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Hanjung Power Ltd v Dr Marat [2009] PGNC 133; N3751 (18 September 2009)

N3751

PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

OS (JR) NO 123 OF 2009

HANJUNG POWER LIMITED
Plaintiff

V

DR ALLAN MARAT
ATTORNEY-GENERAL
First Defendant

BETTY PALASO
COMMISSIONER GENERAL OF INTERNAL REVENUE
Second Defendant

THE INDEPENDENT STATE OF PAPUA NEW GUINEA
Third Defendant

Waigani: Cannings J
2009: 18 June, 18 September

JUDGEMENT

JUDICIAL REVIEW – subordinate legislative enactments – Regulation made under Act of the Parliament – whether principles of natural justice apply to making of Regulations – whether person affected by Regulation has a right to be heard prior to its making – whether the National Executive Council has a duty to give reasons for making a Regulation – whether a Regulation can be struck down on the ground of unreasonableness – whether the making of a Regulation can be a prohibited act contrary to Constitution, Section 41.

The Governor-General, acting with and in accordance with the advice of the National Executive Council, made a Regulation under the Customs Act prohibiting the import of a product used by the plaintiff that was essential to the viability of its business. The plaintiff was not consulted before the Regulation was made. The plaintiff sought judicial review of the decision to make the Regulation on the grounds that it was denied natural justice, that no reasons were given for making the Regulation and that the decision to make the Regulation was unreasonable and a proscribed act contrary to Section 41 of the Constitution.

Held:

(1) If making a Regulation will obviously have an immediate and substantial effect on a particular person’s commercial interests the authority making the Regulation has a duty to accord natural justice to that person prior to making it.

(2) The affected person must be consulted and given a right to be heard and, if the Regulation is made, must be given reasons for having made it.

(3) The authority making a Regulation must not act irrationally or unreasonably and the effect of the making of the Regulation must not be harsh or oppressive or otherwise contrary to the standards prescribed by Section 41 (proscribed acts) of the Constitution.

(4) Here, the Regulation under review was obviously likely to have an immediate and substantial effect on the plaintiffs commercial interests so the National Executive Council had a duty to accord natural justice to the plaintiff. That duty was breached by the failure to notify, consult or give a right to be heard to the plaintiff as to the proposed Regulation.

(5) The principles of natural justice were also breached by the failure to provide the plaintiff with reasons for making the Regulation.

(6) The decision to make the Regulation, which imposed an absolute prohibition on the import of a product used by the plaintiff that was essential to the viability of its business, without any provision for a licence to import, without consultation with the plaintiff and in the absence of reasons for making the Regulation, was irrational and unreasonable.

(7) Further the Regulation was harsh and oppressive in its operation and though the decision to make the Regulation was made under a valid law it was in the circumstances a proscribed act contrary to Section 41 of the Constitution.

Cases cited

Papua New Guinea Cases

Aegaiya v Baki and The State (2009) N3693
Dale Christopher Smith v Minister for Lands (2009) SC973
Gegeyo v Minister for Lands [1987] PNGLR 336
Isaac Lupari v Sir Michael Somare (2008) N3476
Matu Mining Pty Ltd v Embel (1995) SC483
Mision Asiki v Manasupe Zurenuoc (2005) SC797
Nanan v Maru and Commissioner of Police (1997) N1507
NTN Pty Ltd v The State [1986] PNGLR 167
Ombudsman Commission v Peter Yama (2004) SC747
Pansat Communication Pty Ltd v Momis (1995) N1321
Paul Saboko v Commissioner of Police (2006) N2975
Petrus and Gawi v Telikom PNG Ltd (2008) N3373
Pinggah v Elias (2005) N2850
Sausau v Kumgal and PNG Harbours Board (2006) N3253
Telepage Pty Ltd v PTC (1987) N605
Wilson Kamit v Aus-PNG Research & Resources Impex Ltd (2007) N3112
Zachary Gelu v Sir Michael Somare MP (2008) N3526

Overseas Cases

Associated Provincial Picture Houses Ltd v Wednesbury Corporation [1947] EWCA Civ 1; [1948] 1 KB 223
Clements v Bull [1953] HCA 61; (1953) 88 CLR 572
Development Co Ltd v Village of Wyoming (1980) 116 DLR (3rd) 1
Dunlop v Woollahra Municipal Council [1975] 2 NSWLR 446
Lyster v Camberwell City Council (1989) 69 LGRA 250
McWilliam v Civil Aviation Safety Authority [2004] FCA 1701; (2004) 142 FCR 74
New South Wales v Macquarie Bank Ltd (1992) 30 NSWLR 307
White v Ryde Municipal Council [1977] 2 NSWLR 909
Williams v Melbourne Corporation [1933] HCA 56; (1933) 49 CLR 142

Counsel

M M Varitimos, for the plaintiff

18 September, 2009

1. CANNINGS J: The plaintiff, Hanjung Power Ltd, owns and operates a power plant at Kanudi in the National Capital District. It is applying for judicial review of a Regulation made under the Customs Act that prohibits the importation into the country of the heavy fuel oil it needs to run its plant.

2. The Regulation in question is the Customs (Prohibited Imports – Certain Petroleum Products) Regulation 2008. It was made by the Governor-General under the Customs Act acting with and in accordance with the advice of the National Executive Council. Section 3 of the Regulation states:

The importation of a Petroleum Product which has a sulphur content in excess of the relevant Maximum Prescribed Standard for sulphur is prohibited.

3. The type of heavy fuel oil that Hanjung uses for the two very large, slow-speed diesel engines that generate power at its plant has a sulphur content in excess of the maximum prescribed standard. Section 4 of the Regulation makes it an offence to import it. Commencement of the Regulation has been stayed by order of the National Court, pending determination of this judicial review.

4. Hanjung seeks a declaration that the Regulation is void and of no effect on four grounds:

1. Breach of the principles of natural justice.

2. No reasons were provided for making the Regulation.

3. The making of the Regulation is irrational and unreasonable.

4. The Regulation offends against Section 41 of the Constitution.

5. The defendants were denied a right of appearance at the hearing of the judicial review due to their persistent failure to comply with orders and directions of the Court as to clarification of issues, provision of documents and other pre-trial matters. The Court has not been told why the Regulation was made, in particular whether environmental issues led to its making.

1 NATURAL JUSTICE

6. Hanjung says that its commercial interests and the livelihood of its employees were obviously going to be directly and substantially affected by the making of the Regulation, so the NEC was obliged to observe the principles of natural justice before advising the Governor-General to make the Regulation. The NEC should have notified Hanjung of the proposal to make the Regulation, consulted Hanjung and given it a right to be heard.

7. I accept and find as a fact that the Hanjung plant at Kanudi supplies 30% of Port Moresby’s electricity. The plant has been operating continuously since January 1999. It was built at a cost of US$44 million. The two very large engines at the plant were designed and built to use heavy fuel oil, which has been imported without restriction since commencement of power generation at the plant. The engines cannot run on fuel with a lower sulphur content. The sulphur has a lubricant effect on the engines. Heavy fuel oil is not manufactured locally. It must be imported. Hanjung has a contractual obligation to provide electricity under a 15-year power purchase agreement which commenced in January 1999. It has an ongoing fuel supply agreement with InterOil Products Ltd under which heavy fuel oil is pumped to the plant.

8. The effect of the Regulation, if it is allowed to operate, will be that InterOil will not import heavy fuel oil. Hanjung’s power plant will be shut down, 30% of Port Moresby’s power supply will be lost and many people will lose their jobs. That will be the immediate impact of the Regulation. The multiplier effect on the country’s economy and the residents of Port Moresby will also be considerable.

9. In these circumstances did the NEC have a duty to observe the principles of natural justice before deciding to advise the Governor-General to make the Regulation?

10. Natural justice is often thought of as a principle that applies when a decision-maker makes an administrative decision affecting the rights or reputation of an individual (Gegeyo v Minister for Lands [1987] PNGLR 336). It has its roots in judicial review of administrative action, not so much legislative action. In Natural Justice: Principles and Practical Application, Butterworths © 1984, G A Flick made the point that:

It is generally accepted that the rules of natural justice have no application, and no prior opportunity of being heard need be given, where there is involved the exercise of legislative power.

11. However, the learned author went on to observe, having referred to the decisions of the New South Wales Court of Appeal in Dunlop v Woollahra Municipal Council [1975] 2 NSWLR 446 and White v Ryde Municipal Council [1977] 2 NSWLR 909, that it can sometimes be difficult to distinguish between a legislative act and an administrative act. If the effect of a by-law, regulation or other piece of delegated legislation is direct and immediate on a particular person or class of persons, the decision to make it can be categorised as an administrative act rather than or in addition to its categorisation as an exercise of legislative power; and that decision will be subject to a duty to observe the principles of natural justice. That was 25 years ago. Since then there has been a trend in common law jurisdictions for the courts to qualify the exercise of delegated legislative power by saying that if the effect of a piece of delegated legislation is direct, immediate and substantial on a particular person or class of persons, the power can only be exercised after complying with the principles of natural justice in regard to the affected person or class of persons. Mr Varitimos, for Hanjung, cited a number of cases in support of this development in the law of natural justice, eg Development Co Ltd v Village of Wyoming (1980) 116 DLR (3rd) 1, Lyster v Camberwell City Council (1989) 69 LGRA 250 and McWilliam v Civil Aviation Safety Authority [2004] FCA 1701; (2004) 142 FCR 74.

12. This appears to be the first case in which the National Court or the Supreme Court of Papua New Guinea has been called upon to apply the principles of natural justice to delegated legislation. I must be conscious of the risk of over-reaching the legitimate role of the courts in striking down the exercise of legislative power. I must have regard to the dictates of Division III.4 (natural justice) of the Constitution, particularly Sections 59 and 60.

13. Section 59 (principles of natural justice) states:

(1) Subject to this Constitution and to any statute, the principles of natural justice are the rules of the underlying law known by that name developed for control of judicial and administrative proceedings.

(2) The minimum requirement of natural justice is the duty to act fairly and, in principle, to be seen to act fairly.

14. Section 60 (development of principles) states:

In the development of the rules of the underlying law in accordance with Schedule 2 (adoption, etc, of certain laws) particular attention shall be given to the development of a system of principles of natural justice and of administrative law specifically designed for Papua New Guinea, taking special account of the National Goals and Directive Principles and of the Basic Social Obligations, and also of typically Papua New Guinean procedures and forms of organization.

15. Section 59(1) speaks of the principles of natural justice being the rules of the underlying law that were developed for control of "judicial" and "administrative" – not "legislative" – proceedings. There is a note of caution there that the Court must observe. But it is not a prohibition against incorporating natural justice principles into the exercise of legislative power. Section 60 enjoins the court to develop the underlying law by developing a system of principles of natural justice and of administrative law specifically designed for Papua New Guinea. One of our National Goals set out in the Preamble to the Constitution is No 5, Papua New Guinean ways:

We declare our fifth goal to be to achieve development primarily through the use of Papua New Guinean forms of social, political and economic organization.

16. Directive Principle 5(1) calls for:

a fundamental re-orientation of our attitudes and the institutions of government, commerce, education and religion towards Papua New Guinean forms of participation, consultation, and consensus, and a continuous renewal of the responsiveness of these institutions to the needs and attitudes of the People.

17. It is not hard to find in those constitutional provisions a call for government institutions and lawmakers to allow those who will be most affected by their decisions to participate in the making of those decisions. To be consulted before the decisions are made. To be listened to. To be given a right to be heard. If possible to reach a consensus. That is the Papua New Guinean way of doing things. Not making decisions from on high without consulting those who will be directly affected.

18. Think tanks such as the Institute of National Affairs and quasi-governmental bodies such as the Consultative Implementation and Monitoring Council and the various chambers of commerce and business councils throughout the country are developing more and more public-private partnerships. They have realised that the government and private sector and civil society cannot operate in isolation and that the best government decisions are those that are made after consultation with those in the private sector and all affected people in the country.

19. I have also had regard to the need, recognised by Section 21 (purpose of schedule 2) of the Constitution to develop our indigenous jurisprudence, adapted to the changing circumstances of Papua New Guinea, and to the power given to the National Court through Division II.3 (adoption, reception and development of certain laws) of the Constitution and Part IV of the Underlying Law Act to formulate new rules of the underlying law in cases where it is considered that an existing rule is no longer appropriate to the circumstances of the country.

20. To the extent that it is or has been a rule of the underlying law that a duty to observe natural justice does not apply to the exercise of legislative power such as the making of a Regulation under the Customs Act (and it is arguable that that is what the underlying law says given that we adopted under Sections 3 and 4 of the Underlying Law Act the common law in force in England immediately before 16 September 1975) I consider that it is no longer appropriate and I now formulate a new rule as follows:

- If making a Regulation under an Act of the Parliament will obviously have an immediate and substantial effect on a particular person’s commercial interests and that person has a legitimate expectation that they would be consulted before the law under which they have been doing business is changed, the authority making the Regulation has a duty to accord natural justice to that person prior to making the Regulation.

- The affected person must be consulted and given a right to be heard prior to making the Regulation.

22. Applying that rule, it must have been obvious to the NEC that prohibiting the import of heavy fuel oil would have an immediate and substantial effect on Hanjung’s commercial interests (and the economy and many other people as well). If it was not obvious it ought to have been. Hanjung had a legitimate expectation, given its prominence in the local economy and that heavy fuel oil had been imported lawfully and continuously for nine years, that it would be consulted before the law under which it was doing business was changed. The NEC, being the decision-making body which advised the Governor-General to make the Regulation, therefore had a duty to consult Hanjung and give them a right to be heard on whether the importation of heavy fuel oil should be prohibited.

23. Nothing of that sort happened. Hanjung was not consulted by any government official. Hanjung was denied natural justice by the NEC. The first ground of judicial review is upheld.

2 FAILURE TO GIVE REASONS

24. It is part of the principles of natural justice and the duty to act fairly that once a decision is made the decision-maker must give good, proper and sufficient reasons for the decision. Two recent Supreme Court judgments have entrenched this principle: Ombudsman Commission v Peter Yama (2004) SC747 and Mision Asiki v Manasupe Zurenuoc (2005) SC797. It has been applied in numerous National Court decisions and has its genesis in Gegeyo’s case.

25. Applied to the present case the principle means that the NEC had a duty, having made the decision to advise the Governor-General to make the Regulation, to notify all persons, to whom it owed a duty to accord natural justice, of the reasons for the decision.

26. Nothing of that sort happened. Hanjung was not advised by any government official of the reason that the importation of heavy fuel oil was being prohibited. Hanjung was denied natural justice by the NEC. The second ground of judicial review is upheld.

3 IRRATIONALITY AND UNREASONABLENESS

27. Hanjung argues that the decision to make the Regulation was unreasonable having regard to the effect that it will have on its business and the multiplier effect on the economy and the livelihood of many people. The argument is that it was unreasonable under the Wednesbury principles, ie under the principles developed in the classic case of Associated Provincial Picture Houses Ltd v Wednesbury Corporation [1947] EWCA Civ 1; [1948] 1 KB 223. The test to apply here is:

- is the decision that has been made so unreasonable or absurd, having regard to all the circumstances, no reasonable decision-maker would have made the decision? (Paul Saboko v Commissioner of Police (2006) N2975.)

28. If the answer is yes, the decision involves an error of law, the decision-maker will have exceeded its jurisdiction and the decision is susceptible to judicial review. If the answer is no, there is no error of law, no excess of jurisdiction and this ground of review will fail. The decision will be lawful unless it is infected by some other error of law or procedure.

29. Unreasonableness is a more common and conventional ground of judicial review of delegated legislation than is natural justice (the subject of the first two grounds in this case). It rests on the presumption that when the primary law-making authority (in this case, the National Parliament) delegates law-making power (the power to make regulations) to another authority (here, the Governor-General, acting with and in accordance with the advice of the NEC) the delegation is subject to some fundamental, implied constraints: one of which is that the power must be exercised reasonably and rationally having regard to the purposes of the enabling law (Williams v Melbourne Corporation [1933] HCA 56; (1933) 49 CLR 142; Clements v Bull [1953] HCA 61; (1953) 88 CLR 572; New South Wales v Macquarie Bank Ltd (1992) 30 NSWLR 307).

30. Unreasonableness is an ultra vires (ie beyond power) ground of judicial review of delegated legislation; its essence being that the authority delegated the law-making power has gone beyond the limits of its power. The ultra vires principle has been adopted and applied in a number of PNG cases resulting in various pieces of delegated legislation being declared null and void, eg Telepage Pty Ltd v PTC (1987) N605, NTN Pty Ltd v The State [1986] PNGLR 167, Pansat Communication Pty Ltd v Momis (1995) N1321, Matu Mining Pty Ltd v Embel (1995) SC483. None of those cases, however, involved a determination that law-making power had been exercised unreasonably. They were all cases where the sort of delegated legislation that was made was simply not permitted by the enabling law.

31. The present case is different. Here, there is a power delegated by the Parliament through the Customs Act, Sections 23 and 193, to the Governor-General, acting on advice of the NEC, to make a law prohibiting the importation of goods.

32. Section 23 (regulation of imports) states amongst other things:

(1) The regulations may prohibit the importation of goods into the country.

(2) The power conferred by Subsection (1) may be exercised – (a) by prohibiting the importation of goods absolutely ...

33. Section 193 (regulations) states amongst other things:

The Head of State [ie the Governor-General], acting on advice, may make regulations, not inconsistent with this Act, prescribing all matters that by this Act are required or permitted to be prescribed, or that are necessary or convenient to be prescribed for carrying out or giving effect to this Act or for the conduct of any business relating to the Customs Act.

34. So, making a Regulation that prohibits the import of heavy fuel oil does not by itself go beyond the power conferred by the Customs Act. But prohibiting the import of that product without regard to the effect of prohibition can be beyond that power if the effect is so prejudicial to the legitimate interests of a person and the community that no reasonable law-making authority could have made that Regulation.

35. That is the test of unreasonableness that I have applied in this case. And the test is satisfied. The NEC’s decision to advise the Governor-General to make the Regulation, which imposed an absolute prohibition on the import of a product used by the plaintiff that was essential to the viability of its business, without any provision for a licence to import – especially without consulting the company that was going to be immediately and substantially affected by it – was so prejudicial to the legitimate interests of the company and the community that no reasonable decision-maker in the position of the NEC could have made that decision. The decision was irrational and absurd and unreasonable. The third ground of judicial review is upheld.

4 CONSTITUTION, SECTION 41

36. Hanjung argues that the decision to make the Regulation was unlawful having regard to the effect that it will have on its business and the multiplier effect on the economy and the livelihood of many people as the operation of the Regulation will be harsh and oppressive and otherwise contrary to the standards set by Section 41 (proscribed acts) of the Constitution. This is a similar ground of review to the third ground, unreasonableness, but whereas unreasonableness is a conventional, common law ground, the Section 41 ground has its roots directly in the Constitution.

37. Section 41 states:

(1) Notwithstanding anything to the contrary in any other provision of any law, any act that is done under a valid law but in the particular case—

(a) is harsh or oppressive; or

(b) is not warranted by, or is disproportionate to, the requirements of the particular circumstances or of the particular case; or

(c) is otherwise not, in the particular circumstances, reasonably justifiable in a democratic society having a proper regard for the rights and dignity of mankind,

is an unlawful act.

(2) The burden of showing that Subsection (1)(a), (b) or (c) applies in respect of an act is on the party alleging it, and may be discharged on the balance of probabilities.

(3) Nothing in this section affects the operation of any other law under which an act may be held to be unlawful or invalid.

38. Before I go on I need to address an issue that was not touched on by Mr Varitimos, but it is significant as the view has been expressed by the National Court in the past that breach of Section 41 is not a proper ground of judicial review. I discussed this in Zachary Gelu v Sir Michael Somare MP (2008) N3526. Injia CJ has expressed the view that grounds of review that allege breaches of the Constitution such as Section 37 (protection of the law), Section 41 (proscribed acts) or Section 48 (freedom of employment) "are not the sort of grounds upon which the common law discretionary procedure of judicial review would lie" (Sausau v Kumgal and PNG Harbours Board (2006) N3253). In Pinggah v Elias (2005) N2850 his Honour dismissed as misconceived a ground of judicial review that argued that a decision to dismiss a public servant was harsh and oppressive and contrary to Section 41 of the Constitution: "The appropriate procedure in judicial review to be invoked when challenging the unreasonableness of a decision is under the Wednesbury principle", his Honour ruled. Earlier, in Nanan v Maru and Commissioner of Police (1997) N1507 his Honour remarked that "it is not appropriate for the court in a judicial review application to indulge in constitutional questions".

39. With respect, my view is different. Some provisions of the Constitution expressly allow the National Court to determine questions of constitutional interpretation and application. In particular, Sections 22 (enforcement of the Constitution), 23 (sanctions) and 57 (enforcement of guaranteed rights and freedoms). I cannot see any reason the National Court should close the door on someone who wants to argue constitutional questions as part of an application for judicial review. The issue has not been clearly and authoritatively settled by the Supreme Court. Until it is, any uncertainty about the propriety of grounds of review should, in the interests of justice, be resolved by leaving them in, rather than striking them out. My view is that an alleged breach of Section 41 is a proper ground of judicial review.

40. Section 41 proscribes (ie prohibits) and gives protection against seven sorts of acts (Petrus and Gawi v Telikom PNG Ltd (2008) N3373). Even if done under a valid law and notwithstanding anything to the contrary in any law, an act is unlawful if it is, in the particular case:

- harsh; or

- oppressive; or

- not warranted by the requirements of the particular circumstances; or

- disproportionate to the requirements of the particular circumstances; or

- not warranted by the requirements of the particular case; or

- disproportionate to the requirements of the particular case; or

- otherwise not, in the particular circumstances, reasonably justifiable in a democratic society having a proper regard for the rights and dignity of mankind.

41. Section 41 can by virtue of Section 34 (application of division 3) of the Constitution be relied on by a company just as it can be relied on by an individual (Wilson Kamit v Aus-PNG Research & Resources Impex Ltd (2007) N3112). Under Section 41(2) the burden of showing that another person has committed an act falling within one of the seven categories of acts proscribed by Section 41(1) is on the party alleging it, in this case Hanjung.

42. I consider that that burden has been discharged on the balance of probabilities in relation to the first six categories of proscribed acts. I do not think the prohibition of heavy fuel oil imports shows a disregard for the rights and dignity of mankind. However, for the same reasons I concluded that the decision to make the Regulation was irrational, absurd and unreasonable I conclude that it was a harsh and oppressive decision and one not warranted by and was disproportionate to the requirements of the particular circumstances and the particular case. The fourth ground of judicial review is upheld.

5 WHAT DECLARATIONS OR ORDERS SHOULD THE COURT MAKE?

43. It is now time to consider the consequences of upholding the ground of review. It does not necessarily follow that the court will make the declarations sought by the plaintiff (Aegaiya v Baki and The State (2009) N3693). This is a judicial review, which is a two-stage decision making process. First the plaintiff must establish one or more grounds of judicial review. If it succeeds, the second stage of the process is persuading the court that it should be granted a remedy (Dale Christopher Smith v Minister for Lands (2009) SC973). Deciding on what remedies should be granted is a matter of discretion (Isaac Lupari v Sir Michael Somare (2008) N3476).

44. All of the plaintiffs grounds of review have been upheld. Serious defects in the NEC decision to advise the Governor-General to make the Regulation have been exposed. The Regulation – at least to the extent that it prohibits the importation of heavy fuel oil – cannot be allowed to survive. But should the whole of the Regulation be declared null and void? Or only the parts proven by these proceedings to be defective? Heavy fuel oil is one of ten categories of petroleum products the importation of which is prohibited. It would be easy to sever that part of the Regulation that refers to heavy fuel oil and leave the rest of the Regulation intact. However, I consider that that would not be the right thing to do. The Regulation is seriously defective. Given the way that it has been made – which can fairly be described as careless – the Court is entitled to think that there may be other aspects of the Regulation that were made without regard to the principles of natural justice or unreasonably or are harsh or oppressive in their operation.

45. The Executive arm of government must learn a lesson from cases such as this: much more care must be taken when making delegated legislation. If a court challenge is made the Executive must explain its actions and assist the Court in resolving the matter. No assistance has been provided in this case. The whole of the Regulation must be struck down.

ORDER

(1) It is declared that the whole of the Customs (Prohibited Imports – Certain Petroleum Products) Regulation 2008 is null and void and of no effect.

(2) Costs of these proceedings shall be paid by the defendants to the plaintiff on a party-party basis to be taxed if not agreed.

(3) Time for entry of the order is abridged to the date of settlement by the Registrar which shall take place forthwith.

____________________________

Young & Williams: Lawyers for the Plaintiff
Solicitor- General: Lawyers for the first & third Defendants