who has changed his position in bad faith, as where the defendant has paid away the money with knowledge of the facts entitling the plaintiff to restitution; and it is commonly accepted that the defence should not be open to a wrongdoer.
[189] An instance of this is Equiticorp Industries Group Ltd (In Statutory Management) v. The Crown (Judgment no 47) [1998] 2 NZLR 481 where Smellie J at pp 654 and 730 rejected the defence because the government had received the money paid to it by Equiticorp in the knowledge that Equiticorp had acquired it in breach of a fiduciary duty, and was thus "a wrongdoer".
[190] I am attracted to the view of Professor Burrows that the defence should also be ruled out where the public authority, although perhaps not accurately categorised as "a wrongdoer", is more at fault than the payer: Burrows (ed) "Public Authorities, Ultra Vires and Restitution" in Essays on the Law of Restitution (Clarendon Press, Oxford, 1991) at p 39.
[191] WRAL was first advised on 20 July 1995 that MAF intended to charge it for border control services, both prospectively and retrospectively. From the outset, WRAL's acceptance of those charges was tempered by the comment that it would have to meet them in future "if that is how the rules operate". Implicit in that, is reliance upon MAF to operate "the rules" correctly. Despite legal advice in February and March 1996 that it was not operating the rules correctly, MAF went on charging WRAL. I need not reiterate what I have said in holding that the Director-General's second decision of 26 May 1998 was unlawful. MAF went on charging WRAL despite its mounting protests of inequity and unlawfulness. In those circumstances, I hold that the Crown (MAF) was more - much more - at fault than was WRAL, and was in the wrong to the extent that it is debarred from relying on the defence of change of position.
[192] I have held that MAF must refund the payments WRAL made to it insofar as they were excessive ie insofar as they were not in accordance with s 135.
[193] As the Director-General has never made a decision as to recovery which is in accordance with s 135 I am not in a position to assess quantum.
[194] My solution is to give the parties until 2 March to see if they can agree upon an appropriate refund. The parties may also be able to agree to offset this refund against an appropriate level of charges for the services invoiced but not paid - those for which the Director-General counterclaims. If not, then I require submissions as to what the appropriate amount recoverable by WRAL is. I require those submissions by 16 March. I hope the parties might cooperate in exchanging submissions in draft so that final opposing submissions can be filed and served by that deadline, each addressing the other. If such agreement is not possible, then WRAL is to file and serve its submissions by 9 March and the Crown is to file and serve its submissions in response by 16 March. Each submission is to be concise (a maximum of ten pages) and is to deal only with quantum. I will, if necessary, after considering the parties' further submissions, convene a further, short hearing to deal with quantum.
[195] In the course of argument Mr Hancock firmly but politely rejected as ingenuous my suggestions that a simple equitable solution was possible. I therefore will not risk a further suggestion.
[196] However, it may assist the parties if I indicate that, failing agreement and subject to any submissions, my approach is likely to be along these lines. In each financial year, to allocate the available parliamentary appropriation to each international airport pro rata to the number of incoming international passengers and tonnage of incoming international freight requiring border control services that that airport handled. If I am required to deal with the matter, I therefore request the necessary passenger and freight figures, and a table of the parliamentary appropriation in each year. Although crude, this approach appears to me to preserve to the metropolitans their economies of scale, whilst giving all international airports an incentive to operate efficiently.
[197] I readily accept that it is not as efficient for MAF to have to recover costs from all international airports, as opposed to recovery from the regionals only. But s 135 requires recovery "in accordance with the principles of equity and efficiency . . ." (emphasis added). Both considerations require attention, and efficiency to the point of inequity is not permissible.
[198] The Director-General counterclaims for the $275,221 invoiced by MAF to WRAL but unpaid. He claims under s 135 of the Act, in contract and upon a quantum meruit.
[199] Since I have held that the two decisions pursuant to which the $275,221 was invoiced were not in accordance with s 135 and were unlawful, the first counterclaim must fail and I dismiss it. However, reflected in the limited monetary relief I have indicated I will grant WRAL, is that the Director-General was - and is - entitled to charge WRAL for the border control services MAF provided to it, if he does so in accordance with s 135. It follows that the Director-General would be able to recover these unpaid charges, insofar as they are charged in accordance with s 135 principles.
[200] The Director-General's second counterclaim pleads a contract made in or about July 1995 between WRAL and MAF, partly written and partly oral, whereby MAF agreed to provide border control services at Hamilton airport and WRAL agreed to pay for those services. The written part of the contract is particularised as comprising letters passing between WRAL and MAF from 20 July 1995 (MAF's initial advice to WRAL that it intended commencing to charge for border control services) to 11 June 1996. The exchange of letters on 31 May and 11 June 1996 is the contract with which I have dealt in paras [62] to [65] above. For the reasons I have given there, primarily that it was only an agreement by WRAL to pay charges recovered in accordance with s 135, this second counterclaim also fails and is dismissed.
[201] The third counterclaim is upon a quantum meruit. I accept that, in analogous situations, a public authority can, in the absence of a contract, recover upon a quantum meruit for services provided: Airways Corporation of New Zealand Ltd v. Geyserland Airways Ltd [1996] 1 NZLR 116 at pp 123 - 124. But in Geyserland the Airways Corporation lacked legislative authority for charging for its services to Geyserland. Not only did MAF have such authority at all material times, but it was required to charge in accordance with that authority - in accordance with the s 135 principles of equity and efficiency.
[202] I inquired of Mr Hancock whether the Director-General was submitting that he could recover upon a quantum meruit more than the costs he could properly charge in accordance with s 135. Responding, Mr Hancock referred to the combination of a request by WRAL for border control services, MAF meeting that request when it had no obligation to supply the services, those services representing value for money, MAF requesting WRAL for payment and WRAL passing on MAF's charges, or at least having the ability to do so. Mr Hancock submitted that the answer was Yes: there could be a technical breach of s 135, but services worth what MAF was charging for them, and thus an entitlement to recovery upon a quantum meruit. But Mr Hancock added, perhaps contrarily, that the Director-General accepted equity and efficiency were relevant to quantum meruit.
[203] My view is that the Director-General cannot recover more upon a quantum meruit than he could under s 135. A quasi-contractual remedy cannot be used to circumvent statutory authority. An additional difficulty for the Director-General is that he has a contract with WRAL, but it is limited to agreement by WRAL to pay charges for border control services recovered in accordance with s 135. It is thus as unnecessary as it is inappropriate for the Director-General to resort to quasi contract. I dismiss the Director-General's claim to recover upon a quantum meruit.
[204] With two qualifications, this issue requires no consideration beyond that I have given issue 1. The first qualification is that the Director-General argued that Freedom and PNAL had taken action only belatedly, after seeing that WRAL appeared to be getting away with not paying MAF's charges for border control services. Even assuming that is correct, I do not regard it as a factor disentitling Freedom and PNAL from relief. Either MAF's charges were lawfully levied or they were not. If, as I have held, they were not, then the belatedness of any protest or legal action cannot cure the illegality, and seems to me not to be a convincing reason for refusing relief.
[205] The second qualification is that the Director-General's decision was not communicated to either Freedom or PNAL, which argued that it accordingly did not affect them. Having held the second decision was unlawful, I need not confront that argument. But I have intimated (in para [118]) that I doubt that the argument is sound.
[206] Accordingly, I answer this issue also, Yes.
[207] MAF's contracts with Freedom and PNAL were not materially different from its contract with WRAL. They were agreements to pay the costs of border control services which costs were charged in accordance with s 135. In short, they were contracts to recover lawful charges levied in accordance with the law. For the same reasons that I have given in deciding issue 4, I answer this issue No.
[208] I answer this issue in the same terms as I have issue 5, in other words with a qualified Yes. For the reasons I gave when answering issue 5, I invite further submissions as to quantum. I set the same timetable for further submissions as to quantum by Freedom and/or PNAL and for submissions in response by the Director-General, and impose the same limit on their length. The same comment applies about a possible further, short hearing to deal with quantum.
[209] Insofar as the Director-General claims to recover in contract or upon a quantum meruit, this issue requires no consideration in addition to that I have given it in dealing with issue 6, and I answer it in the same way.
[210] However, the Director-General claims also that he is entitled to recover from Freedom by way of contractual indemnity and/or privity of contract. He relies on cl 10 of the international air services licence issued by the Ministry of Transport to Freedom on 6 August 1996. That clause is in identical terms to that contained in Kiwi's licence and I have set it out in para [39] above. That undertaking was reinforced by a letter also dated 6 August 1996 faxed by Freedom to the Ministry of Transport. It stated:
[Freedom] will ensure that, except for scheduled international services operated to/from Auckland International Airport, Christchurch International Airport and/or Wellington International Airport, all costs associated with the services authorised under this Licence incurred by the New Zealand Customs, the Ministry of Agriculture and Fisheries, Quarantine Services, the New Zealand Police and the Aviation Security Service not met by the airport companies, will be refunded in full.
[211] In terms of contractual indemnity, the Director-General argues that Freedom gave an undertaking, supported by consideration in the form of MAF providing border control services, to discharge the payment obligation of the regionals.
[212] The Director-General's claim in privity of contract relies on the same basis, and also on s 4 of the Contracts (Privity) Act 1982 which provides:
4. Deeds or contracts for the benefit of third parties Where a promise contained in a deed or contract confers, or purports to confer, a benefit on a person, designated by name, description, or reference to a class, who is not a party to the deed or contract (whether or not the person is in existence at the time when the deed or contract is made), the promisor shall be under an obligation, enforceable at the suit of that person, to perform that promise:
Provided that this section shall not apply to a promise which, on the proper construction of the deed or contract, is not intended to create, in respect of the benefit, an obligation enforceable at the suit of that person.
[213] The Director-General argues that Freedom was prepared to pay for border control services and went to the extent of naming MAF as the beneficiary of its promise to do so. Section 4 requires that Freedom be bound by this promise.
[214] Freedom responds that cl 10 in its licence was not intended to have the effect that the Director-General claims. Rather, it was intended to be a measure under which MAF could recover direct from Freedom charges levied against the regionals in accordance with s 135, in the event that the regionals failed to pay them. Supporting this interpretation is a letter dated 9 September 1997 from Mr John Macilree, head of international air services at the Ministry of Transport, to Mr O'Connor, chief executive of WRAL. That letter responded to an inquiry from Mr O'Connor as to the effect of cl 10. Mr Macilree stated:
[T]his condition should not be interpreted as giving 'border agencies the right to levy costs, irrespective of the provisions of their own legislation'. That ability can only be based on each agency's individual legislative authority. As you suggested in your 18 August 1997 letter, 'it is meant to ensure that costs validated by other legislation, for example the Biosecurity Act 1993, are paid'.
[215] Freedom argues that MAF officials, at the time of the relevant decisions, viewed as irrelevant the terms of Freedom's licence. In a briefing paper to the Director-General on 21 February 1996, Mr Bongiovanni stated at p 2:
Customs are recovering for the same thing and believe that the cost recovery clause in the MOT Air Service Agreement with Kiwi Travel covers this. MAF Legal Services believe this mechanism is not relevant to MAF's charging.
[216] I uphold Freedom's defence to this ground of counterclaim. I consider that cl 10 in Freedom's licence was intended only to facilitate the recovery from Freedom of unpaid but lawfully levied border control charges, and that the undertaking was given on the understanding that any charges made would be valid and lawful. I do not consider that clause 10 was intended to impose upon Freedom an obligation, enforceable at the suit of MAF, to pay any charges which MAF chose to levy.
[217] Strictly, I need not go further. However, I would not be prepared to enforce a contractual obligation which I considered permitted the Director-General to circumvent his statutory responsibility under s 135, and to recover border control charges which had not been levied in accordance with s 135.
[218] Accordingly, I dismiss this separate ground of counterclaim by the Director-General.
[219] In broad terms the plaintiffs' applications for judicial review of the first and second decisions of the Director-General succeed, the plaintiffs' money claims against the Director-General also succeed in part, with quantum yet to be fixed, and the Director-General's money counterclaims against the plaintiffs fail and are dismissed.
[220] Specifically, I give judgment in the following terms:
(a) I declare that the first and second decisions of the Director-General to recover from the plaintiffs the cost of border control services provided to them are unlawful.
(b) I quash each of those decisions.
(c) I allow in part each of the plaintiffs' claims to recover the charges for border control services which they have paid to the Director-General, as being payments made colore officii. I reserve quantum for decision following further submissions and possibly a further short hearing as directed in paras [194] and [208] in this judgment.
(d) I dismiss the Director-General's counterclaims to recover from each of the three plaintiffs the charges MAF has invoiced to that plaintiff for border control services, but which that plaintiff has declined to pay pending resolution of these proceedings.
[221] The plaintiffs will be entitled to costs against the Director-General. I think the best course is to reserve costs until I have fixed quantum in the plaintiffs' money claims against the Director-General. Costs are reserved accordingly.
Order: Applications granted: quantum of recovery remitted to parties for further submissions.