Judicially reviewing commercial decisions of local authorities: A vexed issue

In an earlier article, we canvassed the rising trend of judicial review against local authorities.  As a general proposition, that remains true.  However, there is also occasionally an application to review on grounds that a local authority decision is not commercially favourable.  These applications are much more challenging.  Several decisions highlight this difficulty. Parties should proceed carefully before taking a review decision that is essentially commercial in nature.

Mercury Energy Ltd v Electricity Corporation of New Zealand Ltd.[1]  Lord Templeman said that: “It does not seem likely that a decision by a state-owned enterprise to enter into or determine a commercial contract to supply goods or services will ever be the subject of judicial review in the absence of fraud, corruption or bad faith.”[2] 

Pratt Contractors Ltd v Transit New Zealand.[3]  An unsuccessful tenderer sued Transit New Zealand, arguing that the request for tenders contained express and implied terms as to the process Transit would adopt and that it had breached these terms.  Although there was no public law cause of action pleaded, the Privy Council’s unwillingness to import public law notions into the contractual or statutory framework suggests that their Lordships saw that framework as sufficient.[4]

Lab Tests Auckland Ltd v Auckland District Health Board.[5]  Summarising this decision, the Court of Appeal has stated:[6]

The courts will intervene by way of judicial review in relation to contracting decisions made by public bodies in a commercial context in limited circumstances ... In a commercial context, judicial review will normally only be available where there is fraud, corruption or bad faith, or in analogous situations. A broad-based probity-in-public-decision-making review is not to be applied. The imposition of more onerous procedural obligations may unduly fetter a public body’s ability to negotiate effectively. Generally, other accountability mechanisms such as ministerial control and parliamentary oversight are likely to be seen as more appropriate.

Attorney-General v Problem Gambling Foundation of New Zealand.[7]  The Court of Appeal remarked that, where decisions are made by the Crown “in the course of a procurement process … the prima facie position will be that only narrow review is appropriate.”[8]  To avail itself of a broader scope of review, the applicant “must raise issues relevant to that public interest and not just be a disappointed commercial party, seeking to take advantage of public remedies in a commercial context.”[9]

Ririnui v Landcorp Farming Ltd.[10]  The Supreme Court accepted, as a general proposition, that “a decision by a state-owned enterprise to enter into a commercial contract is unlikely to be reviewable in the absence of fraud, corruption, bad faith or some analogous circumstance.”[11]

Schelde Marinebouw BV v Attorney-General.[12]  The plaintiff sought judicial review over the outcome of a tender for the supply of naval vessels to the New Zealand navy.  The proceeding was struck out, as the claim arose out of what was essentially a process contract, which did not deal with concepts of unfairness, unreasonableness or natural justice.  Gendall J stated:[13]

In the present case, what the plaintiff did was to enter into a contractual relationship with the Ministry. Its rights and its remedies are contained in the contract, which specifically provides that the Ministry may act in the way it did … The plaintiff cannot seek to achieve by way of judicial review that which it cannot obtain by contract, where what it contends for is specifically excluded. Judicial review, whilst theoretically available, namely, where gross abuse of power exists, is untenable on the pleaded allegations. The plaintiff agreed that there could be uneven-handed treatment of various tenderers and could have no legitimate expectation otherwise.

New Zealand Private Hospitals Association Auckland Branch (Inc) v Northern Regional Health Authority.[14]  The claim included a cause of action relating to an allegation of unfairness to providers in a valuation process used to assess tenders.  Blanchard J stated: “It would be quite intolerable if, in addition to rules of contract law and other principles of general law (including equity), a statutory body of this type, which is after all exercising a trading function, should also be subject to judicial review, including particularly an obligation to observe the principles of natural justice.”[15] 

Southern Community Laboratories Ltd v Healthcare Otago Ltd.[16]  The Court struck out a claim concerning a decision declining to accept a proposal in respect of pathology services, which was alleged to be in breach of statutory obligations and an unlawful exercise of powers.  Eichelbaum CJ stated:[17]

[I]t is an attempt to incorporate administrative law concepts into a commercial decision-making process. It seems as a contention that the processes used by the first defendant were flawed and led to a particular choice of supplier when another would have been better. I can conclude that the issues raised are not justiciable and that the statement of claim should be struck out.   The above is the legal framework for disputes of this kind.  The decisions illustrate that, whether in a private law dispute or a public law dispute, it is necessary to identify the yardstick against which an aggrieved party is seeking to measure another.  In other words, what is the source of the obligation that is alleged to have been breached.

None of the above is intended to unduly dissuade claims being advanced, nor to unduly embolden defences by local authorities.  But it is a cautionary tale.  Before embarking on such claims it is necessary to carefully consider them and make an informed decision.

[1]           Mercury Energy Ltd v Electricity Corporation of New Zealand Ltd [1994] 2 NZLR 385 (PC).

[2]           At 391.

[3]           Pratt Contractors Ltd v Transit New Zealand [2003] UKPC 83, [2005] 2 NZLR 433.

[4]           Lab Tests Auckland Ltd v Auckland District Health Board [2008] NZCA 385, [2009] 1 NZLR 776 (CA) at [59], discussing Pratt Contractors Ltd v Transit New Zealand [2003] UKPC 83, [2005] 2 NZLR 433.

[5]           Lab Tests Auckland Ltd v Auckland District Health Board [2008] NZCA 385, [2009] 1 NZLR 776 (CA).

[6]           Attorney-General v Problem Gambling Foundation of New Zealand [2016] NZCA 609, [2017] 2 NZLR 470 at [34(d)], discussing Lab Tests Auckland Ltd v Auckland District Health Board [2008] NZCA 385, [2009] 1 NZLR 776 (CA).

[7]           Attorney-General v Problem Gambling Foundation of New Zealand [2016] NZCA 609, [2017] 2 NZLR 470.

[8]           At [41]. 

[9]           At [42].

[10]          Ririnui v Landcorp Farming Ltd [2016] NZSC 62, [2016] 1 NZLR 1056.

[11]          At [65].

[12]          Schelde Marinebouw BV v Attorney-General [2005] NZAR 356 (HC).

[13]          At [33].

[14]          New Zealand Private Hospitals Association Auckland Branch (Inc) v Northern Regional Health Authority HC Auckland CP440/94, 7 December 1994.

[15]          At 43. 

[16]          Southern Community Laboratories Ltd v Healthcare Otago Ltd HC Dunedin CP30/96, 19 December 1996.

[17]          At 16.