CENTREPORT LIMITED V THE ATTORNEY-GENERAL HC WN CIV-2008-485-2084

CENTREPORT LIMITED V THE ATTORNEY-GENERAL HC WN CIV-2008-485-2084 29 April 2010IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY CIV-2008-485-2084UNDER Judicature Amendment Act 1972 IN THE MATTER OF A decision by the Minister of Commerce pursuant to the Tariff Act 1988 BETWEEN CENTREPORT LIMITED Plaintiff AND THE ATTORNEY-GENERAL ON BEHALF OF THE MINISTER OF COMMERCE Defendant Hearing: 26 May 2009 Counsel: H Wilson and H Brown for Plaintiff I C Carter and J K Gorman for Defendant Judgment: 29 April 2010JUDGMENT OF JOSEPH WILLIAMS JIn accordance with r 11.5, I direct the Registrar to endorse this judgment with the delivery time of 3.00pm on the 29 th April 2010.Introduction[1] CentrePort Limited (CentrePort) is a port company operating the Port of Wellington. It has adopted the New Zealand Port and Harbour Maritime Safety Code 2004. This requires that CentrePort and the Wellington Regional Council undertake an assessment of safety risks in respect of the Port of Wellington. The two organisations engaged MARICO Marine New Zealand Limited to do the assessment. In a report dated February 2006 (but received in draft by CentrePort in November2005), MARICO found that CentrePort's tug capacity had been overtaken by the increased tonnage of ships using the port. MARICO recommended:Procurement planning for replacement tugs should be a priority out of this assessment as the alternative option of introducing limiting and environmental parameters would not appear to authors (sic) to benefit the commercial need to manage ships in inclement conditions.[2] The essence of the report was that without at least one bigger and more versatile tug being procured urgently, CentrePort, as a competent port operator would have to consider imposing restrictions on the access and egress of shipping at the port during inclement weather. Given the average number of days per annum on which the port must function in inclement weather, the recommended restrictions were commercially unthinkable. [3] Accordingly, at some point in 2006 (I was not told exactly when), CentrePort set about the process of procuring a new tug with all urgency. MARICO advised that the new tug should have at least two core capabilities: a) to operate in the heavier conditions outside the Wellington harbour mouth; and b) to have a "bollard pool" of more than 65 tonnes if the tug propulsion system was the standard Azimuth stern drive. [4] These two requirements meant that the tug had to be larger than the tugs in CentrePort's current fleet (to facilitate extra pull) and it required sturdier construction and a distinctive hull shape to allow it to operate in Cook Strait. [5] It was concluded, primarily on the basis of in-house industry knowledge (Smith first affidavit, 6.3-6.7) that there were no New Zealand shipyards able to build a tug with the necessary specifications and with urgency. CentrePort needed the tug within 12 months. [6] On 28 January 2007, CentrePort entered into an agreement with Damen Shipyards in the Netherlands for the supply of a Damen 2411ASD – that is anAzimuth stern drive tug of 24 metres in length and 11 metres across her beam. The new tug – named the Tiaki was commissioned for service on 31 December 2007 and delivered to Wellington on 13 February 2008. [7] In the meantime, indeed in May 2007, CentrePort filed a concession application with the Ministry of Economic Development (MED) for waiver of the 6% tariff that would ordinarily be imposed upon this acquisition. At a purchase price of NZ$8 million, the Tiaki attracted a tariff of $480,000. This case is about whether CentrePort should be required to pay the tariff.Tariff concessions[8] Section 3 of the Tariff Act 1988 requires duties to be levied, collected and paid in accordance with "the tariff". The tariff is contained in the First Schedule to that Act. Part 1 contains a lengthy and comprehensive classification of all goods in international trade together with the duty to be paid on them (if any). Chapter 89.04 of Part 1 as it obtained at the time that CentrePort imported the Tiaki, provided that the tariff was 6% for tugs not exceeding 50 metres. [9] Part 2 of the tariff sets out concession references under which the duty that would otherwise be levied under Part 1 can be either reduced or waived. There are 16 operative tariff concession references under Part 2 of the tariff for social, humanitarian, customs facilitation, trade policy, and industry assistance purposes. They include for example gifts to New Zealand residents up to $110 (reference 75), certain goods from developing countries (reference 35) and the like. [10] Concession reference 99 is the generic concession through which, as I understand it, most tariff reduction is achieved. It provides for any goods other than those subject to other concession in Part 2 to be granted a total exemption from the rate of duty by broad ministerial discretion. This discretion is constrained by note 3 of the "Notes to Part 2" set out at the beginning of Part 2 of the tariff. It provides:3 For the purposes of concession reference numbers 26, 55, and 99, the Minister may decline to make an approval if the Minister is satisfiedthat suitable alternative goods are available from New Zealand manufacturers or producers.Policy[11] MED has prepared two documents to explain how it approaches concession applications generally and Reference 99 Concessions specifically. The first is a Tariff Concessions Policy and Procedures Guidance Manual and the second is a Reference 99 Tariff Concessions Guide for Applicants. These documents set out the definitions and criteria MED will apply in considering concession applications. They also explain the process of consideration including review rights. [12] As a useful starting point the Policy and Procedures Guidance Manual explains:One way of summing up the role of concessions is to describe them in the following terms. The7,000 or so "tariff items" listed in Part 1 of the tariff are broad in their coverage, and, frequently, classes and sub-classes of goods can be identified within a "protected" tariff item for which no goods serving similar functions are manufactured in New Zealand. The concessions system allows these lesser categories of "non-produced" goods to be identified, and the duties removed by administrative decision.[13] Section 4.030 of the manual says:Policy provides that concessions will not be granted, and that local industry will be assisted by retaining duties where the local product: (1) performs the same or a similar function to the imported goods for which a concession is sought; and (2) the imported goods would compete directly in the same market with the domestic product. NOTE: Price or quality are not normally criteria for deciding on suitable alternatives.[14] The manual provides that two key ideas in Note 3 are "suitable alternative" and "availability". As to "suitable alternative" the manual suggests that a broad approach is required. The local product need not be identical – it will be sufficient if it is "an acceptable substitute" for the imported good. [15] According to s 4.045:In administering concession policies, the Ministry would usually disregard argument based upon any alleged deficiencies in the local product or any shortcomings in performance. In terms of specification, if local goods are available which are broadly capable of providing most – if not necessarily all – of the functions provided by the imported article, the application should be declined. It is recognised however, that a number of concession applications will be based on requirements to fulfil a specialised – as distinct from general – need. In the case of capital goods and inputs to manufacturing if it can be shown that local alternatives do not meet this specialised need such cases will normally receive sympathetic consideration. Apart from the above a distinction is made, however, between such inconsistencies and claims that the local product is unsuitable because of outmoded design or technological deficiencies. To the extent that these factors are present, they must take secondary priority to the end use of both products. If the local product performs essentially the same function, applications for goods based on technical considerations will not warrant concessionary entry. Importers must appreciate that the choice of whether to import or purchase the local article is their prerogative. This Ministry has, however, an obligation to provide local manufacturers with the level of assistance provided by the substantive rates in Part 1 of the tariff.[16] On the question of availability the manual provides at s 4.055:The local manufacturer must be able to satisfy the Ministry that the company's product is freely available on the open market (eg open to all purchasers and not restricted to contracted buyers) or prove that it is capable and willing to produce the goods under consideration. A history of past production, etc, would indicate a company's production capabilities if the goods concerned are not of the standard stock production types, eg engineering products.[17] Under s 4.060 the manual provides:Concessions are not to be granted when it is evident that the item has been produced regularly in the past (say within three years) by an objecting company, or clearly is of a type where production is inherently seasonal or sporadic in nature and an objector has a history of producing the goods.[18] In addition to the general concession just described, Cabinet has also approved a capital equipment concession under the same reference. The parameter of this concession category is provided in ss 5.015 to 5.018 of the manual. This category is designed to provide for the special needs of New Zealand businesses whose production depends on capital equipment. The explanatory note provides:In line with Government policies which are aimed at reducing costs to businesses and in recognition of the increasingly competitive situation facedby New Zealand businesses and the consequential need that they have for the most efficient and most technologically advanced capital equipment, duty concession applications are considered for items of capital equipment which can be shown to have greater efficiency and higher performance, and productivity characteristics than may be available from New Zealand manufacturers. The underlying principle behind the capital equipment scheme is to avoid placing unnecessary and inappropriate duty costs on industry and to encourage and enhance investment in New Zealand. This is consistent with Government's economic objectives.[19] Thus the Government has made special provision for capital equipment. It appears in that context only, the government is prepared to construe the phrase 'suitable alternative goods' by reference to efficiency, performance and productivity characteristics – an approach not taken more generally. The quid pro quo is that in order to qualify for that looser exception, the applicant has to demonstrate it has taken particular steps to involve local producers. Section 5.017 provides:Applicants need to demonstrate that they have:• maximised the opportunities for local industry to become involved in the project (eg call for expressions of interest, distributed itemised procurement schedules, provided tender opportunities);• made serious efforts to seek out local producers (including potential producers) of the required goods, prior to committing to overseas purchaser; and• given local manufacturers a reasonable time for the quoting/tendering and delivery of the plant and equipment.CentrePort's application[20] CentrePort's application was received by the Tariff Concessions Unit of MED on 5 June 2007 and (in accordance with standard procedure) decision-making power was left in the hands of a senior advisor in that unit, Mr Turner. The application was advertised in the Gazette on 19 June 2007. [21] On 25 June 2007 the Heavy Engineering Research Association (HERA) formally objected claiming that two members of the Association had the capability to build the tug needed by CentrePort. The objection provided in part:As you are no doubt aware, it is New Zealand's interest to have competitive ship building capability in this class and size of ships. As we understand more port companies intend to invest in new tugs and therefore improving capability in this area makes economic sense, provides jobs for New Zealanders and of course helps our balance of trade. However, as advised by our members, it appears they have not even been invited to submit a tender.[22] I note that the letter was in fact addressed to the Director of CentrePort and copied to MED, but I do not think anything turns on that. [23] In various correspondence between Mr Turner of MED, Mr Scholz of HERA and Kelvin Hardie, General Manager of Shipco Marine Constructors Limited (a member of HERA) it emerged that Shipco had built two tugs of roughly equivalent size, and was at the time constructing a third. In the result on 6 September 2008, CentrePort's application was declined. The reason recorded was as follows:There is capability in New Zealand to construct a "suitable alternative" vessel, eg Shipco, PO Box 24, Whangarei.[24] On 19 September 2007, CentrePort's solicitors sought a reconsideration of the decision. In accordance with standard procedure, reviews (as they are called) are undertaken by a more senior officer in the Unit and on an entirely de novo basis. [25] The review was placed in the hands of Mr Manks, Executive Officer, Tariff Concessions Competition Trade and Investment Branch. Before making a final decision, Mr Manks reconsidered the procedure adopted by Mr Turner and took the view that correspondence between Mr Turner and the objectors should have been made available to the applicant for comment. Mr Manks forwarded the correspondence to CentrePort and provided an opportunity for comment accordingly, which was taken up. [26] On 14 February 2008 Mr Manks issued his review decision upholding Mr Turner's decision. Mr Manks applied the suitable alternative test as set out in the manual and concluded:Given the manufacturing history of Shipco, and looking at the size and bollard pool of the tugs that it has made in the past and continues to make, I am satisfied that the company makes tugs that are a suitable alternative to imported tugs. The fact that the company continues to make tugs alsodemonstrates that tugs are available from that company. Generically there is no difference between domestically made tugs and imported tugs and there is, therefore, no reason for the Part 1 tariff on tugs to be removed by Part 2 concession. I consider that the decision to decline the tariff concession application and retain the 6% tariff assistance applying to tugs of Tariff Item 8904.00.01 is the correct decision. The applicant has not proven otherwise.[27] Although not specifically requested to, Mr Manks also considered the capital equipment concession category under reference 99. In that respect he said:The first point to be noted is that the applicant did not meet the fundamental requirements of the capital equipment provisions. The applicant did not approach potential local ship builder prior to committing to the overseas order. This makes it difficult to conduct an appraisal in terms of the policy requirements. However, hypothetically it is worth noting that if the application had been capable of full consideration under the capital equipment provisions, it is most unlikely that it would have been approved.CentrePort's case on judicial review[28] CentrePort argued its case on the basis that MED had: a) wrongly accepted the objection of HERA when HERA is not itself and manufacture is required by paragraph 6.190 of the policy; b) breached natural justice; c) wrongly concluded there was a suitable local alternative to an imported tug by: i) failing to obtain independent expert advice on the question; and ii) failing to read into the suitable local alternative test, a further requirement that the local product be available within a reasonable time; d) failed to apply the capital equipment concession when CentrePort had established that no local supplier could deliver a tug to the required specifications in the required time.[29] I will address each issue in order.The status of HERA[30] Paragraph 6.190 of the Policy Manual provides that:If an objector does not qualify as a manufacturer then the objection should be declined. A manufacturer is under paragraph 4.066 an enterprise that conducts a process in which raw materials in combination either with labour and/or plant and equipment costs ... creates a finished or semi-finished product.[31] CentrePort argued that HERA is not itself a manufacturer as defined but rather is a representative of relevant manufacturers. It therefore could not object in its own right. [32] While that is technically correct, it is necessary to interpret and apply the Policy Manual in a manner that is consistent with the underlying objectives of the policy. The underlying objective of the tariff is of course to protect local industry. Exemptions are granted where importation of a product involves no actual threat to local industry. The tariff provides a process of public application for exemption so that local industry can make representations on the question of whether, in any particular case, local manufacturers will be affected by the concession sought. In this way the system is self-policing. [33] In order for the system to work therefore, it is necessary to interpret the relevant policy statements in a manner which facilitates participation by local industry. Clearly the more organised local industry is, the more effective the exemption system will be in achieving the underlying objective of the tariff. Local industry watchdogs are to be encouraged because they are likely to spot attempts to import products into market niches being supplied by local industry. It follows that it is appropriate to interpret paragraphs 4.066 and 6.190 of the Policy Manual in a way that allows the representatives of local manufacturers to be treated as qualifying objectors. In reality HERA objected on behalf of Shipco and Fitzroy Engineering. In any event there is little difference between this and objections being lodged bylegal counsel or consultants on behalf of their clients and I can see no merit in adopting a restrictive or technical approach to questions of standing. [34] I do not therefore see that there is any substance in the argument that HERA does not have standing to object under the Policy Manual as long as the objection was lodged on behalf of a qualifying manufacturer. That is what HERA did in this case.Natural justice[35] CentrePort made a number of natural justice arguments complaining at the way in which both Mr Turner and Mr Manks reached their respective decisions. [36] Like Mr Manks, I consider that Mr Turner breached natural justice by failing to make material provided to him by objectors available to CentrePort. The fact is however, that Mr Manks identified that failing and took steps to correct it before conducting his review. The review decision was a complete reconsideration of the merits on the basis both of the information that was before Mr Turner and the new information provided by CentrePort when the details of Shipco's submissions were disclosed. The Turner decision was superseded and irrelevant once the Manks review commenced. So were all of its flaws in process. [37] CentrePort also argues under this heading that Mr Manks proceeded on "inaccurate and incorrect assumptions" about Shipco's shipbuilding capacity. This is not really a procedural argument at all and I will traverse the substantive point being argued under the next two headings. [38] I would accordingly conclude first, that the correct decision for review by me is that of Mr Manks. Second, there was no procedural impropriety in the way in which he went about his task.Suitable local alternative: independent advice[39] CentrePort argued that the review decision was superficial and failed to understand the technical factors that needed to be taken into account in deciding whether locally produced tugs were in fact "suitable alternatives". CentrePort argued that MED wrongly based its opinion on tug size and bollard pull alone. For this reason, it was argued, MED wrongly accepted as relevant and conclusive, the evidence provided by Shipco that it had built three tugs in the recent past of equal or greater size and bollard pull to that of the Damen product. [40] In his second affidavit for CentrePort, Captain Crawford explained that the Damen product could not be compared with Shipco's production in this way. Captain Crawford said that the tugs built by Shipco had been built for entirely different purposes and different conditions. He said:... contemporary ship assist tugs are differentiated by the means of propulsion, power, dimensions, hull form and underwater appendages, towing equipment and towing wenches, fender systems, classification, and regulatory requirements, and that the requirement of use for which they are specified and designed.[41] For this reason it was argued that a decision as to whether a suitable local alternative existed required technical insights which neither Mr Turner nor Mr Manks possessed. This made it imperative that MED obtain expert independent advice before making a decision. [42] MED replied with two arguments: a) it is for the applicant to prove its entitlement to the concession; and b) concession 99 exemptions do not require the detailed technical analysis argued for by the plaintiff. [43] I prefer MED's position on the question because it is consistent with the purpose of tariffs and the concession exemption. Tariffs are designed to protect local producers of goods that can also be imported. They do this by creating economic disincentives to purchase the imported product. If there is no suitable alternativelocal product, then there is no comparable New Zealand industry to protect, and there is no point in charging the duty. [44] In this case, the product in question was a large and expensive piece of capital equipment, each example of which requires significant time, resources and skill to produce. In circumstances where each example of a product is in some way unique, and each customer has slightly different needs, it will be sufficient for a local producer to demonstrate the capacity to produce a similar product and that it is therefore manufacturing into the same general niche. The rest will be for design discussions leading up to the placing of an order if one eventuates. For example, CentrePort argued that New Zealand built vessels were too light both in scantlings and displacement to suit operational conditions in Wellington. As an historical proposition that may well be the case, but it says nothing about whether Shipco could have built to heavier specifications if asked to do so. [45] There is no argument that Shipco makes tugs of the general dimension and power sought by CentrePort. Rather, CentrePort's argument was Shipco had no proven design or construction experience with CentrePort's particular and unique requirements (in New Zealand terms at least). Damen on the other hand had global experience and a well proven design known to be a match for Wellington's challenging conditions. While that may well be true, it is essentially irrelevant given the purpose of the tariff in the first place. [46] The tariff is designed to encourage purchasers of the relevant product to buy locally. One effect of that incentive is to encourage local buyers to give local manufacturers more experience of producing into that niche as long as those manufacturers have the capacity to do so and relevant production history. There is no question but that Shipco did. Once that is established, there was no point in a detailed technical analysis of Shipco versus Damen tugs, because MED could be satisfied that there was a local industry to be protected. [47] Given New Zealand's small manufacturing base, especially for capital equipment, it will I imagine, be usual for capital equipment manufacturers never to have built an item identical to that sought by any particular end-user, yet still be wellrecognised as capable of doing so. To require Shipco to show that it had already built a tug to the specifications of the Tiaki before a tariff could be charged, would defeat the purpose of the tariff. Thus in terms of s 4.030 of the Policy Manual, there is a local product that performs the same or a similar function and the imported product would compete directly with it in the same market. [48] In any event, according to Policy 4.050, it is for the importer to satisfy MED that local manufacturers were not capable of producing the product required to the specifications required. Subject to what I will say below about the capital equipment exemption, that must necessarily have required CentrePort to demonstrate to MED that it approached Shipco, discussed the specifications, and received a negative or otherwise unacceptable reply. In the alternative, it required CentrePort to provide expert evidence demonstrating that there was no point in approaching Shipco because it was widely known locally that Shipco could not produce an acceptable local alternative if asked to do so. Captain Crawford's evidence after the event is not relevant in that context. It needed to be provided to Mr Manks. [49] Policy 4.050 does suggest that the Minister may be assisted by procuring his or her own technical advice on the question of whether locally produced goods are unsuitable or compete into a different market. This may be necessary, it says, because of the "strongly entrenched views of interested parties (importer/local manufacturer) when deciding upon suitability ...". That option was always open to MED, indeed Mr Manks suggested it as a possibility to Mr Turner. But it is not cast in mandatory terms and I do not see that it should have been mandatory in this case. On the contrary, as I have said, expert advice, if it was the same as that of Captain Crawford, would not have helped in this case anyway. [50] I am satisfied that MED applied the policy correctly in this respect.Suitable local alternative: reasonable time[51] The plaintiff argued that even if Shipco was capable of building a suitable local alternative tug, it could never have done so in time to meet CentrePort'srequirements. Shipco should therefore have been discounted by MED as a realistic alternative. [52] The urgency, said CentrePort, was created by the ultimatum contained in the MARICO report that triggered the search for a new tug. That report, it will be remembered, said that the combination of increased ship tonnage at the port and Wellington's distinctive weather meant that unless CentrePort procured a more powerful tug with the capacity to work in Cook Strait, operations at the port involving larger ships in inclement weather would have to be curtailed. CentrePort said that meant a tug to the new specifications had to be procured urgently and there was no way Shipco could complete the build in the time required. [53] According to the first affidavit of Captain Smith, this was because PrimePort (Timaru) and Northtugz (Northland) were looking to upgrade their tugs at the same time. Captain Smith was advised in early 2006 that Shipco had quoted for the Northtugz job and he discovered later that Shipco was also building two tugs at the time for Rio Tinto in Australia. Captain Smith said: 1I concluded at that point that [Shipco] would not be able to build any further tugs for some time, and probably would not be able even [to] commence construction until the end of 2008 (at the earliest). Therefore, from my knowledge of the tugs being built in New Zealand at the time, and with the background of the global shipbuilding situation in mind, it was obvious to me that none of the New Zealand shipyards would be able to undertake a project to build such a tug for CentrePort unless lead times of at least two years were acceptable. Quite apart from their existing projects, they simply would not have been able to access the materials, skilled labour and component parts from suppliers in the time available.[54] On the last point, Captain Smith argued that global economic growth during 2006 meant that there was massive demand for heavy machinery causing significant delay in delivery of components. At the time both Rolls Royce and Caterpillar were quoting two years or more to complete engines suitable for tugs. Captain Smith said that because Damen was a large global player, it was less affected by those delays. Its contacts and influence meant it could effectively jump the queue.1 Captain Smith first affidavit 6.5[55] Thus CentrePort said it knew Shipco was overloaded with existing contracts and would be caught by the worldwide backlog of orders for large engines creating a minimum two year delay. [56] Kelvin Hardie, General Manager of Shipco, rejected Captain Smith's view about the difficulty of obtaining engines. He pointed to advice given by a Mr Greg McCarthy to Captain Smith on 9 July 2007. This advice was appended to Captain Smith's first affidavit. It was obtained for the purpose of progressing the tariff concession application so it post-dated the Damen contract. The advice provided:If a customer or boat yard walked off the street today and ordered a 3516 engine the waiting time is around 2 years so delivery would be around mid 2009. However in reality it works like this, customer like Daman (sic) and dealers will book assembly production slots years ahead even though they don't have a firm buyers (sic) and that keeps there (sic) lead times down and the production slots do get passed around between dealers. Goughs book production slots on ranges of Engine gensets for the common ones we sell even though we don't have firm buyers, but we know we will have buyers either before they arrive or soon after arrival. This keeps us up with stock to sell. Caterpillar does operate a managed distribution which means if customer walked in off the street and wanted to purchase 2 x 3516 engines and it was determined a delayed production time would cause the loss of a sale then they will attempt to take the next available production slot that does not have a firm customer sale. So Goughs could take someone else's production slot if another dealer was only buying an engine for stock.[57] Mr Hardie concluded that if Shipco had been given an opportunity to prepare a tender or expression of interest for the job, the company would have been capable of supplying a similar vessel in the appropriate timeframe. The problem in his view was, Shipco was never asked. [58] It is impossible to know now how quickly Shipco could have completed the build if it had won the job, and it is in any event, not my task to make findings of that nature. Rather, I must decide under this heading whether Mr Manks properly construed the terms of the tariff and the relevant policies, took into account relevant considerations and discounted irrelevant ones.[59] I accept CentrePort's submission that in appropriate circumstances, the suitable local alternative test can be supplemented by an additional requirement that the local manufacturer must be in a position to deliver the product within a reasonable time. To refuse to read in such a requirement would be unreasonable and oppressive in my view. I also accept that as at the beginning of 2006, CentrePort had a genuine and urgent safety problem that had to be resolved as quickly as possible. Looking back at the facts as they turned out (as I am now able to do), it appears that delivery within two years of the final MARICO report of February 2006 was clearly a reasonable timeframe because CentrePort was pleased to have taken delivery of theTiaki in February 2008, although it should be remembered that CentrePort had actually been advised of the problem three months earlier in the November 2005 draft report. [60] The problem with CentrePort's case was pointed out by Mr Manks himself. He said:Although it is not clear from the documentation, it appears that CentrePort were in the market for a tug sometime early to mid 2006. Based on the above timeframes, it seems that a New Zealand built tug could possibly have been delivered sometime early 2008; not too far beyond the scheduled delivery of the Damen tug in December 2007 (or March 2008 as mentioned in the supporting statement to the application). But I must repeat, all this is hypothetical because the New Zealand shipbuilders were never given the opportunity to quote.[61] On the evidence before Mr Manks, it was open to him to conclude that Shipco could have built a suitable alternative tug in or close to two years - a reasonable timeframe even by CentrePort's own reckoning, if the order had been placed early enough. Even if that is accepted as a mere possibility, the fundamental flaw in CentrePort's case is exposed. CentrePort needed to have actually tested the local market rather than proceed, as it did, on guesses – even highly educated ones. If CentrePort had elicited from Shipco in early 2006, an indication of when it could complete the build, that indication may well have shown that Shipco could not meet a reasonable timeframe whether because of other building priorities or because of inability to procure the required powerplants or both. In that event Mr Manks would have been bound to grant the exemption assuming there were no other shipyards putting their hands up. Or Shipco may have provided credible detail as to how thetimeframe could be met, in which case CentrePort would have been stuck with the answer. CentrePort would then have to decide whether to procure locally or pay the tariff. [62] By not testing the water with Shipco (or indeed any other New Zealand ship builders) at the outset, CentrePort was taking a calculated risk that no-one would complain when CentrePort came to apply for exemption from the tariff. As it turned out the gamble did not pay off: Shipco objected, asserting that it could have completed the job in the time required. Mr Manks could not have discounted that assertion on the ground that it lacked all credibility, at least not on the evidence then before him. As Dr Scholz of HERA pointed out when the matter was before Mr Turner of MED, even if one accepted that there would be a two year delay in engine delivery, CentrePort knew in February 2006 it needed a new tug. If it had gone to New Zealand shipyards at that stage, delays in engine procurement would not have been such a significant issue. In fact, as Captain Smith's own contacts in the industry advised him at the time of the tariff exemption application, an urgent job could jump the queue if orders ahead of it were only for stock. [63] Ironically, in approaching the case the way that it did, CentrePort denied Shipco the very thing it argued it was entitled to expect from MED – a right to give its perspective before the decision was made. [64] I am satisfied that Mr Manks correctly applied the policy having marshalled the relevant facts under this heading.Capital equipment exemption[65] Although the application was made under the "no suitable local alternative" concession, it was argued before me that CentrePort nonetheless qualified under the capital equipment concession contained in Policy 5.015. This exemption is very different. In fact it assumes that there is a local alternative but it is not as efficient or as technologically advanced as the imported item and therefore lacks its performance or productivity characteristics. As the name suggests, this exemption applies only to capital equipment. The thinking behind it is that in order to enhance thecompetitiveness of New Zealand businesses, those businesses should be able to import certain capital items without penalty if it can be shown that the imports are better than the local equivalent. This seems, to me at least, to be the more obvious category into which CentrePort might have pitched its case. [66] It will be recalled that there are important conditions that must be met before applicants will qualify for the exemption, no doubt in order to avoid abuse of it. These are contained in Policy 5.017 which for ease of reference, I set out again in full:Applicants need to demonstrate that they have:• maximised the opportunities for local industry to become involved in the project (e.g. called for expressions of interest, distributed itemised procurement schedules, provided tender opportunities);• made serious efforts to seek out local producers (including potential producers) of the required goods, prior to committing to overseas purchase; and• given local manufacturers a reasonable timeframe for the quoting/tendering and delivery of the plant and equipment.[67] Local manufacturers can object but there are also certain important conditions that objectors must meet. Policy 5.018 provides:Any objection from a local manufacturer would need to demonstrate that:• similar goods requiring the same labour skills, technology and design expertise have been made by the objector in the recent past;• similar goods could be manufactured by the objector within existing facilities and within a reasonable timeframe; and• the objector would be prepared to accept an order for the supply or manufacture of the goods.[68] CentrePort argued before me that there was no point in maximising opportunities for local industry, seeking out local producers or seeking quotes or tenders from them in accordance with Policy 5.017. CentrePort said it already knew that manufacturers such as Shipco could not deliver what was wanted, and certainly not within a reasonable timeframe. CentrePort considered that its own officers well knew the Damen product (unlike its New Zealand equivalents) was tested andproven, and it was superior in performance, structural strength and after-sales service. [69] Although he was not required to consider the application under this category, Mr Manks did consider it and rejected the capital equipment exemption as inapplicable. Mr Manks found that no attempt had been made to engage with local industry disqualifying CentrePort from the outset. But even if that were not the case he was not at all satisfied that the Damen product was obviously superior to Shipco's. I have already set out the essential factual basis for that conclusion in the previous section and it need not be repeated here. [70] Once again I consider that Mr Manks correctly applied the terms of the exemption and the conclusion he reached was well open to him on the facts. CentrePort admitted that it had not complied with the requirements of Policy 5.017 but argued rather that it did not need to. Given that Shipco had demonstrated to Mr Manks that it satisfied the three requirements of Policy 5.018, CentrePort's refusal to engage with Shipco as required by Policy 5.017 was found to be fatal. Mr Manks' conclusion cannot be faulted.Conclusion[71] All of the grounds for review having failed, the plaintiff's application for judicial review must therefore be dismissed accordingly. The defendant will be entitled to costs on a category 2B basis. Memoranda may be filed if necessary. "Joseph Williams J"Solicitors: Crown Law Office, PO Box 2858, Wellington Kensington Swan, PO Box 10246, Wellington