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Sir Geoffrey Palmer's Ports of Auckland Report

OPINION FOR AUCKLAND CITY COUNCIL

ON

CERTAIN ASSETS VESTED IN

PORTS OF AUCKLAND LIMITED

UNDER THE PORT COMPANIES ACT 1988

RT HON SIR GEOFFREY PALMER

MARCH 2004


TABLE OF CONTENTS

introduction 3

The Context 3

summary and conclusion 5

The scheme of the statute 8

the assets 12

What was Transferred 14

the western viaduct and hobson wharf 17

judicial interpretation of the port companies act 1988 19

The Policy behind the Reform of New Zealand’s Ports 20

Auckland City Council v Minister of Transport [1990] 1 NZLR 264 21

Manukau City Council v Ports of Auckland Ltd [2000] 1 NZLR 1 22

Westhaven Marina 23

Sources 29

Appendix 1: infrastructure auckland and the port company 30

How the Auckland Regional Council and Waikato Regional Council Came to Hold Shares and Assets of the Auckland Harbour Board 30

How the Auckland Regional Services Trust was set up; what it got by way of Port Company Shares and Why 31

Why did Infrastructure Auckland Develop and How was it Different from the Auckland Regional Services Trust 34

Can Infrastructure Auckland transfer Assets to Auckland City? 36

Plans for Infrastructure Auckland under Government Transport Package 37

Appendix 2: legislative history of the port companies act 1988 38

Introduction 38

Purposes of the Port Reforms Bill 1987 38

Port Related Commercial Undertakings 41

Supplementary Order Paper 38 43

Introduction

The Auckland City Council has sought my opinion on certain assets vested in Ports of Auckland Limited (“Ports of Auckland”) under the Port Companies Act 1988. Auckland City is considering tendering for the purchase of Westhaven and Hobson West marinas from Ports of Auckland. I have been asked to advise on whether Auckland City can legally challenge Ports of Auckland ownership of those marinas. I have also been asked to extend my advice to other Ports of Auckland waterfront land that Auckland City may have an interest in namely:

Harbour bridge park

Wynyard Point

Western Viaduct

Hobson wharf

Princes Wharf

Queens Wharf

Associated waterspace.

The Context

The Auckland City Waterfront to the Waitemata Harbour is important for many reasons. It offers spectacular seascapes and many amenity values for the citizens of Auckland. The area is of substantial commercial importance being host to New Zealand’s biggest port, a vital part of the country’s economic infrastructure. The area has social significance for recreational pursuits.

The area of waterfront around the Westhaven Marina, and stretching from Harbour Park past Wynyard Point, the Halsey Street extension and Western Viaduct Replacement, through to the Hobson Wharf and Marina, Princes Wharf, and Queens Wharf are all areas of multi-faceted significance.

Important transformations have already occurred within the area in recent years particularly as a result of New Zealand’s tenure of the America’s Cup.

These substantial assets built up over generations of stewardship by the Auckland Harbour Board have changed their use in some cases, as the nature and function of the port has altered. The Auckland Harbour Board was an instrument of Local Government but it ceased to exist as a result of a basic reorganisation of Local Government in 1989.

The Minister of Transport approved transfer of the assets to Ports of Auckland in October 1988 and an agreement for sale and purchase was implemented under the authority of the Port Companies Act 1988.

The rapid development of containerisation and the increasing size of container ships that now service New Zealand’s extensive overseas trade have bought about changes in port development. Auckland is the major container port of New Zealand. The container ships have become much bigger. This has required deeper approach channels, longer berths, bigger cranes and larger back-up areas. Change has been unrelenting. In 2004 the Ports of Auckland are a different organisation than the Harbour Board was in 1988. The nature of the business has changed.

In such circumstances it is easy to look back at decisions made in 1988 and apply to them the knowledge that comes with 20/20 hindsight. The result of such a process may convince many that the wrong balance was struck in 1988 in deciding which assets would be transferred to the Port Company and which should remain in public ownership. But such a conviction is of no present legal significance.

The context in which this opinion falls to be written exhibits many areas of legal complexity, historical changes, alterations to governance structures and a changing commercial focus in both the services the port now provides, and more importantly how they are provided.

It is perhaps not surprising that public and political disquiet have arisen concerning the assets in issue. It is plain there is a strong perception that the Auckland City Council should not be required to spend considerable amounts of money to obtain ownership of assets that many members of the public believe should have been vested in it.

Unfortunately, public impression and sentiment are one thing. The law is another. On this issue the two diverge.

summary and conclusion

In my opinion, there is no prospect of the Auckland City Council successfully challenging the proposed sale or other disposition by Ports of Auckland of any of the assets in question.

The only realistic prospect of challenging the decision would be to challenge the legal validity of the Ministerial decisions that transferred the assets to the Ports of Auckland in the first place.

Some of those decisions were challenged by the Auckland City Council without success in 1989. To mount a new challenge now is from a legal point of view hopeless.

Neither can it be contended successfully that the Ports of Auckland are obliged by law to turn over the assets to the Auckland City Council. Ports of Auckland are obliged by law to operate as a successful business.

It is recognised that this conclusion may be unpalatable to Aucklanders and to the elected representatives on the Auckland City Council. But in my opinion, it is the law. The law can only be altered by Parliament. For the Parliament to intervene by legislation with the operation of a commercial company would be constitutionally exceptional and is highly unlikely to occur in my judgment.

The law does provide for amendment of the Auckland Port Plan by the Minister on application by the Port Company. It may be possible to hold discussions with Ports of Auckland to ascertain whether there is any willingness to invoke this provision in respect to any of the assets in questions. But that would be at the grace and favour of the Port Company.

The position of Infrastructure Auckland and their ownership of 80% of the shares in Ports of Auckland is legally complex. Those issues are dealt with in Appendix 2. The conclusion is, however, plain enough. The Port Company is not a charity or a public body. It is obliged by statute to operate as a successful business. Infrastructure Auckland, though a public body, is also obliged by its statute to manage its assets in accordance with sound business practice.

The legal conclusions on each of the assets at issue is as follows:

Harbour Bridge Park: This area is associated with the Westhaven Marina and provides access to it. If the decision to transfer the marina to the Ports of Auckland is valid, so is the decision to transfer this area. Since I am satisfied the decision to transfer the Westhaven Marina was lawful it follows that so was the transfer for Harbour Bridge Park.

Westhaven Marina: For reasons given in this opinion, it was plainly and explicitly contemplated at the time of transfer that the Westhaven Marina would be included in the transfer and that was not challenged at the time. No grounds exist for challenging it now.

Wynyard Point: Most of this site, perhaps all of it, was subject to the unsuccessful litigation brought by the Auckland City Council in 1989 and it is not possible to bring a fresh challenge now. It is covered by the principle of estoppel per rem judicatam. When a final judicial decision has been pronounced by a New Zealand Court in litigation, a party to that decision cannot question the decision on its merits in any subsequent litigation.

Waterspace: This area relates to the coastal permit and is governed by the provisions of the Resource Management Act. The permit holder is plainly the Ports of Auckland at present. There is nothing that I have seen that suggests that the Auckland City Council is entitled to the permit.

Western Viaduct and Hobson Wharf: Most of these assets were acquired by Ports of Auckland from the Auckland Regional Services Trust in the context of the Americas Cup development. They were acquired after the Port Plan and Local Government reorganisation were completed. It cannot now be sensibly argued that those assets should have been vested in the Auckland City Council. The Hobson Marina was built after the transfer and has been the principal development in that area since Ports of Auckland assumed ownership. The remaining assets in this category appear to be Port related facilities. Thus, no successful challenge appears to be available in respect to the Marina in any of the other assets.

Princes Wharf: This area was at the time of the transfer in 1990 used more for directly port related matters than it is now, although the Wharf is still used for berthing cruise ships and contains the overseas passenger terminal. But what has happened since does not invalidate the transfer then. No challenge to the transfer is likely to succeed.

Queens Wharf: Any argument for this area was not validly transferred is likely to fail. It has ports related activity to about the same degree as in 1990.

Thus on the information available to me, I believe all of the assets referred to were properly vested in the Ports of Auckland. I entertain little doubt on that subject.

It follows that I do not believe a legal claim to have the ownership of those assets vested in the Auckland City Council could succeed. Neither do I believe there are any grounds that exist to enable the Auckland City Council to prevent the Ports of Auckland from selling the assets.

Nor do I believe it would make any difference if the Auckland City Council were to purchase the 20 percent of the shareholding in Ports of Auckland currently held by a number of individual shareholders. Ports of Auckland is legally obliged to operate as a successful business required by the Port Companies Act 1988, section 5.

If I am wrong in any of the above conclusions, it remains my opinion that any application for judicial review of the decisions will still fail. It is well settled law that judges have discretion in granting administrative law remedies. They are not obliged to grant relief even where a case is made out. The particular difficulty in the present circumstances relates to the lapse of time. It is now 2004. The transfers were made for the most part in October 1988. Challenges were mounted to some of those decisions at the time, and they did not succeed.

To invalidate them now could cause a great deal of administrative and inconvenience to many people including commercial organisations. Should the decisions be invalidated now, there might be some considerable disruption to public services.

It would be likely that decisions that survived so long and upon which important commercial reliance is being made could not now easily be undone as a practical matter. The disruption, uncertainty and confusion that could result may be close to unmanageable 15 years later.

It is legally appropriate for the Port Company to sell its assets and acquire fresh ones depending on the changing circumstances and demands of its business operations. That was one of the central objectives of the reform package.

The scheme of the statute

The Port Companies Act 1988 has its objective stated in the Long Title:

An Act to promote and improve efficiency, economy, and performance in the management and operation of the commercial aspects of Ports and, to this end, -

(a) to provide for the formation of Port Companies to carry out port related commercial activities and control the ownership thereof; and

(b) to establish requirements concerning the accountability and ownership of such companies and the responsibilities of Harbour Boards; and

(c) to repeal the New Zealand Ports Authority Act 1968 and certain other enactments relating to ports and harbours.

For this opinion, the definition in the Act of the expression “port related commercial undertaking”, as contained in section 2, is important. It is as follows:

Port related commercial undertaking'', in relation to any Harbour Board,—

(a) Means the property and rights of the Harbour Board that—

(i) Relate to the activities of commercial ships and other commercial vessels, and commercial hovercraft and commercial aircraft, or to the operation of facilities on a commercial basis for ships, vessels, hovercraft, and aircraft of any kind; or

(ii) Facilitate the shipping or unshipping of goods or passengers; and

(b) Without limiting the generality of paragraph (a) of this definition, includes—

(i) The provision by a Harbour Board of any building or facility wherever situated for use in connection with the handling, packing, or unpacking of goods for shipping or unshipping through any port; and

(ii) Items such as breakwaters and dredges and other items that, although they may not themselves be revenue producing and may have a number of purposes or uses, are nevertheless related to the operation of the port on a commercial basis; but

Does not include any undertaking that is a statutory function or duty of the Harbour Board relating to safety or good navigation:

The introductory portion of that definition also uses the words “property” and “rights,” and both of these terms are further defined in the Statute. The definition of property is broad including property of every kind, including rights interests and claims of every kind in or to property. The definition of rights is also broad.

The effect of the definition was to ensure the Establishment Unit was obliged to identify the rights privileges and powers of the Board as they related to commercial port operations. The property and the rights of the Board were transferred to the Ports of Auckland.

This definition is not altogether easy to understand. Lord Cooke described it in Privy Council as “in some respects perhaps more long than luminous…” But the approach to its interpretation cannot be much in doubt given the extensive quantities of judicial ink that have been devoted to analysing it.

The Act provided for the setting up of establishment units in section 21. Section 22 deals with the determination of port company plans and the port related commercial undertakings to be transferred. It was under this provision that the Port Company Plan for the Ports of Auckland, which governed the transfer in the issue, was made. The Plan is an extensive 42-page document, to which we shall return to later, that sets out in detail what was to be transferred.

It is important to set out section 22 in its entirety in order to understand the system that was established for the transfer.

22. Determination of port company plan and port related commercial undertakings to be transferred—

(1) The Harbour Board and the Establishment Unit shall each use their best endeavours to agree upon the matters specified in section 21(2) of this Act.

(2) Not later than the 1st day of August 1988 or such later date as the Minister in any particular case may allow, the Harbour Board and the Establishment Unit shall report to the Minister as to the extent of their agreement and any disagreement relating to—

(a) The identification and valuation of the port related commercial undertakings of the Harbour Board:

(b) The price that should be paid by the port company for those undertakings and the extent to which the price is to be met by the issue of equity securities and debt securities to the Harbour Board:

(c) The debt securities required to be issued by section 29 of this Act:

(d) The manner in which and time within which the port related commercial undertakings of the Harbour Board are to be transferred to the port company:

(e) The system for the transfer of appropriate employees from the Harbour Board to the port company (but without making determinations in respect of individual employees):

(f) The responsibilities to be met and equipment and facilities to be provided by the Harbour Board or the port company or both in respect of the Marine Pollution Act 1974:

(g) Any other matter within the functions of the Establishment Unit—

and in each case shall give full details.

(3) Where there is disagreement on any matter referred to in subsection (2) of this section,—

(a) The Harbour Board and the Establishment Unit shall report separately to the Minister and to each other setting out all the matters that each considers relevant and the solution proposed by each; and

(b) The disagreement shall be resolved by the written determination of the Minister.

(4) Notwithstanding that the Harbour Board and the Establishment Unit may have agreed on any matter referred to in subsection (2) of this section, the Minister may determine the matter on a different basis if the Minister is satisfied that, having regard to the interests of the Harbour Board and the port company, and, if appropriate, the interests of other Harbour Boards and port companies, it is fair and equitable to do so, and, in so doing, the Minister may exclude from the port company plan any port related commercial undertaking that the Minister does not consider ought to be transferred to the port company or vary the manner in which any undertaking is to be transferred to the port company.

(5) Before making any determination under subsection (4) of this section, the Minister shall advise the Harbour Board and the Establishment Unit of the Minister's intention to do so, and give a reasonable opportunity for each to make submissions on the matter.

(6) Where any matter is to be determined by the Minister under subsection (3) or subsection (4) of this section, the Minister may, instead of determining the matter personally, direct that the matter be determined by arbitration or in some other manner, and, where the Minister so directs in relation to a matter to be determined under subsection (4) of this section, the provisions of subsection (5) of this section shall apply in relation to the persons directed to make the determination as if those persons were the Minister.

(7) Where any matter is not included in a port company plan and the Minister considers that it should be so included, the Minister may direct the Harbour Board and the Establishment Unit to consider the matter and report to the Minister concerning its inclusion in the port company plan.

(8) The Minister may, on the application of a Harbour Board, Establishment Unit, or port company, and after consultation with such of them as the Minister considers appropriate, amend any approved port company plan.

(9) The Minister may, on the application of a Harbour Board, made with the approval of the Establishment Unit or port company, include in any port company plan, as part of the approval of the plan or by way of amendment to an approved port company plan, any undertaking of the Harbour Board, notwithstanding that it is not a port related commercial undertaking.

(10) Where any undertaking is included in a port company plan pursuant to subsection (9) of this section, this Act shall apply in all respects as if that undertaking were a port related commercial undertaking.

(11) No port company plan shall be put into effect until it has been approved by the Minister; and every port company plan shall be put into effect in the form approved by the Minister. The Minister may grant approval of part of a port company plan if the Minister considers it appropriate, and this Act shall apply to that part as if it were a port company plan.

Once the decisions were made by the Minister, section 23 makes provision for the undertakings to be transferred to the port company as soon as practicable after the plan has been approved by the Minister. Note that the Minister has legal capacity under sub-section 9 in certain circumstances to include in the transfer items that are not a port related undertaking. Note also that section 23(2) authorises the Board, in accordance with the Port plan, to:

“grant the port company leases, licences, easements, permits or rights of any kind in relation to port related commercial undertakings… for such consideration on such terms and conditions as provided for or contemplated by the port company plan.

There are other legal provisions in the Act to ensure that the transfers are effective. Section 27 provides that when land is registered under the Land Transfer Act 1952 land vests in the port company for an estate in fee simple to be held on lease, as the case may require. Such titles under the Land Transfer Act cannot be defeated; they are indefeasible except in a very narrow range of circumstances.

The legislative history of the Port Companies Act 1988 has been examined in the preparation of this opinion. While it provides some clear idea of the policies behind the statute, it offers little support for the view that the transfer of the asset in issue could be successfully challenged in the Courts. An analysis of the legislative history is contained in Appendix 2.

It is important to appreciate that changes to Ports were in association with changes to the local government structures of Auckland and in particular the re-organisational plans laid down by the Local Government Commission when Local Government in New Zealand was re-organised in 1989.

The legal conclusion to be drawn from the scheme of the Port Companies Act is that the only way to challenge transfers that are made is to challenge the Minister’s decision in agreeing to them. If the Minister acted within his powers and did not offend any of the other provisions of administrative law decision-making, then legal challenge will be impossible.

the assets

The background to the matter is that Ports of Auckland announced on 20 August 2003 its intention to sell Westhaven Marina and Hobson West Marina. It was stated then that foreign buyers may be sought. A public tender process was advertised on 10 February 2004.

These developments sparked some public debate as to whether these assets were already owned by the Auckland public.

The assets in question are:

Harbour Bridge Park is a combination of the areas known as Westhaven Drive and Harbour Park, which is to the immediate west of the southern approach of the Auckland Harbour Bridge. Harbour Park is currently an undeveloped, grassed area. It has a driveway, which is used as the principal access to the marina, and it is occasionally used for overflow car parking from the marina.

Westhaven Marina - The Westhaven Marina was, and is now, a recreational boating marina. In 1994, Ports of Auckland added 255 new berths and 107 new car parks to the marina. In 2002, Ports of Auckland constructed a charter boat pier known as Pier Z, and built a commercial building on that pier.

Wynyard Point – Wynyard Point is an industrial area that is primarily subject to a number of ground leases to different commercial tenants who have installed fuel and other storage tanks on the premises. The area is sometimes referred to as “the Tank Farm”. The area has not changed much since 1990, except that some of the tanks have been removed. Ports of Auckland uses the wharf structures for shipping associated with the Tank Farm and other purposes. At the south-eastern end of the area, marine services businesses have been developed by leaseholders. It appears that the Amended Statement of Claim in the legal challenge brought by the Auckland City Council in 1989 included all of the land in area 2.

Waterspace – The “Coastal Permit Area” is included in the Coastal Permit Ports of Auckland holds for the whole of the downtown foreshore from Ferguson Wharf (the main container terminal) to the Harbour Bridge, including Westhaven Marina. It is agreed that the permit is granted under section 384A of the Resource Management Act 1991.

It appears that as part of any sale process, Ports of Auckland will need to assign to purchasers the management of the parts of the permit that relate to adjacent land it sells. This has already taken place in respect of the management of the area inside the old Viaduct Basin to Viaduct Harbour Holdings Limited (“VHHL”), when VHHL purchased the Viaduct Basin land, and the management of the area between Te Wero Island and the new Western Viaduct to America’s Cup Village Limited (“ACVL”), when ACVL undertook the America’s Cup development.

Current ownership of the Coastal Permit is not in question. Any purchaser of the Westhaven Marina will require a transfer of management rights over the part of the permit area relating to the Marina. The Auckland Regional Council holds the belief that because section 384A permits are specific to port companies they cannot be transferred to an entity that is not itself a port company.

Western Viaduct – Halsey Street Extension and Western Viaduct Replacement are areas that were substantially reconstructed for purposes associated with the America’s Cup, and have recently been partially occupied by several of the America’s Cup Syndicate bases. Some of those buildings remain. In 1990, the area was mainly used by the fishing industry, which still uses the wharves to a certain extent. However, the majority of the area is now used for recreational boating purposes.

Hobson Wharf – Hobson Wharf was extended by the northern finger to create the Hobson marina, which is a marina facility for large leisure boats. This has been the principal development of the wharf since Ports of Auckland assumed ownership. The majority of the wharf is occupied by a building, which now houses the Auckland Maritime Museum.

Princes Wharf – Princes Wharf contained considerably more ports-related activity in 1990 than it does now. The Harbour Board’s offices were situated on this wharf. It is now occupied by a combination of buildings that includes the Hilton Hotel, law offices and various restaurants, which have been constructed since Ports of Auckland assumed ownership. The wharf itself has been used for many years for berthing large cruise liners, and the principal overseas passenger terminal is still located there.

Queens Wharf – Queens Wharf has much the same amount of ports-related activity being carried out on it as in 1990. It is primarily used for the loading, unloading, and storage of imported motor vehicles. The vehicles are kept there while the various government departments clear them. Ports of Auckland also uses these wharves for berthing various vessels. The demolition of one of the wharf sheds is the major development to have taken place on this wharf.

What was Transferred

In accordance with the statutory provisions set out earlier, an establishment unit was set up and it and the Harbour Board drew up a port plan that was submitted to the Minister dated 12 July 1988. This document is of legal significance in determining what was intended to be transferred.

The Port Plan contains significant passages that deal with the items that are the subjects of this opinion. Dealing with the Waitemata Harbour where all the assets, the subject of this opinion are situated, the Plan says this:

3.2.1 WAITEMATA HARBOUR

The port related commercial undertakings encompass:

3.2.1.1 Movement of Commercial Vessels

These activities involve movements of commercial vessels within the Waitemata Harbour Limits and comprise the pilotage, towage and other berthage activities, navigation channels and aids, and communications services that provide for the arrivals, departures, berthings at, moves along and between berths and rights to utilise water-space adjacent to shipping facilities.

3.2.1.2 Fergusson Container Terminal

This comprises the total container terminal undertaking including its back-up area. The land area of the Terminal totals approximately 26ha, comprising the area bounded by the Eastern Tidewall, Quay Street, Monash Street, and Freyberg Wharf. In addition to the container stacking area and reefer facilities, improvements comprise buildings and light towers.

The main items of plant including 3 gantry cranes, 19 straddle carriers, 29 forklift trucks, 5 tractors and trailers.

The business activities of this undertaking include ship exchange, container base, container washing, container repair, container storage, container pre-tripping.

3.2.1.3 Auckland Port (excluding 3.2.1.2 above)

This undertaking includes facilities such as wharves and associated breastworks including Freyberg, Jellicoe, and Bledisloe Wharves, Kings Low Landing, Marsden, Captain Cook, Queens Wharves, Ferry Tees, Launch Landings, Princes and Hobson Wharves, Viaduct Basin, Eastern and Western Viaducts, Wynyard Wharf, Cement Wharf, Devonport Wharf, Birkenhead Wharf and Northcote Wharf.

In addition there are associated marshalling and storage areas and other back-up land, staff carparks etc, and the improvements include cargo transit sheds and stores, electrical reticulation, security and access systems together with rights to occupy seabed, waterspace, airspace and (subject to planning and other statutory approvals) to maintain and otherwise develop and extend harbour works for port related commercial undertaking purposes.

These land areas comprise the Harbour Board land north of Quay Street and west of Fergusson Container Terminal, all Harbour Board land in and around the viaduct basin and markets land north of Fanshawe Street, and the Western Reclamation (excluding Victoria Park), and the adjacent railways land over which the Auckland Harbour Board has a claim under S.40, Public Works Act 1981.

This land is largely utilised for port-related purposes and industries, or is well suited for future port development with some proposals providing for public participation.

The major items of cargo handling plant include 65 forklift truces of 5-94,000 Ib capacity, 1 container mover, 15 tractors, 27 trailers, 12 quayside cranes, 1 container handling gantry crane (leased), 1 floating crane.

The business activities include the hire of mobile cargo handling plant and cranes for receiving, loading, unloading, unpacking and delivering cargo, the allocation and organisation control of cargo operational areas, cargo weighing, and checking services. Also there are services to the fishing industry, small commercial craft, passenger vessels and cargo barges.

The Plan then deals with outlying cargo facilities which are not of immediate concern and then turns its attention to marinas. What it says about marinas is significant for the current opinion. It is as follows:

3.2.1.5 Marinas

Westhaven Marina complex, with its associated facilities and back –up land, is particularly identified for transfer because it is in accordance with the definition of “Port-related commercial undertaking” as including “….. the operation of facilities on a commercial based for … vessels … of any kind …..”, and it is strategically located in terms of the current port activities and future port development options.

In transferring Westhaven Marina complex to the Company, it may be considered appropriate by the Board to also transfer the other interests in marina facilities and related assets to gain advantages of unified management under the commercial organisation.

Section 31(1)(a) of the Port Companies Act 1988 provides that where a port related commercial undertaking is transferred under a Port plan then “any reference (express or implied) to the Harbour Board in any Act or instrument relating to the port related commercial undertaking shall be read and construed as a reference to the port company”.

The Port Plan as approved by the Minister was given effect by an agreement for sale and purchase between the Auckland Harbour Board and Ports of Auckland. The agreement for sale and purchase was explicit about what was transferred in two ways that are significant in this opinion. It included the rights to:

“…occupy seabed, waterspace and airspace for the purposes of marinas and moorings, the right to berth, unberth, anchor, moor or otherwise secure vessels to wharves, jetties, buoys, dolphins and any other berthing including the harbour bed … and,

the right to license and sublicense other parties to do any of the above things on such terms and for such period as the Port Company thinks fit.”

It also included:

“… all rights, leases, licences, authorities and interests which are necessary to ensure that the Port Company receives the full benefit and can continue to operate the port related commercial undertakings including but without limitation … the right to occupy seabed, waterspace and airspace for the purpose of marinas and moorings, the right to berth, unberth, anchor, moor or otherwise secure vessels to wharves, jetties, buoys, dolphins and other berthing…”. (emphasis added)

It is of significance to record that the judgment of the Establishment Unit was that an assessment of “future demand on the port is largely unpredictable.”

The Port Plan said that for the future, the Port Company “will have to provide for potentially radical and unpredictable changes in volume, cargo types and shipping and cargo handling technology. This will call for the widest possible range of Port development options.”

The Port Plan was adamant that this will require “protection of the total port area and the associated facilities from Wynyard Wharf and reclamation in the west to Fergusson terminal in the east. Within these bounds, the potential capacity of the Port should cope with ultimate growth of Auckland and other demands over many years”.

The Port Plan was subject to scrutiny and examination by officials of the Ministry of Transport. They were certainly concerned to find out the extent of any assets sought to be transferred to the company which did not fall within the definition of a port related commercial undertaking. The Auckland City Council had made it clear that it expected to have transferred to it land that was not port related following the reorganisation of Local Government.

As a result of the advice of officials, not all the land that the Establishment Unit sought was transferred to the company. Land owned by the Harbour Board at Te Atatu was excluded from the transfer.

the western viaduct and hobson wharf

These two assets relate, in the main, to assets acquired by Ports of Auckland from the Auckland Regional Services Trust (“ARST”) and ACVL in context of the Americas Cup redevelopment of the Viaduct Basin.

They are the Halsey Street Extension Wharf and the Western Viaduct Replacement Wharf, the Hobson Wharf and the Harbour Entrance Protection Wharf.

Hobson Wharf is an old Port Company wharf which is no different from the other wharves to the east. It was identified in paragraph 3.2.1.3 of the Auckland Port Plan as a “port related commercial undertaking” to be transferred from the AHB to the Port Company. Accordingly, it falls for consideration in the same way as other commercial assets identified in that Plan for transfer to Ports of Auckland.

The other three items, being the Halsey Street Extension, the Western Viaduct Replacement, and the Harbour Entrance Protection wharves were all constructed in 1997/1998 by the ARST/ACVL as part of the America’s Cup development. Accordingly, they post-date the Port Plan and the Local Government Reorganisation. It cannot sensibly be argued they should have been vested in Auckland City Council.

The history of the Americas Cup development is as follows:

The ARST was authorised, by Section 707ZJA of the Local Government Act 1974 (as inserted by the Local Government Amendment (No 2) Act 1996), among other things, to:

Investigate the feasibility and desirability of developing America’s Cup facilities;

Report to the Minister of Local Government on the options for such facilities;

Apply for resource consents for America’s Cup facilities; and

Undertake the development of America’s Cup facilities and own, manage, and maintain such facilities.

Section 707ZJA(3) also required the ARST to transfer the America’s Cup undertaking to a local authority trading enterprise. ACVL was established for this purpose.

In 1996, the ARST obtained the approval of the Minister of Local Government to undertake the development of America’s Cup facility in the Viaduct Basin. The approved facility entailed, among other things, removing some old wharves (the old Western Viaduct), dredging and extending the Basin, reclaiming some land and building three new wharves, namely the Halsey Street Extension, the Western Viaduct Replacement, and the Harbour Entrance Protection wharves.

In order to undertake the development, the ARST – which owned nothing in the area, had to acquire the necessary land and other rights. To this end, it, ACVL and Ports of Auckland entered into an agreement under which ARST and ACVL acquired the necessary rights to undertake the development and Ports of Auckland acquired replacement assets and rights in consideration.

Among the assets that Ports of Auckland acquired under that agreement were the Halsey Street Extension, the Western Viaduct Replacement, and the Harbour Entrance Protection wharves – all of which transferred to Ports of Auckland upon completion.

judicial interpretation of the port companies act 1988

Apart from the assets discussed in the previous section the other assets in question were transferred under provisions of the Port Companies Act 1988. There was substantial controversy and litigation at the time, litigation that reached as far as the Privy Council.

The first case involved the Auckland City Council itself. That reached the Court of Appeal in 1989 and produced a significant legal decision of five judges of that Court. The majority decided against the Auckland City Council’s claim that land transferred to Ports of Auckland, (subject to some 112 leases, many of which were long-term leases in perpetuity involving land uses that were not in many instances port related activities), ought not to have been transferred by the Minister of Transport to the Port Company.

The second involved the case brought by the Manukau City Council concerning two marinas in Halfmoon Bay. That case was fought through the High Court, the Court of Appeal and the Privy Council. It began with a High Court decision in 1997.

The judgments in these cases at various levels of the judicial hierarchy occupy many pages. The judgments illuminate not only the legal principles to be applied in the instant case, but they also throw valuable light on the factual context and background to the transfer of these assets in the first place. To understand what happened it is necessary to go back in history.

The AHB developed many of the assets in question. It existed for many years and was a public body with elected representatives providing in its governance.

The Policy behind the Reform of New Zealand’s Ports

But 1988 brought a sea of change to New Zealand’s Harbour Boards. Fresh from a programme of corporatisation of Government departments involved in trading activities, the Government of the day turned its attention to other assets that were, in its view, not functioning in an optimal fashion because they did not function in a commercial manner.

The policy was that the assets of the 15 Harbour Boards should be taken over by port companies. The objective of every Port Company “shall be to operate as a successful business”. The Act provided for the establishment of these companies and set out the manner in which the commercial undertakings of the Boards were to be transferred. The statute set out in some detail how this was to be done.

The objective of the legislation was plain enough. It was expressed by the Minister of Transport, the Hon WP Jeffries, as follows:

The focus of this legislation is the commercialisation of the commercial port operations…it is a sensible policy. Its design is to ensure that there are no hidden and disguised subsidies in the Port operations… The narrow definition of port assets will also contribute to interport competition by ensuring that each port company starts off operations as a port, not as a central business district landlord, farm operator or land developer.

These last remarks may have encouraged the Auckland City Council to challenge in Court the Minister of Transport’s decision to transfer the land subject to 112 leases, many of which were long-term leases in perpetuity involving land uses that were not in many instances port related activities. The amended statement of claim in the proceedings discloses that.

Auckland City Council v Minister of Transport [1990] 1 NZLR 264

In its challenge to the court on judicial review, the Auckland City Council asked for declarations that the Minister’s approval of the Port Company Plan for the Ports of Auckland was unlawful and outside his powers to have made, and that the inclusion of the lands in the Port Company Plan should be of no effect. The Council wanted an order quashing the Minister’s decisions.

The late Justice Wylie heard the case in the High Court. He decided some of the assets transferred were not “port related commercial undertakings” as the statute required them to be. He was of the view that the Auckland Regional Authority Bus Depot, the Microworld Amusement Centre, the Tepid Baths, the Used Car Auction premises and the Motor Vehicle Servicing premises were not within the definition.

There were appeals against this decision with the result that the Court of Appeal overruled Justice Wylie. The majority of the Court of Appeal held that the Minister had a wide discretion. It was a discretion which in the view of the President of the Court of Appeal, the Courts should be slow to limit.

The President of the Court of Appeal went on to say that the view that the Minister was bound to apply his mind to each of the 112 or more properties separately “does not appeal to me as a reasonable or realistic assessment of Parliament’s intentions”. The Judge was of the view that the expression “any undertaking” used in section 22(9) of the Port Companies Act 1988, while not defined in the Act, was “used in a comprehensive sense to cover anything undertaken by a Board, including the holding of land for investment purposes”. It was for the Minister to decide what should be transferred to the new port companies in light of the policy of the Act.

The first point about this decision is that it applies directly to the Wynyard Port assets that were directly challenged in the litigation. The matter must be regarded as res judicata per rem judicatem. When a final decision has been pronounced by a New Zealand Court in litigation, a party to that decision cannot question the decision it its merits in any subsequent litigation.

But the decision is also significant in indicating how other assets the subject of this opinion will be dealt with any court challenge. The reasoning applies directly. The amendments made to the Port Companies Bill by Supplementary Order Paper 38 in 1988 described in appendix 2 made it clear that items that were not port related commercial undertakings could be properly transferred to a port company if the Minister agreed, see section 22(9) and (10)).

This was a hard-fought and extensively-argued case. Auckland City Council lost and, in my opinion, for the reasons given in the decision, it would lose now should it challenge at this late stage the decision made by the Minister 15 years ago. The Courts are bound by the doctrine of precedent. This precedent case actually covers some of the assets the subject of this opinion and its reasoning applies with almost irresistible force to the others.

Manukau City Council v Ports of Auckland Ltd [2000] 1 NZLR 1

The Auckland City Council case was not the end of the matter. The Manukau City Council launched an attack on some of the transfers of port related commercial undertakings as well. This involved two marinas in Halfmoon Bay.

This case went to the Privy Council where again Lord Cooke delivered the judgment. This time, however, the challenge succeeded. The Trial Judge and the Court of Appeal had both found that the marina assets in question were port related commercial undertakings of the Harbour Board in terms of the statute. This was accepted by the Privy Council, although there was a statement that the opposite view “could at least be supported by respectable arguments”.

In this instance, the Minister of Transport, who was by then the Hon Maurice Williamson, had decided that the marina assets were not included in the original Port Plan. Consistent with the principle that he had laid down as President of the Court of Appeal in New Zealand, Lord Cooke of Thorndon said the Minister was entitled to decide, in an exercise of his discretion, that the marina assets should not be included within the Plan.

So for a second time, the challenge to the exercise of Ministerial discretion under the Port Companies Act 1988 failed. The Minister had not made an error of the law.

The lesson to be learned from these cases is clear. The exercise of Ministerial discretion in transferring assets under the Port Companies Act is broad and difficult to challenge in the Courts.

Westhaven Marina

The Manukau City case is significant for the discussion and analysis that it has of marinas. There were a number of marinas in Auckland which various Councils asserted had not been included specifically in the Auckland Port Plan and which therefore should have been transferred to them under the 1989 Local Government reorganisation order.

These marinas were not operated directly by the Auckland Harbour Board but by private organisations which had leased from the Auckland Harbour Board, the land over which the marinas were situated. That is the first point of distinction between these marinas and Westhaven. Westhaven appears always to have been operated directly by the Auckland Harbour Board and subsequent to that by Ports of Auckland.

There was a great deal of consultation on the matter and it fell to the new Minister of Transport, the Hon Maurice Williamson to decide whether the marinas had been included in the plan originally approved by his predecessor Mr Jeffries, or to decide whether to amend the plan to include the marinas pursuant to section 22(8) of the Port Companies Act.

The Minister supported the position of the Territorial Authorities and decided that the marinas had not been included in the port plan approved by his predecessor and also decided not to amend the plan to include the marinas. As part of his decision, he went on and decided that the marinas were not within the definition of a “port related commercial undertaking”. But he went on to decide that even if they were within that definition he would exercise his discretion to exclude them from the plan because of their essentially recreational nature.

That decision was challenged by the Port Company, by the ARST (this body succeeded to the liabilities of the Auckland Harbour Board and was the predecessor of the present Infrastructure Auckland). By the time the matter went to Court, the Port Company arrived at settlements with the North Shore and Auckland City Councils over the marinas at issue (this included the marina at Okahu Bay) within their districts so the case before the Court concerned only the status of the Bucklands beach and Halfmoon Bay marinas in Manukau City.

In the High Court phase of the litigation, Counsel for the Minister and for Manukau City argued that marinas did not come within the definition of “port related commercial undertaking” because the assets were of a recreational rather than a commercial nature and the lessees of the marinas were charitable organisations. That argument was rejected by Justice Smellie who had no difficulty in finding that marinas for which payment is made are property which relates to the operation of facilities on a commercial basis for vessels of any kind regardless of the recreational use of the vessels or the charitable status of the marina operator. Therefore, the Judge reasoned, they came within the second limb of the first part of the definition of “port related commercial undertaking”.

Thus, Justice Smellie held that marinas had not been included in the original Port Plan approved by Mr Jeffries in 1989, but he also held that the later decision by the Hon Maurice Williamson not to amend the Port Plan to include the marinas had been based on an error of law (namely, his interpretation of the definition of “port related commercial undertaking”). He therefore referred the matter back to the Minister for reconsideration.

The Crown and Manukau City appealed the decision and the Ports of Auckland cross-appealed against the finding that the marinas had not been included in the original Port Plan.

The Court of Appeal found entirely in favour of the Port Company. It confirmed the finding of Smellie J that the marinas came within the definition of “port related commercial undertaking” and that the Minister’s interpretation of the definition of “port related commercial undertaking” was “plainly incorrect”. The Court also held that the original Port Plan, by implication, included the marinas because their values had been included in the valuations approved by the Minister even if the marinas themselves had not been specifically identified in the Plan by name.

Manukau City appealed that decision to the Privy Council. Before the Privy Council, Counsel for the Minister and Manukau City did not argue that the marinas did not come within the definition of “port related commercial undertaking”. Lord Cooke records in the advice of the Privy Council that the Privy Council dealt with the case on the footing that the marinas were “port related commercial undertakings”.

However, Lord Cooke went on to say:

It is relevant to add, however, that the contrary view which (as will be seen) was ultimately taken by the Minister, although found by the Courts to have been wrong, could at least be supported by respectable arguments. In truth, in the light of the policy and the terms of the Act, the marina assets fell into something of a grey area.

The Privy Council then went on to overturn most other aspects of the Court of Appeal’s judgment. It held that the marinas had not been sufficiently identified in the original Port Plan for the then Minister, Mr Jeffries reasonably to have understood that it was proposed that they were to transfer to Ports of Auckland.

The Privy Council also held that even if the Hon Mr Williamson had erred in his interpretation of the definition of “port related commercial undertaking” when later deciding not to amend the Port Plan to include their marinas, not withstanding the findings of the High Court and Court of Appeal that the assets fell within the definition of “port related commercial undertaking”:

…. there remains nevertheless ample room for the view that this is a somewhat literal and technical approach; and that the pervading purpose of the Act did not embrace them. (emphasis added)

In any event, the Privy Council found the Minister had a residual discretion to exclude “port related commercial undertakings” from the plan and the considerations he had taken into account when exercising that discretion were appropriate having regard to the policy of the Port Companies Act itself.

Thus, the Privy Council upheld the Minister’s decision, and as a result the assets transferred to the Manukau City Council pursuant to the reorganisation order.

All of the foregoing history is relevant to the debate over Westhaven in a number of respects:

The High Court and the Court of Appeal found that Marinas are “port related commercial undertakings”;

Although the Privy Council expressed some doubts about those findings, it expressly did not set them aside;

Most importantly, the marinas at issue in that case had not been identified by name in the Port Plan originally approved by the Minister. But in the case of Westhaven, there is no doubt that the Marina was identified specifically by name in the Port Plan and the High Court and the Privy Council in particular highlighted the difference in the way that Westhaven was treated in the plan as compared with the other marinas formally owned by the Auckland Harbour Board.

Section 3 of the Port Plan and originally approved by the Minister, identified the port related commercial undertakings of the Auckland Harbour Board that were proposed for transfer to Ports of Auckland. Paragraph 3.2.1.5 of the Plan stated:

3.2.1.5 Marinas

Westhaven Marina complex with its associated facilities and back-up land is particularly identified for transfer because it is in accordance with the definition of “port related commercial undertaking” as including “… the operation of facilities on a commercial based [sic] port … vessels … of any kind”, and it is strategically located in terms of the current port activities and future port development.

In transferring Westhaven Marina complex to the company, it may be considered appropriate by the Board to also transfer the other interests in marina facilities and related assets to gain advantages of unified management under the commercial organisation.

Each of the judgments in the litigation over Halfmoon Bay and Bucklands Beach marinas quoted the above extract from the Plan and made observations about it.

Justice Smellie in the High Court said:

The Westhaven Marina complex was discussed in considerable detail in the Report, the argument being that not only was it a PRCU, but it was so proximate to the main port activities that it should be seen as an area into which those activities might ultimately expand.

Justice Gault in the Court of Appeal said:

The separate treatment of the Westhaven Marina complex is understandable considering that the Harbour Board itself operated that facility.

Lord Cooke in the Privy Council put the matter this way:

The argument for the company is that, the first paragraph under subheading 3.2.1.5 having identified the Westhaven Marina complex as a port related commercial undertaking to be transferred to the Company, the second paragraph went on to identify also as such undertakings the Board’s interests in all other marinas, including the two existing marinas in Half Moon Bay [sic] with which the present appeal is concerned.

Their Lordships must observe at once that this is by no means the ordinary and natural meaning of the second paragraph. Not only does the second paragraph suggest that it remains with the Board to consider whether transfer of the other marina interests is appropriate, but the ground given is the advantage of unified management under the commercial organisation. At no time has there been any intention that the Auckland Maritime Foundation or the Bucklands Beach Yacht Club [the operators of the Halfmoon Bay marinas] will be managed by the Port Company. In that respect they contrast with the Board’s own Westhaven complex. Nor are they strategically located like that complex. Taken together, the two paragraphs fall, in their Lordships’ opinion pointedly short of an identification of marina assets other than Westhaven as port related commercial undertakings of the harbour board.

It is clear that all Judges who considered the matter thought that the Westhaven Marina had been properly transferred. Thus, notwithstanding the comments of Lord Cooke about the possibility of a respectable argument being made to the effect that marinas are not port related commercial undertakings, the clear identification of Westhaven both as a port related commercial undertaking and as an asset to be transferred effectively precludes such arguments being made about Westhaven now. The asset was identified for transfer. It was approved for transfer by the Minister and did transfer to Ports of Auckland.

The next issue to consider is whether the Auckland City Council has any legal interest in the marina if Ports of Auckland no longer require the asset?

It is significant that there is no requirement in the Port Companies Act for a Port Company to hold indefinitely assets it received under a Port Plan. Indeed the prime duty of a Port Company is to act commercially. The scheme of the legislation makes that clear.

It is apparent that the focus of the Act is on the formation of Port Companies to carry out port related commercial activities “and control the ownership thereof”.

Legal ownership in this context includes the right to dispose of assets that are no longer required. There is no suggestion in the legislation or indeed in any provision in it that local authorities should have any continuing or residual interest in the assets that are transferred to a Port Company. A company is a commercial undertaking that acts on commercial principles.

Section 5 makes it abundantly clear. It provides:

The principle objective of every Port Company shall be to operate as a successful business.

Thus, it is legally appropriate for the Port Company to sell its assets and acquire fresh ones depending on the changing circumstances and demands of its business operation. That was one of the central objectives of the reform package.

Sources

An opinion of the character of this one requires a great deal of background research. Among the sources examined for this opinion were:

Relevant judicial decisions as cited in the opinion.

New Zealand Parliamentary debates.

Relevant statute law as cited in the opinion.

Annual Reports, Ports of Auckland Limited.

Ports of Auckland Port Plan, submitted to Minister of Transport 12 July 1988.

1988 Agreement for Sale and Purchase between Auckland Harbour Board and Ports of Auckland.

Amended Statement of Claim and affidavit evidence relating to Auckland City Council v Minister of Transport [1990] 1 NZLR 264.

Joint Report by Ports of Auckland Limited, Auckland Regional Authority and Auckland City Council Port Development Plan for Auckland (August 1989).

Various media articles on the issues.

Letter of Ponsonby Cruising Club Inc to Councillor Scot Milne dated 17 February 2004.

Brief from Buddle Findlay dated 16 February 2004.

Geoffrey Palmer

Consultant


Appendix 1: infrastructure auckland and the port company

How the Auckland Regional Council and Waikato Regional Council Came to Hold Shares and Assets of the Auckland Harbour Board

In 1992, the Auckland Regional Council (“ARC”) and the Waikato Regional Council (“WRC”) held shares in the Ports of Auckland and other assets and liabilities of the Auckland Harbour Board (“AHB”) as a consequence of the port company restructuring that took place under the Port Companies Act 1988 and the 1989 local government reorganisation:

Under the port company plan for Ports of Auckland that was approved by the Minster of Transport, the approved port related commercial undertakings of the AHB transferred to Ports of Auckland and in return Ports of Auckland issued equity capital in the company to the AHB. The precise terms of the transaction were given effect in a separate agreement between Ports of Auckland and AHB.

The Local Government (Auckland Region) Reorganisation Order 1989 provided for (among other things):

The disestablishment of the AHB (Clause 6, First Schedule, Part 1);

The vesting of 12/15ths of AHB’s shares in Ports of Auckland to the ARC and the vesting of 3/15ths of the AHB’s shares to the WRC (Clause 203);

The vesting of specified AHB assets to the ARC (Clause 201(3), (7), (9))

The vesting of specified liabilities in respect of the port related commercial undertakings to the ARC and the WRC in the same proportions as the shares (Clause 204);

The vesting of any residual assets and liabilities of the AHB to the ARC (Clause 204).

Subsequent to its acquisition of this minority shareholding, the WRC put its shares in Ports of Auckland up for sale. It is these shares, which now constitute 20% of the total shareholding in Ports of Auckland, that are traded on the New Zealand Exchange.

How the Auckland Regional Services Trust was set up; what it got by way of Port Company Shares and Why

The Auckland Regional Services Trust (“ARST”) was set up under the Local Government Amendment Act 1992 which inserted into the Local Government Act 1974 (“LGA”) a new Part 44B. That Part:

Required the ARC to prepare a constitution for the ARST to be submitted to the Minister of Local Government (“Minister”) for approval before execution; (s707O)

Provided that the ARST would be constituted upon the execution of the Trust Deed; (s707P)

Required the ARC to prepare, for the approval of the Minister, a plan for the transfer to the ARST of (among other things):

“Specified assets” of the ARC which included:

“Non-core assets” of the ARC which included:

All the shares in Ports of Auckland owned by the ARC;

Regional House at 21 Pitt Street (the controversial new ARC headquarters);

The interests of the ARC under a heads of Agreement between the ARC and Auckland City Council;

Assets transferred to the ARC from the Auckland Harbour Board (under the 1989 local government reorganisation) held or used for certain specified purposes;

The shares in “specified companies” being Northern Disposals Systems Limited (“NDSL”) (the rubbish LATE of the ARC), Transportation Auckland Limited (the Yellow Bus Company), Regional Forests Limited, and Watercare Services Limited (“Watercare Services”) (the water and waste water unit of the ARC which was in the process of being turned into a LATE);

“Specified liabilities” of the ARC which meant all of the actual or contingent liabilities relating to the specified assets and any other liabilities of the ARC identified by the Minister by Gazette notice.

Provided that the plan as approved by the Minister would be given effect by Order in Council.

The Auckland Regional Services Trust Vesting Order 1993 was made on 23 May 1993. Clause7 of the Vesting Order provided that all of the shares in Ports of Auckland held by or on behalf of the ARC on the Vesting Date (1 July 1993), as well as 10,432,541 uncalled $1 shares in POAL, were vested in the ARST.

As explained by the then Minister (Hon Warren Cooper) when introducing the legislation providing for the ARST, one of the reasons for the transfer of the ARC’s trading operations to a stand alone entity was to separate service delivery and regularly functions :

One of the clear points of agreement that emerged from the discussions [with the local bodies in Auckland] was that the major service delivery functions of the Auckland Regional Council must be separated from the other regulatory activities of the Council. (Hansard Volume 521, pg 6418).

However, although less overtly stated by the Minister in the Parliamentary debates, another purpose was to require the ARST to retire the debt that the ARC had accumulated by selling off the assets it received from the ARC as is clear from the legislation itself.

Thus, the functions of the ARST as set out in section 707ZJ(1) included:

(c) To sell the shares (and any other shares held in future) in the specified companies, except the shares in Watercare Services Limited, as soon as is practicable and prudent … :

(d) To retain the shares (and any other shares held by the Trust in future) in Watercare Services Limited:

(e) To adopt the special consultative procedure in relation to any proposal of the Trust to sell the shares (and any other shares held in future) in Ports of Auckland Limited:

(f) Subject to paragraph (d) of this subsection to manage the assets referred to in paragraphs (b) to (d) of the definition of “non-core assets” in section 707ZN … in accordance with sound business practice but with a view to selling the non-core assets in the short to medium term:

(g) To manage the liabilities with a view to reducing those liabilities from the sale of the assets … :

As is apparent from the above, the shareholding in Watercare Services and Ports of Auckland were treated differently from the shares in the other companies transferred from the ARC. The shares in Watercare Services were not to be sold at all. The shares in Ports of Auckland could only be sold after undertaking the special consultation procedure specified in the LGA. This reflected the political sensitivity over the privatisation of water and wastewater services and the port company.

The Hon Rob Storey, another Government Minister at the time, referred to the possible sale of the ARC shares in Ports of Auckland and those held by the WRC following the 1989 local government reorganisation:

The legislation enables the port company shares, if they are sold, to be used to pay off the debts by the port company, first and foremost, and the region, and sets out a process for the proceeds to be applied in local government, which is the residual owner. I hope that local government will recognise the need to devolve some of its shares, and I am pleased to see that several ports are very keen to do so, as are several regional councils. My own regional council of Waikato is keen to get out of its shareholding in the port of Auckland, for understandable reasons, and to sell its shares in the port of Tauranga. (Volume 521, pg 6428)

Interestingly, some speakers in the Parliamentary debates also showed that retention of the Westhaven marina in public ownership was an issue. The Minister himself observed:

It [the Government] does not accept that it is in the best interests of Auckland people to sell things such as the marina, and what might be called other green related recreational parts of the assets of the Auckland Harbour company. They should be taken out and remain part –

At this point, however, the Minister was interrupted by an interjection and did not return to this issue. And nothing was included in the legislation to require any differentiation to be made in the management of different classes of Ports of Auckland assets.

In the event, the ARST’s shares in Ports of Auckland were never sold or even put up for sale. “Save the port” was a dominant theme in the campaign for initial elections for membership of the ARST. The Alliance, which ran on a “no sale” platform, dominated ARST membership and sale of the Ports of Auckland shares was never seriously considered.

However, while the shares were not put up for sale, the ARST did not seek to prevent Ports of Auckland from selling assets that were no longer required for port purposes and which sales, in turn generated dividends for the ARST. The most obvious example was the sale in 1996/7 of the land around the Viaduct Basin to Viaduct Harbour Holdings Limited.

By the mid 1990s, the ARST had retired the debt and, as a result of continuing Ports of Auckland dividends, had accumulated a considerable cash surplus. Its only power to deal with surplus revenue was to establish a community trust under section 707ZW of the LGA. Section 707ZZA of the LGA required that:

All property vested in, or belonging to, the Community Trust shall be held in trust to be applied for purposes beneficial to the community principally in the Auckland Region, including charitable, cultural, philanthropic, recreational, heritage, and other purposes.

That provision was inadequate to deal with the surpluses that the ARST accrued and, in fact, was never used.

Why did Infrastructure Auckland Develop and How was it Different from the Auckland Regional Services Trust

By 1998, the ARST had acquired, notwithstanding its investment in the America’s Cup, a substantial surplus. Following consultation with the region and a public consultation process, the Government decided to abolish the ARST and set up IA. In introducing the Local Government Amendment Bill (No 6), the then Minister (Maurice Williamson) said:

The Auckland Regional Services Trust has done a great job. It was established in 1992 to take over the management of the Auckland Regional Council’s key commercial assets, and was also called upon to manage the $224 million debt accumulated by the council. It paid off this debt some 12 years earlier than had been expected, and is now generating substantial surpluses. The Auckland Regional Services Trust assets, other than Watercare Services, are valued at around $1 billion.

This situation prompted the question of how the resources of the Auckland Regional Services Trust could be used in a way that would provide the greatest benefit to the Auckland region. After considerable work by this Government and our Auckland local government counterparts, together with input from representatives of Auckland businesses, we believe we now have the answer. The principal objective of this Bill is to dissolve the Auckland Regional Services Trust and establish a new entity on 1 October called Infrastructure Auckland. …

What are the details of this model and how will it be implemented? With the exception of Watercare Services, all of the assets and surplus funds of the Auckland Regional Services Trust will be transferred to Infrastructure Auckland. These include Ports of Auckland Ltd, Northern Disposals Systems Ltd, and America’s Cup Village Ltd, and also Regional Forests Ltd and the Yellow Bus Company, or the proceeds from their sale if the sale process is concluded before 1 October. The purpose of the new organisation will be to contribute grants towards regional transport and stormwater infrastructure projects in the Auckland region. In this respect, as I have said, Infrastructure Auckland will be quite a different organisation from the Auckland Regional Services Trust. …

Infrastructure Auckland will fund those projects or parts of projects where the general community benefit is over and above any benefit that accrue to particular groups of persons. In essence, this means that Infrastructure Auckland will fund projects of a public-good nature. The distribution of funds will be made by way of grant only. These grants will be made from income before grants from capital can be considered. Grants from capital will be made only if the project is justifiable, and after a public consultation process in terms of the sale of any assets has been undertaken. I stress this point. It will be up to Infrastructure Auckland to determine whether capital is required to fund some of the grants. The coalition Government requires Infrastructure Auckland to consult the people of Auckland first before making decisions on the sale of any of its assets. (vol 568, p 9261)

These proposals were given effect by the Local Government Amendment Act 1998 which repealed Part 44B of the LGA and replaced it with a Part 44C.

Under section 707ZZZL, the ARST was dissolved as from 1 October 1998 and all of the assets and liabilities (other than the shares in Watercare Services and a small number of specified assets) transferred to IA.

IA’s functions are quite different from those of the ARST. Under section 707ZZK(1) of the LGA, IA’s “principal function” is:

to contribute funds, by way of grants, in respect of projects, or parts of projects, undertaken in the Auckland Region for the purpose of providing—

(a) Land transport; or

(b) Any passenger service; or

(c) Any passenger transport operation; or

(d) Stormwater infrastructure,—

where the projects or parts of projects generate benefits to the community generally in addition to any benefits that accrue to any identifiable persons or groups of persons. to contribute funds, by way of grants, in respect for transport and stormwater infrastructure projects.

Under section 707ZZK(6):

Infrastructure Auckland must, in carrying out its functions or exercising its powers, act in the best interests of the inhabitants of the Auckland Region.

Part 44C does not confer any other express functions on IA. However, under section 707ZZJ(2):

Infrastructure Auckland is a body corporate with perpetual succession and a common seal and, subject to this Part and to any other Act or rule of law, has and may exercise, within the scope of its functions, all the rights, powers, and privileges, and may incur all the liabilities and obligations, of a natural person of full age and capacity.

In addition, however, section 707ZZM imposes a number of “special obligations” on IA. In particular, under section 707ZZM(1), IA:

Must adopt the special consultative procedure in relation to any proposal of Infrastructure Auckland to sell or otherwise dispose of the shares (and any shares owned in future) in Ports of Auckland Limited, in Northern Disposal Systems Limited, or in America's Cup Village Limited:

Must manage its assets in accordance with sound business practice:

Must avoid any imprudent increase in the level of its liabilities.

The requirement that IA must adopt the special consultative procedure in relation to selling the shares of any of its subsidiaries, and not just Ports of Auckland, demonstrates that there is less of a presumption that IA should sell assets than was the case with the ARST.

Nonetheless, the shares in Ports of Auckland were still seen as being in a different category from the shares in the other subsidiaries. Section 707ZZN provides that IA may not sell or dispose of more than 24.9% of the shares in Ports of Auckland that were vested in it under section 7097ZZL unless:

Infrastructure Auckland holds a poll of the residential electors of the Auckland Region on whether it should be permitted to do so; and

… in any such poll a majority of valid votes are cast in favour of Infrastructure Auckland being permitted to do so.

Can Infrastructure Auckland transfer Assets to Auckland City?

The issue as to whether IA can transfer assets to Auckland City by way of gift has been much debated between Auckland City and IA in relation to the assets of America’s Cup Village Limited (“ACVL”) which include the Western Viaduct and Hobson Wharf.

The question turns on the interplay of sections 707ZZJ(2) (the natural person section), 707ZZK(1) (IA’s principal function), 707ZZK(6) (IA’s obligation to act in the best interests of the inhabitants of the Auckland Region when carrying out its functions or exercising its powers), section 707ZZM(1)(b) (IA’s obligation to manage its assets in accordance with sound business practice), and section 707ZZZK (which makes special provision for disposal of IA shares in ACVL).

It also needs to be appreciated that IA has a shareholding interest only; it does not have direct control, the Ports of Auckland Ltd does. And both IA and Ports of Auckland are subject to statutory constraints.

Plans for Infrastructure Auckland under Government Transport Package

Under the transport package announced on 12 December 2003, Infrastructure Auckland will be disestablished and all of its assets transferred to Auckland Regional Holding (“ARH”).

The details of what is envisaged for ARH have yet to be elaborated. However, it is understood that ARH will be a subsidiary of the ARC and will provide the ARC with surpluses ARH receives from Ports of Auckland and other subsidiaries. The assumption is that the ARC will then make those funds available to its other subsidiary, Auckland Regional Transport Limited (“ARTA”). ARTA is intended to be the body that will be responsible for the planning, funding and implementation of transport initiatives in the region.


Appendix 2: legislative history of the port companies act 1988

Introduction

The pages of the New Zealand Parliamentary Debates throw some light on the legislative intentions of the Parliament in passing the Port Companies Act and associated legislation. It was initially dealt with in an omnibus bill called the Ports Reform Bill.

The primary purpose of the Ports Reform Bill was to foster the economic development in New Zealand through the restructuring of the management of a crucial trading industry. The concept of “port related commercial undertakings” (“PRCUs”) was considered central to the reform. The transfer of PRCUs was to enable the new port companies to start off equally, and thus compete with each other from a level playing field.

The legislative history discussed below looks at the purpose of the Ports Reform Bill and the intended role of the PRCUs in more detail.

Purposes of the Port Reforms Bill 1987

The Port Reforms Bill was introduced into Parliament on 8 December 1987 by the then Minister of Transport, Hon W.P. Jefferies. It was seen as a very significant bill, and attracted 51 submissions from interested parties.

The Ports Reform Bill was intended to be a “new regime for port administration”. Its underlying objective was summed up in the Long Title:

An Act to promote and improve efficiency, economy, and performance in the management and operation of the commercial aspects of ports…

The Bill was posited by the third Labour Government as a first legislative step in reforming the New Zealand port industry. The ports of New Zealand were a “crucial but costly and inefficient link in the export chain”. Their legislative reform was deemed necessary because the “existing harbour legislation is outdated and out of step with the demands that the economy now places on the industry”.

Further than that, the Ports Reform Bill was to play a role in a broader strategic context being developed and implemented by the Labour Government. It was one of a number of legislative instruments to effect a policy of ‘corporatising’ functions that had previously been carried out by central or local government. The reform of the ports was termed “second generation corporatisation”; the “first generation” was the corporatisation of the Crown’s trading entities. In his introduction of the Bill, the Minister of Transport explained the rationale behind the corporatisation of state entities to the House of Representatives:

It is correct that the legislation has the characteristics of corporatisation. It is stage 2 of the Government’s corporatisation programme. Stage 1 involved the establishment by central government of its own trading enterprises on a corporate basis and its permitting those great trading departments of State to be viable, to make a profit, and to operate objectively and commercially. It is timely that some local authorities – beginning with the harbour boards – embark on that process with the same objective in mind of contributing to the economic development of New Zealand by operating on a more commercial and efficient basis.

As such, the Bill was intended to contribute to the overall economic development of New Zealand.

The “basic plank” of the legislation was that every harbour board would form and register a public company to be a “port company” and to carry out “port-related commercial activities” with the principle objective of operating as a commercial enterprise. It was thought that “the commercial ports will operate to their best ability for the benefit of everyone only if they are administered as a company structure, with independent commercial freedom, subject to normal commercial discipline”. This was expected that a new regime of ports administration would be a “major step towards achieving a more efficient ports industry”.

However, despite the port companies being established under the Companies Act 1955, public control of the companies was maintained by a 51 percent ownership of the voting shares by the harbour boards or other local or regional authorities. This was “in recognition of the existing local government ownership of the ports and the wide public interest in their performance”.

The second major feature of the Ports Reform Bill was that all PRCUs would be transferred from the harbour boards to the port companies. The port companies would purchase the PRCUs from harbour boards at their full commercial value. It was intended that this would take place over two phases, with the result that:

In future, port companies – not harbour boards – will run facilities in our major ports. They will run them in accordance with normal commercial practice, and not merely as local authority services with a range of objectives. In the establishment phase, only port-related assets and functions will be transferred to the companies.

Initially, it was intended that assets not connected to port operations would remain with the harbour board. The Bill envisaged that they could “be sold to the company after establishment, subject to existing controls and harbour board land sales”. As discussed below, this was modified by Supplementary Order Paper 38.

In the House of Representatives, there was debate about the effect of the transfer of PRCUs. Broadly, the concern focused around the increase in costs that the port users would have to pay as a result of the new port companies having to purchase the PRCUs. It was argued that “unless assets are transferred from harbour boards to the port companies at zero value, except for the outstanding indebtedness against those particular assets, there must be an inevitable increase in handling costs”. In the Third Reading of the Bill, the Minister of Transport dismissed increase in cost as a possible outcome:

The central element of the reforms is the requirement for each harbour board to transfer its port-related commercial undertakings to a port company. The port companies will operate along normal commercial lines, although the legislation provides additional accountability requirements in acknowledgement of the intense local and national interest in our ports. Opposition members have claimed during the course of the debate that legislation would increase the cost of using the ports. I shall deal firmly with that argument. I know that several vested interests have provided an analysis that purports to demonstrate that charges will increase as a result of the restructuring. All that analysis does is show the cost-mentality that has dogged the port industry in the past is alive and well. According to those people, all that a manager has to do is think up a financial result that looks good and then bump up the charges to achieve that result. New Zealand can no longer afford that attitude, which was rife under the National Government; the ports must be regarded as business enterprises.

Port Related Commercial Undertakings

The concept of PRCUs was seen as a very important aspect of the Bill. Initially, the definition of PRCUs included:

Property and rights of the Harbour Board that –

Are conducive to the safety or convenience of ships or hovercraft (other than yachts, motor launches, speed boats, or other boats used exclusively for recreational purposes).

However, this sub-clause was replaced with the current sub-paragraph (i), which reads:

Property and rights of the Harbour Board that –

Relate to the activities of commercial ships and other commercial vessels, and commercial hovercraft and aircraft, or to the operation of facilities on a commercial basis for ships, vessels, hovercraft, and aircraft of any kind.

A number of submissions were made to the Road Safety and Communications Select Committee on clause 22. In a brief response, the Ministry of Transport commented that:

The provisions [of clause 22] are unusual but underline the essential scheme of the establishment procedure. The intention is to ensure that all companies start, as far as possible, on an equal footing. After the initial establishment procedures have concluded, the Minister has no further involvement… Starting from a similar base the companies will compete more in terms of their management ability than because of inherited asset structures. Such an equalisation exercise can only be effectively carried out through the central agency acting at arm’s length from the participants.

It is necessary to note that, PRCUs were distinguished from ‘non-port-related undertakings’. During debate in the House of Representatives, the Minister of Transport explained the difference between the two types of assets as follows:

Several harbour boards in New Zealand own revenue-producing lands that have nothing to do with ports – for example, farms near Gisborne, and commercial areas near the centres of the major cities. Those are community treasure chests that have in the past financed port operations and developments. They will remain community assets in the hands of elected harbour boards. The harbour boards still have community functions that may absorb some of the revenues from those investments. They may also have oil pollution prevention responsibilities, planning duties, and community activities such as water recreation to consider. Those funds can also, if necessary, be directed from harbour boards to their port companies as circumstances demand, provided that the transaction is objective and transparent. We do not want disguised subsidies.

In the Third Reading of the Port Reforms Bill, he went on to explain further the necessity for the distinction to the House of Representatives:

There is…a failure to comprehend that harbour board endowments are community assets that must be held in trust for the regions. It is not appropriate that they become the dowry of commercial port operations, which would have the power to sell them off the next day. The narrow definition of port assets will also contribute to interport competition by ensuring that each port company starts operations as a port, not as a central business district landlord, farm operator, or land developer. Because of the unequal distribution of non-port assets between the harbour boards, the wholesale transfer of those assets would enable inefficient ports to compete alongside the more efficient ports. That kind of blind subsidy is dear to the hearts of some Opposition members, but is it not acceptable to this Government.

Thus, the transfer of only PRCUs to port companies was seen in keeping with the focus of the legislation on the commercialisation of commercial port operations.

It was thought necessary to ensure that each port company started off on an equally competitive basis. The process for the transfer of PRCUs from the harbour boards to the port companies was to take place in the ‘establishment phase’ as follows:

The port companies will initially purchase the port-related commercial undertakings of their respective ports from the harbour boards at their full commercial value by means of a sale and purchase agreement, which will form part of a port company plan to be approved by the Minister. The port companies will pay for the assets they receive by issuing equity securities to the harbour board. The port companies will borrow funds at commercial rates from the commercial financial sector.

Moreover, the Minister of Transport was certain that the definition of PRCUs would not limit any future activities of the port companies to such undertakings. In response to any perception to the contrary he stated:

That is not so. The definition applies only to the undertakings being transferred from the boards to the port companies as part of the establishment process. Port companies will not be prevented from diversifying their activities once they start.

Supplementary Order Paper 38

Clause 22 of the Ports Reform Bill set out the process for the identification of the PRCUs and the transfer of the PRCUs by the Establishment Units to their port companies.

Supplementary Order Paper 38 (27 April 1998) added sub-clauses (8A) and (8B) to clause 22, which became sub-sections (9) and (10) of section 22 of the Port Companies Act 1988. The effect of this amendment was that the Minister of Transport could include in the port company plan any undertaking of the harbour board despite it not being a PRCU. However, the Port Companies Act 1988 was to apply as if that undertaking was a PRCU.

The Minister of Transport explained the amendment to the Parliament in the following words:

It was always intended that the companies should be stand-alone operations, and that their cost structure would be transparent so that their accountability was obvious. However, as a result of deliberations, it was decided to insert new subclauses 22 (8A) and (8B) so that the Minister is allowed the discretion to permit non-port related land to be passed to the port company if that action seems appropriate. The provision is a safety-valve to ensure that port companies have a viable asset base, because from time to time they will embark upon very expensive operations to improve port facilities, and it is important that they have an adequate asset base from which to operate.

As such, the amendment to clause 22 of the Bill was considered to still be in line with the basic policy behind the legislation.

It is a sensible policy. Its design is to ensure that there are not hidden and disguised subsidies in the port operations. It is a safeguard to ensure that company viability will have to stand alone once the details of the port plans are analysed.

No further amendment was made to clause 22.

In conclusion, the Ports Companies Act, including the provisions relating to the transfer of the PRCUs to the newly established port companies, brought significant change to ports administration.

The purpose of the legislative change was to contribute to the economic development of New Zealand, a country dependent on imports and exports, through increasing the efficiency and effectiveness of New Zealand ports.

Under the Port Companies Act, assets of the harbour board that were deemed to fall within the definition of PRCUs were transferred by way of sale and purchase to the new port companies. As a result of the amendments to clause 22, later section 22 of the Port Companies Act, non-port related commercial undertakings could also be transferred to the port companies. It was considered that this would not alter, but assist, the basic premise behind the Port Companies Act, i.e. that the port companies would be viable commercial enterprises.

Since the Port Companies Act was enacted there have amendments made in 1990 and 1993. No amendments were made to section 22.

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