"A PITIABLE THING" SUPREME COURT ACTION

Bay of Plenty Times, Volume LXXI, Issue 13770, 13 October 1942, Page 4

"A PITIABLE THING"

SUPREME COURT ACTION

JUDGE'S COMMENT Council and Power Board Lengthy and Expensive Litigation (Times Special Reporter) Auckland, Oct. 10. The view that it was a pitiable thing that, two local bodies should find themselves in lengthy and e\pensive litigation was expressed by His Honour, Mr Justice Smith, in the Supreme Court at Auckland yesterday in the course of the continued hearing of the action between the Tanranga Borough Council and the Tanranga Electric Power Hoard. It was, he said

a great pity that town and country could not. agree, especially in a time of war.

Opening for the defence of the Tauranga Power Board late on the third day of the case. Mr A. K. North soon made plain the viewpoint of the board. He said he would deal with the case first from a chronological point of view. The commencing point must be the agreement of September, 1929, which brought the two parties into contractual relations. The Court should regard submissions as to the surrounding circumstances in interpreting the contract. In 19 2G the borough embarked on an ambitious scheme involving with Omanawa costing £60,000 and McLaren's Falls £9 o,ooo—a scheme that resulted in a charge per head of population of £6O in comparison with the charge of £ll to £ls in other places. That expenditure was not justified by their then present requirements in so small a borough and immediate prospects. The second point, therefore, was that it became necessary for the council to seek avenues for its electricity. It arranged contracts with the Government, and approaches were made to the Bay of Plenty Power Board. It was in that situation that the agreement between the Tauranga Power Board and the council was negotiated. There had been previous 'agreements, but Tauranga had developed a generating plant far beyond its own requirements and must seek an avenue of outlet if the undertaking was to be profitable. As to the agreement, while it was inartistically drawn, it could at least be said about clauses one and two that they contained plain indications of the obvious course of the negotiations. First there was a straightout obligation of the council to sell, limited only by the electricity available at the generating plant. In between expression of the obligation to sell and the obligation to purchase were the words governing maintenance of the present capacity of the generating plant. The council was willing to undertake the Power Board's requirements for 10 years. Mr North said it was not contended that one could ignore the question of. the available water capacity and no fine .distinction was drawn between capacity of the turbines as such and as related to water available. The board's demand never did exceed the available supply of water, however, but it was not contended that the demands of the council and Power Board together did not exceed the available supply. • Council's Obligation

In clause one of the agreement nothing had yet been said about any rights reserved by the borough in granting the board the supply contracted for. The picture after that stage was that the borough at some stage would have said, "Eut supposing you absorb the whole of the generated power and the council is able to develop it's load as well as the Power Board? The council reserves the right to develop its load as well." The concluding words said that the reservation shall not be used to cut off the actual load once the board had established a service and a load. The council had an obligation to allow the Power Board to continue that service.

It was submitted for the board, therefore, that the picture one got of the clauses one and two was that the Power Board was to have all its requirements up to the capacity of the plant and the borough could grow as well, but the council could not assert that right to grow, to cut off the Power Board once its load had been established. There was a reservation for the benefit of the borough, but the borough could assert it or waive it.

"The risk of the borough by delaying fixing the maximum demand was that the established load of the board was increasing and, once increased, might have to be maintained," said Mr North. "The earliest point of time the council could exercise its reserve powers was when

the generation «.„, iVGIy »** the Hshed load' Th er Vi,"' because we are d e!,r Potions and rec g *i'V ***■ really Mr North pJt^^C P^denceand other^o; , of September 29 J.J**., ferred to various let, " f:i " bearing upon the J?"*"*, tember 1909 agreement in relaUoJ'^ excess of five million ° r^ Speaking about the dw, council to trrant ,„ " : board ni re Sl)eet of,, ' hereby the ra t e unit in excess 0 f ii i; consumed, Mr was reluctant , 0 "*! lieatin g partofit s i consumers m!ght ;,: siderationforthereducion.;;' unit fa y the council „, 3 letter written on the cour* pleating the concession ? board. The council K p r hope that the concession 2 to increased use offis electrto council could see advantagesio in development of the board'sThe next concession grantJ board was in March, 1933 % board made an approach' afv national expenditure l eg i s i alir took the attitude that, follow ductions of overhead interest wages, "if you pass on the beof cuts we'll do likewise." Thet cil used that as an opportunity extension of the agreement.

Overtures For Discount

Mr North quoted various b leading up to a draft agreentt 1934 intended to extend certainvisions of the 1929 agreement ( cerning the disputed 1\ per !: discount to the board arising «i reductions through the National: penditure Adjustment Act. Alii;;: the cuts following the Act we! vanced by the board as the rac for the board's overtures (or a;< count, there was no reference li i council's resolution about the i tional Expendidture Adjustment Alt In January, 1935, the boardstett letter to the council Baying tint 4 board had not authorised the dpi; and sealing of the agreement wind was stated to attempt to cover m ground that had been inteti: originally. The board enclose'.: draft dealing with the three ?« tions only of: (1) theconcessioasfcj water heating units at id fori*! excess of 12 million units; (1)4 discount of 7} per cent.; and I the extension of the 1929 agree* for four years from September I 1939.

Mr North contended that the <■■ of li per cent, discount and«■■ sion of the term of the ll»* ment was in fact accepted ar.d :• rejected as the Borough V claimed. That was the IfJ" Power Board heard of the aflH* and .there was no further l*3| concerning it. L Mr North continued to QOOtt* letters and minutes to show W records the intentions and »«* of the parties' various actio.* ters showed that the coudc most anxious that the u*e ~ tricity should be increased ■ was no suggestion Up to» that water heaters shou eluded. The discounts cent, and 2 j per cent, veie statements from the a straight 10 Per that was done without a ° being raised by the cou,, A letter of October, IN later, the Power »*£ ferring to the draf a there was no reply to the The next letter was 1938, nothing of an> ,; ing occurred in betwe »• ; this time that the combined loads was 0i capacity of the plant , ferred to the C il "again'' having to y from the Public W^ a S llDorfi . There was nothing wee j' the exchange of council and the *£* an existing conditions f , Bongard, engineei Board.wouldknow* .. l) • Thenextdocumen tl « tf a memorandum made Board in «^" tfl f«l% for a further At that time the b oar^ creasing its "f*** % was anticipated l » cr tion would 800 or 900. It «* £IO,OOO increased r , „ follow and of that -uld go to the,«£ ,■ yearly amount Ml to £15,100-

The reaction of the council was to allow the Power Board 23 per cent, discounl subject to the raising of the money and commencement of the expenditure of Hi;' £50.000 loan by the Power Board •-'• per cent, discounl on the nel rate payable. That was May 25, 1038. The choice of the langauge in the reduction on this occasion as compared wi 1] the former reduction. The words "2J per cent, on the present net rate." Inter-change of Power A provision of the licence to the borough by the Crown was that there should be an inter-charge of power and the council was desirous of raising that question. In June, 1938, the minutes of the. Borough Council recorded that the council accepted the terms of the Public Works Department (or purchase of power—at the very time of the discussion of the reduction to the Power Board. A letter from the borough engineer to the district engineer in July, 1938, accepted the department's offer of power fed at Waikino at Id per unit plus 15 per cent. The borough had omitted the £SO yearly and the district engineer wrote and pointed out that omission. The council minute file showed a report of the electricity committee in August, 1938, when the committee met the Power Board. On August 15, 1938, the council decided to propose to the board that the board pay 70 per cent, and the council 30 per cent, of he supplementary supply from the department. Mr North said that was an attempt by the council to pass on to the board 7 0 per cent, of the cost of a supplementary supply of power. On November 21, 1938, the council was told "in the plainest language" that the board would accept no responsibility whatever for the council's arrangement with the Public Works Department, but mentioned projected possibilities of permanent bulk supply if or when needed. The council on November 25, 1938, replied to the board's letter and said th ematter had been referred to the council's electricity committee. On November 30, 19 38, the matter was deferred by the electricity committee for further consideration. Conference Mooted In January, 1939, the electricity committee in a minute was recorded as deciding that a conference be held between the board and the council. Ou February 21 there was a letter from the board saying thai the board was agreeable to a conference with the council and the Public Works, and a further conference on March 20, 1939, was mooted at Hamilton. The questionnaire of the board was discussed at a conference on February 28, 1939 —the questionnaire that the Mayor had said in evidence raised questions foreign to the subject the council wished to settle — i.e., the price of the bulk supply to the Power Board. In that questionnaire the council was asked if the council could assure the board that the Public Works price of 2d plus 15 per cent, per unit was payable to the council. That questionnaire was what Wilkinson alleged had "scared the council off the conference." ."I regret to say that there's written evidence in support of the fact that Mr Wilkinson's evidence is not correct. That I put down to forgetfulness in view of the great number of matters involved," said Mr North. Mr Cooney objected that if any written evidence had such effect, it should have been put to Wilkinson when he was in the box. Mr North said he would have no objection if Mr Cooney wished to recall Wilkinson.

The evidence of the Power Board would be that the February 28, 1939, conference was perfectly friendly but that a letter was received from the council withdrawing from the conference. That was a bombshell to Power Board representatives and it would be said that Wilkinson did not say at the, February 28 conference that the council cancelled the projected conference''with the Public Works Department on March 20. On March 9, 1939, the council wrote ,t,hat the date March 20 was "not now suitable," and the council would advise later of a date. . Statements of September, 1938, and December, 1938, produced by Mr Morth (as prepared by the board and submitted to the council with no objection from the council showed deductions of 10 per cent, and 12 1 per cent, respectively.

"All thig time, your Honour, the Power Board w.a&. preparing: its statement''on': the : basf3 of the' contract — the basis of the units received —at contract rates less the discounts," said Mr North, who explained that the statements from Power Board to council went from council engineer

to town clerk and had doubtless been checked. The only minute dealing with the conference was on February 28, at 10.30 a.m. the same morning as the confer* nee. Quoting from records and letters. Mr Nor h contended, that the council on the question of voltage control would not involve itself in the expense of voltage regulating apparatus. The council wrote saying it was not in the council's interest to go to

that expense until the question of bulk supply was determined. There was an acknowledged voltage deficiency in the Aongatete area which the borough would not spend the considerable sum necessary to remedy. It was the Power Board load which turned this huge enterprise into a profitable one eventually for the Tauranga Borough Council.

Tlki Profits

His Honour: What do they do with the profits? Reduce the rates in the borough? Mr North: The profits go to swell the general funds of the borough. A very experienced engineer would say that he knows of no other local body making such handsome profits —SO per cent, profit. His Honour: Have responsible persons in charge of these local bodies ever endeavoured to settle this case amicably? Both counsel said that that was so. His Honour: And both sides feel quite sure there is no possibility of settling this dispute except by litigating it? Mr North said he had made certain without prejudice offers to which ha had had no reply. Mr Cooney said both, sides had tried to settle and he personally had made an effort and Mr Wilkinson, the Mayor, and a member of the Power Board had consistently tried to £et a settlement.

His Honour: I don't want to know the details but just wanted to be sure you'have exhausted all avenues.

Later his Honour said it was a pity that two local bodies who had contemplated another agreement in an existing agreement could not come to another agreement. "I should think some independent outside engineer, assisted by counsel, would be able to make a settlement. "Arbitration Not Allowed"

Mr North.: If your Honour looks at the original statement of claim, it was much more limited. I submitter to jurisdiction. Then an amended statement of claim asking for accounts was added.

Mr Cooney: I wanted arbitration, but was informed by the Price Tribunal they would not allow arbitration.

Mr North: That was before I came into it. I've no doubt Mr Cooney's done his best. His Honour: Here are two local bodies which now find themselves in lengthy and expensive litigation—l think it's a pitiable thing. Mr Cooney: I'm still prepared to consider a reasonable thing. Mr North: Well, after you've heard my opening you might. It's really a matter between town and country, your Honour. His Honour: It's a great pity the town and country can't agree, especially in a time of war. There was clear evidence that the council knew the Power Board was only paying at contract rates without reference to the auxiliary supply and that the council accepted payment at those rates, said Mr North. In June, 1939, the council indicated in a letter that it was willing to release the Aongatete area to the Power Board providing the board could make satisfactory arrangements with the Public Works Department. On June 28, 1939, the Power Board wrote that it had decided to negotiate with the Public Works Department. Concerning the outburst of Mr Cooney that there had been "active concealment" of the board's contract with the Public Works Department, Mr North quoted a letter of July, 1939, in which the question of bulk supply from Public Works was frankly dealt with. On September 19, 1939, the council wrote requesting the board to keep the council fully informed of negotiations with the Public Works Department. There was no further correspondence till February, 1940. The Power Board had asked the council for information and had no reply. On November 20, 1939, there were some important minutes touching on the attitiude of the council to the question of auxiliary supply. There were certain recommendations from the electricity committee to the council that the board be charged on the basis of the difference between the cost of the auxiliary supply and generated supply. However, the matter was deferred and the council resolved that it be not published. The business of whether the council should render an account having been deferred in

November. 193t>, it was brought up again on January 2S, 1940, by the council, and in February again it was decided to "hold over the letter to the Power Board' - —that making a demand on the board for the extra

cost

The board wrote on February 2. 1940. to the council asking whether the council would be in a position to offer a bulk supply to the board after October 1, 1943, and saying that the Public Works Department was pressing the board for a reply. The council replied that the matter had been held over and a reply would be sent later.

In fact no account was submitted to the Power Board in respect of the auxiliary power costs until March 19, 1940.

His Honour: Why was the council so hesitant? —It was not sure which way to jump—whether to bear up with the auxiliary supply or not. They couldn't make up their minds which was best for them. His Honour: It does seem they did not know what to do. "Battledore and Shuttlecock" Mr North quoted from a shorthand report of the secretary of a conference discussion in 1940. Mr North described it as battledore and shuttlecock.

His Honour: It is an example of how democracy works. Mr North said once the board's load was pegged the generation system of the council was of no value to the board. The convenience of drawing on the department for power for peak reducing purposes was of value to the council but of no value to the board. The board was more interested in a permanent bulk supply. The council would never say where they were so far as 1943 onwards was concerned. His Honour: How did it come about that a verbatum report was taken at the conference?

Mr Cooney said Mr Chambers, of the board, took the report and handed a copy to Mr Wilkinson.

On April 16, 1940, in reply to the council's letter of the day before, (Power Board said that it accepted the council's letter as a notification to the board that it could not give the board a bulk supply contract after September, 1943). That letter made it quite clear there was no "active concealment" as Mr Cooney had "unworthily suggested" and Mr North could only conclude that Mr Cooney had made that suggestion without properly considering the records.

Mr Cooney said he had considered

The suggestion had come from the Council that the power, board directly approach the Public Works Department for an arrangement to cover direct supply for the Aongatete area. The board considered it was acting on behalf of the council in its 'approach to the department for such bulk supply for Aongatete or any other supply rendered necessary. Naturally the Public Works wanted to know what the position was to be after 1943 before it completed matters. It was not until the council's letter to the board of April 16, 1940, that the board really knew what the position was to be regarding the bulk supply to the board after 1943.

His Honour: Each side got to the point of actually appointing its own arbitrator.

Mr North: But they never got beyond that stage. They could have reached it by agreement but there were certain legal questions that had to be disposed of.

"Nice Friendly Arbitration'

In April. 1941. it was decided to get the council to withdraw all discounts and concessions, which. Mr North said, was contrary to all legal rights and contrary to Price Fixing Regulations. That was how the council behaved in its approach to "the nice friendly arbitration." Then the board wrote on April 2S, 1941, asking whether all hope should be abandoned and whether the council had decided not to proceed with the arbitration. The council replied one month later that the .matter had been referred to the electricity committee.

A long letter from the council to the board, written in 1941. described by Mr North as "a lawyer's letter" and in it was a statement that the 1929 agreement had expired in September, 193 9, and also stating that the discounts had been ex gratia. The council had refused to include in any agreement for signature anything to the effect that the discounts were other than ex gratia.

The reference to the agreement for bulk supply having expired was the first reference in all the correspondence that Mr North had seen about the agreement having expired in 1939 —and that first reference was made after all the correspondence about what was to happen about bulk supply after 19 43. His Honour: Is there any dispute between you that the board could make its own arrangements with the Public Works Department? Mr North and Mr Cooney agreed there was no dispute about that. Mr North added that it was the consequences of that which were in dispute. "One of our principal complaints is that this supplementary supply was an excellent thing for the borough up till 1939 but then it grew into a regular thing and its value for peak purposes became of less consequence," said Mr North, who explained the extraordinary character of the supplementary supply terms compared with regular supply. The board had reached its peak and it was not interested in supplementary supply. The council did have a good case to go to the Public Works Department and say, "We want a regular supply at a cheaper rate than 1.57 d per unit." The council was paying for the supplementary supply, said Mr North. The council did not seem to appreciate the difference between supplementary and regular bulk supply. They did not realise the difference in the basis of the charges the Public Works Department made for the continuous regular bulk supply to the Aongatete area at .33d per unit and the supplementary "at call" supply at .57d per unit to : the council.

At the conclusion of Mr North's address the hearing was adjourned until after the Supreme Court sessions at Hamilton at which Mr Justice Smith is presiding.