This article is an excerpt from The Art of Tendering: A Global Due Diligence Guide, which is available for purchase.
In a 2018 law journal article published in the Victoria University of Wellington Law Review entitled “A New Perspective on the Public-Private Divide? Justiciability of Government Contracting Decisions Following Ririnui and Problem Gambling”, Caleb O’Fee summarized the impact of recent New Zealand case law in defining the scope of judicial review of government procurement decisions.
As the author explained, the New Zealand courts have traditionally applied a minimally intrusive approach to the judicial review of government procurement, as reflected in the 1994 New Zealand decision in Mercury Energy Ltd v. Electricity Corporation of New Zealand Ltd (referred to as Mercury), which stands for the proposition that the courts will only intervene in the commercial decisions of government in situations involving fraud, corruption, or bad faith. However, as the author notes, more recent cases show signs of judicial intervention where the procurement breaches were not as serious as the ethical infractions identified in Mercury.
As noted by the author, in its 2016 New Zealand decision, Ririnui v Landcorp Farming Ltd (referred to as Ririnui), the New Zealand trial court apparently applied an exception to the Mercury principles by recognizing the potential judicial review of government contracting decisions that involved “sufficient public interest”:
The majority concluded that a court is unlikely to be able review the decision by a SOE to enter into a commercial contract in the absence of fraud, bad faith or some analogous situation, a proposition which was accepted by all parties. However, the majority ultimately circumvented Mercury in holding that the present case fell outside the general proposition because it was not an ordinary commercial transaction. The majority suggested that it was not correct to describe the decision to offer Whārere to Ngāti Mākino – and by analogy the failure to make the same offer to Ngāti Whārere – as simply commercial in nature because there was a “substantial public interest component” to the decision. The public interest component centred on the sale of Whārere facilitating the obligation, incumbent on the Crown, to fulfil its obligations under the Treaty of Waitangi.
According to the author, the Ririnui decision created confusion over the appropriate standards that should apply to judicial review due to the significant conceptual gap between the traditional narrow review scope of the Mercury ethical breach standards and the potentially expansive scope of the Ririnui “public interest” principles:
Ririnui does not overrule Mercury but rather provides an exception to it. This, however, raises two further questions. The first is whether the majority of the Supreme Court needed to circumvent Mercury’s narrow formula in this case. Mercury is not good law, and its strict application could result in a deserving claimant being left remediless. The second question is whether Ririnui improves the clarity or coherence of this legal doctrine any more than Mercury. This article argues that it does not. However, this lack of clarity and coherence is neither unique to these cases, nor to the New Zealand jurisdiction.
Mercury concerned a decision by the Electricity Corporation of New Zealand (ECNZ) to cancel a contract between it and Mercury Energy Ltd to supply bulk electricity. The case was eventually appealed to the Privy Council where Lord Templeman, delivering the advice, held that decisions of SOEs – insofar as they are made in the public interest – are amenable to judicial review both under the Judicature Amendment Act 1972 (now the Judicial Review Procedure Act 2016) and the common law. Although the Privy Council was willing to find that decisions of SOEs are in principle amenable to judicial review, the circumstances in which a court would be willing to inquire into such decisions would be limited to situations involving fraud, corruption and bad faith.58 It was suggested that Lord Templeman’s approach at best resulted in further uncertainty surrounding the reviewability of contracting decisions by SOEs, and at worst “rendered the judgment internally inconsistent and ultimately hollow”.
Undoubtedly conscious of the significant negative commentary surrounding Mercury, the majority in Ririnui side-stepped Lord Templeman’s formula by holding that it did not apply to all contracting decisions by SOEs. In this case, the decision had a substantial public interest component to it giving rise to judicial review on principles broader than those outlined in Mercury. This article suggests that this was done deliberately on the basis that Ngāti Whakahemo were an innocent third party who, through no fault of their own, were about to lose their tribal lands. The absence of fraud, corruption or bad faith on the part of the Crown or Landcorp would have left the iwi unable to rely upon judicial review as a cause of action to protect their interest, and left them ultimately remediless.
The second issue is whether Ririnui adds any more clarity or coherence to this legal doctrine than Mercury. The majority decision in Ririnui failed to define the boundaries of the exception to Mercury, except to say that Mercury would not apply where there is a significant public interest implication. Precisely what qualifies as a “public interest implication” is not made clear. It is possible that the law was left unclear to open the possibilities for judicial review of government contracting in the future. By refusing to explicitly define the metes and bounds of this exception, the majority addressed the criticism levelled at the narrowness of Mercury. However, this is a double-edged sword. While such an approach addresses the narrowness critique, it serves to add more fuel to the fire for those commentators who criticised the Privy Council for failing to resolve this issue definitively when it first appeared more than 20 years ago. The Court of Appeal in Problem Gambling sought to clarify the issue by reconciling the approach in Ririnui with the approach adopted in Lab Tests Auckland Ltd v Auckland District Health Board.
To illustrate the practical impact of the dissonance created by the unnecessarily restrictive approach in Mercury and the undefined expansiveness of Ririnui, the author considered the 2016 decision of the Court of Appeal of New Zealand in Attorney-General v. Problem Gambling Foundation of New Zealand (referred to below as Problem Gambling), in which the Court of Appeal overturned a trial decision that struck down a government contract award due to irregularities in the tender evaluation process. As the author noted, the Court of Appeal reigned in the trial court’s more expansive application of judicial review in government contracting decisions:
The same issue of divergence is to be found in Problem Gambling. The Court of Appeal were unanimous in their reasons for allowing the appeal and striking out all of the Foundation’s claims.
However, the divergence appears when the Court of Appeal’s approach is contrasted with that adopted by Woodhouse J in the High Court. Woodhouse J traversed the relevant authority in Lab Tests and Mercury and held that whether the scope of review is limited to fraud, corruption, bad faith or analogous circumstances depends on the context of the case.
It was further held that the starting point in such matters is context; it is not the general proposition in Mercury, subject to context. The emphasis on context was considered to be necessary for two reasons. First, if judicial review was unavailable in a commercial context this would be directly contrary to established principles. Second, the court’s references to “contracting decisions” and “commercial context” vary, and the precise definition in a given case depends on an analysis of the context. Justice Woodhouse reviewed a substantial number of contextual factors relevant to the case before him. On the basis of that contextual analysis, he arrived at the conclusion that a broad scope of review was available, and accordingly the decision was able to be reviewed on all of the grounds advanced by the Foundation.
In contrast, the Court of Appeal cited the same authorities relied upon by Woodhouse J and came to the opposite conclusion. The Court held that the prima facie position will be that only narrow grounds of review are available, unless there are contextual factors indicating the need for broader powers of review. The Court then went on to consider and reject each of the contextual grounds identified by Woodhouse J as providing a justification for a broader scope of review. The Court appeared to be heavily persuaded by the fact that the Foundation was a commercial party which had just lost a significant commercial contract and drew the conclusion that it was merely a disappointed party trying to have a second bite of the cherry by way of judicial review. Again, it is difficult to see how the same factual circumstances in both the High Court and Court of Appeal in this case could justify the courts reaching such markedly different conclusions. Such significant divergence casts doubt on the ability of the courts to approach these issues in a consistent and principled way. If the net is cast a little wider to include other significant decisions in this context, the divergence of judicial approaches becomes even more apparent.
As the author noted, the courts in other jurisdictions are also struggling to determine the scope of judicial review of government contracting, particularly in situations where there is no governing statutory framework to regulate the review of government procurement. On this subject, the author contrasted the United Kingdom, where the issue of common law judicial review has become somewhat of a moot point given the adoption of the statutory regime that allows for both procedural and lost profit remedies, with Canada, where the courts have continued to expand the scope of common law judicial review in the absence of a similar statutory regime at sub-federal levels:
A Uniquely New Zealand Problem?
The above analysis quite clearly discloses that the approach of the New Zealand courts to this issue diverges significantly. As a result, the law in this area lacks consistency and coherence. This Part briefly considers how the courts in England and Canada have approached this issue and concludes that it is a problem which courts in multiple jurisdictions have struggled to come to terms with. It is with this universality in mind that Part V argues that the lack of a consistent and coherent approach throughout the common law world has the same root cause: differing conceptions of the proper role of the courts in this area premised on different theories of the state.
The English approach to the justiciability of government contracting decisions provides equal complexity to the approach adopted in New Zealand. One commentator has suggested that the approach of the English courts has tended to confuse two different propositions. The first is the rejection of judicial review in situations where the claim lies purely in contract, but it is being pursued on public law grounds. The second proposition is that, in a contractual context, even if “fundamental public law principles” should apply, they are precluded by the contractual context. The English courts have tended to allow judicial review only in relation to decisions which contain a “public law element”. However, the case law paints a rather confusing picture as to what qualifies as a public law element. The public law element has been held to exist in relation to the following decisions: the decision to terminate an individual’s common law right to be a stallholder; the failure by a local authority to adhere to a specific policy relating to the retention or disposal of certain types of land; and the failure by a legal aid board to use a fair tender process in relation to a matter of significant public importance.
Given the significant range of contexts seemingly providing a public law element, it is unsurprising that this approach has been criticised for being illogical and adding unnecessary and undesirable complication. A better approach was adopted in R (on the Application of Molinaro) v The Royal Borough of Kensington and Chelsea. In that case, Elias J held that authorities which are exercising a statutory function should in principle be subject to judicial review unless the complaint would undermine relevant private law principles. However, Molinaro has had limited application. Accordingly, the courts in England appear to have struggled with this issue to a similar extent to their New Zealand counterparts.
The Canadian courts do not appear to have fared much better. David Mullan, a leading commentator on administrative law in Canada, argued that “the law governing judicial review of procurement decisions in Canada is still in a state of turmoil or confusion”. While not all government contracting decisions are procurement decisions, many of the issues raised in a procurement context apply equally to other forms of government contracting. The leading authority in this area, Shell Canada Products v Vancouver (City), provides a number of reasons or principles for and against allowing judicial review. Air Canada v Toronto Port Authority adopted a similar approach to the question of whether a matter is public, thus warranting judicial review, or private and thus excluded from judicial review. While a broad contextual approach does away with some of the rigidity of a strictly doctrinal approach, it also has the potential to result in inconsistent outcomes. An example of this is to be found when comparing 2169205 Ontario Inc (cob Lefroy Freshmart) v Ontario (Liquor Control Board) with Dignam v New Brunswick Liquor Corp. In Lefroy a procurement process to select “agency stores” to run liquor outlets on behalf of the Canadian government was considered not to have engaged public interest issues, making judicial review unavailable. However, in Dignam, an application for judicial review almost indistinguishable from that in Lefroy succeeded on the basis of Shell.
An analysis of the approaches adopted in England and Canada points strongly to the conclusion that the inconsistency and incoherence in this area of the law is not limited to New Zealand. The English approach could be usefully summarised as one which invites the courts to search for a public law element justifying the invocation of judicial review. The Canadian approach is not entirely dissimilar but tends to provide more guidance in the form of broad contextual tests. This inconsistency across jurisdictions raises the broader question of why the courts have struggled to develop a clear and consistent doctrinal approach to this issue. The article suggests that this is because the courts have conceptions of their role premised on differing theories of the state.
As the author explained, the different degrees of judicial intervention can be attributed to the application of differing judicial “theories of the state”, which can be divided between “red light” interventionist and “green light” non-interventionist approaches to judicial review. The “red light” judges see judicial review as a means of checking the exercise of government power when government makes commercial procurement decisions, and the “green light” judges prefer to see the government’s commercial decisions regulated through other forms of checks-and-balances, such as public audit offices and through the electoral process:
Theory of Administrative Law
Harlow and Rawlings state that “behind every theory of administrative law lies a theory of the state”. Consistent with the apparent human need to classify things in order to make sense of them, a number of academics have attempted to organise theories of the state – and by implication, theories of administrative law – into categories or classes of thinking. Harlow and Rawlings draw on a traffic light metaphor to achieve this. So-called “red light theorists” favour strong judicial control of executive power, and consider administrative law to be the tool which prevents the “powerful engines of authority from running amok”. Such an approach is argued to hark back to Diceyan conceptions of the rule of law and the equality principle. Those subscribing to a “red light theory” would argue for a broad role for judicial review in order to protect individual rights.
In contrast, “green light theorists” consider administrative law not as responsible for placing a check on state power, but as a vehicle to assist the “administrative state” to implement collectivist policies. Green light theorists would prioritise democratic or political forms of accountability ahead of the undemocratic and unrepresentative courts. The role of judicial review would therefore be more limited and would consequently be available only in narrow circumstances.
Placing theories of administrative law into neat categories through the use of a simple metaphor has understandably attracted significant criticism. Such a metaphor is of limited use. However, at a more generalised explanatory level, the cases explored in this article do point to a continuing reliance on administrative law ideology as the basis for either a narrow or a broad approach to judicial review. The judges who advocate a narrow approach to judicial review consistently raise similar arguments for so limiting judicial review which are premised on a green light theory of administrative law. In contrast, those advocating a broader approach similarly raise arguments which are loosely premised on a red light theory of administrative law.
As the author concluded, this results in an unsettled state of law due to the inherently competing tensions between the interventionist and non-interventionist judicial ideologies that apply to the role of the courts in regulating government activities:
Despite these developments, the law in this context remains inconsistent and incoherent. This is neither a contemporary issue, nor one which is limited to a New Zealand context. The article suggests that this lack of coherence and consistency is due to a court’s approach to this issue being ultimately dependent on that court’s normative conception of its role in this area, a conception which is premised on a theory of the state. As a result, the courts have tended to take either a narrow or a broad approach to judicial review. Those courts which subscribe to a green light theory of the state accordingly raise a number of similar arguments to justify a narrow approach to judicial review. In contrast, those courts subscribing to a red light theory raise similar arguments justifying a broader role.
This normative butting of heads is especially pronounced in a government contracting context because it is an issue which sits on the border of the “nebulous line” between public and private law. Some suggest that the distinction between public and private law is meaningless, and that attempting to organise the law through the use of neat normative schemes could distort thinking about this issue.
The courts have certainly not ignored this and other normative schemes in deciding whether or not to allow judicial review in a given case. In fact, they have relied on them.
Others have suggested that the courts can resolve the issue by drawing on values in common to both public and private law which will be capable of bridging the divide, or by developing a “law of public contracts”. However, the New Zealand courts are still some way off reaching this point. Admittedly, the justiciability of government contracting decisions is a vexing issue. However, the New Zealand courts need to stop hiding behind an inconsistent doctrine and recognise that cases are ultimately being decided according to that court’s normative conception of the role of judicial review in this area.
As this article illustrates, the level of judicial interventionism can vary between jurisdictions. Public institutions face a greater risk of legal challenge to their procurement decisions in jurisdictions with highly interventionist courts, or in jurisdictions where the right to bring bid protest is codified in statutory frameworks.
