WAIKATO REGIONAL AIRPORT LTD V THE COMPTROLLER OF CUSTOMS AND ANOR HC HAM CIV-2010-419-1701

WAIKATO REGIONAL AIRPORT LTD V THE COMPTROLLER OF CUSTOMS AND ANOR HC HAM CIV-2010-419-1701 9 December 2010IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY CIV-2010-419-1701UNDER the Judicature Amendment Act 1972 BETWEEN WAIKATO REGIONAL AIRPORT LTD Applicant AND THE COMPTROLLER OF CUSTOMS First Respondent AND NEW ZEALAND CUSTOMS SERVICE Second Respondent Hearing: 27 and 28 October 2010 Appearances: G M Coumbe for Applicant M S R Palmer and K C Millard for Respondents Judgment: 9 December 2010JUDGMENT OF BREWER JThis judgment was delivered by me on 9 December 2010 at 10:00 am pursuant to Rule 11.5 High Court Rules. Registrar/Deputy Registrar_________________________________________________________________________________ SOLICITORS Swarbrick Dixon (Hamilton) for Applicant Crown Law (Wellington) for Respondents COUNSEL Gillian CoumbeIntroduction[1] The applicant seeks judicial review of a decision of the first respondent which resulted in charges being made to it for work carried out by officers of the second respondent. [2] The applicant carries on business as an airport operator trading under the name of Hamilton International Airport (HIA). Scheduled international services have been operating out of HIA since about 1995. From 2005, in accordance with Government policy set around that time, HIA was classified as a medium volume international airport. The relevant consequence of that status was that the Government would fully fund standard passenger clearance services by Customs officers. [3] From 21 April 2009 there was a temporary cessation of scheduled international services at HIA. This was because Air New Zealand, the only airline using HIA for scheduled international services, stopped doing so. As a consequence the first respondent decided to withdraw Customs officers from HIA from 22 April 2009. [4] The applicant was soon able to replace Air New Zealand flights with Pacific Blue flights. The imminent finalising of the new arrangement was conveyed to the first respondent by Mr Doak, the Chief Executive of the applicant, in a telephone conversation of 28 May 2009. The formal written agreement between the applicant and Pacific Blue was entered into on 3 June 2009 with the resumption of international flights to take place from 1 September 2009. [5] Obviously, this new arrangement would mean that Customs officers would again be required for regular passenger clearance services at HIA. This presented the first respondent with a problem. Put simply, he had no money set aside to pay for re-establishing those services and subsequently to pay the operational costs of them. Having considered the matter carefully, he decided that the answer lay in the discretion accorded him by regulation 3 of the Customs and Excise Regulations 1996 (the regulations). In summary, that regulation permits him to determine the workinghours of the Customs at a Customs airport (of which HIA is one). Regulation 4 of the regulations provides a charging regime for any work performed by Customs officers outside the determined working hours. The first respondent therefore made a determination that for the first year of resumed flights there would be no ("zero") working hours established for Customs officers at HIA. That did not mean that Customs officers would not provide the necessary passenger clearance services. That was never contemplated. It just meant that, by operation of regulation 4, HIA would have to pay for all the hours worked by those officers at the regulation 4 rates. These have, rightly in my view, been characterised by the applicant as overtime rates. Over the course of the year in which the zero hours determination endured the second respondent billed the applicant $478,788.37 for the hours worked by Customs officers.Grounds for Review - Ultra Vires[6] The applicant in its amended statement of claim has five grounds for review. The fifth ground, which is that the decision of the first respondent was ultra vires his legislative powers, is the starting point I adopt in my consideration of this case. Where a public official is alleged to have made a decision which is outside the powers granted to him by the relevant legislation then that should be the first allegation to be examined. If the allegation is upheld then the community of causes of action which relate to the legality of the exercise of the power fall away. If the allegation is not upheld then the necessary exercise of defining the nature and extent of the powers prerequisite to such decision gives a basis for determining the remaining causes of action. [7] It is trite law that when considering the ambit of powers granted by subsidiary legislation such as statutory regulations it is necessary to consider the purpose and extent of the statutory provisions which allowed the regulations to be made. The relevant statute in this case is the Customs and Excise Act 1996 (the Act). The Act is rightly described by counsel for the first and second respondents as an operational Act. That is to say, the major stated purpose is to "provide for the administration and enforcement of Customs controls at the border". For all intentsand purposes, people and goods are not allowed to come into New Zealand or depart from New Zealand without being subjected to the attentions of Customs officers acting pursuant to the powers given by the Act. Sections 286 and 287 of the Act provide for the making of regulations to enable the provisions of the Act to be given proper effect and to assess and collect fees, charges and expenses to defray the costs to the Government of the regime established by the Act. Relevantly, s 286(1)(ee) provides:The Governor-General may from time to time, by Order in Council, make regulations for all or any of the following purposes: ... (ee) Prescribing the working hours of the Customs, and providing for the fixing by the Chief Executive of particular working hours in respect of any particular place.[8] And s 287(1)(b) authorises the making of regulations:Prescribing a rate or rates of charges for the attendance of Customs officers for the purposes of this Act.[9] Section 287(3) of the Act provides specifically:Different rates of charges may be prescribed in accordance with subsection (1)(b) of this section in respect of attendances during the working hours of the Customs or attendances outside the working hours of the Customs, or on any other differential basis.[10] Regulations made pursuant to these statutory provisions are contained within the Customs and Excise Regulations 1996. A regulation made pursuant to s 286(1)(ee) of the Act is regulation 3 which provides:Working hours of CustomsFor the purposes of regulation 4 of these regulations,— (a) Except as provided in paragraph (b) of this regulation, the working hours of the Customs shall be from 8.00 am to 5.00 pm on Monday to Friday, inclusive: (b) The working hours of the Customs at a Customs airport shall be those determined from time to time in respect of that airport by the Chief Executive.[11] A regulation made pursuant to the power given by s 287(1)(b) of the Act is regulation 4 which provides:Charges for attendance of Customs officers outside working hours of Customs(1) Whenever, for the purpose of carrying out any provision of the Act, any Customs officer is required to attend at any time outside the working hours of the Customs, the person in charge of or owner of any craft (or the agent of such a person), or the importer, or exporter, or licensee of a Customs controlled area, or other person concerned, in respect of whom or in respect of whose business such attendance is, in the opinion of the Chief Executive, necessary, shall pay a charge calculated in accordance with the following rates in respect of that attendance: (a) For attendance on any day that is— (i) A working day (except the day after New Year's Day, or the day on which the anniversary of the province is observed in any particular place); or (ii) A Saturday,— $72.60 per hour or portion of an hour: (b) For attendance on any other day (including the day after New Year's Day or the day on which the anniversary of the province is observed in any particular place), $81.80 per hour or portion of an hour. (2) The Chief Executive may exempt any person or class of persons from the requirement to pay a charge under subclause (1) of this regulation. (3) A minimum charge of $245.40 shall be payable for the attendance of any officer on any day that is— (a) The day after New Year's day or the day on which the anniversary of the province is observed in any particular place; or (b) Not a working day; or (c) Not a Saturday. (4) The charges prescribed by this regulation are inclusive of goods and services tax under the Goods and Services Tax Act 1985.[12] The issue under this heading is whether regulation 3(b) empowered the first respondent to make a determination that the working hours of Customs at HIA would be zero.Submissions[13] The applicant submits that given the requirement that all passengers arriving in New Zealand or departing from it must be cleared by Customs officers, and given that international flights arrive at and depart from airports at all hours of the day and night in accordance with schedules which differ from airport to airport, the Chief Executive must have the power to set the working hours of Customs officers to ensure that they are present when passengers need to be cleared. That is what regulation 3(b) is for and it relates directly to the power given by s 286(1)(ee). The Act, the applicant submits, necessarily contemplates that when the power is used it is used for the purpose of setting appropriate working hours. It does not, and cannot, authorise the setting of zero hours. That simply does not make sense. [14] Further, the applicant submits, regulation 3(b) is not intended as a revenue collecting device. Its purpose, and the power which mandated its existence, is to ensure that appropriate working hours are set for the appropriate Customs airport. The payment of officers working for the first respondent is a matter for central Government and the funds appropriated in the budget each year in the normal way, supplemented as necessary. [15] Regulation 4, submits the applicant, is made pursuant to a different section than regulation 3 and is there to provide a charging regime for what the applicant termed "overtime". [16] Therefore, submits the applicant, the Chief Executive cannot impose a zero hours determination under regulation 3(b), knowing that Customs officers will have to attend at an airport to meet regularly scheduled services, as a means of invoking the application of regulation 4 so as to gain revenue. [17] The respondents' position on this argument is summarised in para [61] of their counsel's submissions:The regulations provide the Chief Executive with a wide discretion to set the working hours of customs at any airport. Integral to the existence of the discretion is that operational, management, and financial considerations must be able to be taken into account in its exercise. There is no requirement onthe chief executive either to set or reset the working hours at any particular time or on any particular event. Regulation 3(a) provides a default position of setting working hours to 8am to 5pm, Monday through to Friday, but reg 3(b) provides the Comptroller with discretion to vary this.[18] The respondents submit further: 1Regulation 4 expressly anticipates that Customs services may be required to be provided within what is usually considered to be a 'working day' even though that would not fall within Customs Working Hours under reg 3. This implies that there is discretion around working hours under reg 3. Ultimately, unless there are any statutory requirements to be met, funding and charges are a matter for Governmental policy to be set within the operational context and policy and financial context created by Executive government. The 1996 Act is operational in nature, setting the functions of Customs and providing Customs with the authority to carry out its functions. Its provisions relate to the practical mechanics and authorisation of the exercise of powers to allow this to occur. The regulation making powers assist to facilitate the practical exercise of those duties and powers. The 1996 Regulations are consistent with this; with regs 3 to 5 specifically coming under the title 'administration'.[19] Having submitted that the funding of Customs services is a matter which is integral to the administration of Customs operations and the legislative framework, the respondents give examples where recovery is specifically provided for in various aspects (none relating to the processing of inbound and outbound passengers). They go on to submit that there is nothing in the 1996 Act or in the regulations which states or indicates that Customs working hours must reflect international flight schedules. Further, Customs is not required to fund fully all of the costs of providing its services. [20] The respondents submit that when an airport that has been operating international services ceases to do so then setting working hours at zero is the logical step to take and is empowered by the regulations. [21] At para [76] of their submissions the respondents say:To find that working hours must be set above zero when international services are scheduled, would be to deny the Chief Executive the legal discretion which has been entrusted to him to set Customs working hours in the operational and financial context of Customs' operations at each airport. It would be inconsistent with the administrative nature of the legislative1 Respondents' submissions dated 22 October 2010, at [69]-[70].framework of these particular regulations which is traversed below. It would hand to the airports and airlines, motivated by commercial decisions, the public power that Parliament and the Executive has entrusted to the Comptroller of Customs.Discussion[22] The Act provides (inter alia) for the administration and enforcement of Customs controls at the border. [23] Pursuant to s 9 of the Act the first respondent may designate an airport as a Customs airport. HIA was designated as a Customs airport in 2005. An aircraft arriving in New Zealand or departing from New Zealand must do so via a Customs airport. [24] By operation of s 10 of the Act the disembarkation, embarkation, or processing of persons arriving in or departing from New Zealand can only be done from an area licensed as a Customs controlled area. Part of HIA was licensed by the first respondent as a Customs controlled area. Essentially, s 10 provides the legislative basis by which Customs can physically operate out of a Customs airport. [25] Persons arriving in New Zealand at a Customs airport must report to a Customs officer so that the officer's powers under the Act can be exercised.2 These will usually be exercised in the Customs controlled area at the Customs airport. Every person disembarking must then make his or her accompanying baggage available for examination by a Customs officer. [26] Similar requirements exist for persons wanting to leave New Zealand. [27] It is unnecessary for me to go further into the functions of Customs officers, nor the reasons for them. They are necessary functions and they are exercised pursuant to statute on behalf of the Government as public functions.2 Section 27.[28] Section 286 is entitled, simply, "Regulations". It confers on the Governor- General in Council the power to make regulations for 41 different purposes. One of those purposes is the prescribing of working hours. [29] Section 287 is headed "Regulations for fees, charges, and expenses". It is under this section that regulation 4 is made. [30] The Act and the regulations, relevantly, establish a regime by which an airport can be designated as a Customs airport and part of it licensed as a Customs controlled area so that passengers and their accompanying baggage can be properly dealt with by Customs officers when arriving in or departing from New Zealand. [31] The Act and the regulations also establish a regime by which Customs can recover its costs in having Customs officers working to process passengers. The costs can be recovered, in this case, from the applicant as owner of the Customs airport. [32] There are two ways in which this can be done. The first is through prescribing rates through regulations made pursuant to s 287(1)(b) and the other is by making regulations providing for the liability of any person to pay any actual and reasonable expenses incurred by any Customs officer pursuant to s 287(1)(c). [33] Regulation 3, for the purposes of regulation 4, sets out the working hours of the Customs as being from 8:00 am to 5:00 pm on Monday to Friday, inclusive. However, when it comes to the working hours of the Customs at a Customs airport then those hours may be determined from time to time by the Chief Executive. [34] The reason for this difference is apparent. Aircraft can arrive, and be scheduled to arrive, at an airport at all hours of the day or night. Aircraft are not like ships which accommodate those on board for long periods of time. When aircraft arrive, or are scheduled to depart, their passengers need to be processed by Customs promptly. It is appropriate, where airports are concerned, to give the Chief Executive the power to align working hours with the demands of the flight schedules.[35] That does not mean that every airport designated as a Customs airport with a licensed Customs controlled area must have a positive number of Customs working hours determined for it. If, for example, an airport does not have scheduled international flights, but can expect from time to time international charter flights, then the first respondent might decide that it is expedient for the airport to have or retain a designation and licence. In such a case, where there are no regular hours for Customs officers to work, the first respondent might well decide to designate the airport as having zero working hours. The evidence is that he has done so in other cases. [36] The setting of zero working hours is not the same as a refusal to exercise the discretion. Nor is it a failure to exercise the discretion. "Zero" is not a term of grammar. It is a number. [37] I accept that the Chief Executive does have the power to revoke the designation of an airport as a Customs airport and to revoke licenses for Customs controlled areas. He might well choose to do so in a situation where an airport is no longer going to be used for international arrivals and departures. That was not the case with HIA which could expect charter flights to arrive and depart. By retaining the designation and licence HIA could be serviced as required by Customs officers mobilising from other areas of the country and their attendances on such occasions would be charged for under regulation 4. [38] It follows that this ground for judicial review fails.Grounds for Review - Unauthorised Purpose[39] The applicant's submissions on this ground overlap with those for the ultra vires ground. They are broadly that the first respondent deliberately set the working hours at HIA at zero ⎯ despite the fact that scheduled services were to recommence and Customs staff would be on site ⎯ for the sole or predominant purpose of being able to charge HIA under regulation 4 for all attendances at HIA. This, it is submitted, he was not authorised to do by the regulations.[40] The respondents' submissions overlap similarly with those addressing the ultra vires ground. They argue that the first respondent made his decision in accordance with what was reasonably considered to be consistent with funding of airports which commenced international services and being conscious of the financial limitations on Customs' operations:85. The direct consequence of WRAL's claims would be that Customs Working Hours must ... match the airport's international flight schedule. There is no good basis for such a submission. It is not the legislative purpose or intent of the statutory provisions. Rather the provisions provide the mechanics or administrative route to set Customs working hours at each airport. That must include the option of setting working hours at zero for a defined period at a particular airport while Customs is establishing the new provision of services there - taking into account all the considerations traversed above. Services provided outside working hours, thus set, must be able to be the subject of charging.Discussion[41] In my view, the first respondent was required to consider, from time to time as appropriate, what work would be required to be performed by Customs officers at HIA. When there was no regular work to be performed he was entitled, as he did, to withdraw the Customs officers and set the Customs working hours for HIA at zero. [42] When he was advised by HIA that scheduled international flights were to be resumed then he had to make a fresh assessment. He had to consider, as he did, the operational, management and financial considerations. His broad options were to provide passenger clearance services or refuse to provide them. If he chose the latter option, of course, he would have had to revoke HIA's designation as a Customs airport and the licence for its Customs controlled area. He chose the former option. [43] In my view, that choice meant that the first respondent was required to set Customs working hours which, given all the circumstances (including his own resources), would most reasonably cover the requirement to process arriving and departing passengers. That does not mean he had to set hours to match the airlines' schedules. If the operational, management and financial exigencies meant that thebest he could offer was hours which would inconvenience airlines and their passengers then that would be the outcome. [44] The evidence shows, however, that the airlines' schedules are the predominant factor in setting the working hours of Customs for the obvious reasons. The evidence is that at all airports with scheduled international services Customs working hours are set to ensure that Customs officers are present and ready to provide services as those flights arrive and depart. [45] In my view, regulation 3 and regulation 4 have as their purpose the setting of normal and overtime working regimes for Customs airports. Cost recovery is an incidental ⎯ but necessarily present ⎯ adjunct to what is an operational decision- making power. [46] The Government can at any time choose to establish a regime which would charge for the costs of attendances during the normal working hours of the Customs as determined by the first respondent. Section 287(3)3 authorises the making of regulations to prescribe rates of charges for attendances during the working hours of the Customs as well as outside those hours. It had not done so and therefore the first respondent decided to contrive a situation where charges could be made. [47] The inaptness of this approach is highlighted by the fact that the charging regime that then applied under regulation 4 was the one installed specifically to charge, as the applicant described it, for "overtime". It was not a regime designed to recover the actual cost of usual working hours. [48] It is clear, also, that the first respondent did not expect the charging regime he decided to impose to simply recover the working hours costs of Customs officers. In a letter to Mr Doak dated 18 June 20094 the second respondent's Group Manager Airports, Mr Chitty, wrote:Based on the Pacific Blue flight schedules provided, Customs has undertaken cost recovery calculations in accordance with the Customs and Excise Regulations. These take into account the minimum charges for3 Quoted at [9] above.4 Exhibit 55 to Mr Doak's affidavit of 12 August 2010.Sundays and public holidays stipulated in the Regulations, and allow for the minimum of 6 officers for each arrival and 3 officers for each departure. Applying an assumption that each arrival would require Customs attendance for an average of two hours, the total cost for the first full year of operation that would need to be recovered is $459,891. Given Customs is earnest in its endeavours to respond to your company's need to implement the new flight schedules over what is a reasonably short time frame, and recognising that this is occurring at the same time wider consideration is being given to cost recovery of border services; then there is scope in the circumstances of this particular case, for your company and the Service to reach agreement on the Service recovering only its marginal costs of re-establishing services in the first year of operation at Hamilton Airport. Customs has also undertaken calculations in that regard; again based on the Pacific Blue flight schedules, taking into account a number of factors, including average hourly rates for staff, again based on 6 officers per arrival and 3 per departure, for a 3 hour minimum in each case (which we must pay our part time staff); loadings built in for annual leave, sick leave and public holidays; a higher hourly rate for a supervision factor; estimated cost of car parking and office rental; and depreciation on capital investment (a new server is required). Additionally there are specific start up costs which include uniforms, recruitment and training; the training programme for new staff is comprehensive in that it covers 4 full weeks, for which the staff must be paid, requiring them to come out the other end of the programme sufficiently trained as to undertake the full range of [law enforcement] duties that being a Customs officer at an international airport entails. In the event we are able to recruit some of our experienced staff previously made redundant, then the training costs will be reduced. The current calculations in respect to these marginal costs come out to $400,000 for the first full year of operation; with an additional $30,000 being the amount we estimate we would need to allow for in respect to staff redundancy payments in the event we find ourselves in a situation where we have to close down the Customs operation at Hamilton Airport within this period.[49] The applicant refused to pay the "marginal costs" and in the event was sent invoices totalling $478,788.37. Insofar as this sum amounted to an excess over actual operational expenditure, I am inclined to agree with the submissions of the applicant that its levying was a tax in breach of s 22(a) of the Constitution Act 1986. However, due to my finding on the purpose of regulations 3 and 4 I do not have to do more than note the point in the context of the inaptness of the approach adopted by the first respondent.[50] It follows that in setting zero hours for HIA for the purpose of engaging the regulation 4 regime the first respondent used his power for an unauthorised purpose. Revenue gathering is not the purpose for which he had the power. [51] It follows that the applicant succeeds on this ground.Remaining Grounds for Review[52] Due to my finding that the first respondent used his regulation 3(b) power for an unauthorised purpose there is little point in making findings on the remaining grounds for review since they are related. [53] The exception is the pleading that the first respondent's decision is reviewable as a breach of a legitimate expectation. The expectation pleaded is that the consultation process ongoing at the time of the first respondent's decision would have precluded him from making the decision he did. [54] On this ground I find against the applicant. In a telephone conversation between the first respondent and Mr Doak on 28 May 2009 (a date before there was a contract between the applicant and Pacific Blue) the first respondent put the applicant on notice that any expectation of funding could not be relied upon. [55] Mr Doak himself, in his affidavit of 12 August 2010, deposed:94. On 28 May 2009 I telephoned the Chief Executive of Customs, Mr Martyn Dunne, to tell him that an announcement about Pacific Blue coming into Hamilton was pending... Mr Dunne did not react favourably to this news. In fact, he became very angry, saying that he already knew that it was Pacific Blue and that the proposed flight schedule was five flights a week to Sydney and Brisbane. He said that the Minister of Customs did not support regional international airports, and that Customs had no money to run its business. He spoke quite heatedly, saying that there was no way Customs were coming into Hamilton airport without cost recovery. The only kind of costs Mr Dunne referred to were re-establishment costs, by which I mean Customs' start-up costs of getting their Hamilton services up and running again. He specifically mentioned redundancy and re- hire and lease costs. He did not, however, mention operating costs (that is, hourly rates for the required staff) - there was no suggestionthat Customs intended to recover those on-going passenger clearing costs from HIA. 95. I said that HIA was not unsympathetic to Customs situation and that HIA could look at our lease cost to Customs, so as to soften Customs re-entry costs, but that we required Customs to be at Hamilton airport as Gazetted hours. (By this I mean that we expected Customs to determine new working hours for Hamilton to match the new international flight schedule). Mr Dunne's only response was that the Minister did not support more regional international airports, and that there were too many international airports in New Zealand.[56] Even taking Mr Doak's point that nothing was said about operational costs, that reaction from the first respondent should have put HIA on notice that re- establishing Customs services at HIA was problematic.Summary[57] I find that the first respondent in setting zero Customs working hours for HIA acted illegally in that he exercised his power for an unauthorised purpose. That purpose was to gather revenue.Remedy[58] I declare that the second respondent was not entitled to issue invoices for the Customs hours worked during the relevant period and that accordingly the applicant is not required to pay to the second respondent the $478,788.37 being the total of those invoices. [59] Costs are awarded to the applicant on a 2B basis. ________________________________ Brewer J