IN THE HIGH COURT OF New Zealand
AUCKLAND REGISTRY
CP 260/99
BETWEEN METROWATER LIMITED
Plaintiff
AND JAMES NETZLER
GLADWIN
First Defendant
AND MICHAEL PAUL VALLANT
Second Defendant
AND PENELOPE BRIGHT
Third Defendant
Hearing: 14 December 1999
Counsel: R.J. Beech and N.D. Wright for Plaintiff
R.J. Hooker for Defendants
Judgment: 17 December 1999
_______________________________________________________________________________
JUDGMENT OF SALMON J.
_______________________________________________________________________________
Solicitors: Chapman Tripp Sheffield Young, DX CP 24029, Auckland
Vallant Hooker & Ptnrs, DX CP 25006, Auckland
[1] The substantive proceedings seek declarations as to the
nature and extent of the plaintiff's obligation to supply the defendants'
property with piped water and facilities for the removal of waste water.
On 3 November I made an order on the plaintiff's application that the
question of the applicability of the doctrine of prime necessity to
Metrowater should be determined as an issue prior to trial of the
substantive proceedings. I have now heard argument on that issue which
this judgment addresses.[2] Mr Vallant is taking no part in these proceedings. Mr
Hooker represents just the first and third defendants.
Background
[3] The plaintiff is a Local Authority Trading Enterprise
("LATE") set up by the Auckland City Council to take over the city
council's undertaking in relation to the supply of water and the removal of
waste water from properties in the council's district.[4] The proceeding has its origins in a Disputes Tribunal claim
brought by the first defendant Mr Gladwin. In that claim Mr Gladwin
effectively sought a declaration that Metrowater was obliged to provide
water to his property because he had paid the water charges imposed,
notwithstanding the fact that he refused to to pay that component on
Metrowater's charges which related to waste water disposal.[5] In proceedings instituted by Metrowater an injunction was
granted in this Court restraining the Disputes Tribunal from hearing or
deciding the merits of Mr Gladwin's claim. That injunction was granted on
the basis that the issue was beyond the jurisdiction of the Disputes
Tribunal and in the light of Metrowater's stated intention to have the
issue resolved by declaratory proceedings in this Court. The present
proceedings were then issued.[6] Since the issue of the proceedings the Court of Appeal has
given a judgment in Vector Ltd
vs Transpower New Zealand Ltd now reported in [1999] 3 NZLR 646.
In that judgment the Court held that the doctrine of prime necessity did
not operate in relation to the transmission of bulk electricity by
Transpower to Vector, being precluded by the Commerce Act. The primary
issue for determination in this judgment is whether the principles
established in the Vector case apply to the plaintiff's supply of water and
wastewater services. The issue of the applicability of the doctrine of
prime necessity is central to the substantive dispute between the plaintiff
and the defendants.
The Doctrine of Prime Necessity
[7] The origins and nature of the common law doctrine of prime
necessity are described very fully in the Vector decision at pages 659-663
there is no need for me to repeat what is set out there. It is sufficient
for the purposes of this judgment to record, as did the Court of Appeal in
Vector, that...the doctrine embodies a principle that monopoly
suppliers of essential services
must charge no more than a reasonable price.
2/
I adopt too, with respect, the Court's finding at page 663 that...it is clear that, leaving aside the relevant statutory
provisions, the provision of water and
electricity are services to which the doctrine applies
where the necessary monopoly exists.[8] The judgment in Vector refers to cases which have
specifically dealt with the supply of water and have found the doctrine to
apply: Minister of Justice for the Dominion of Canada v City of Lewis
(1917) 51 Rapports Judiciaires Quebec 267 (PC); State Advances
Superintendent v Auckland City Corporation and One Tree Hill Borough [1932]
NZLR 1709 (CA). Metrowater has conceded for the purposes of this part of
the proceedings that it holds a practical monopoly in Auckland City in
respect of its service and the defendants have accepted that concession.
There is no doubt in my view that, once again leaving aside the relevant
statutory provisions, the services of water supply and waste water removal
are services to which the doctrine applies.The Effect of the Commerce Act
[9] The next issue and the principle point of contention
between the parties is whether the Commerce Act applies as it did in Vector
to displace the common law rule. In Vector the Court of Appeal held:...that there is no room for the operation of the common
law doctrine
in relation to the transmission of bulk electricity by
Transpower to
Vector. It is precluded by the effect of the Commerce Act
and that is
reinforced by the effect of the State Owned Enterprises
Act. (p.665)[10] Once again it is unnecessary for me to repeat in full the
reasoning which led the Court of Appeal to that decision. Suffice it to
say, that the Court concluded that by the Commerce Act Parliament clearly
and deliberately moved away from earlier regulatory approaches to a
light-handed regulation. It noted that if the doctrine of prime necessity
applied that would involve a heavy-handed regulatory intervention through
the Courts, and potentially on a day to day basis, in order to fix fair and
reasonable prices for the services involved. The Court said that such an
intervention was one which Parliament decided it did not wish to impose and
that to do so would be inconsistent with the purpose and the scheme of the
Commerce Act.[11] The Court noted that price control through the Courts is a
form of State control and that the only State control of prices
contemplated by the legislation is that provided for in Part IV of the
Commerce Act and that is available only when the criteria contained in Part
IV are satisfied. Price control under Part IV is instituted on the
initiative of the Minister. There is no right for a consumer to make
application for those procedures to be instituted. Section 74 empowers the
Commerce Commission to consult with any person who is able to assist in
making a determination and s.73 goes no further than requiring the
Commission in exercising its powers under s.70, to have regard amongst
other considerations to the necessity or desirability of safeguarding the
interests of users or consumers or, as the case may be, of suppliers. As
the Court said:That statutory process is inconsistent with the kind of
adversarial processes through
the Court for hearing and determining price fixing
proceedings under the common law
doctrine of prime necessity.[12] On the face of it, the reasons enunciated by the Court of
Appeal for holding that the
application of the common law doctrine was precluded by the effect of the
Commerce Act, apply with equal force to the supply of Watercare's services.
However, Mr Hooker for the defendants, argued that for the reasons he put
forward the circumstances of this case can be distinguished from those
before the Court in Vector and it is to the defendants' arguments that I
will now turn.
3/
The Arguments in this case[13] Mr Hooker sought to distinguish the supply of the
plaintiff's services from those of Transpower by reference to the differing
statutory regimes applicable to each enterprise. Transpower is a State
Owned Enterprise established under the State Owned Enterprises Act 1986.
The plaintiff is a Local Authority Trading Enterprise established under the
provisions of the 1989 amendments to the Local Government Act 1974. There
are some similarities and some important differences between the regimes.[14] Perhaps the most important is the applicability to
Transpower of the Electricity (Information Disclosure) Regulations 1999
which require the periodic disclosure by line operators, including
Transpower, of financial and efficiency performance measures and require
the disclosure of the methodology used to calculate prices charged or to be
charged, and other information relating to price calculation. No similar
requirement exists in the case of the services provided by the plaintiff.[15] Mr Hooker also referred to paragraph 26 of the Commerce Act
which requires the Commission in the exercise of its powers to have regard
to the economic policies of the Government as transmitted in writing from
time to time to the Commission by the Minister. There is no similar
provision in relation to the economic policies of Local Authorities.[16] He also pointed to the fact that the shareholding Minister
of a State Owned Enterprise can direct through the statement of intent both
the nature and extent of the SOE's pricing regime. A Local Authority has
no similar ability to control or influence a LATE because it is the
shareholders who
produce the statement of intent and the Local Authority may only be one of
a number of
shareholders. However, the Local Authority is likely to remain the holder
of 50 per cent or more of the shares so continues to exercise considerable
influence.[17] In my view none of these factors can distinguish this case
from the applicability of the
decision in Vector. Whilst reference was made by the Court of Appeal to
the regulations and to the SOE Act it was the provisions of the Commerce
Act itself, and in particular Part IV, which convinced the Court that there
was no room for the operation of the common law doctrine.[18] The provisions of s.26 were not crucial to the reaching of
that conclusion. Reference to s.26 and to the SOE Act were held to support
the conclusions otherwise reached.
The conclusion of the Court was, however, reinforced by consideration of
the limited private remedies for misuse of monopoly power provided under
s.36. The court had noted, that at the time the Commerce Act was enacted,
the legislature had initially considered, but later discarded, a paragraph
which would have prohibited a person with a dominant position in the market
from using that position for the purpose of... preventing or hindering the supply or acquisition of
goods or services by any person ...As the Court noted, if supply is refused, s.36 applies only
where constraints on supply are for one of the specified anti-competitive
purposes. Those observations apply with equal force to the
present case.[19] Mr Hooker then argued that Part IV of the Commerce Act did
not apply to the supply of water. Subsection (1) of s.53 provides that:The Governor-General may from time to time on the
recommendation of the
Minister by Order-in-Council declare that the prices for
goods or services specified
in the order shall be controlled in accordance with this Act.4/
[20] Mr Hooker argued that water was neither "goods" nor
"services". "Goods" is defined in the Act in the following way:"Goods" includes -
(a) Ships, aircraft and vehicles:
(b) Animals including fish:
(c) Minerals, trees and crops whether on, under, or
attached to land or not:
(d) Gas or electricity:
"Services" is defined as follows:
"Services" includes any rights (including rights in
relation to, and interests in,
real or personal property), benefits, privileges, or
facilities that are or are to be
provided, granted, or conferred in trade; and, without
limiting the generality
of the foregoing, also includes the rights, benefits,
privileges, or facilities that
are or are to be provided, granted, or conferred under any
of the following
classes of contract:(a) A contract for, or in relation to, -
(i) The performance of work (including work of
a professional nature),
whether with or without the supply of goods; or(ii) The provision of, or the use or enjoyment
of facilities for, accommodation,
amusement, the care of persons or animals
or things, entertainment,
instruction, parking, or recreation; or(iii) The conferring of rights, benefits, or
privileges for which remuneration
is payable in the form of a royalty,
tribute, levy, or similar exaction:(b) A contract of insurance, including life assurance,
and life reassurance:(c) A contract between a bank and a customer of the bank:
(d) Any contract for or in relation to the lending of
money or granting of credit, or the
making of arrangements for the lending of money or
granting of credit, or the
buying or discounting of a credit instrument, or
the acceptance of deposits; -but does not include rights or benefits in the form of the
supply of goods
or the performance of work under a contract of service:
[21] Counsel submitted that water, not having been referred to
in the definition, does not come within the definition of "goods".[22] The definition is, of course, an inclusive one so that it
is appropriate to have recourse to dictionary definitions of the word. The
New Shorter Oxford English Dictionary at p.1116 gives the meaning in the
plural as property or possessions especially moveable property, saleable
commodities, merchandise, wares. In my view it is at least arguable that
water is a saleable commodity. But the plaintiff relies 5/on the definition
of the word "services". Services includes facilities provided in trade.
[23] On behalf of the defendants it is argued that whilst the
supply of water and facilities for the removal of waste water may well come
within that definition, they are nonetheless not supplied in trade because
water supply is not a commercial activity. In support of that
proposition reference is made to the Local Government Act and what is said
to be the obligation on a Local Authority to supply water.[24] I am doubtful as to whether any such obligation exists, but
even if it does, there is no doubt in my mind that the supply of water is a
commercial activity. Indeed, a LATE is required as is an SOE to operate as
a successful business (s.594Q Local Government Act).[25] Mr Hooker referred to paragraph 1-071 of Benjamin's Sale of
Goods (5th ed) where it is said that...the supply of electricity, gas or water by a
public authority is not a "sale"
of such commodities, so that, independently of any
question whether the
term "goods" is appropriate the Sale of Goods Act
does not apply.
There is no contractual obligation on which an
action may be brought
against the authority for failure to make the
supply available or to provide
a supply fit for the purpose of the consumer.
Whether such an action will
lie under the Statute depends upon its terms.[26] The conclusion in Benjamin relies upon the proposition that
there is a statutory obligation to supply upon the appropriate payment
being made. Regardless of whether or not there is a sale in terms of
the Sale of Goods Act, there is no doubt in my mind that in terms of the
Commerce Act definition the activities undertaken by Watercare fall within
the definition of "services".[27] As already indicated it is my view that the plaintiff's
undertakings involve benefits, privileges or facilities provided or
conferred in trade.[28] Mr Hooker pointed to the use of the word "trade" in that
definition and submitted that if there was no sale there could be no trade.
But the word "trade" is itself defined in the Act in an extended way to
include anyUndertaking relating to the supply or acquisition
of goods or services.[29] Despite the somewhat circular nature of this definition, I
am satisfied that the Commerce Act applies to the plaintiff's activities.Conclusion
[30] The common law doctrine of prime necessity does not apply
to the supply of water and waste water services. It is precluded by the
effect of the Commerce Act. The question of costs is reserved and may, if
desired, be the subject of written submissions.[31] I am not sure whether the findings in this judgment dispose
of the substantive proceedings. If they do the Court should be so advised.
In case they do not I direct that a date be assigned for a conference to
discuss the further conduct of the proceedings.Signed by Justice J. Salmon
6/