CORPORATISATION, PRIVATISATION AND PUBLIC LAW

Professor Michael Taggart LLB (Hons) (Auckland), LLM (Harvard)

An Inaugural Lecture presented in the University Hall, Old Arts Building, University ofAuckland, New Zealand on Wednesday, 12 September 1990. r

I PREFACE

Adapted from introductory remarks by Professor Brian Coote, Faculty ofLaw, University ofAuckland

Michael Bruce Taggart was born in Auckland in 1955. After attending Mt Albert Grammar, he came to this Law School in 1975 and in due course graduated LLB (Hons). There followed an exceptionally success­ ful term as clerk to the Supreme Court judges at Auckland. He then proceeded to Harvard, from which he graduated LLM in 1980. Thereafter, he spent a couple of academic years teaching at the Law School of the University of Western Ontario before returning to this Law School as a Lecturer in Law. He was promoted to a Senior Lectureship as from 1 February 1987. So far, so good. But then came the unusual part. Within months of his becoming a Senior Lecturer, he had been appointed to a full Chair and, incidentally, had become the University's youngest Professor and, with Julius Stone, one of its two youngest-ever Professors of Law. Of course, such things do not happen without reason. The new appointee had accumulated a dazzling list of scholarships and awards and fifteen or so substantial pieces of writing had already appeared in legal publications. Regard would also have been had to his proven qualities as a teacher, as an administrator and as a person. For me, though, what distinguishes him most are qualities he had evidenced while he was still an undergraduate. I refer to his sheer love of and enthusiasm for the law and the effect that has had, and continues to have, on those around him. Just as I warmly commended Professor Taggart to his audience, so now I welcome and commend this permanent record of his inaugural lecture.

J J i' CORPORATISATION, PRIVATISATION AND PUBLIC iAW

"A public lawyer", Sir Ivor Jennings once wrote," ... is the child of his age. His ideas are affected not only by his own upbringµig, but also by the floating ideas of the time at which he writes" .1.The "floating ideas" of our time have been those associated with the catchphrase "Rogernomics" - briefly put, they are the pursuit of economic efficiency, the glorification of the private· sector and the retreat of the State.2 My purpose tonight is to examine, from a public law perspective, two related manifestations of these ideas - corporatisation and privatisation. The Hon Roger Douglas has said that the corporatisation pro­ gramme proceeded from three "basic principles''.3 First, State trading activities should have purely commercial objectives. Sec­ ond, State-owned enterprises should operate in a competitively neutral environment, subject to the same rules as any other busi­ ness. Third, the enterprises should be organised in a form designed to assist in the implementation of the principles of commercialisa­ tion and competitive neutrality. The first objective, commercialisation, involves separating out ~ tjhe commercial objectiveLof public enterprise from the non­ "unciaVVL 1a.~ommercial or(social objecti~4 Too often in the past, it is said, ~~rferecrm the running of State enterprises for short-term political reasons - for example, to promote regional development, orto create employment or provide low cost housing. This i~ now unacceptable, it seems. Burdening public enterprise with the performance of social objectives is said to make it difficult, if not impossible, to hold the managers accountable for the commercial performance ofthe enterprises; thereby diminishing financial accountability. 5 It should be Ministers of the Crown who make decisions on social policy, we are told, and not the managers of public enterprises. 6 Ministers are politically accountable for those decisions and can decide to meet these objectives direc;tly through taxation or by the transfer of payments to the State enterprises. 1 2 CORPORAl'ISATION, PRIVATISATION AND PUBLIC LAW

This thinking finds expression in the State-Owned Enterprises Act 1986; the legislation which laid the foundations of corporatisation. Section 7 provides that where the Government wants a State-Owned Enterprise or, as I will refer to it, a SOE to supply goods or services of anon-commercial nature, the Govern­ ment must agree to reimburse the cost to the SOE of providing that . service. The prevalence of mixed commercial and social objectives in the running ofpublic enterprises prior to corporatisation suggested that a good number of section 7 agreements would be entered into. In 1986 the·Rt Hon Geoffrey Palmer had "[n]o doubt that [would] happen in quite a number of areas". 8 In fact, the semi-official total of the number of section 7 agreements entered into by the Labour Government in nearly four years is just two.9 The Government reimbursed NZ Post the operating costs of 600 "uneconomic" Post Offices for the first year after corporatisation.10 The Government also· paid· for the provision of mobile banking outlets by Post Bank.u Why have so few section 7 agreements been entered into?12 Part of the explanation might be that there is no reason why arrange­ ments for reimbursement must be made under section 7 .13 But my research and requests of Government have failed to turn up any reimbursement arrangements outside section 7. If there are any such arrangements, they are likely few in number or well hidden, or both. It is difficult to resist concluding that the reason few reimbursement arrangements have been entered into is because Ministers do not believe thatState enterprise should perform social objectives. The formal separation of commercial and social ob­ jectives envisaged in the SOE Act has resulted, in practice, in the negation of social objectives.14 This, as we will see, was an important step on the way to privatisation. 1 Related to this is the second principle of SOE reform identified I by the then Minister of Finance: State-owned enterprises are to operate on an equal footing with private enterprise in pursuing commercial objectives. This means that State enterprises should

, not enjoy any unfair commercial privileges or operate under any !11 requirements which place SOEs at a commercial disadvantage.15 CORPORATISATION, PRlVATISATION AND PUBLIC LAW 3

Consequently, SOEs no longer enjoy the common law immunities of the Crown,. and·monopoly powers conferred by statute have been removed. Public and private enterprise are to compete in the market on a "level playing field". Not surprisingly, die legal structure chosen to implement these basic principles of commercialisation and competitive neutr~ity was the epitome ofprivate sector enterprise.; the public company.16 By the State-Owned Enterprises Act 1986, nine new SOEs were incorporated as companies under the Companies Act,17 and an­ other five existing companies owned by the Crown were brought under the SOE regime as wen.1s Several more enterprises have been added to the Schedule in theSOEActsince 1986~19 and, as we will see,manyhave been removed in preparationforprivatisation.20 Indisputably the SOE reform was, and still is, driven by the belief ( of economists and others) in the superiority of the. :mar­ ketplace and the efficiency ofthe private sectorfimi. It is impossible to fully grasp features of SOE reform (and, also, the later shift to privatisation) withoutknowing a little ofthe economists 'theorising about the private firm.21 In the private firm the owners of the assets(called shareholders) do not manage or control the firm in any direct way; this is done by professional managers (called directors). Thus ownerslnp and control are separated, creating an "agency" problem. The problem is how to ensure that the directors (as agents of the shareholders) run the firm in the most efficient way possible for the maximum benefit of the owner-shareholders. The share market is said to provide many incentives for managers to serve the interests of the owners. The share market will evaluate performance of the firm and its managers, and this assessment will be reflected, to some extent, in the share price. Shareholders dissatisfied with manage­ rial performance can "exit" from the firm, by selling their shares. Alternatively, shareholders may ''voice" their dissatisfaction at the annual general meeting and attempt to vote out management.22 Also, the threat of takeover provides some incentive for incumbent managets to behave in the shareholders' interests. And, in the extreme case, there is the threat of insolvency. _ Economists rightly point out that merely by imitating the 4 CORPORATISATION, PRIVATISATION AND PUBLIC LAW

corporate form, public enterprise will not be able to replicate the benefits of private enterprise. All of the monitoring mechanisms touched on a moment ago are less effective or non-existent in the SOE context. SOE shares are non-transferable, there is no share ijprice and so takeovers are impossible. Nor is there a realistic prospect of insolvency. Moreover, while politicians can dismiss managers for unsatisfactory performance, they are unlikely to do so. Because of the nature of the political process - with concen­ trated interests such as employees and consumers exercising significant influence-politicians are likely to injectnon-commercial objectives into public enterprise and thereby further weaken in­ centives to replace management which is performing poorly. Undeterred by the misfit of public .enterprise with the theory of the private firm, the framers of the SOE legislation attempted to replicate, as far as possible in the SOE context, the share market disciplines and incentives which apply in private enterprise. Con­ sequently the emphasis in the SOE legislation is on monitoring the ~Yl commercial performance of SOEs and on holding the directors accountable to the shareholding Ministers for that performance. 23 The legislation seeksto increase the incentives for SOE Boards to act in the interests of the shareholding Ministers by requiring: (1) a clear statement ofobjectives, (2) annual negotiations ofStatements of Corporate Intent, (3) the regular supply of information to shareholding Ministers to allow monitoring of performance, and· (4) shareholding Ministers to appoint and, where necessary, io dismiss directors. 24 The SOE Act carefully distinguishes between "accountability" and "responsibility".25 The SOE Boards are "accountable" to the shareholding Ministers for the commercial performance of the enterprise through the Statement of Corporate Intent, annual reports and half".'yearly reports.26 In turn, the shareholding Mipis­ ters are "responsible to the House of Representatives" for ,the performance of their functions of monitoring SOE performance and hoiding SOE management to account for that performance.27 J It is clearly intended that the shareholding Ministers will only be V responsible for overall "policy" andnotfor~e.day~to-d_ay operations of SOEs. 28 The framers were fearful of mlillstenal "mterference" CORPORATISATION, PRIVATISATION AND PUBLIC LAW 5 in business decisions with the inevitable injection of social objec­ tives into commercial decision-making. This clearly limits ministerial respontbility to Parliament for the operation of SOEs. The responsible Ministers have persistently refused to answer questions in the House in relation to SOEs, even those going to "policy" rather than to day-to-day oper~ons. As Dr Graham Taylor points out, the message that comes through from ministerial replies in the House is this: "If it's bad news it's commercially sensitive, and I'll refuse to answer. Ifit's good news or trivial, it's not sensitive and I'll take the credit; if I'm not sure which it is I'll refer it to the corporation". 29 On the positive side, the regular supply of information from SO Es to the shareholding Ministers and the House required by the SOE Act provides the potential for increased parliamentary scrutiny. Potentially the most intensive scrutiny can come from the parliamentary select committees. A new select committee structure has been in place since 1985, with thirteen "subject" select committees, each having responsi­ bility for a major area ofgovernment activity. The Standing Orders of the House make it clear that the activities of SO Es within those areas can be examined by the appropriate select committee. 30 This occurred for the first time earlier this year. In May, the Govern­ ment Administration Committee of the House issued a report on Government Property Services Ltd (GPS).31 GPS was formed as a SOE in 1986 to undertake the commercial property activities formerly the responsibility of the State Services Commission, and is involved in property investment, development and management for both public and private sector clients.32 Three SO Es fall within the purview of the Government Admin­ istration Committee. GPS was selected as a representative organi­ sation against which to test the accountability provisions of the SOE Act. The Committee was particularly concerned with Par­ liament's role in holding SOEs accountable. From .the experience gained through the assessment of the performance of GPS, the Government Administration Committee recommended to the House that all documents tabled in the House in accordance with the SOE Act should be referred to the Govern- 6 CORPORATISATION,PRNATISATION AND PUBLIC LAW

ment Administration Committee, or another select committee, for consideration and report to the House. Another recommendation was that there should be an annual select committee assessment of the performance of every SOE by examination of the annual reports and financial statements against the existing and proposed Statements of Corporate Intent. The committee asked also for an effective opportunityto debate in the House these select committee reports on the performance of SOEs. 33 If the House accepts these recommendations, then the accountability of SOEs to Parliament will be a reality. The Government Administration Committee Report proceeds from the premise that as SOEs are owned by the taxpaying public, they should be accountable to Parliament, and not just to the two shareholding Ministers; who are "responsible" to the House only for the performance of their own functions. Here the older con­ stitutional ideas of ministerial responsibility to Parliament and parliamentary scrutiny come up against the new managerialism. The "publicness" of public enterprise is recognised in the SOE Act itself and in the application of other accountability mecha­ nisms. One of the most controversial provisions in that Act is section 4, which provides that the "principal objective" of every SOE "shall be to operate as a successful business" -

"and, to this end, to be - (a). As profitable and efficient as comparable businesses that are not owned by the Crown; and (b) A good employer; and (c) An organisation that exhibits a sense of social responsi­ bility by having regard to the interests of the community in which it operates, and by endeavouring to accom­ modate or encourage these when able to do so."

It seems to me that this provision makesclear that there is more to operating a successful public business than maximising profit.

,\. The provision recognises that to operate successfully, a SOE will 11 ii be profitable and a good employer and exhibit a sense of social ~ responsibility. To many, including myself, section 4 was an CORPORATISATION, PRIVATISATION AND PUBLIC LAW 7 important affirmation of the distiiictiveness of public enterprise. r Public enterprise is not the same as private enterprise simply because of the fact ~f public ownershi~. M?17 is expected .of. the State than of the pnvate sector.34 As Srr Wllham Wade sa.1d ma passage that has the support of our Court of Appeal:35

"The powers of public authorities are ... essentially different from those of private persons. A man making his will may, subject to any rights of his dependants, dispose of his prop­ erty just as he may wish. Jie may act out of malice or a spirit of revenge, but in law this does not affect his exercise of his power. ln the same way, a private person has an absolute power to release a debtor, or, where the law permits, to evict a tenant, regardless of his motives. This is unfettered discre­ tion. But a public authority may do neither unless it acts reasonably and in good faith and upon lawful and relevant grounds of public interest. Unfettered discretion is wholly inappropriate to a public authority, which possesses powers solely in order that it may use them for the public good."

This assume&, of course, that there is such a thing as the public good, which can and should be pursued by politicians and those exercising delegated powers, as well as those controlling public assets. It is just this assumption that the "new right" attacks. The theoretical attack comes from the public choice school of political economists. Public choice can be defmed as the economic study of non-market decision-making by politicians and public servants.36 The methodology is that of economics and the fundamental precept is that people act as rational, utility-maximising individu­ als. Politicians and public servants are all said to be motivated by their own self interest; politicians attempting to maximise their chances of re-election and public servants seeking to protect and, if possible, expand their empires. This self-seeking behaviour is given the technical label of "rent seeking" - rent seekers extract profits (or economic rents) at the expense of taxpayers or con­ sumers. 37 Rent seekers are everywhere, it seems, seeking to obtain 8 CORPORATISATION, PRIVATISATION AND PUBLIC LAW privileges and profits by spurious appeals to the public interest.38 Public choice thinkers ridicule the belief that politics is concerned with the general welfare or public good and deny that there is any such thing as the public interest. 39 In short, the exponents of public choice view political and administrative processes in the same way as they are portrayed on the television programmes, "Yes, Minister" and "Yes, Prime Minister".40 Much has been written about public choice, and as with any school of thought there is much variety of opinion within the school. However, some generalisations can be hazarded. As a general rule, public choice theorists prefer the market system over political systems.41 And, relatedly, at best the public choice movement is sceptical about the benefits of government and public administration and, at worst, is contemptuous of democracy. 42 Surprisingly, the public choice school has had a considerable impact on contemporary political thought,43 and not just in the United States and the United Kingdom. Clearly some people, at least, in Treasury have a fascination for public choice theory - for the rhetoric of public choice permeates Treasury briefing papers and even finds its way into ministerial speeches. The implications of public choice theory for public law are only beginning to be gleaned.44 Public choice exponents regard the availability of judicial review as simply tempting rent seekers to "voice" their naked self­ interest disguised in the language of public interest. 45 And that is how the public choice school would describe the Wellington Regional Council's attempt in late 1987 to have the High Court review the closure of some 432 "uneconomic" Post Offices.46 At the cen1;re of the Council's case was the allegation that New Zealand Post and Post Office Bank had not paid proper regard to their social responsibilities as required by section 4 (c). The background to the case was as follows. During the corporatisation exercise, the postal and banking functions of the old Post Office were transferred to two new SOEs, New Zealand Post Ltd and Post Office Bank Ltd. There were some 600 Post Offices which were known to be "uneconomic", and these were not transferred to the new corporations; rather the Government agreed, CORPORATISATION, PRIVATISATION AND PUBLIC LAW 9 under section 7 of the SOE Act, to reimburse New Zealand Post and Post Office Bank the cost of operating tllese outlets. No period was fixed for the continuation of this agreement; although at an earlier stage the recommendation had been made that the ar­ rangement run for three or more years. Within six months of the SOEs taking over, the Government actively sought to terminate this arrangement to save money. With the concurrence of the two SOEs, Cabinet terminated the reimbursement arrangement. Concerned about the impact of this decision on the communities within its territorial jurisdiction, the Wellington Regional Council applied for judicial review under the Judicature Amendment Act 1972. For the simplified procedure provided by that Act to be available, the person or authority sued must exercise a "statutory power" or "statutory power of decision". Greig J held that the decision at the root of this application for review was Cabinet's termination of the section 7 reimbursement arrangement. This was neither the exercise of a statutory power nor a statutory power of decision, the Judge held, adding "it is certainly not one which ought to be under the supervision of the Court. That is purely a policy decision for which the Ministers are to be answerable in Parliament but nowhere else".47 Even if the closure decision had been made by the SOEs, rather than by the Cabinet, Greig J remained of the view that the decision was not amenable to review under the Judicature Amendment Act. The decision was made by the company, a creature of statute. But as such, the Judge said, the company has "the power of a natural person. It is not a State Department and it is not a statutory corporation". 48 While the SOE Act gave "no specific power" to the companies to close Post Offices, Greig J was satisfied they must have power to do so under "their general management opera­ tion". 49 This decision was not amenable to review under the Act, said the Judge, "because it is purely a management administrative decision". so While ostensibly about the technicalities· of the Judicature Amendment Act, this part of the judgment is replete with the language of non-justiciability: if it is a Cabinet decision, it is a "policy" question for which Ministers are answerable to Parlia- 10 CORPORATISATION, PRIVATISATION AND PUBLIC LAW ment and not to the Courts. If, in the alternative, it is a decision by the SOEs, then it is a "purely managerial" one. Greig J did not want to be heard to say that a decision by the companies would never be subject to judicial review, but in all the circumstances this case was not reviewable. Increasingly, justiciability is an explicit concern of the Courts due to the removal of former obstacles to judicial review;51 prerogative powers are no longer sacrosanct,52 the concept of ju­ risdiction has been collapsed into the flexible error of law stand­ ard,53 the administrative/judicial dichotomy has withered under the fairness sunlamp,54 even the immunity of"legislative" action is under threat. 55 Not to mention the liberalisation, some would say the obliteration, of standing requirements, 56 or the supposed sim­ plification ofjudicial review procedure. 57 Risingpheonix-like from the ashes of these distinctions come new ones like the labelling of certain activities as commercial or purely managerial. Such labels render the decision immune from judicial review and place it on the private law side of the nebulous line that divides public and private law.58 This process is clearly at work in the Wellington Regional Council case,if obscured somewhat by procedural technicalities. 59 Notwithstanding Greig J's negative conclusions as to review­ ability, he went on in his judgment to assume in the alternative that there was an exercise of a statutory power within the terms of the Judicature Amendment Act. In this thorough but artificial way, Greig J was able to reach the merits of the application for review. The most relevant allegation for our purpose was that the SOEs had acted contrary to section 4 in failing to act in a socially responsible way, by not having regard to the interests of the community. Greig J found as a fact that the companies had exhibited an appropriate sense of social responsibility~ he found that the two SOEs had had regard to the interests of the community at the national and local levels, and had endeavoured to accommodate those interests as far as possible. Section 4 demanded no more. In the course of that discussion, Mr Justice Greig had this to say about section 4:60

"It is plain that the overriding consideration [of section 4] is CORPORATISATION,PRIVATISATION AND PUBLIC LAW 11

commercial; the operation of the successful business is something which is expressed in those objectives but is also, I think, underlying the whole of the State enterprise system."

This dictum has been quoted with approval in other cases involving SOEs. 6t Read out of context, it is not unlike Milton Friedman's observation that "the social responsibility of business is to increase its profits". 62 While emphasising the commercialisa­ tion objective of the SOE Act, Greig J's generalisation overlooks the actual wording of section'4. As I understand section 4, a SOE is obliged to have proper regard to all the interests specified in that section. These considerations are not simply permissive but are obligatory relevant considera­ tions;63 and failure to have proper regard to any ofthem will lay the decision open to challenge by way of judicial review. What consideration is proper will depend on all the circumstances of the case. Once regard has been had to all these interests, the section recognises that social responsibilities may have to give way to commercial profit-making - that is the significance of the phrase "when able to do so" in section 4 (c ). To that extent, the commercial consideration may be "overriding", as Greig J said, but not before proper regard has been had to social responsibilities. It is not altogether clear from the judgment in the Wellington Regional Council case that this standard was satisfied on the evidence presented to the Court. 64 The result and, as importantly, the tone of this judgment is likely to discourage attempts to use judicial review to call SOEs to account under section 4 for the social consequences of their actions. 65 The interpretation given treats the reference to social responsibility as no more than window-dressing in the window of commercial opportunity. I do not believe that interpretation to be correct. No doubt that makes me a rent seeker by the lights ofpublic ·choice. I shall have to bear that cross with such fortitude as I can muster. In the wider constitutional context, the Post Office closures illustrate the operation of two other accountability mechanisms attaching to SOEs as public bodies, namely the application of the 12 CORPORATISATION, PRIVATISATION AND PUBLIC LAW

Ombudsmen Act 1975 and the Official fuformation Act 1982. In discussions prior to the enactment of the SOE legislation, it was argued forcefully by some that SOEs should not be subject to scrutiny by the Ombudsmen or subject to requests for official information under the OIA. It was contrary, they said, to the principle of competitive neutrality. Private sector businesses are not subject to such "burdens" and if SOEs were, they would be placed at a competitive disadvantage. That argumentwas rejected by the Legislature, but doubts must have been entertained, for section 31 ofthe SOE Act required a select committee to review the • effect of the Ombudsmen and Official fuformation Acts on the operation of SOEs in three years' time. That select committee was convened in 1989 and reported to the House earlier this year, recommending that there should be no change to the present position, and that SOEs should continue to be subject to the Ombudsmen and Official fuformation Acts. 66 The Committee stressed it is "the nature and function of the SOEs, their role in the community and their ownership, that are the deciding factors",67 and after considering those factors, the Committee concluded that the application of the two Acts provides a measure ofaccountability to the public that the Companies Act and Con11nerce Act do not. 68 What also comes through from the Report is the hostility of SOE Boards to this form of accountability. The Committee reported only a "gradual improvement" by SOEs in their understanding of the operation of the OIA. 69 Given the evasiveness of ministerial answers to questions about SOEs in the House,10 and the some­ times less than informative Statements of Corporate Intent,71 applicability of the Official fuformation Act to SOEs is vital as a check on the SOE Boards and the shareholding Ministers. As the Auditor-General rightly points out, information is the very essence of accountability. 12 That public companies in the private sector "are entitled to keep secret all information they can secure physically unless [there is] some particular reason for disclosure"73 under the Companies Act or the listing requirements of the Stock Exchange, is no reason to reduce SOEs to that level of secrecy. On the contrary, there may be good reason to require similar openness of "private" enterprise.74 CORPORATISATION, PRIVATISATION AND PUBLIC LAW 13

Requests under the Official fuformation Act helped to clarify the responsibility of the Crown and the SOEs for the Post Office closures. Many people applied under the Act for profit and loss accounts of the Post Offices to be closed. The Minister and the S0Es refused these applications, giving as a reason the commer­ cial sensitivity of the information. Upon investigation by .the Ombudsman it was discovered that the information did not exist! Eventually the complaints to the Ombudsman were resolved when the SOEs prepared detailed written explanations of the chronology and background to the closure decisions. The Ombudsman had this to say in the Annual Report to Parliament:1s

"On the face of it, all the complaints could have been avoided or diminished in scope had those concerned taken the initiative at an earlier date, consistent with the principle and purposes of the Official fuformationAct to make available information explaining the closure decisions. Had such information been availableatanearlierstage,theCorporation'spublicrelations and public accountability would have been enhanced. In addition, the responsibility for the decision would have been clear, so that anyone wishing to challenge it could have made an informed decision as to how to proceed."

Dare one suggest that there may have been political advantage in the public thinking that the SOEs had taken the unpopular decision to close Post Offices, when in fact, as Greig J found in the judicial review proceeding, the action was initiated secretly by the Government in order to save money. 76 Complaints about the Post Office closures were made under the Ombudsmen Act as well. The application of that Act to the SOEs provides an independent and impartial review by the Ombudsmen ofthe way in which individuals and groups are affected by the day­ to-day operations of a SOE. The Ombudsmen can recommend corrective action whenever a decision or action is contrary to law, unreasonable, unjust, oppressive, improperly discriminatory, mistaken in law or fact, or just plain wrong.77 As the selectcom­ mittee pointed out, this form of accountability is not achieved by 14 CORPORATISATION, PRIVATISATION AND PUBLIC LAW

any of the mechanisms in Part m of the SOE Act.78 Many of the complaints over SOE. activities are from consumers, who would otherwise have no real remedy. The annual reports ofthe Ombuds­ men reveal a steady stream of consumer complaints against SOEs. One way or another, the vast majority -of these complaints haye been resolved informally. 79 The statistics show the need for an · independent complaints authority and the Ombudsmen perform this function very well. The Ombudsmens' role, however, is not limited to resolving individual complaints. This is shown by the Ombudsman's review last year ofTelecom's standard terms of contract. After receiving a number of complaints from Telecom subscribers, our former colleague and now Ombudsman, Mrs Nadja Tollemache, initiated on her own motion an investigation into the reasonableness of Telecom's standard telephone subscriber contract.80 Mrs Tollemache was at pains to put this investigation in its wider constitutional context. Prior to corporatisation, the standard terms of the telephone subscriber's contract were prescribed by regulations. Any change to the standard terms had to be approved by Cabinet and was subject to possible scrutiny by the Regulations Review Committee of the House. 81 This process, the Ombudsman observed, provided "an element of accountability" lacking after corporatisation. 82 In reaching the decision to review Telecom's approach to its contractual obligations, Mrs Tollemache also took into account these factors: (1) that Telecom was (then) owned by the public, (2) that in pursuing its commercial objectives Telecom was required by section 4 (c) to have regard to its social responsibilities, and (3) the absence of meaningful competition in the telecommunications industry. 83 There was, she concluded, the possibility of abuse of widely drawn terms by an organisation owned by the taxpayer. 84 The Commerce Commission cannot concern itself with unreasonable terms, as opposed to misleading or deceptive behaviour; and, unlike in other countries, there is no specialist regulatory body in the telecommunications field. 85 As there was no alternative avenue of redress, it was all the more important for the Ombudsmen to hold Telecom to account for its contracting practices. 86 CORPORATISATION, PRIVATISATION AND PUBLIC LAW 15

' After an exhaustive review of the Telecom standard contract, the Ombudsman concluded that sev~al ·of the provisions were unreasonable, 87 that the "potential. for· abuse was very great and [the contract was] totally weighted in Telecom's favour".88 During the investigation, Telecom advised the Ombudsman that the standard conditions were being reviewed, partly as a response to the issues raised by her investigation. Telecom agreed to remedy some of the points raised by the Ombudsman, but on other issues the company indicated that no change was contemplated. The revised Telecom contract has been publicised and comes into effect today (12 September, 1990). This is a new plain language contract for residential subscribers. The beneficial influence of the Ombudsman's review can be seen, but the contract is still heavily weighted in Telecom's favour. Take, for example, the new provisions relating to suspension and termination. Telecom claims the power to suspend without notice and at any time telephone services in three situations: ( 1) if the subscriber fails to pay any money due by the specified date to the Telecom subsidiary operating in that region, or to any of the other three regional subsidiaries of the Telecom Group, whether the debt relates to this contract or not, (2) if the subscriber is declared bankrupt, or (3) if the subscriber fails to meet his or her responsibilities under the contract. The provision goes on to expressly reserve the right to suspend without notice any services, even if Telecom continues to provide the services after the oc­ currence of any of these specified events.s9 Clause 42 promises thatifTelecomreconnects the subscriber's services after suspension, it "will" charge a reconnection fee. But there is more. Under the new contract, Telecom subsidiaries claim for themselves, in the event of non-payment, bankruptcy or breach ofcontract by the residential consumer, the right to terminate the contract without notice. Telecom now has an unfettered dis­ cretion as to whether to suspend services under clause 42, or to terminate under clause 43, both without notice, and at any time once the stipulated events occur. 90 Moreover, in all other situa­ tions Telecom can terminate the agreement on one month's notice (as can the consumer).91 16 CORPORATISATION, PRIVATISATION AND PUBLIC LAW

These are wide powers, and no less so for having been rendered in plain English. Although the Ombudsman had little to say about the breadth of these powers under the old standard terms, they were, and remain, a matter of real concern. Indeed, the new terms go further and allow Telecom the option of electing to terminaw instead of suspending service. Telephone services are an essential part of modem life. Discon­ nection decisions have an adverse impact on those concerned, often families and almost always in straitened financial circum­ stances. ·Disconnection decisions taken by a SOE could be the subject of complaint to the Ombudsman and, in theory at least, the subject ofjudicial review proceedings.92 A publicly owned body is expected to act fairly and reasonably .93 As we will see in a moment all this is assumed to change upon privatisation. As I have stressed, it is the fact of public ownership that requires SOEs to be subject to scrutiny by parliamentary select committees, the Courts, and the Ombudsmen, not to mention the Auditor General. 94 But no sooner was the structure of corporatisation in place than the Government announced its privatisation programme in the 1987 Budget. For our purpose, privatisation can be taken to mean the sale of public sector enterprise to private interests.95 Corporatisationhad been "sold" to the electorate on the grounds of improved economic efficiency. Inefficient public enterprise was a drain on taxpayer's money, it was said, and the enterprises were not providing any return on investment. 96 But it was impos­ sible to adequately assess the efficiency gains from SOE reform at the time the privatisation programme began. So why wasn't corporatisation given a chance? The corporatisation house that Roger built was constructed upon an unstable fault line. On one side of the fault was the market approach exemplified by commercialisation and profit maximisation; on the other side of the fault, and grating with the market side, was the legal and political accountability demanded by public ownership of these enterprises. In the event, the market side proved too strong, with the result that half of the original fourteen SOEs have been privatised.97 Only the share market crash_ and resulting economic downtown, and court action by the tangata CORPORATISATION,PRNATISATIONANDPUBLICLAW 17

.. whenua,98 have 'prevented the house of corporatisation from col­ lapsing altogether. It is clear that many economists, Treasury officials and the Business Round Table - if one can distinguish between them for this purpose-thought that the SOE reforms, while a useful advance on departmental trading activities, could .only be a short term measure, which logically led on to privatisation.99 The SOE framework could not overcome the "intractable" problems of public ownership and could never fully replicate share market disciplines.100 There remained the ever-present danger of political interference, with the feared injection of non-commercial objec­ tives.101 It seems you simply cannot trust politicians to keep their noses out of the SOE business tent. If votes can be gained by doing so, politicians will seek "rents" by interfering in SOE business decisions. What lawyers and others would see as political account­ ability in action, these free marketeers lambast as political inter- ference. ' To this way of thinking, privatisation was the logical and inevitable consequence of corporatisation.102 It is important to note that the short corporatisation ph\ase was crucial to the success of privatisation in at least two respects. First of all, corporatisation rendered public trading enterprises into corporate form and gen­ erally into profitable condition, so as to be ready for sale .and - attractive to private sector buyers. Secondly, the separation of commercial and social objectives and the subsequent lack of enthusiasm to identify social objectives and/or to pay for their delivery, made it easier to privatise. By effectively stripping SOEs of their previous social functions, the logic of retaining SOEs ~· within the public sector was undermined.103 If SOEs are to act exactly like private companies, why should the public own them? l The public justification given for privatisation was the need to i I reduce public debt.104 It is clear from a Treasury briefing paper, however, that debt reduction was never more than an important "intermediate goal" as far as Treasury was concerned; the "over­ riding objective" ofprivatisation was always economic efficiency .105 In July this year the Minister for State-Owned Enterprises, the Hon Richard Prebble, announced the end of asset sales to repay public 18 CORPORATISATION,PRIVATISATIONANDPUBLICLAW

debt. From now on, he implied, the criterion for privatisation would be economic efficiency.106 Whether there is an economic case for privatisation is thee, subject of keen debate, 107 but that need not detain us tonight. I ~· concerned, primarily, with the legal implications of privatisation. Labour Ministers have avoided the label privatisation, prefer­ ring insteru:l to talk of asset sales.108 To a point, that is understand­ able-privatisation is an ugly word.109 Nonetheless, it is an accurate description of the transfer of power involved in the process. The root of the word is private, and its original meaning was "not holding public office or official position". 110 So the derivation, priva~sation, ·well captures the significance of the process: the shift from the public to the private sphere. Demarcating the public and private spheres of life is a complex business. It is done for many different purposes in many con­ texts.111 Although as a shorthand expression we refer to the public/ private distinction, there is not one distinction but many: almost all of them have in common that at some level or other the words "public" and "private" say something about the legitimacy or otherwise of state action and the freedom or otherwise of. the individual to pursue her own ends in her own way. The rhetoric of the "new right", for instance, places great store on the superiority of the market as a promoter of economic prosperity and on the i maximisation of individual freedom through limiting state inter­ I vention. The legitimate. role of the State is simply to protect the

'II market mechanism. There is, on this view, a rigid separation of the I private (market) sphere from the very much smaller public (state) sphere.112 Sociologists, on the other hand, tell us there is a high degree of"compenetration" between the state and civil society that has. all but obliterated the traditional public/private distinctions relied on by the "new right" .113 And so the arguments go on .... Law as a discipline also distinguishes between public and private. Indeed, distinctions between public law and private law are deeply embedded in the common law, and profoundly influ­ ence lawyers' reasoning in many areas; but nowhere more so than in constitutional and administrative law .114 Privatisation, then, has profound implications for public law.115 CORPORATISATION, PRIVATISATION AND PUBLIC LAW 19

Almost all of the accountability mechanisms we have observed operating in relation to SOEs are strip~d~way upon privatisation. The about-to-be privatised SOE is removed from the coverage of the SOE Act, the Ombudsmen Act and the Official Information Act. These controls are thought inappropriate to "private" enter­ prise. The various forms of public accountability are replaced by the disciplines of the share market. But whether change of own­ ership solves the problem of control is open to doubt.116 The complexity of the public law/private law distinction can be illustrated by referring once again to Telecom' s standard terms and conditions. Prior to corporatisation, many departmental trading enterprises enjoyed delegated legislative power under statute. In the case of the Post Office, as we have seen, the standard terms and conditions of the telephone contract were set out in regulations. In the process ofcorporatisationand then the privatisation ofTelecom, these delegated legislative powers were removed. The Parliamen­ tary Regulations Review Committee pointed out that such powers are for public bodies, and are not for use by companies guided by the profit motive.117 So the standard terms formerly 'set out in regulations are now to be found in standard form contracts. These standard terms, once legitimate by virtue of statute, are now legitimate by virtue of the "consent" of the parties under contract law, notwithstanding that the terms are of the "take it or leave it" kind, there being no possibility of modification and either no alternative supplier or none offering different terms. Indeed, the standard terms even read like legislation, a point made by Lord Denning many times during his judicial career118 and also more recently by our Ombudsman in reviewing the corporatised Telecom's (then) standard terms.119 The point is that, while the legal labels change from public to private, the reality ofpower does not. From the standpoint of the consumer, it does not make any difference if the standard terms are imposed by the old Post Office or corporatised Telecom or privatised Telecom.120 But what has happened is that Telecom's accountability for the exercise ofits powers has diminished at every point. If, then, a privatised company in a dominant market position like Telecom imposes unreasonable standard terms on consumers, or 20 CORPORATISATION, PRIVATISATION AND PUBLIC LAW

exercises its contractual powers unreasonably, what can be done? Complaint can no longer be made to the Ombudsmen. Increas­ ingly, disgruntled consumers are approaching the Commerc~ Commission - the Commission received 150 or so complaints of various sorts against Telecom between January and May this year121 - but there is nothing the Commission can do about unreasonable terms per se, as long as the privatised enterprise does not inhibit competition or mislead or deceive the public. Under a little noticed.provision ofthe Fair Trading Act 1986, the Commerce Commission is required to"[u]ndertake studies and publish reports and information regarding matters affecting the interests of con­ sumers". 122Presentlyunused by the Commission, this duty to study may be a useful tool in monitoring unreasonable contractual behaviour in the market place. In Australia, however, where the Trade Practices Commission has relied on an almost identical provision to study the newspaper and real estate industries, as well as "the professions", there have been serious claims that such action is ultra vires.123 , That leaves the general law as administered by the Courts. The common law has developed several weapons to fight unreasonable terms in standard form "adhesion" contracts, but it has yet to follow Lord Denning in claiming the power to strike out unrea­ sonable terms.124 In 1977 the Legislature in the United Kingdom enacted legislation conferring that power on judges in some circumstances.125 Recently the Law Commission has begun to investigate the possibility of similar legislation in New Zealand.126 The Labour Government certainly has not seen the need to provide against the possibility of such abuse of dominant market power. Instead, in pursuing its privatisation programme, the I Government has placed great faith in the ability of competitive markets to produce efficient results. Relatively little difficulty was seen in privatising public enterprises actively competing in the I market with private sector firms; examples which come readily to mind are State Insurance, Post Bank, Rural Bank and the Shipping I Corporation. !i lJ The problem lay with "core" SOEs; those concentrated in the I communications and energy industries where competition was 11 11.

ill' 1.1I, I CORPORATISATION, PRNATISATION AND PUBLIC LAW 21 non-existent or severely limited. These industries are subject to some "control" by governments in almost every developed coun­ try. IQ. the United Kingdom and New Zealand, for instance, this control was formerly exercised by public ownership buttressed by statutory monopoly. In some other countries, particularly the United States, companies in these "core" industries are in private ownership but are subject to extensive government regulation intended to prevent monopoly profits and ensure uniform prices and service provision to customers, no matter where situated.127 Regulation, however, has received a bad name in the United States, as creating its own set of problems and inefficiencies. After a long period of government intervention in, and regulation of, the New Zealand economy, the Fourth Labour Government was wary of setting up a regulatory framework to keep watch over privatised companies in these core sectors of the economy. The preference of Government has been to deregulate the market and thereby encourage competition. Statutory monopolies and other barriers to entry into the market have been removed, thereby making the markets "co.ntestable" (as the jargon goes).128 As well, various forms of state assistance have been withdrawn. 1/ The Government has been prepared to take a long term view of the benefits of increased competition, content to watch developments // and to regulate if problems surface. The best example to date of this strategy is in the telecommu­ nications sector. New Zealand is unique in being the only country intheworldthathasoptedforacompletelyderegulatedenvironment for telecommunications.129 In the United Kingdom, when British Telecom was privatised in 1984, a regulatory agency called the Office of Telecommunications was established to prevent British Telecom abusing its near-monopoly position.130 Also, notwith­ standing considerable deregulation in the United States telecom­ munications industry, the American companies (an Atlantic Bell - Ameritech consortium), which this year bought Telecom New Zealand for $4.25 billion, are regulated much more in the United States than here.131 The Government's faith in competition may seem to be partially vindicated by the recent agreement between Telecom and a competitor, ATC, allowing the latter to intercon- 22 CORPORATISATION, PRIVATISATION AND PUBLIC LAW nect with Telecom! s local network.132 But note that Telecom was induced to enter into this agreement by the Government's threat to regulate unless Telecom enters into reasonable agreements with potential competitors.133 Such agreements will lead to increasing, possibly even intense, competition in the toll and international service areas. 134 On the existing state of technology, however, it is impossible to forsee any competition in relation to local calling networks - the sunk costs are too large to make it economic for a competitor to duplicate the network. The cost of local calls have been cross-subsidised for years by the profitable toll and interna­ tional services.m The prospect of competition in those profitable markets led the corporatised Telecom to "rebalance" local and toll prices and increase the cost oflocal charges.136 It looks likely, how­ ever, as the Chief Executive of Telecom said in 1988, that some continuing cross-subsidy will be required to sustain a universal service at reasonable prices.137 And here, of course, is the political rub. The absence ofcompetition in the local call market, the lessened ability to cross-subsidise due to jncreased competition in the toll. call market, and the absence of regulation point to prices going up for local callers and, more importantly, the prices for similar services varying considerably, depending on how distant the customer is from the major population centres. In the absence of regulation or state intervention to suppress these differences the result will be that the small, isolated customer will pay substan­ tially more for telephone services than the customer in a densely populated market.138 Mindful, no doubt, that the Telecom privatisation had to be "sold" to an electorate which expects a universal telephone service at a reasonable price throughout New Zealand, the Government devised the Telecom pledges. These were the promises, you may recall, that were chiselled in plaster of paris nightly on our television screens in the public relations frenzy leading up to the Telecom sale. There are three pledges: ·

"I. Local free calling will remain available to all residential customers. CORPORATISATION, PRIVATISATION AND PUBLIC LAW 23 (t II. The standard residential rental for a telephone line will not rise faster than the cost of living unless Telecom' s regional operating company profits are unreasonably affected. ill. Phone line rentals for residential customers in rural areas will not be higher than in the cities, and residential service will remain as widely available as it is at present."

As a teacher of contract law and administrative law watching this spectacle, I wondered how these promises might be enforced. Charitably, one could only assume they were intended to be binding I39 but could a member of the public enforce them? These were promises made between the Government and the purchaser of Telecom, for the benefit of the New Zealand public. Members of the public, however, were not directly privy to the contract and have no status or standing to sue on it. 140 Nor can the Contracts (Privity) Act 1982 overcome this difficulty, for section 4 of that Act requires that beneficiaries must be designated by name, class or description - which they were not in the advertisements,141 nor likely to be in the contract. Indeed, the contract may well be drafted so as to exclude the application of that Act.142 So much for the law of contract, what about administrative law? It seems the pledges will be included in the articles ofassociation of the privatised Telecom company and will be protected from breach or alteration by a so-called kiwi share. This is a single redeemable preference share held by a nominee of the Govern­ ment, called the kiwi shareholder, whose responsibility it will be to enforce the pledges. This is the indigenous variety ofthe "golden share" which has been retained in several privatised British com­ panies, usually giving the United Kingdom Government power to block unwelcome take-over bids.143 It is a technique used once before in New Zealand. On the sale of Air New Zealand a kiwi share was retained by the Crown, requiring the consent of the person nominated as the kiwi shareholder to any variation of the articles of association relating to the ownership and control of the airline. This was necessary to preserve Air New Zealand's status as New Zealand's "designated airline" under bilateral (landing) r /

'--·-- 24 CORPORATISATION, PRIVATISATION AND PUBLIC LAW

agreements with other countries.144 The publicity given to the Telecom pledges and the retention of a kiwi share to prevent breach by Telecom, illustrates clearly the public interest in the pricing practices in the telecommunications industry. It is an industry of strategic importance to the country. This public, national or governmental interest, call it what you will, cannot be denied simply by changing ownership from public to private hands. 145 Retention of a kiwi share recognises that some form of regulation is necessary and that questions of pricing in a strategic industry cannot be left safely to market forces. But the kiwi share is a very crude form of "regulation" which, by itself, is not certain to be effective. The second pledge is a good example. This is the pledge that states that the residential telephone rental will not rise faster than the cost of living, unless Telecom's regional operating company profits are unreasonably affected. First of all, it is not at all dear what the qualification means. This pledge and the third one seem to envisage that a uniform residential telephone rental will apply throughout the country. On that basis, it would seem one looks at the profits of each of the four regional operating companies to determine any unreasonable effect on Telecom's overall profit­ ability. What if some regional companies profits are affected by regional factors - how is that to be factored into Telecom' s overall profitability? When does any such effect become unreasonable? These are all questions that I hope will agitate the kiwi shareholder. Secondly, who will the Government nominate as the kiwi share­ holder? From what I can gather, the Government is not restricted in choice by the terms of the articles of association. It could be a former or serving politician, or anyone else for that matter. Sadly, it cannot be assumed in the present political climate that the person nominated 'will be intended to act, or indeed will act, as a watchdog of the public interest. But even assuming the nominated kiwi shareholder has the ability and will to ensure Telecom keeps the pledges, how is this modem-day David or Davinia to do this? As is so often the case, access to information is the key. To properly determine unrea­ sonable affection on profitability, the kiwi shareholder will need CORPORATISATION,PRNATISATION AND PUBLIC LAW 25

full financial disclosure by Telecom and its subsidiaries. hi the United Kingdom, where there is a regulatory agency with power to acquire information, there has been difficulty in gaining regular and adequate flows ofinformation from British Telecom.146 hi New Zealand there is no power to compulsorily acquire information, and no structure provided to assist the kiwi shareholder in evalu­ ating Telecom's case. Common sense suggests Telecom will disclose no more than it needs to convince the kiwi shareholder to "approve" of an increase above the cost of living. Moreover, the bargaining and negotiation between the kiwi shareholder and Telecom will be shrouded in secrecy, as will any role Ministers play in the process. Any information in the hands ofthe Crown will likely be withheld from public scrutiny on grounds of "commer­ cial sensitivity" and there will likely be little effective public accountability for the exercise of the kiwi share power.147 The protection to the public provided by the kiwi share will only be as good as the shareholder appointed, and, even then, the odds look to be stacked against the kiwi shareholder performing the job well. hi my view decisions made by the kiwi shareholder or· the Government as owner of the kiwi share are properly subject to judicial review in the Courts. For whatever reason, the Government was unwilling to sell Telecom without some control over pricing. This control was not to be by way of a formal regulatory scheme authorised by Parliament.148 The Government preferred, instead, a loose and informal method of control contained in the contract forming the privatised company. This use of a ''private" law contract power should not immunise the actions of the kiwi shareholder or the share owner from being called to account in a Court of law. Against my view stands a 1986 unreported English Court of Appeal decision called R v The Independent Broadcasting Au­ thority, exp Rank Organisation plc.149 It is rare in these days of rampant law reporting to find an English Court of Appeal decision of importance completely unreported after four years. Perhaps, contrary to professional opinion, the editors of law reports do emulate Lord Campbell and have a drawer marked "bad law" into which cases such as this are put.150 Be that as it may, the fact that

I

1 · I 26 CORPORATISATION,PRIVATISATION AND PUBLIC LAW the decision is unreported does not reduce its precedent or persua­ sive value.151 The Independent Broadcasting Authority, or IBA as I will call it, is a statutory corporation whose function it is to provide independent public service television ofa high standard throughout the United Kingdom. The IBA contracts with companies to pro­ vide television programmes in various parts of the UK for periods up to eight years. In any contracts into which it enters the IBA is required by section 20 (5) of the Broadcasting Act 1981 to retain the power to terminate the contract if any change occurs in the control of the programme company such that, if the change had occurred prior to the award of the contract, the IBA would not have entered into the contract. Granada Television Ltd was a wholly owned subsidiary of Granada Group and one of the IBA' s programme contractors. The contract between the IBA and Granada Television Ltd contained the provision required by section 20 (5). Completely separate from that, the shareholders of Granada Group altered the articles of association ofthat company so as to give the IBA power to prevent any shareholder from voting any more than 5% of the shares in Granada Group, no matter how many shares the shareholder actually owned. Why was this unfettered discretionary power given to the IBA, a statutory corporation which did not hold any shares in Granada Group? No doubt the shareholders and manage­ ment of Granada Group thought such a power would provide another line of defence against unwelcome take-over bids. And so it proved. Rank Organisation announced its intention to takeover Granada Group without first seeking IBA approval. Subsequently, the IBA refused to approve the exercise by Rank of voting power in excess of 5% of the total number of shares, thereby frustrating the take­ over bid. The sole ground given by the IBA was that "[t]he Rank offer would lead to a major change in the control of a viable ITV programme contractor, which would be unacceptable to the IBA". No further reasons were given as to why this would be unaccept­ able. Rank sought judicial review of this decision but without success. Both the judge at first instance and the English Court of CORPORATISATION, PRNATISATION AND PUBLIC LAW 27

Appeal held that the IBA was exercising a private law power under contract (ie, the articles of association) and that the decision could not be subject to judicial review .152 Under private law the IBA was bound only to act honestly - which it was held to have done - and it was not subject to the higher public law duties to act fairly and reasonably. As I indicated a moment ago, I believe this decision to be wrong.153 The IBA, with the assistance of Granada Group, was given greater power under the articles of association than it had under its statute or in the programme contract between the IBA and the subsidiary Granada Television Ltd. fu my view, the IBA was acting ultra vires in exercising that power in the articles of asso­ ciation. This argument was raised but then withdrawn in the Court of Appeal, but not before Lloyd LJ indicated that he had difficulty accepting it, as there was nothing in section 20(5) to prevent the IBA from accepting a contractual power to grant or withhold approval under the articles ofassociation. But the key point, surely, is that there is nothing in section 20(5) or elsewhere in the Broadcasting Act that expressly authorises the IBA to exercise such power. As a statutory authority the IBA can only do what it is authorised to do. The notion implicit in Lloyd LJ' s passing remark that a statutory body can do anything it is not prevented from doing is a novel one. It is patent to me that under cover of the cloak of private law, the IBA exercised an unfettered power without adequate explanation in circumstances that may well not have justified the use of the statutory-cum-contractual right to terminate the contract it had with Granada Television Ltd. Such is the power of legal labels! fudeed, the Rank case is only relevant by analogy to the kiwi share. As a statutory body the IBA is subject to the ultra vires doctrine. The executive or Government, in contrast, possesses the same legal capacities of an ordinary person of full age without legal disability .154 Subject to the necessity of parliamentary authorisation for the expenditure ofmoney, the executive can enter contracts, buy and sell property, make and receive gifts and acquire and control shares. These are ordinary powers which the State enjoys equally with the citizen. The Government, of course, also 28 CORPORATISATION,PRNATISATION AND PUBLIC LAW has special prerogative powers that are unique to it and that have no analogue in the private or non-governmental sphere. These prerogative powers, if justiciable, are now subject to judicial review .155 In these days when the State is being "rolled back" and where statutory regulation has fallen out of favour, governments are increasingly resorting to "private law"techniques to implement or secure compliance with their policies. As the Hon Roger Douglas has pointed out: "Governments today, very often, have means other than ownership, to achieve their economic and social objectives".156 The Courts must develop the constitutional x-ray vision to see through the private law forms or techniques modem governments are increasingly using to further their policies. This has little if anything to do with statute and everything to do with public power.157 Support for this approach comes from the extraordinary case of R v Panel on Take-Overs and Mergers, expDatcifinplc. 158 Pressure of time, however, permits only a brief reference. The Take-Over Panel is responsible for administering the City ( of London) code on take-overs and mergers. The Code states it has no legal force and the Panel itself is an unincorporated association without legal personality; it has no statutory, prerogative or common law powers, and, furthermore, is not in contractual relations with the financial market or any persons dealing in the market. Despite the Panel having "no visible means oflegal support", 159 the English Court of Appeal unanimously held the Panel to be subject to judicial review. The Judges said that the law looks not just at the source of power but also at the nature of the power, and specifically whether the body in question is exercising public law functions160 or whether the power exercised has a public law element.161 There is much uncertainty at present as to where this case might lead the law of judicial review. Its fundamental importance, however, lies in the Courts' recognition that "governments achieve many of their ends by means other than the traditional methods of legislation and use of 'prerogative' powers". 162 The Judges in this case recognised the reality of executive power and did not allow their eyes to be clouded by the subtlety or the complexity of the way in which that power was exerted.163 To have decided otherwise CORPORATIS~ION, PRIVATISATION AND PUBLIC LAW 29

would have created "major no-go areas" for the law and have rendered the Courts impotent in the face of governmental abdica­ tion to the market and the deregulation of business.164 • The talk in Datafin of the importance of functional analysis brings to mind other, older functional common law doctrines that might be dusted off to deal with privatisation and deregulation of industries which the Government have previously owned and run.165 To understand how this might be so, we need to go back to the medieval period when English law was based on status. In that period the common law defined and regulated the obligations of persons who followed callings in which labour or services were made available to the public.166 These callings were described as "common callings" because the goods or services were available to the general public.167 In the medieval period there were dozens of common callings but, for many reasons, by the turn of the 18th century the number of common callings had narrowed to the three that survive to this day - the innkeeper, the ferryman and the common carrier. At this time the form of judicial regulation became uniform - persons or corporations engaging in these common callings were obliged by the common law to serve all comers and to charge only reasonable prices for their goods or services.168 Failure to do so would render the person liable under both the civil and criminal law. At about this time the common law extended a similar control over persons or corporations enjoying a legal or de facto monopoly in the provisions of services to the general public. The Courts regulated such monopolies "in the public interest" and required them to serve the public at reasonable prices and without discrimi­ nation.169 For various reasons I cannot go into here, the common law eventually turned its face against regulating public service enterprises in this way. In the 18th and 19th centuries the Courts became unwilling to so burden privately owned statutory corpora­ tions providing essential services like water, gas and transport. As is so often the case these common law seeds bore more fruit transplanted in the United States. There, a distinct branch of the law-known as public utilities law-has grown from the interrelated ideas of common callings and monopolies affected with a public 30 CORPORATISATION, PRIVATISATION AND PUBLIC LAW interest.110 Since the middle of the 19th century the American Courts have accepted that privately owned public utilities - con­ trolling telecommunications, electricity, gas, water, etc - must serve the public adequately at reasonable prices. For example, in contrast to the approach taken in England, m in the United States privately owned telegraph and later telephone companies were classified as common carriers and so were legally obliged to serve all impartially and reasonably .172 It is conceivable that with the privatisation of "public utilities" exercising dominant market power, these older common law doctrines might be revived.173 With politicians abdicating respon­ sibility to the market, it may be that the Judges will be asked to become the conservators of the hitherto accepted norms of the Welfare State - ensuring equality of treatment and the provision of the necessities of modem life at reasonable prices.174 This would amount to the Courts imposing "a common law based species of price regulation" on those who wield significant market power175 - and would provide further evidence that the movement from status to contract detected in the mid-19th century by Sir Henry Maine,116 is being reversed this century. Of course, the Courts must be mindful of the overlap with the price control function of the Commerce Commission.177 But in keeping with the prevailing political mood the statistics indicate the Commission is unlikely at present to invoke price control. In the Commerce Commission's first year of operation under the Commerce Act 1986, it approved 135 price control applications; in the next year, it approved 15; and in its report to June 1989 the Commission stated that only one commodity (natural gas )remained on price control.178 Speaking more generally, the Labour Government has placed great faith in the ability of the Commission under the Commerce Act 1986 and the Fair Trading Act 1986 to police the market place. At bottom, competition policy is concerned with the regulation of market power and as such it is a fit subject of study by public lawyers.179 Suffice it to say here that corporatisation and privatisa­ tion make the effectiveness of the Commerce Commission in promoting competition a matter of vital public interest. It remains CORPORATISATION, PRIV/TISATION AND PUBLIC LAW 31

to be seen if the Commerce Act and the Commission are up to the task.1so The process of privatisation has stripped away most of the accountability mechanisms we observed in operation during the corporatisation phase. I have argued that the Courts retain a potentially important role, all the more so due to the accountability vacuum. But it is not news to anyone that the sunlight and disinfectant ofjudicial review comes at a high price and, as the late Professor Stanley de Smith observed, is "sporadic and periph­ eral".181 The tasks of public law and the public lawyer extend beyond judicial review. The fundamental values of public law - openness, fairness, participation, impartially and rationality - provide a yardstick against which to measure the activities of privatised enterprises with market power.1s2 It is the role of the lawyer to speak for these fundamental principles at the earliest stage of policy development and to aid in designing institutional forms that give effect to them. 183 The Legislation Advisory Committee has done, and continues to do, valuable work in upholding these values. In its 1987 Report entitled Legislative Change: Guidelines in Process and Content the Committee said it was "highly desirable to involve lawyers in the development of legislative proposals from the beginning" .184 The Committee recognised that lawyers can frequently play a useful role in the process of policy formation and that they have an important role in advising on the compatibility of policy with fundamental legal principles (both national and international). The government lawyer plays a crucial role in this process. It is for lawyers also, among others, to monitor the performance of privatised enterprises with market power. The light regulatory touch exhibited in relation to Telecom, for instance, raises a host 0 of questions concerning openness, fairness and participation. Is there a need for a binding code of practice regarding disconnection decisions? How are consumer complaints handled? Is there a need for an independent consumer Ombudsman? What role is there for public participation in the setting of service charges? How can we ensure the kiwi shareholder is fully informed, and that the public interest is spoken for? And so on. The moves towards deregulation 32 CORPORATISATION, PRIVATISATION AND PUBLLC LAW and privatisation in the electricity sector simply magnify the importance of these issues. Corporatisation and privatisation are products of the hyperac:.. tivity of the Fourth Labour Government. In relation to privatisa­ tion, there were no green or white papers surveying the options nor has the Government encouraged informed public debate on the issue.185 Rather, as Jonathan Boston has observed, the Govern­ ment "has proceeded with great haste and little consultation, presumably on the assumption that this is the best way to defeat its critics".186 Even so, lawyers outside Government have been slow to contribute to what little public debate there has been. Thus far, that debate has been dominated by politicians, economists, political scientists and rent seekers with something to gain from the reforms. Public lawyers can no longer ignore the constitutional impli­ cations of economic policy .187 We mustlearn to overcome our un­ ease in dealing with such matters. Typical of the traditional view is a statement in an earlier edition of a well known English book on constitutional law. The editors, writing of a number of measures adopted by British Governments of both the left and the right in the 1970s, said: 188

"Potentially some of these developments were of consider­ able constitutional interest; but so many of them were in­ fluenced by economic and political vicissitudes that the most appropriate commentator was the journalist."

Today public lawyers can no longer afford to be smug. For if we ignore politics and economics, politicians, economists and political scientists will ignore public law. The fundamental values of public law are too important for that to be allowed to happen. CORPORATISA'FION,PRIVATISATION AND PUBLIC LAW 33

NOTES

1. WI Jennings, "In Praise of Dicey 1885 - 1935" (1935) 13 Public Administration 123 at 124. 2. See generally Brian Easton (ed), The Making ofRogernomics (Auckland University Press, Auckland, 1989) and Simon Walker (ed), Rogernomics: Reshaping New Zealand's Economy (Government Printing Books, Wellington, 1989). 3. RO Douglas, RN Spann Memorial Oration to the Royal Australian Institute of Public Administration, delivered at The Refectory, University of Sydney, on 27 October 1987, pp 26-8. 4. This objective is described by Treasury as "fundamental": Treasury, Government Management: Brief to the Incoming Government 1987 (1987) 87. 5. Peter McKinlay, Corporatisation: The Solution for State Owned Enterprises? (Victoria University Press, Wellington, 1987) 18. Rt Hon Geoffrey Palmer, "Directions for State Enterprise" in Margaret Clark and Elizabeth Sinclair (eds), Purpose, Performance and Profit: Redefining the Public Sector (Studies in Public Administration no 32, Government Printing Office, Wel­ lington, 1986) 25 at 27. 7. Treasury, supra at note 4, 97'. 8. Palmer, supra at note 6. 9. See David Neilson, "SOE Privatisation: The Next Logical Step?" in Private Power or Public Interest? Widening the Debate on Privatisation (Dunmore Press, Palmerston North, 1989) 55 at 87 n 6. Mary-Jane Rivers and Jane Bradbury, ''The Social Responsibilities of State-Owned Enterprises", ibid, 196 at 200. 11. Facsimile letter dated 27 October 1989 from Lewis Holden, Industries Branch of Treasury, to Jane Kelsey. This service seems to have been continued under contract after the privatisation of Post Bank: Michael Williams, ''The Political Economy of Privatization" in Martin Holland and Jonathan Boston (eds), The Fourth Labour Government: PoliticsandPolicy in New Zealand (Oxford University Press.Auckland, 2nd ed 1990) 140 at 148. 12. David Neilson suggests the fault may lie in the lack of institutional structures by which these issues can be brought to the attention ofthe politicians: supra at note 9, 66. 13. Supra at note 11. 14. Mark Considine opines that lack of enthusiasm on the part of the SOEs to argue for non-commercial goals was because they were explicitly established to eschew such activities: "New Z.ealand 's Lange Government and the Labour Tradition: Straying or Staying?" (1988) 20 Thesis Eleven 51 at 62. 15. Jonathan Boston, "Transforming New Z.ealand 's Public Sector: Labour's Quest for Improved Efficiency and Accountability" (1987) 65 Public Administration 423 at 433. 16. See generally Douglas Fisher, "Legal Structures for State Enterprise" in Clark and Sinclair, supra at note 6, 124. 17. SOE Act 1986, 2nd Sch: Airways Corporation of New Z.ealand Ltd, Coal Corpora­ tion of New Z.ealand Ltd, Electricity Corporation of New Z.ealand Ltd, Government Property Services Ltd, Land Corporation Ltd, New Z.ealand Forestry Corporation Ltd, New Z.ealand Post Ltd, Post Office Bank Ltd, Telecom Corporation of New 34 CORPORATISATION, PRIVATISATION AND PUBLIC LAW

2'.ealand Ltd. 18. SOE Act 1986, 1st Sch: Air New 2'.ealand Ltd, New 2'.ealand Forestry Corporation Ltd, New 2'.ealand Railways Corporation, Petrolewn Corporation of New 2'.ealand Ltd, The Shipping Corporation of New 2'.ealand Ltd. 19. Government Computing Service Ltd, Government Supply Brokerage Corporation (NZ) Ltd; New 2'.ealand Symphony Orchestra Ltd, Radio New 2'.ealand Ltd, Televi­ sion New 2'.ealand Ltd, Works & Development Services Corporation (NZ) Ltd. 20. See infra at note 97 and accompanying text. 21. In this pa,rt of the paper I have drawn on the following sources: Richard 2'.eckhauser and Murray Horn, "The Control and Performance of State-Owned Enterprises" in PW MacAvoy, WT Stanbury, George Yarrow and RJ Zeckhauser (eds), Privatiza­ tionandState-OwnedEnterprises: Lessons from the United States, GreatBritainand Canada (Kluwer Academic Publishers, Boston, 1989) 1; RoderickDeane, "Reforming the Public Sector" in Walker, supra at note 2, 116; Stephen Jennings and Rob Cameron, "State-Owned Enterprise Reform in New 2'.ealand" in Alan Bollard and Robert Buckle (eds), Economic Liberalisation in New Zealand (Allen & Unwin/Port Nicholson Press, Wellington, 1987) 121. 22. For the concepts ofexit and voice, see Albert O Hirschman, Exit, Voice and Loyalty: Responses to Decline in Firms, Organisations and States (Harvard University Press, Cambridge, 1970). 23. See generally Treasury, Commercial Performance of State-Owned Enterprises: Principles for Shareholder Monitoring (June 1987). 24. See generally Matthew Palmer, ''The State-Owned Enterprises Act 1986: Account­ ability?" (1988) 18 VUWLR 169. This point is made by Sandra Davies, "State-Owned Enterprises Act: Accountability of State Enterprises and Responsibility of Ministers" ( 1986) 10 Public Sector (no 2) 2at4. 26. SOE Act 1986, ss 5(3) and 14-20. 27. SOE Act 1986, s 6. 28. See Rt Hon Geoffrey Palmer, (1986) NZPD 4723 (30 September). 29. GDS Taylor, "State-Owned Enterprises' Accountability to Parliament" (1987) 10 TheCapitalLetter(no 16) 1 (editorial). SeealsolanMcLean, "Comment''inlnstitute of Policy Studies, State-Owned Enterprises: Privatisation and Regulation-Options and Issues: Papers presented at a seminar held on 14 September /988 (Victoria University Press, Wellington, 1988) 50 at 53. It is important, however, not to overestimate the effectiveness of asking questions in the House. The process is subject to many limitations. For a useful discussion see Sandra Davies, "Parliamen­ tary Accountability of Government-Owned Corporations and Companies" (1985) 9 Public Sector (nos 1 and 2) 3 at 6. 30. Standing Orders of the House of Representatives Relating to Public Business, Standing Order 322. Report ofthe Government Administration Committee on the Inquiry into the State­ Owned Enterprise Government Property Services Ltd (May 1990) App I6A. 32. Ibid, pp 8-9. As with all three SOEs within the jurisdiction of the Government Administration Committee, GPS is not likely to exhibit dominance in its market. See Department of Trade and Industry, Competitive Environment for State-Owned En­ terprises (September 1987) para 46. In the 1988 Budget the then Minister of Finance included GPS among the State-owned assets which the Labour Government intended d

CORPORATISATION, PRIVATISATION AND PUBLIC LAW 35

to sell before 1992, but that is on hold in view of GPS 'spoor financial perfonnances. See Treasury, "lnfonnation for Ministers -Desig!lll_~ with.State-Owned En~rises Respansibiliti~;;;~bruary 1990, Part IV, p 2...... - . ······ . .... 33. See summary of recommendations, supra at note 31, p 4. 34. There is surprisingly little written on why this is so. Professor Christopher Stone, in the context of defining "state action" for the purpose of detennining the applicability ofthe United States Bill ofRights, puts forward a "moral exemplar model" to explain why the Government and "public" bodies should be required to act fairly when ''private" bodies are not This model develops the notion that fairness is a sort of public good, and government an "exemplar of virtue": Stone, "Corporate Vices and Corporate Virtues: Do Public/Private Distinctions Matter?" (1982) 130 U Penn LR 1441 at 1507. 35. HWRWade,AdministrativeLaw (Clarendon Press, Oxford, 5thed 1982) 356, quoted with approval by Cooke and Jeffries JJ in Websterv Auckland Harbour Board [1983] NZLR 646 at 649-650 (CA) and reaffinned by Cooke P in Webster v Auckland HarbourBoard[1987] 2NZLR 129 at 131 (CA). The identical passage can be found in the 6th edition of Wade's Administrative Law (Clarendon Press, Oxford, 1988) 399-400. 36. DMueller, Public Choice (1979) 1. 37. See Daniel Farber and Pbilip Frickey, "The Jurispmdence of Public Choice" (1987) 65 Texas LR 873 at 878. 38. Michael De Bow and Dwight Lee, "Understanding (and Misunderstanding) Public Choice: A Response to Farber and Frickey" (1988) 66 Texas LR 993 at 1004. 39. Peter Self, "What's Wrong with Government? The Problem ofPublic Choice" (1990) 61 Political Quarterly 23 at 31. 40. See Sandford Borins, "Public Choice: 'Yes Minister' made it popular, but does winning the Nobel Prize make it tme?" (1988) 31 Canadian Public Administration 12. 41. Self, supra at note 39. 42. See Patrick McAuslan, "Public Law and Public Choice" (1988) 51 MLR 681 at 689 and 700; Kelman, "On Democracy-Bashing: A Skeptical Look at the Theoretical and 'Empirical' Practice of the Public Choice Movement" (1988) 74 Va LR 199. 43. See, eg, Hood, Huby and Dunsire, "British administrative trends and the public choice revolution" in J-E Lane (ed), Bureaucracy and Public Choice (Sage Modem Politics Series vol 15, Sage Publications, London, 1987) 146. 44. See McAuslan, supra at note 42. 45. Ibid, 693-4. Generally speaking,, economists pay little attention to the role of the Courts in judicially reviewing the activies of public enterprise: HSE Gravelle, "Judicial Review and Public Frrms" (1983) 3 International Review of Law and Economics 187: See more generally SusanRose-Ackennan, "Progressive Law and Economics - and the New Administrative Law" (1988) 98 Yale LJ 341 at 347 and 350-1. . 46. The Wellington Regional Council v Post Office Bank Ltd, High Court, Wellington, 22 December 1987, CP 720/87, Greig J (oral, extempore decision). 47. Ibid, p 11. On this view the closure "decision" of the SOEs was merely "an administrative action" to give effect to what had been decided by the Crown (p 9). 48. Ibid, p 12. 49. Idem. .36 CORPORATISATION, PRIVATISATION AND PUBU:C LAW

50. Greig J referred to New Zealand Stock Exchange v Listed Companies .Association [1984] 1 NZLR 699 (CA) to show that it is not always the case that a power which can be related back to a statute is subject to review under the Judicature Amendment Act. 51. See generally DOT Williams, "Justiciability and the Control ofDiscretionary Power" in Michael Taggart (ed), Judicial Review of Administrative Action in the 1980s: Problems and Prospects (Oxford University Press, Auckland, 1987) 103. • 52. See Council ofCivil Service Unions v Minister ofCivil Service [1985]AC 374 (HL). 53. . See Bulk Gas Users Group v Attorney-General [1983] NZLR 129 (CA). 54. · · See Daganayasi v Minister ofimmigration [1980] 2 NZLR 130 (CA). 55. See CREEDNZ v Governor-General [1981] 1 NZLR 172 (CA). 56. SeeR v Commissioner ofInland Revenue, exp National Federation ofSelf-Einployed and Small Businesses Ltd [1982] AC 617 (HL) and Finnigan v New Zealand Rugby Football Union (No 1) [1985] 2 NZLR 159 (CA). 57. I say "supposed"because I believe the Judicature Amendment Acts of 1972 and 1977 are now simply distracting attention from the important issues. 58. See, however,BudgetRentA Car Ltdv AucklandRegionalAutharity [1985] 2 NZLR 414 at 418-9 (CA) where Cooke J held that a statutory managerial function is open to judicial review although that does not mean that it will be lightly interfered with. See also R v Commissioner of Inland Revenue, exp National Federation of Self­ Employed and Small Businesses Ltd, supra at note 56, and The British Columbia Development Corp and Friedmann (1984) 14 DLR (4th) 129 (SCC). See generally Alastair Lucas, "Judicial Review of Crown Corporations" (1987) 25 Alta LR 363. 59. This trend can be seen in other jurisdictions as well: Regina v National Coal Board, exp National Union ofMineworkers [1986] 1 ICR 791 at 795, per MacphersonJ (HC) and Berardinelli v Ontario Housing Corporation (1978) 90 DLR (3d) 481 at 496, per Estey J (SCC). 60. Supra at note 46, p 14. 61. SeeLandmarkCorporationLtd (in rec) v Telecom Corporation (1990) 5 NZCLC 66, 264at 66,273, per Barker J, and New Zealand Optical Ltd (in rec) v Telecom Cor­ poration ofNew Zealand Ltd, High Court, Wellington, CP 852/89, 10 April 1990, Eichelbaum CJ, p 10. 62. Milton Friedman, "The Social Responsibility of Business to Increase Its Profits", New York Times, 13 September 1976, section 6 at 32, quoted by RB Stevenson, Corporations and Information: Secrecy, Access and Disclosure (John Hopkins University Press, Baltimore, 1980) 144. 63. AshbyvMinisterof Immigration [1981] 1 NZLR222(CA);CREEDNZvGovernor­ General, supra at note 55. 64. See the strong criticism on this aspect of the case by Jane Bradbury in "State-Owned Enterprises and Social Responsibility" (1988) 7 Planwell (April, no 1) 3. 65. Arguments relying on s 4 (c) have supported the grant of interim relief: Clutha Leathers Ltd (in rec) v Telecom Corporation ofNew Zealand Ltd (1988) 4 NZCLC 64,249 (HC) and New Zealand Optical Ltd (in rec) v Telecom Corporation ofNew Zealand Ltd, supra at note 61. Cf Landmark Corporation Ltd (in rec) v Telecom Corporation ofNew Zealand Ltd, supra at note 61. . 66. Report ofthe State-OwnedEnterprises (Ombudsmen and Official lnfom,ation Acts) Committee: On the review ofthe effect ofthe Ombudsmen Act 1975 and the Official Information Act 1982 on the operation ofState Enterprises (1990). CORPORATISATION, PRNATISATION AND PUBLIC LAW 37.

67. Ibid, para 7.2. 68. Ibid, para 8.1 I. 69. Ibid, para 4.7. 70. See supra at note 29 and accompanying text 71. The Report of the Controller and Auditor-General on Public Sector Companies, Corporations and Statutory Boards 1988, App B 29A, p 21: "It is disappointing to report that the accountability requirements established by the Act have so far not been well fulfilled. Of particular concern is the superficiality of the Statements of Corporate Intent ... ". See also The Report of the Audit Office on Statements of Corporate Intent 1990, App B 29A. 72. Report of the Controller and Auditor-General 1984 , App B 1 (Pt ID), p 28. 73. Stevenson, supra at note 62, 5. See also Wiltshire, "The British Privatisation Process: A Question of Accountability" (1986) 45 Australian Journal of Public Administra­ tion 344 at 356. 74. So the Ministry ofConsumer Affairs submitted to the select committee: supra at note 66; para 8.10. See generally Stevenson, supra at note 62. 15. Report of the Ombudsmen 1988, p16. 76. In the Wellington Regional Council case, supra at note 46, Greig J said the Gov- ernment initiated moves to terminate the s 7 agreement "were not made public" (p 5). 77. Ombudsmen Act 1975, s 22(1). 78. Supra at note 66, para 9 .2. 79. The figures are usefully compiled in Appendix B to the Select Connnittee Report, ibid. 80. Report ofthe Ombudsman Nadja Tollemache on an investigation into the standard "Contract for Telecom Services" used by Telecom Corporation ofNew Zealand Ltd (17 December 1989). 81. The Regulation Review Committee was established in 1985 under a revamping ofthe Standing Order& of the House of Representatives. Under revised Standing Order 389(1)(c) the Committee can draw the attention of the House to a regulation which, inter alia, appears to make some unusual or unexpected use of the powers conferred by the empowering statute. Complaint can be made to the Committee by a member ofthepublicoranorganisationaggrievedattheoperationofaregulation(S0390(1)). 82. Supra at note 80, para 1.6. See also, ibid, para 1.5.("... the same.checks and balances... no longer there ... "). Quite properly, the SOEs were denied the power to promulgate delegated_ legislation: see infra at note 117. 83. Ibid, para L6. 84. Idem. 85. lbfd; para 2.11. 86. Ibid, paras 2.12 and 2.20. 87. See ibid, patas 3.4, 3.19, 3.33 and 3.57-3.61. 88. Ibid, para4.4. In Landmark Corporation Ltd (in rec) v Telecom Corporation ofNew Zealand Ltd, supra at note 61, 66, 271 Barker J noted ''that the one-sided nature of these [Telecom] standard form contracts has been commented on adversely by the Ombudsman .•. ". 89. Presumably this is so even if Telecom has knowledge of the occurrence, when otherwise it would be taken to have waived its right 90. I am informed by Telecom Auckland that the rationale behind the option is to allow Telecom to terminate the standard contract, thereby clearing the way for negotiation 38 CORPORATISATION, PRIVATISATION AND PUBLIC LAW

(imposition?) of a new contract on special terms with the defaulting residentiitl customer. On the other hand, if the services are merely .suspended, then upon payment of the arrears and reconnection fee the standard contract would continue to apply. I am grateful to Mr Patrick Ikiua, assistant corporate solicitor at Telecom Auckland, for this information. 91. Clauses 18 and 42 of the Residential Telecom Telephone Services Standard Terms. 92. See New Zealand Optical Ltd (in rec) v Telecom Corporation ofNew Zealand Ltd, supra at note 61; Landmark Corporation Ltd (in rec) v Telecom Corporation ofNew Zealand Ltd, supra at note 61; CluthaLeathers Ltd (in rec) v Telecom Corporation ofNew Zealand Ltd, supra at note 65. Several cases discuss similar issues in relation to disconnection of electricity supply. See Walter Peak Resort Ltd (in rec) v Otago Central Electric Power Board (1989) 4 NZCLC 65,145; Stride Corporation Ltd (in rec) v Dunedin City Council (1988) 7 NZAR 367; Jackn' JillBeachResortLtdvThe Bay ofIslands Electric Power Board, High Court, Whangarei, A47 /83, :Z3 July 1986, Thorp J; Clay v West Coast Electric Power Board (1984) 4 NZAR 244. See Graham Taylor and John Timmins, Administrative Law - The Changed Role ofGovernment (New Zealand Law Society seminar, August 1989) 19-25 and 29. Cf the position in the United States: Note, "Fourteenth Amendment Due Process in Terminations of Utility Services for Nonpayment" (1973) 86 Harv LR 1477. 93. This has other consequences as well. As a SOE Telecom could not contract out of natural justice as it purported to do. The case law on contracting out invariably concerns domestic tribunals but I see no reason why the principles would not apply to SOEs in dominant market positions. See Stininato v New Zealand Boxing Asso­ ciation [1978] 1 NZLRl at 24, per Cooke J (CA). Contra, Perry v Fielding Club Inc [1929] NZLR 529 at 533. The conflicting case law is reviewed .in JRS Forbes, The Law ofDomestic or Private Tribunals (The Law Book Company Ltd, Sydney, 1982) ch 23. 94. See MervynProbine, "State-Owned Enterprises -The Checks and Balances" in Clark and Sinclair, supra at note 6, 105. 95. The term 'privatisation' is often used in a broader sense to cover the introduction into the public sector of conditions which typify the private sector. See, eg, Dennis Swann, The Retreat of the State: Deregulation and Privatisation in the United Kingdom and United States (Harvester-Wheatsheaf, London, 1988) 3. 96. See, eg, Palmer, supra at note 6. 97. Air New Zealand, Petrocorp, Post Office Bank, Telecom, Tourist Hotel Corporation, Shipping Corporation, Landcorp financial assets; as well as several other government trading enterprises not covered by the SOE Act (Government Printing Office, Irrigation Schemes, State Insurance Office, Rural Bank, Development Finance Corporation, Communicate New Zealand). 98. See Tainui Trust Board v Attorney General [1989] 2 NZLR 513 (CA). 99. See, eg, Treasury, Government Management: Brief to the Incoming Government 1987 (1987) No 1, 109 - 113; Sir Ronald Trotter, "Comment'' in Institute of Policy Studies, supra at note 29, 13 at 14. lOO. Trotter, idem. See also the Treasury, idem ("inherent limitations"). 101. See Trotter, idem; Deane, supra at note 29, 121; Treasury, supra at note 32, Part m, p 4 (" .... with continued State ownership of businesses, it is all too easy for the distinctions to become blurred again"). 102. See Simon Upton, "Commercialisation and Privatisation" in Clark and Sinclair, CORPORATISATION, PRIVATISATION AND PUBLIC LAW 39

supra at note 6, 96 and the references in John Whyte, "Privatisation and State-Owned Enterprises: Logic or Ideology?" (1988) 11 Public Sector (nos 1 and 2) 19. 103. Jonathan Boston, "From Corporatisation to Privatisation: Public Sector Reform in New Zealand" (1988) 57 Canberra Bulletin of Public Administration 71 at 75. 104. See 1987 and 1988 Budgets. 105. Treasury, supra at note 32, Part ill, p 2. 106. "Hockingoffthesilvertopaydebtreachesend",NewZealandHerald,20Julyl990, section 1, p 3. 107. The literature is large. For an introduction see John Kay, Colin Mayer and David Thompson (eds),PrivatisationandRegulation: The UK Experience (Clarendon Press, Oxford, 1986) 15; Zeckhauser and Home, supra at note 21; and Whyte, supra at note 102. 108. This point is well made by Seng Kok Chew, "Legal Issues and Implications of Corporatisation and Sale of State-Owned Enterprises in New Zealand: Sale of Air New Ze~and", LLM research paper, Victoria University of Wellington, 1989, pp 6- 7. 109. David Heald,Public Enterprise: Its Defence andReform (Martin Robertson, Oxford, 1983) 298, quoted in Swann, supra at note 95, 2. 110. Albert O Hirschman, Shifting Involvements: Public Interest and Public Action (Princeton University Press, New Jersey, 1982) 121. 111. See generally SI Benn and GF Gaus (eds), Public and Private in Social Life (Croom Helm, London, 1983). 112. See, eg, Desmond S King, The New Right: Politics, Markets and Citizenship (MacMillan, London, 1987) ch 2. 113. See Gianfranco Poggi, The Development of the Modern State: A Sociological In­ troduction (Hutchinson, London, 1978) ch 6. See also Ian Harden and Norman Lewis, The Noble Lie: The British Constitution and the Rule ofLaw (Hutchinson, London, 1986) 50-62. 114. See generally Geoffrey Samuel, "Public and Private Law: A Private Lawyer's Response" (1983) 56 MLR 558 and Peter Cane, "Public Law and Private Law: A Study of the Analysis and Use of a Legal Concept" in John Eekelaar and John Bell (eds), OxfordEssays inJurisprudence(ThirdSeries) (Clarendon Press, Oxford, 1987) 57 esp at 66 and 78. 115. See generally Norman Lewis and Ian Harden, "Privatisation, De-regulation and Constitutionality: Some Anglo-American Comparisons" (1983) 34 Northern Ireland Law Quarterly 207 and Cosmo Graham and Tony Prosser, "Privatising Nationalised Industries: Constitutional Issues and New Legal Techniques" (1987) 50 MLR 16. 116. See David Heald, "Will the privatisation of public enterprises solve the problem of control?" (1985) 63 Public Administration 7. 117. See Report of the Regulations Review Committee 1987 (1987) App I 16C, paras 4.4 and 5.1; Report of the Regulations Review Committee 1986: Proposals for a Regulations Bill (1986) App I 16B, para 10.2. 118. See infra at note 124. 119. Supra at note 80, p 9. 120. See Sir Harry Woolf, "Public Law - Private Law: Why the Divide? A Personal View" [1986] PL 220 at 224 and Comu, Etude Comparee de la responsabilite en droit prive et en droit public (1951) p 74, quoted by Carol Harlow, '"Public' and 'Private' Law: Definition Without Distinction" (1980) 43 MLR 241 at 255. 40 CORPORATISATION, PRIVATISATION AND PUBLIC LAW

121. This information was made available by the Commerce Commission.. 122. Fair Trading Act 1986, s 6(b). 123. See Warren Pengilley, "The Trade Practices Commission's Power to 'Study' Business Practices: Can the Commission Rove at Will?" (1990) 2 Bond LR 55. 124. See Photo Production Ltd v Securicor Ltd [1978] 1 WLR 856 at 865 (CA); Levison v Patent Steam Carpet Cleaning Co Ltd [1978] 1 QB 69 at 79 (CA); Gillespie Bros & Co Ltd v Roy Bowles Transport Ltd [1973] QB 400 at 416 (CA); Thornton v Shoe Lane Parking [1971] 2 QB 163 at 170 (CA); Bonsor v Musicians' Union [1954] 1 Ch 479 at 485-6; McCallum v Hicks [1950] 2 KB .271 at 275; John Lee & Son (Grantham) Ltd v Railway Executive [1949] 2 All ER 581 at 584; AT Denning, The Road to Justice (Stevens & Sons Ltd, London, 1955) 91. Lord Denning often said standard terms should be treated as if they were bylaws and held invalid if unreason­ able. 125. Unfair Contract Terms Act 1977 (UK), s 11. 126. Preliminary Paper No 11, "Unfair" Contracts: A discussion paper (September 1990). 127. See Sam Peltzman, ''The Control and Performance of State-Owned Enterprises: Comment" in MacAvoy, Stanbury, Yarrow and Zeckhauser, supra at note 21, 70. 128. For a brief and simple discussion of contestability theory see David Heald, ''The United Kingdom: Privatisation and Its Political Context" in John Vickers and Vincent Wright (eds), The Politics ofPrivatisation in Western Europe (Frank Cass & Co, London, 1989) 30 at47-8 n 14. 129. Peter Troughton, "Comment" in Institute of Policy Studies, supra at note 29, 45-8. 130. For descriptions ofthe regulatory framework see Bryan Carsberg, "Injecting Com­ petition into Telecommunications" in Cento Veljanovski (ed), Privatisation and Competition: A Market Prospectus (Institute ofEconomic Affairs, London, 1989) 81 and Peter J Curwen, Public Enterprise:A Modern Approach (Harvester-Wheatsheaf, London, 1985) ch 8. 131. SeeJillHills,Deregulating Telecoms: Competition and Control in the United States, Japan and Britain (Frances Pinter (Publishers) Ltd, London, 1986). 132. As reported in the New Zealand Herald, 27 August 1990, section 1, p 4. 133. Dave King, "Threats of regulation keep Telecom in line", New Zealand Herald, 14 August 1990, section 3, p 9. 134. Compare Troughton, supra at note 129, and Michael Williams, as reported in the n~wspaper article, supra at note 132. 135. Troughton, ibid. · 136. Alan Bollard has nou;d that consumers of previously cross-subsidised products are sometimes ·worse off after deregulation: Bollard,"More Market: The Deregulation of Industry" in Bollard and.Buckle, supra at note 21, 25 at 45. 137. Ti;oughton, supra at note 129, 46. 138, Peltzman,.supra at note 127, 70. 139. Frequently Courts hold "political" promises not to have been intended to create legal relations. See Peter Hogg, Liability ofthe Crown in Australia, New Zealand and the UnitedKingdom (The Law Book Company, Sydney, 1971) 118-20; Mark Aronson and Harry Whitmore, Public Torts and Contracts (The Law Book Company, Syd­ ney;l982) 264; Dennis Rose ''The Government and Contract" in PD Finn (ed), Essays on Contract (The Law Book Company, Sydney, 1987) 233 at 238-42. 140. The privity ofcontract doctrine can be viewed as a rule of standing (locus standi ). See Peter Kincaid, ''Third Parties: Rationalising a Right to Sue" [1989] CLJ 243 and coRPORATISATION, PRIVATISATION AND PUBLIC LAW 41

Dawn Oliver, "Is the ultra vires rule the basis of judicial review" [1987) PL 543 at 554-7. 141. Moreover, the Court of Appeal has interpreted "designation" ins 4 to require identification of some group less than the whole of New Zealand: Field v Fitton [1988) 1 NZLR 482 at 493-4, per Bisson J (CA). 142. As is permitted bys 4 of the Contracts (Privity) Act 1982. 143. SeegenerallyCurwen,supraatnotel30,216-7; CosmoGraham,"'Allthatglitters... ' _ Golden shares and privatised enterprises" (1988) 9 Company Lawyer 23; Cosmo Graham and Tony Prosser, "Golden Shares: Industrial Policy by Stealth?" [1988) PL 413; Graham and Prosser, supra at note 115. 144. See Chew, supra at note 108, pp 54-67. 145. See Probine, supra at note 94, 106. 146. John Vickers and George Yarrow, "Privatisation in Britain" in MacAvoy, Stanbury, yarrow and '.Zeckhauser, supra at note 21, 209 at 228. Cf Cosmo Graham and Tony Prosser, "'Rolling Back the Frontiers'? The Privatisation of State Enterprises" in Cosmo Graham and Tony Prosser (eds), Waiving the Rules: The Constitution under Thatcherism (Open University Press, Milton Keynes, 1988) 73 at 88-91. 147. Graham and Prosser, supra at note 143,430. 148. This lack of a "statutory underpinning'' to the kiwi share is relevant to the later discussion of judicial review: see infra at note 152. 149. Judgments on LEXIS: Court of Appeal (May and Lloyd LJJ and Sir John Megaw), argument heard on 26 March 1986 and judgment delivered the same day. This was an unsuccessful appeal from the judgment of Mann J; argument heard on 13 M~h 1986 and judgment delivered the same day. 150. The story of Lord Campbell's 'bad law' drawer is told in Sir Robert Megarry, A Second Miscellany-at-Law: A Further Diversion for Lawyers and Others (Stevens & Sons Ltd, London, 1973) 132. 151. This is the orthodox view. See, eg, Leighton v Harland and Wolff Ltd 1953 SLT (Notes)34at36,perLordGuthrie(Sc0uterHouse): "Theauthorityofacasedepends not upon whether it is to be found in a series of reports but upon the fact that it is a judicial decision". Itis true, however, that the English Courts have placed restrictions on the citation of unreported judgments. The citation of unreported decisions is commonplace in New '.Zealand. See Daniel Laster, "Unreported Judgments and Principles of Precedent in New '.Zealand" (1985-88) 6 Otago LR 543. 152. Part of the explanation for this adherence to legal form over substance is a strong line of English authority that persons exercising powers under consensual agreements cannot be the subject of the old prerogative writ proceedings. In 1953 Lord Goddard CJ said it was unheard of for the High Court to issue the prerogative writs ofcertiorari and prohioition against a private arbitrator whose power derived from a contractual agreement by the parties (R v National Joint Council for the Craft ofDental Techni­ ci,inis;(f)i.sputes Committee); exp Neate [1953) 1 QB 704 at 706-8 (DC)). It would bei}!~olutionary" to do so, said Lord Goddard, who no one could accuse of being · it revobitioilllry, and he refused to entertain the application. While that was said in 1953,'andnotwithstanding Lord Diplock' s general observation that any case decided before:19{j0is likely to be a misleading guide as to what the law is today ([1982) AC 617'at640)/Lord Diplock later reaffirmed the validity of the exclusion of consensual arJilU}g~i:l!ts from the purview ofpublic law remedies saying "[f]or a decision to be sus~te'to judicial review the decision-maker must be empowered by public laws 42 CORPORATISATION, PRIVATISATION AND PUBLIC LAW

(andnotmerelyasinarbitration, by agreements between private parties) ... " (Council ofCivil Service Unions v Minister for Civil Service, supra at note 52, 409). More recently still, Sir John Donaldson MR in R v Panel on Takeovers and Mergers, exp Datafin pie [1987] 1 QB 815 while extending judicial review to every decision­ making power containing "a public element" likewise excluded those "whose sole source of power is a consensual submission to the jurisdiction" (ibid, 838; see also 847). This distinction between private law and public law, first shaped by the historical availability of the prerogative writs, is even more important today in light of the complex procedural reforms put in place in the United Kingdom. Very simply, the public/private law distinction is used today to sort out those cases that should go before the "expert" administrative law judges in the Divisional Court and those cases raising "private law" issues of contract and tort law that should go before the "ordinary" High Court judges. There is extensive case law on which procedure and court is appropriate (see generally Jack Beatson, "'Public' and 'Private' in English Administrative Law" (1987) I 03 LQR 34) and some of the most difficult cases have involved dismissed employees under contracts of employment with public authori­ ties (see generally Bernadette Walsh, "Judicial Review of Dismissal from Employ­ ment: Coherence or Confusion?" [1989] PL 131). By and large, these have been characterised as "private" law disputes (see, eg,R v East Berkshire Health Authority, exp Walsh [1985] QB 152 (CA)). ThesecasesaddressapeculiarlyEnglishproblem of adjectival law and one that cannot arise in precisely this form in New Zealand because of the different court structure. A somewhat similar sifting of public law from private law cases is performed in New Zealand by the several definitions of "statutory power" in the Judiciature Amendment Acts 1972 and 1977. But the procedure pro\'ided in that Act is not an exclusive code of public law remedies and one can still proceed under the Rules of Court in cases_of doubt. There is simply less awareness of the ex parte Neate (ibid) rule in New Zealand. Note the English judges often equate consensnal submission to arbitration as synonymous with all contractual power. There may well be special considerations ·surrounding common law (and even statutory) arbitrations which justify immunity from some or all of the judicial review remedies. See, eg, CBI NZ Ltd v Badger Chiyoda [1989] 2NZLR669 espat679-80, perCookeP (CA). But this cannot justify an inununity of all contractual matters involving governmental actors from judicial review. For the recent movements in this area see Sue Arrowsmith, "Judicial Review and the Contractual Powers of Public Authorities" (1990) 106 LQR 277 and MargaretAllars, "Administrative Law, Government Contracts and the Level Playing Field" (1989) 12 UNSWLJ 114. 153. It is criticised also by Graham and Prosser, supra at note 143,430-1 and Oliver, supra at note 140, 563. 154. I have relied in this paragraph on Terence Daintith's excellent discussion in "The Executive Power Today: Bargaining and Economic Control" in Jeffrey Jowell and Dawn Oliver (eds), The Changing Constitution (Oxford University Press, Oxford, 1985) 173 at 176. 155. The breakthrough came with Council of Civil Service Unions v Minister of Civil Service, supra at note 52. 156. Roger Douglas, "National Debt'' in Institute ofPolicy Studies, supra at note 29, 3 at 5. CORPORATISATION, PRNATISATION AND PUBLIC LAW 43

157. See generally Oliver, supra at note 140; Woolf, supra at note 120; Sir Gordon Borrie, "The Regulation of Public and Private Power" [1989] PL 552. 158. R v Panel on Take-Overs and Mergers, exp Datafin pie [1987] 1 QB 815 (CA). See alsoR v Panel on Take-overs and Mergers, exp Guinness plc [1989] 1 All ER 509 (CA). Sir William Wade suggests in a footnote in the latest edition of his textbook that the Datafin case might change the result in R v The Independent Broadcasting Authority, exp Rank Organisation plc, supra at note 149: Administrative Law (Qarendon Press, Oxford, 6th ed 1988) 642 n 62. See also Jack Beatson, "The courts and the regulators" [1987] Professional Negligence 121. 159. Ibid, 824, per Sir John Donaldson MR. 160. Ibid, 847, per Lloyd U. 161. Ibid, 838, per Sir John Donaldson MR. 162. Peter Cane, "Self Regulation and Judicial Review" (1987) 6 Civil Justice Quarterly 324 at 346. See also Patrick Birkinshaw, "Corporatism and accountability" in A Cox and NO Sullivan (eds), The Corporate State: Corporatism and the State Tradition in Western Europe (Edward Elgar, Aldershot, 1988) 48 at 51. 163. Supra at note 158, 838-9, per Sir John Donaldson MR. 164. Sidney Sedley QC, "Hidden Agendas: The Growth of Public Law in Britain and Canada" in Institute of Comparative Law, Waseda University (ed), Law in East and West: On the occasion ofthe 30th anniversary ofthe Institute ofComparative Law, Waseda University (Waseda University Press, Tokyo, 1988) 417 at 428-9. 165. This point is made by others as well. See Sir Kenneth Keith, "Constitutional Relationships" in John Martin and Jim Harper (eds), Devolution and Accountability (Studies in Public Administration no 34, Government Printing Books, Wellington, 1988) 8 at 13 and Paul Craig, Administrative Law (Sweet and Maxwell, London, 2nd ed 1989) 158-9. 166. Paul Finn, "Public Function - Private Action: A Common Law Dilemma" in SI Benn and GF Gaus (eds), Public and Private in Social Life (Croom Helm, London, 1983) 93 at 96. I have relied heavily on Finn's treatment in what follows. 167. AWB Simpson, A History of the Common Law ofContract: The Rise of the Action ofAssumpsit (Clarendon Press, Oxford, 1975) 230. 168. See, eg, Harris v Dackwood (1810) 3 Taunt 264 at 272. 169. See McAllister, "Lord Hale and Business Affected with a Public Interest" (1929-30) 43 Harv LR 759. 170. See generally CK Burdick, "The Origin of the Peculiar Duties of Public Service Companies" (1911) 11 Col LR 514, 616, 743 (three parts). 171. See, eg, Dickson v Reuters' Telegram Co Ltd (1877) 3 CPD 1. 172. See the cases cited by Burdick, supra at note 170,622. 173. See the "prime necessity" cases discussed in Ken Palmer, Local Government Law in New Zealand (Sweet and Maxwell (NZ) Ltd, Wellington, 1978) 94-5 and the "bottleneck facilities" doctrine referred to in Auckland Regional Authority v Mutual Rental Cars (Auckland Airport) Ltd [1987] 2 NZLR 647. Contra, Bennett v The Electricity Trust ofSouth Australia (1961-62) 106 CLR 492 (HCA). 174. Sidney Sedley QC makes a somewhat similar point in a different context in "Administrative Law: A Tsar is Born?" (Match 1984) Marxism Today 14 and in "Hidden Agendas: The Growth of Public Law in Britain and Canada", supra at note 164. 175. Craig, supra at note 165, 158. 44 CORPORATISATION, PRIVATISATION AND PUBLIC LAW

176. Sir Henry Maine,AncientLaw: Its Connection with the Early History ofSociety and its Relation to Modern Ideas (1861) 182. t'f 177. Commerce Act 1986, ss 52-54. 178. Chris Rudd, "Politics and Markets: The Role of the State in the New Zealand Economy" in Holland and Boston, supra at note 11, 83 at 90. 179. See, eg, Paul Craig, "The Monopolies and Mergers Commission: .Competition and Administrative Rationality" in Robert Baldwin and Christopher McCrudden, Regulation and Public Law (Weidenfeld and Nicolson, London, 1987) 20. 180. Boston, supra at note· 103, 84. The Chairman of the Telecommunications Users Association of New Zealand, Mr Terry Ballard, is reported to have said that there is a growing feeling in the industry that the Commerce Act and tb,e Commission are not having the desired "controlling influence" on telecommunications in the New Zealand market: "NZ Position Unique", New Zealand Herald, 14 August 1990, section 3, p 9. 181. SA de Smith,JudicialReview ofAdministrative Action (Stevens & Sons Ltd, London, 1st ed 1959) 3 (the same statement appears in subsequent editions). 182. See also McAuslan, supra at note 42, 699-700; Peter Bayne, "Administrative Law and the new managerialism in public administration" (1988) 62 AU 1040 at 1045; Daintith, supra at note 154, 175. 183. On institutional design and public law see Tony Prosser, National Industries and Public Control: Legal, Constitutional and Political Issues (Basil Blackwell, Oxford, 1986) chs 1-2 and "Democratisation, Accountability and Institutional Design: Reflections on Public Law" in Patrick McAuslan and John McEldowney ( eds),Law, Legitimacy and the Constitution (Sweet and Maxwell, London, 1985) ch 3. 184. (Department of Justice, Wellington, 1987) p 13. 185. Boston, supra at note 103, 84. 186. Idem. 187. See Terence Daintith, "Public Law and EconomicPolicy" [1974] JQurnal ofBusiness Law 9 and Alan Page, "Public Law and Economic Policy: The United Kingdom Experience" (1982) 9 Journal of Law and Society 225. 2 188. Harry Street, Barbara de Smith and Rodney Brazier, de Smith's Constitutional and Administrative Law (Penguin, Harmondsworth, 3rd ed 1977) 208, quoted in Terence Daintith, "Legal Analysis ofEconomic Policy" (1982) 9 Journal of Law and Society 191. LEGAL RESEARCH FOUNDATION

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