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«1 A Private Law Issue in “Public Law Drag?”: Government Contract Award Processes and Judicial Review in New Zealand. Anthony Wicks A dissertation ...»

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A Private Law Issue in “Public Law Drag?”:

Government Contract Award Processes and Judicial Review in New


Anthony Wicks

A dissertation submitted in (partial) fulfillment of the degree of

Bachelor of Laws (with Honours) at the University of Otago.

October 2009


I would like to thank Professor Stuart Anderson for his constant enthusiasm,

encouragement, and constructive criticism.

Thanks must also go to my fellow tutors, especially to Cecilia Milne for proof-reading, to Emma Peart for proof-reading and sharing her expertise on contract law, and to Alex Latu for many illuminating discussions on judicial review and the public-private divide.

I would also like to acknowledge my family for their support. Finally, I am grateful to Poppy for her support, proof-reading and tolerance of many discussions on judicial review and the public-private divide.



Chapter I – The Current New Zealand Approach

A. New Zealand

1. Structure of Judicial Review

2. The Orthodox New Zealand Approach

(a) Mercury Energy

(b) Response of the Lower Courts to Mercury – Developing the Orthodox Appraoch

i First Argument: Characterisation of government contracting as a “commercial” function

ii Second Argument: The Primacy of Private Law Remedies

iii Corporatisation Legislation Impliedly Excludes Review

(c) The Lab Tests Litigation

i Diagnostic Medlabs – Challenging the Orthodox Approach

ii Lab Tests – Affirming the Orthodoxy

B. The English Approach

1. The Public Element Test

2. Alternative Approaches

(a) Variations in the application of the public element test.......... 22 (b) Rejection of the functional test

Chapter II – Refutation of the Current New Zealand Approach to Reviewability of Government Tender Processes

A. First Argument: Characterisation of government contracting as a “commercial” function

1. The benefit of an institutional approach – more precise review

B. Second Argument – The Primacy of Private Law Remedies............. 31 C. Second Argument: Corporatisation legislation impliedly excludes judicial review

D. Objections to the Adoption of an Institutional Approach to Review of Government Contracting

1. Uncertainty

2. Judicial Review is procedurally incapable of handling commercial disputes

3. Alternative administrative accountability mechanisms are better suited to deal with government contracting.................. 35

4. Judicial Review should not be used for Commercial motives

Chapter III – Consequences of a finding of Reviewable Error............... 38

A. Common Law

1. Potential Problems

2. Flexibility of remedies

3. Remedies in restitution

4. Relief Under the Illegal Contracts Act

B. Statutory Provisions

1. The Competing positions

2. Section 21 State Owned Enterprises Act and Section 87 NZPHD Act

(a) Should sections 87 and 21 be treated like privative clauses and construed strictly?

(b) Objections to a narrow reading

3. Protection of contracts under the Crown Entities Act


–  –  –

As a general rule the Courts in New Zealand have seen the award of government contracts for public services as a private matter.1 In this paper I would like to challenge that perception. Such a challenge is timely. In the recent, controversial Lab Tests litigation a High Court judge and the Court of Appeal took widely differing views on the proper scope of judicial review of a tender process for the award of a contract to provide laboratory testing services for the Auckland region.2 Where the High Court saw review as justified by the importance of the subject matter of the contract and the need to maintain high standards in government, the Court of Appeal focussed on ensuring that commercial processes designed to maximise the public interest were not interfered with.3 Although the Supreme Court declined leave to appeal as the case was decided on its facts, the Supreme Court did acknowledge the different approaches taken in the courts below and indicated that had the facts been different the Lab Tests litigation may well have been a case for leave.

Taking its lead from the recent controversy and the acknowledgment of different approaches to review by the Supreme Court, chapter one sets out the current New Zealand approach to the reviewability of government contracts. The New Zealand approach is compared to the more unsettled English jurisprudence and alternative approaches are identified.

Chapter two argues that the current New Zealand approach to reviewability is deficient. It refutes the arguments it is based on and suggests an alternative, wider approach to reviewability that would better serve the public interest.

A consequence of the narrow approach to reviewability in New Zealand is that the consequences at the remedies stage of a wider approach to reviewability have rarely been considered. Chapter three examines these consequences and considers whether either the common law or statutory provisions governing the effect of a See A2(b) below.

Diagnostic Medlab v Auckland District Health Board [2007] 2 NZLR 832 (HC);Lab Tests Auckland v Auckland District Health Board [2009] 1 NZLR 776 (CA) See part A2(c) below.

finding of reviewable error on contracts should act as an impediment to a wider approach to judicial review of government contracting decisions.


–  –  –

This paper is concerned with the proper scope of the reviewability stage of judicial review and therefore by implication with the proper scope of the grounds and remedies stages of review. Accordingly, before starting it is necessary to clarify the structure of judicial review. Reviewability is the first stage of a judicial review application. In it the Court answers the question: is this a decision which is amenable to review? The basic rule is that judicial review is available for “the exercise of any power having public consequences”.4 Accordingly, the reviewability inquiry is binary.

If a decision is reviewable the court then proceeds to the grounds stage. Here, the Court determines whether any of the grounds of review have been made out. If the challenge is based on procedural impropriety or the substantive grounds the Court also determines the intensity of review to be applied in the case. 5 It may be that on Wilson v White [2005] 1 NZLR 189, 196. See also Royal Australasian College of Surgeons v Phipps [1999] 3 NZLR 1, 11. Underneath the basic rule lie issues of considerable complexity. Firstly, the reviewability inquiry may be broken down into further components: jurisdiction, justiciability and the “limits of public law”. The test also involves more complex elements at the justiciability stage such as consideration of the constitutional, democratic and institutional restraints on the courts to determine the appropriateness of review in a particular case. Secondly, the relationship between these components is a matter of some controversy as although analytically distinct, the Courts have not kept sharp distinctions between them. Thirdly, the recognition by the courts that at the grounds stage the Court may apply some grounds with varying levels of intensity has caused further complications as it has blurred the boundary between the reviewability stage and the grounds stage. However, as will be seen the general rule of whether a decision is “public” is an accurate reflection of the test the Courts have applied to determine the reviewability of government tendering processes. Therefore, although cases have refused review on the basis of jurisdiction, justiciability and reviewability it suffices to describe the courts’ approach as being about whether the decision is reviewable. See J Cassie and D Knight “The Scope of Judicial Review: Who and What May Be Reviewed” in New Zealand Law Society, Administrative Law (2008); D R Knight, “A Murky Methodology: Standards of Review in Administrative Law” (2008) 6 NZJPIL 117, 144-145.

It is “elementary” that the standard of procedural fairness to be applied in a particular case varies with the context: Daganayasi v Minister of Immigration [1980] 2 NZLR 130 141 per Cooke J; The Courts in New Zealand are increasingly recognising that a variable intensity of review is to be applied examining the context of the decision the Court holds that there is no scope at all for review for procedural fairness or irrationality. If this is the case then the result is the same as if the decision was unreviewable. However, unlike the reviewability stage the inquiry the Court undertakes is not binary, varying standards of review may apply depending on a mix of contextual factors.

Finally, if a ground is made out the Court then has a discretion over whether to issue a remedy.

–  –  –

Courts in New Zealand have, as a general rule, been very reluctant to review government tender processes. The starting point for New Zealand courts is the decision of the Privy Council in Mercury Energy v Electricity Corporation of New Zealand Ltd.6 Here, Mercury, a local supplier of electricity sought judicial review of the decision of their bulk supplier, the Electricity Corporation, a State Owned Enterprise, to terminate a contract for the supply of electricity. The Court of Appeal held that the decisions of State Owned Enterprises were not reviewable.7 However, the Privy Council disagreed with the Court of Appeal and held that State Owned Enterprises were not immune from review. However, it too held that the particular decision to terminate the supply contract was not reviewable.8 The Privy Council


It does not seem likely that a decision by a state-owned enterprise to enter into or determine a commercial contract to supply goods or services will ever be the subject of judicial review in the absence of fraud, corruption or bad faith...Industrial disputes to the substantive grounds as well: Wolf v Minister of Immigration [2004] NZAR 414. In Wolf Wild J held that the intensity of review on substantive grounds would vary depending on depends on the nature of the decision: upon who made it; by what process; what the decision involves (i.e. its subject matter and the level of policy content in it) and the importance of the decision to those affected by it, in terms of its potential impact upon, or consequences for, them” ibid, para 47. See also Ports of Auckland Ltd v Auckland City Council [1999] 1 NZLR 601, 606.

[1994] 2 NZLR 385.

Auckland Electric Power Board v Electricity Corporation of NZ [1994] 1 NZLR 551.

Specifically, the Privy Council held that the decision was “in principle amenable to review” but that the decision was not justiciable: [1994] 2 NZLR 385, 388-391.

Ibid, 391.

over prices and other related matters can only be solved by industry or by government interference and not by judicial interference in the absence of a breach of law.

The Privy Council emphasised that accountability for the performance of commercial functions was to be achieved by the exercise of powers granted to Ministers under the State Owned Enterprises Act and the Ministers’ accountability to Parliament and to the electorate rather than through judicial review.10 Mercury is important for four reasons. Firstly, as will be discussed shortly, the message from Mercury that contracting is a commercial function that should not be reviewed and is better left to alternative accountability mechanisms is the foundation for the courts’ approach to review of government tender processes.11 Secondly, Mercury clarified the scope of the procedure for obtaining review under the Judicature Amendment Act 1972.12 Under the Act a review application may be brought for the exercise of any “statutory power of decision”.13 Before Mercury the Court of Appeal had given two conflicting opinions over whether contractual powers exercised under a general empowering provision were statutory powers of decision or whether the definition was limited to statutory powers that expressly gave and delimited a body’s power to contract.14 Mercury resolved this controversy in favour of the former approach as in Mercury the contract was made under a general empowering provision and the Privy Council held that review was available both at common law and under the Judicature Amendment Act.15 Ibid.

Whether this should be the case is open to some question. Taggart has pointed out that the limitation of grounds in Mercury was obiter and inconsistent with the reasons the Privy Council gave for holding that SOEs were amenable to review: M Taggart, “Corporatisation, Contracting and the Courts” (1994) PL 351, 356-358. Taggart’s view was recently endorse by Baragwanath J in a dissenting opinion in the Court of Appeal in Air New Zealand Ltd v Wellington International Airport Ltd [2009] NZCA 259, para 121. However, as will be seen the affirmation of the lower courts’ use of Mercury in the government tender context by the Court of Appeal in Lab Tests means that if the approach is to be changed it will be a matter for the Supreme Court.

Review may also be applied for at common law under Part 30 of the High Court Rules.

s3, s4. Section 4 provides that review is available for the exercise of any “statutory power”.

“Statutory power” is defined in section 3 to include a “statutory power of decision” as defined in the section.

New Zealand Stock Exchange v Listed Companies Association [1984] 1 NZLR 699 (CA); Webster v Auckland Harbour Board [1983] NZLR 646; Webster v Auckland Harbour Board [1987] 2 NZLR 129.

[1994] 2 NZLR 385, 388; Taggart, “Corporatisation, Contracting and the Courts” (1994), 355-356.

Prior to Mercury decisions on government contracting that relied on the stock exchange approach Thirdly, Mercury has modified the concept of reviewability. Normally, if a decision is reviewable, it is reviewable on all grounds.16 However, Mercury held that decisions would be reviewable on some, albeit very limited, grounds but not others.

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