Waikato Regional Airport Ltd & Ors v. Attorney General (New Zealand)  UKPC 50 (30 June 2003)
Privy Council Appeal No. 77 of 2002
(1) Waikato Regional Airport Limited
(2) South Pacific Air Charters Limited and
(3) Palmerston North Airport Limited Appellants
The Attorney General (on behalf of the Director
General of Agriculture and Forestry) Respondent
THE COURT OF APPEAL OF NEW ZEALAND
JUDGMENT OF THE LORDS OF THE JUDICIAL
COMMITTEE OF THE PRIVY COUNCIL,
Delivered the 30th June 2003
Present at the hearing:-
Lord Nicholls of Birkenhead
Lord Hope of Craighead
Lord Rodger of Earlsferry
Lord Walker of Gestingthorpe
[Delivered by Lord Nicholls of Birkenhead and
Lord Walker of Gestingthorpe]
"any organism, organic material, or other thing, or substance, that (by reason of its nature, origin, or other relevant factors) it is reasonable to suspect constitutes, harbours, or contains an organism that may –
(a) Cause unwanted harm to natural and physical resources or human health in New Zealand; or
(b) Interfere with the diagnosis, management, or treatment, in New Zealand, of pests or unwanted organisms."
The 1993 Act has been amended by Biosecurity Amendment Acts passed in every year from 1993 to 1999, and by some other enactments, and references to provisions of the 1993 Act are to those provisions as from time to time amended; but neither side suggested that the timing of any of the amendments was directly relevant to the issues on this appeal.
"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."
"During my tenure as Director-General I was aware of the increasing biosecurity risk to New Zealand through increased volumes of passengers, particularly tourists, and increasing trade including fresh produce importations. These arose through liberalising international trade rules and increased international transport services to New Zealand.
This responsibility weighed heavily on me during my entire period as Director-General of MAF. Despite this I was unable to obtain increased funding for border control from the Government. Nor was I able to prevent reductions in Crown revenue to MAF over three successive years of 1.5% in 1994, 1.5% in 1995 and 1.5% in 1996. However my expressions of concern were recognised to the extent that MAF was instructed in 1995 to take its cuts in Government funded areas other than in border control.
Subsequent to my tenure at MAF, after the detection of fruit fly in Mt Roskill Auckland in May 1996, Cabinet agreed to an increase of expenditure of about $19 million over the 1996/97, 1997/98 and 1998/99 years to meet the cost of X-ray machines and enhanced border protection measures. This increase in appropriation did not include the cost of existing border control services at Hamilton airport or other regional international airports."
"In 1995 there was a Ministry Policy Group which reported to the Minister of Agriculture and to the Director-General and gave advice. Mr Larry Fergusson, Assistant Director-General was in that group. In the next group there was MAF Regulatory authority 'MAFRA' which took the policy given to it by the Policy Group, and formulated it into standards. Messrs Bongiovanni and Alexander were in that group. The service delivery group at that stage was MQS, headed by Neil Hyde and to which I belonged. … MQS were the ground troops, so to speak. MAFRA set the standards and MQS implemented them through its MQS quarantine officers. MAFRA provided the funds and was the link with Treasury. The lines of control are that MAFRA have to justify their requests for funding from Treasury and MQS with its quarantine officers at the airports and related services, had to justify its charges to MAFRA. This is known as a 'funder/service provider split'."
(1) Any services provided before the 1993 Act had continued on an historical basis, but any new services had to be subject to cost-recovery.
(2) Section 37 of the 1993 Act required facilities (including the provision of inspectors) to be at no cost to the Crown.
(3) Section 135 required MAF to recover as much as possible of the costs not provided for by parliamentary appropriations.
(4) The appropriations were for border control services at the metropolitan airports, and no additional money was available for other airports.
(5) At least one officer had a difficulty with providing services "at the taxpayer's expense so Kiwi can make money".
Wild J also concluded (para 111(a)) that the first decision was not made by the Director-General or under proper delegation from him.
"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 [using] the airport services.
To date, Ministry staff have attended 24 international arrivals (excluding medical flights) all in out of normal working hours, at a total outlay of $8,601.60, GST inclusive.
This figure is based on 4 staff at $74.60 per staff member (Gazetted overtime rate under the Biosecurity (Cost) Regulations 1993, 2nd schedule) plus 4 staff x 30km at $0.50/km. Total costs per flight is $358.40, GST inclusive.
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. Your assistance in this matter would be appreciated."
"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."
(This wording seems to reflect section 37 (4) of the 1993 Act, but may reveal some misunderstanding of its effect.)
"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 air bases 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 ..."
"The Crown funding provided for the clearance of aircraft is for AKL, WLG and CHC. This is even in the contracts. Any other arrivals should be being cost recovered ... There is no additional money to fund staffing and other resources at other than the three current 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 taxpayer's expense so Kiwi Airlines can make money."
"meet any additional border agency costs associated with the operation of services and not met by the airport companies, at least on an interim basis pending a government decision on the funding of border functions at airports other than the current international gateways".
This reflected the terms of a letter dated 20 July 1995 from the Minister of Transport to the Minister of Agriculture. It has not been suggested that this condition imposed on Kiwi an obligation to pay any charges which were not otherwise authorised. As between Kiwi and WRAL, the latter made itself contractually liable for any MAF charges.
"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 in 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 possible as a short-term option at least until we get the wider funding/cost recovery issue sorted out (hopefully by July 1996)."
The other options were to discontinue charging and seek additional Crown funding; to stop charging and find extra money within Vote Agriculture; and to withdraw approvals and service.
"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 interest of equity seek to ensure that like users of consumer services such as inspection fees should be treated alike."
"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."
His advice on this question was as follows:
"On the face of it we consider that the differentiation in the circumstances referred to in your question four is permissible. This difference in treatment is in administrative law terms undesirable and should be regularised as soon as practicable so that all parties in a similar position are treated the same. However, on the basis that: (a) there are genuine historic reasons for the current differences in treatment, (b) there is an inevitable transitional phase involved in implementation of this major piece of new legislation; and (c) the changing and dynamic situation brought about by significant changes in the aviation scene in recent times (eg. rapid entry of new players and expansion of services); would, in our view, in administrative law terms tend to establish that there are genuine reasons for the difference in treatment which are not therefore arbitrary and discriminatory."
"From the tone of the letter it seems as if [WRAL] has no option but to agree to the charges proposed."
However he raised a number of objections, including an expression of concern at the discrepancy between the provision of MAF services at Hamilton (on the one hand) and at the metropolitan airports (on the other hand).
Output: Border Inspection. Aircraft and Passenger Clearance Contract
||Statutory Fees and Charges
|1995 to 1996||26,000||4,609,000||4,635,000|
|1995 to 1996||57,000||4,822,000||4,879,000|
|1996 to 1997||616,000||9,077,500||9,693,500|
|1997 to 1998||616,000||11,104,000||11,720,000|
However, it is difficult to reconcile these figures with those in a paper for the Cabinet Committee on Industry and Environment obtained by Mr O'Connor under the Official Information Act 1982.
"The question of whether, and the extent to which, the costs of passenger clearance at international airports are recovered from the users of the service is the subject of a paper which I expect to take to my Cabinet colleagues shortly. This paper will address the question you have raised. Following consideration of this paper officials will (as required by the Biosecurity Act) consult with affected parties, with a view to putting in place a more permanent cost recovery regime applicable to all international airports."
On 12 August WRAL's solicitors wrote threatening proceedings for judicial review. On 8 October the Ombudsman wrote declining to investigate the matter, on the grounds that he could not investigate the decisions of Ministers of the Crown, and because of an imminent Cabinet decision.
"(1) Maintain the current Crown/private split but spread the charge equitably between regional and international airports. This would be achieved by charging all relevant airport companies $1.10 per passenger; or
(2) Move to full Crown payment directly or in stages ..."
The Minister for Biosecurity and the Minister of Customs seem to have taken a different view, which ultimately prevailed in Cabinet.
"(a) noted 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) noted 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) agreed that passenger and aircraft/seacraft clearance services at the national border be subject to a 100% cost recovery regime;
(d) agreed that costs be recovered by way of a charge to the relevant port company (i.e. sea or airport) for the costs of providing services at each location, unless significant implementation difficulties arise in the course of consultation with affected parties;
(e) agreed that the cost recovery regime be implemented with effect from 1 January 1999;
(f) agreed that the current funding arrangements will continue until a new regime is implemented ..."
"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 considered 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
(c) Not considered the principles of equity and efficiency as required by section 135.
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."
As Wild J observed, this letter may have been the catalyst for the second impugned decision, taken on 13 May 1998.
"There are ... two basic options you could pursue in respect of cost recovery:
You could re-spread the Crown funding and the incidence of cost recovery over all airports at which international flights arrive; or
You could continue to recover the unappropriated costs from the new airports."
Option A might at first glance appear the most equitable in that all airports would thereby be treated on the same basis. Turned around, the argument would be that it is inequitable to impose costs on some operations while subsidising the provision of those services to their competitors.
However, from another perspective, the existing airports had been established and set up on the basis of no cost recovery. They could of course have no guarantee that such a situation would continue indefinitely. (Government's intention was that the provision of funding for passenger clearance be reviewed. That review has resulted in a decision that such costs should be 100% recovered.) The existing airports would consider it inequitable that they be required to meet part of the costs of their competitors' entry into the market.
Costs should be borne by those who create the risk -international travel benefits specific sectors of the domestic economy, and it would be inequitable for all New Zealanders to pay to manage the negative externality that they generate. Rather, the economic costs of managing the biosecurity risk is appropriately borne by those who create the risk. As is noted below in the discussion on efficiency the proliferation of new airports both increased the biosecurity risk and imposed additional costs to manage that 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.
In general terms, New Zealanders benefit from having a country free from serious pests and diseases. However, in terms of least cost supply of this outcome, New Zealanders have choices. One option is to close the borders entirely which would achieve the desired benefit at least direct cost to the taxpayer. The whole economy would of course be affected by such a "fortress New Zealand" policy. In particular those who would suffer from such action include international travellers and those sectors of the domestic economy that benefit from tourism.
All international airports are responsible for some mix of cost-recovery services including standard inspection fees, overtime rates, and/or provision of premises. The new regional airport companies were able to factor the direct costs into operational and financial planning on establishment whereas established airports could not.
It should be noted that the airport companies recover these costs from the airlines, which affects their relative attractiveness as service providers. It should also be noted, that at this point only Waikato is challenging the current arrangements.
It is inherently more efficient to recover costs from a smaller rather than a larger number of players—however that is not a sufficient justification for a decision to support option B. The recovery of part of the costs of the provision of the services at all airports would (if of a sufficient amount—in this case the amount would be insufficient) encourage efficiency in the operation of the airports and airlines (as they relate to the provision of border services) and in the delivery of the services themselves.
The transaction costs associated with re-spreading would be very large relative to the amount of money recovered by the Government, unless the growth in regional airports increased in a totally unexpected way.
The facilities, staff and systems established at Auckland, Wellington and Christchurch have been established for a number of years and the regular flow of aircraft and passengers enable effective and cost efficient services to be maintained on an on-going basis. The services can be tailored to the risks presented by the passengers according to their point of origin.
In contrast, the new airports present a discontinuous flow of passengers and are more difficult to service as a consequence. 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 should not be extended beyond the established locations. It should be noted in this context that surveillance costs, even in the new cost recovery regime are still taxpayer funded although the risk is exacerbated by every new point of entry. Such a restriction would not be consistent with the open skies policy but it does not follow that the Crown should accept reduced efficiency in the provision of essential biosecurity services.
It would be inefficient for New Zealand to pay for duplication of border clearance services at regional ports when these are currently provided to an adequate level at the main ports. If the new regional international ports bear these costs, then the direct costs of the inefficiency are borne by those responsible for it.
With port companies bearing a proportion of the costs, there is increased incentive to minimise the ongoing cost of supply of border clearance services with potential replication of "best practice" across other port operations resulting in net economic gains.
The recovery of costs only from those considering new investment in new airport facilities (or those who made such investments in light of the government's decision referred to in para 4 above) will encourage rational decision-making as to the need for new airports and as to their ability to compete with existing facilities.
Costs of services will be recovered in line with actual and reasonable costs and therefore, is not a tax.
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."
The decisions below
"… 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."
Wild J concluded that MAF should refund to WRAL as money exacted colore officii so much of WRAL's payments to MAF as were excessive; and that the Director-General could not rely on change of position or any other defence. The judge invited the parties to try to agree the amount of the refund, and suggested a general basis of calculation. There was some difference of opinion before their Lordships, which they cannot resolve, as to how far the parties succeeded in reaching agreement.
"It does not seem from his affidavit that he considered the Parliamentary appropriation to be specifically attached to the Schedule 8 Airports. We interpret his position to be that because funding had been on the basis of the cost of providing services at the existing places of first arrival; and more services would have to be provided and therefore more costs incurred because of the advent of scheduled services at WRAL; and no further funds would be available to meet the increased costs; that additional cost would have to be recovered. That reasoning does not indicate an error of fact on Mr Bongiovanni's part. The reasons for his decision lie in his affidavit and include economic constraints, knowledge of Government policies, previous special arrangements in respect of charter flights out of Queenstown, for example, where approval for a charter was always on the basis that the charterer would agree to fund the cost of border clearance; and the likelihood that airlines or airport companies would or could pass on the charges to customers."
"(a) It had the false premise that the Government had decided to recover costs at regionals until the 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."
General and preliminary points
The first decision
The second decision
"No additional appropriations were provided to cover costs at these [regional] airports ...".
The Court commented that this statement was literally correct, and no doubt it was. But it conveyed an incorrect suggestion, that is that parliamentary appropriations were provided, with some degree of specificity or earmarking, for the metropolitan airports. But (as the Clerk of the House of Representatives pointed out in the note already mentioned) that is not how the government financial system worked. There was an appropriation for border control and quarantine services, but no further earmarking. Because of the incorrect suggestion conveyed by para 4, para 6 of the memorandum (which would otherwise have been unexceptionable) also became ambiguous and potentially misleading:
"In the absence of a Crown appropriation, you are required to recover the costs of passenger clearance in accordance with the principles of equity and efficiency, there being no applicable regulations."
Read with para 4, it contained at least a suggestion that this requirement applied only to regional airports.
"the existing airports would consider it inequitable that they be required to meet part of the costs of their competitors' entry into the market."
"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."
"the relevant test is not whether a Court thinks something would be better but whether the decision-maker was entitled to come to the view he did."
That is of course entirely correct. But by May 1998 MAF had already been applying for nearly three years a scheme of cost recovery which many of its senior officers had serious doubts about. It must already have appeared probable that there would be slippage in the timetable for the introduction of full cost recovery. Subsequent events merely confirm how unsatisfactory it was to continue the unfair system even as an interim measure. On this point also their Lordships respectfully prefer the view of Wild J to that of the Court of Appeal.
"Costs should be borne by those who create the risk ... the proliferation of new airports both increased the biosecurity risk and imposed additional costs to manage that risk ... This approach underpins the cost-recovery policy for border clearance services at regional international airports."
The judge thought that consideration of risk could not justify the imposition of charges on the regional airports alone, especially as Auckland and Christchurch were the airports which served passengers coming from high-risk areas. The Court of Appeal (para ) differed from the judge. Their Lordships respectfully prefer the judge's view.
"... MAF was still locked into a mental paradigm of continuing to justify the pre-existing, unsatisfactory (but expedient) differential charging policy."
The fact that the Director-General himself, Professor Ross, did not see fit to make an affidavit justifying the second decision adds force to this criticism.
"… that 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."
The Woolwich case was concerned with income tax, and it is not clear whether Lord Goff of Chieveley intended his reference to other levies to be limited to levies similar to taxation. The Court of Appeal thought it unnecessary to invoke the Woolwich principle, but did not explain their reasons for that view. In particular, the Court did not express the view that MAF had provided consideration for the charges which it imposed. The absence of consideration was given some passing references in the Woolwich case (see the speech of Lord Goff of Chieveley at page 166C and G, and that of Lord Browne-Wilkinson at page 198). But those references were not necessary to the decision, and Professor Burrows among others has suggested (The Law of Restitution, Second Edition (2002) page 441) that they are unhelpful.
"circumstances in which some very substantial sum of money may be held to have been exacted ultra vires from a very large number of taxpayers."
In Air Canada v British Columbia (1989) 59 DLR (4th) 161 the majority of the Supreme Court of Canada were also inclined to the same view. La Forest J referred (at page 195) to the severe strain on the United States economy imposed by the decision of the Supreme Court in United States v Butler 297 US 1, 80L ed 477 (1936), where the decision that a tax was unconstitutional led to a liability to repay almost $1 billion ("a respectable amount now but overwhelming during the depression"). However it is unnecessary to pursue that point further in this appeal since the amount at stake, although significant for the appellants, cannot possibly be regarded as such as to threaten the disruption of public finances in New Zealand.