Hume Doors & Timber (Qld) P/L v LCC [1999] QSC 350

Mr R Bain QC with him Mr A Daubney for the plaintiff

Mr P Lyons QC with him Mr P Flanagan for the defendant

[1] CHESTERMAN J: The plaintiff manufactures and distributes timber doors at its factory in Kingston within the local government area administered by the defendant. For the half year commencing 1 January 1998 the defendant levied a water charge of $405 in respect of the plaintiff's premises. For the ensuing half year, commencing 1 July 1998, the council rate notice included a charge for water access. The amount was $12500. The plaintiff is not an extravagant user of water. The bulk of what is consumed is for the personal hygiene of its employees. Water used on the plaintiff's premises is supplied from a 50 mm pipe. The premises are also connected to a larger 150 mm pipe, which exists to provide water to emergency services in the event of a fire. Connection to the larger pipe is a requirement of the plaintiff's insurer and of authorities concerned with public safety.

[2] The increase in the amount of the charge has its origin in the defendant's budget which was adopted by resolution on 14 July 1998. The budget charge for water for non-residential properties (such as the plaintiff's) is based upon the size of pipes connected to the property. It is an amount of $200 "multiplied by the factor/s as set out in the flow capacity table". The factor for 50 mm pipes is 6.25. For 150 mm pipes it is 56.25. The sum of the products of the two factors multiplied by $200 yields the amount charged.

[3] The alteration to the method of charging for water in turn has its origin in amendments made to the Local Government Act 1993 ("the Act") by the Local Government Legislation Amendment Act 1997 which came into force on 24 October 1997. Relevantly chapters 8, 9 and 10 were added to the Act to give effect to decisions made by the Council of Australian Governments ("COAG") that the principles of the National Competition Policy ("NCP") should be implemented by local authorities. Chapter 10, which is more immediately relevant to the proceedings, additionally gives effect to "elements of the 1994 COAG water resource policy which will be focused on the water supply and sewerage services of the 17 largest councils" in Queensland: see the explanatory notes to the Local Government Legislation Amendment Bill 1997. The notes go on to explain that:

"Queensland stands to gain an additional $2.3 billion from the Commonwealth over 9 years if the NCP and related reforms (including the COAG water reforms) are implemented. The Government recently announced a financial incentive package of up to $150 million to Queensland local governments implementing NCP and related reforms."

The defendant is one of the 17 councils referred to. Chapter 10 is entitled "Reform of Certain Water and Sewerage Services". Section 769 proclaims that the object of the chapter is:

"... in relation to relevant business activities that provide water and sewerage services, to achieve efficiency and sustainability in the use of water by -

(a) requiring an assessment by local governments of the cost-effectiveness of introducing two-part tariffs for water services; and

(b) requiring decisions by local governments whether two-part tariffs are to be applied for water services; and

(c) if two-part tariffs are to be applied for water services - requiring implementation of the tariffs in accordance with the decision; and

(d) requiring charges for water services to be based on consumption; and

(e) requiring full cost recovery for water ... services;

The supply of water by the defendant to its ratepayers is, for the purposes of the Act, both a relevant and a significant business activity.

"Full cost recovery" does not appear to be defined but full cost pricing is said (s 553, s 568) to be charging a price "for goods and services taking into account the full cost of providing the goods or services" including financial advantages enjoyed by local governments which are not available to private enterprise.

[4] The plaintiff seeks a declaration that the water charges made by the defendant and levied against the plaintiff for the year commencing 1 July 1998 are invalid. Its standing in the proceedings for the declaration is that it is a ratepayer affected by the decision. The defendant does not contend that the plaintiff is not entitled to bring the action.

[5] The plaintiff's case is that ch 10 contains a number of preconditions which must be fulfilled before a local authority, which wishes to implement the COAG reforms, may introduce the new basis for water charges. It contends that in a number of respects the defendant did not comply with statutory imperatives. The defendant contends:

(b) non-compliance does not, as a matter of statutory construction, result in its budget being invalid;

(c) it was entitled to levy the water charge it did pursuant to provisions of the Act other than ch 10 so that it did not have to comply with ch 10 to impose the water charge.

[6] Before dealing with the arguments in detail it is necessary to mention some particular sections.

Chapter 10 commences with s 769 which I have mentioned. By s 772 a "two-part tariff" is defined to mean:

"a basis for a utility charge for water services consisting of access and consumption components with the objective of achieving efficiency and sustainability in the use of water."

"Utility charge" means only a charge for the supply by a local government of water: see s 3. Section 773 provides:

"(1) A local government must ensure an assessment of the cost effectiveness of the application of a two-part tariff for a relevant business activity ... is carried out and a report ... prepared.

(a) a finding whether it is cost effective for the application of a two-part tariff for the service to the extent stated in the report; and

(b) if the finding is that it is cost effective for application of a two-part tariff -

(i) a recommendation for application of a two-part tariff for the service to the extent stated in the report; and

(ii) if necessary, proposed strategies (including a timetable) that may be followed to apply to two-part tariff."

(c) when the report is to be presented to the local government."

Section 775 deals with the time by which the report must be completed and provides that it must be presented to a meeting of the local government "as soon as practicable after the report is completed".

[7] Part 4 of ch 10 is entitled "Decision on Two-Part Tariff Reports" and the commencing section, 778, explains that the object of the part is to require local governments to consider two-part tariff reports and to decide whether to apply two-part tariffs as the basis for charging water.

"From presentation of the two-part tariff report ... to a meeting of the local government until the local government decides whether to apply a two-part tariff ... the report must be open to inspection".

Section 780 provides that as soon as practicable, and within three months from presentation of the report to it, the local government must resolve whether a two-part tariff should be applied and, if so, the extent of the application. Subsection 2 provides:

(b) if necessary, approve strategies (including a timetable) for its application under section 785.

(3) A resolution under subsection (1) inconsistent with the recommendation in the report must include a statement of the reasons for the inconsistency."

Section 782 provides that as soon as practicable after making the resolution the local authority must give the relevant minister a copy of the report and of the resolution.

Section 783 provides that a local authority must ensure that:

"(a) if it has resolved that a two-part tariff is to be applied ... - a two-part tariff is applied; and

(b) consumption is the basis for utility charges for water services; and

(c) full cost recovery is applied for water ... services; and

[9] It is, I think, implicit in the provisions of ch 10 that the chosen method by which local authorities are to recover the full cost of providing water is the imposition of a two-part tariff. That method does not appear the only one by which "the full cost" of supplying water can be extracted from ratepayers but the unspoken assumption appears to be that that is the method to be adopted if local authorities are to be eligible for the Commonwealth's largesse.

[10] To return to the parties' submissions it is convenient first to deal with the defendant's submission that the provisions of ch 10 do not constitute conditions upon the exercise of power by a local authority to impose two-part tariffs as a means of effecting full cost recovery for supplying water. The defendant argues that ch 10 is not concerned with regulating the imposition of rates or charges or the method by which water may be charged for. This is left to ch 14. The purpose of ch 10 is to implement the economic reforms identified as necessary by COAG and to secure the financial incentive offered by the Commonwealth Government to the State. This is achieved by describing the procedure by which local authorities might implement changes to the way in which water is charged for and encouraging them to do so by offering financial incentives.

[11] The question is whether the provisions of ch 10, and those of Pt 3 in particular, are limitations on the power to impose a two-part tariff or whether they are, as the defendant would have it, legislative guideposts to assist local governments to achieve identified economic reform. The critical question, which is not quite the same as that proposed by the forgoing dichotomy, is whether non-compliance with the provisions of ch 10 invalidates a resolution imposing a two-part tariff. Does ch 10, on the proper construction of its provisions, allow the introduction of a two-part tariff only in accordance with its sections?

[12] The modern approach to the construction of statutes appears in the influential case of Tasker v Fullwood (1978) 1 NSWLR 20 at 23,24:

"...(2) the task of construction is to determine whether the legislature intended that a failure to comply with the stipulated requirement would invalidate the act done, or whether the validity of the act would be preserved notwithstanding non-compliance ... (3) The only true guide to the statutory intention is to be found in the language of the relevant provision and the scope and object of the whole statute ... (4) the intention being sought is the effect upon the validity of the act in question, having regard to the nature of the pre-condition, its place in the legislative scheme and the extent of the failure to observe its requirement ... (5) It can mislead if one substitutes for the question thus posed an investigation as to whether the statute is a mandatory or directory in its terms ... "

These propositions have now received the express approval of the High Court, Project Blue Sky Inc v Australian Broadcasting Authority [1998] HCA 28; (1998) 72 ALJR 841 (at 859-60) per McHugh, Gummow, Kirby and Hayne JJ. Their Honours said:

"An act done in breach of a condition regulating the exercise of a statutory power is not necessarily invalid and of no effect. Whether it is depends upon whether there can be discerned a legislative purpose to invalidate any act that fails to comply with the condition. The existence of the purpose is ascertained by reference to the language to the statute, its subject matter and objects, and the consequences for the parties of holding void every act done in breach of the condition. Unfortunately, a finding of purpose or no purpose in this context often reflects a contestable judgment ... A better test for determining the issue of validity is to ask whether it was a purpose of the legislation that an act done in breach of the provision should be invalid."

[13] The defendant points to the generality of the language found in Pts 3 and 4 of ch 10 as indicating a legislative intention not to invalidate resolutions to impose a two-part tariff that did not follow with exactitude the terms of the Act. It is said that the generality, indeed the vagueness, of expression is inconsistent with a need for exact compliance. For example it is said that the requirement that the resolution be given to the Minister "as soon as practicable" (s 782) is too elastic to allow the conclusion that the resolution is of no effect if notice is not given as required. Similarly, it is to be observed that obtaining and considering a report assessing the cost effectiveness of the application of a two-part tariff is of cardinal importance to the decision of the local authority, but considerable latitude is allowed in procuring a report. There is some force in the submission which gains strength from a comparison with s 519 found in ch 7, entitled "Financial Operation and Accountability of Local Governments", which provides that the adoption of a budget that does not comply with the section is void. No such express intimation is found anywhere in ch 10.

[14] This point is, in my opinion, overshadowed by a consideration of the subject matter and objects of ch 10. Regarded compendiously it suggests that ch 10 does contain a check list of steps which, despite the generality in which they are expressed, are to be followed before a council may validly recover the full cost of supplying water by means of a two-part tariff.

It is significant that ch 10 effects a sea-change in the manner in which councils are to charge ratepayers for water. The public benefit assessment which the defendant was required to undertake with respect to its supply of water (see s 555) was performed by Arthur Andersen, the well-known firm of Chartered Accountants. They reported that the defendant had to raise an additional $1.8m from ratepayers to achieve full cost recovery for that service. To calculate the "full cost" which should be recovered from ratepayers local authorities are to include notional items of expenditure they do not in fact incur such as certain taxes and interest rates higher than the concessional rates they pay. Because consumption is to be the basis of full cost recovery patterns of water usage will change in response to economic pressure. The previous basis for charging favoured prodigal consumers was at the expense of the frugal. The elimination of this "cross-subsidy" was an express object of ch 10. The means of achieving the object will alter the burdens of ratepayers, depending upon the amount of water consumed. Arthur Andersen observed (exhibit 2P42):

"Moving to full cost pricing through a two-part tariff combines two effects which will both influence the level of water consumed. These are:

* an overall increase in revenue to reach the full cost pricing.

Under both the existing pricing structure and a two-part tariff the revenue required to reach full cost recovery is the same - around $1.8 million. However it is considered that using a two-part tariff to raise the necessary revenue is more likely to induce a greater change in the level of consumption than raising the revenue under the current pricing regime."

[15] The report also noted (p 24) that the impact of introducing a two-part tariff depended upon the design of the tariff which was a complex affair.

[16] These considerations suggest that the Act intended local authorities to consider carefully whether a two-part tariff should be imposed upon its ratepayers and, if so, the extent to which and the means by which it should be imposed. This appears the evident purpose of s 773 and s 774. It is in my view unlikely that Parliament intended that local authorities could introduce such wide ranging changes, with considerable financial consequences to both ratepayers and local authorities, without carefully considering the ramifications. Part 3 of ch 10 should be seen as Parliament's endeavour to ensure that sufficient scrutiny was given to the introduction of the new charge.

[17] It is suggested in "Government Decision Making" by Lane and Dixon, published in "Government Law and Policy, Commercial Aspects" edited by Horrigan, p 134 that

"The courts would appear more inclined to find legislative intention that strict observance with procedure is required where property interests of individuals are involved."

referring to Mayor of Geelong City v Attorney-General (1988) 16 ALD 250 and Tickner v Bropho [1993] FCA 208; (1993) 40 FCR 183. The same view is expressed in Halsbury's Laws of Australia p 10-2070:

"If non-compliance has an adverse effect upon the property rights of individuals the court may be more inclined to conclude that invalidity results from non-compliance."

The expression of principle lacks detail as do the cases cited in support. Mayor of Geelong held that, because a notice did not set out what the statute required, ministerial action for which notice was a pre-condition was invalid, on the basis that the action might have encroached upon rights. The rights are not clearly identified in the report but appear to have been of a civic nature involving the level of local government representation to the residents of a municipal area.

Gillard J noted in SS Constructions Pty Ltd v Ventura Motors Pty Ltd [1964] VicRp 32; (1964) VR 229 at 239-8

"... provisions ... conferring private rights or granting powers ... are generally accepted as mandatory, particularly where conditions are attached to the exercise of the duty or the power ... ".

The passage was quoted with approval by Davies and Gummow JJ in Formosa v Secretary Department of Social Security [1988] FCA 291; 81 ALR 687 at 692.

The provisions of ch 10 neither confer nor remove private rights but they do allow local authorities to raise, by a novel means, considerable extra revenue from their ratepayers and describes the procedure to be followed before that transfer of wealth occurs. The English Court of Appeal thought that where a statute empowers a local authority to raise revenue from the public any requirement contained in the Act about things which should be done before the power is exercised had to be strictly complied with. The case is Sheffield City Council v Grainger's Wines Ltd [1977] 1 WLR 1119 in which Scarman LJ said at 1125:

"... it emerges as perfectly clear upon authority that, if a power is given to impose a financial burden upon a member of the public, then the donee of that power - in this case the rating authority - must act strictly in accordance with the requirements or conditions laid down by Parliament so that it may have the benefit of the exercise of that power."

[18] It is difficult to see what purpose the procedures set out in Pt 3 serve if not to make a local authority comply with them. The defendant's suggestion that the chapter is but a means of encouraging local authorities to embrace economic efficiencies for the good of the nation and the financial well being of the State does not withstand examination. That purpose could have been achieved by the State making private administrative arrangements with local authorities which implemented full cost recovery charging. The arrangements would have allowed the State Government to pay part of the Commonwealth's incentive to those authorities which adopted the reforms. Separate legislation may have been unnecessary. Certainly no procedure such as appears in ch 10 would have been needed. The procedure must serve some other purpose. It appears to be the protection of ratepayers on whom the new burden will fall. The procedures are meant to ensure that local authorities are aware of problems in implementing change and endeavour to provide a tariff that avoids the worst anomalies and unfairnesses.

[19] Moreover the legislation appears to have placed considerable importance upon obtaining a report dealing with the introducing of a two-part tariff. The evident purpose is to focus the attention of the local authority upon the economic advantages and disadvantages of a two-part tariff and the problems of implementing one. It is noteworthy that if a local authority does not adopt the recommendations contained in the report it must specify why it does not do so. This seems to confer pre-eminence on the report.

[20] The conclusion that ch 10 does contain restrictions upon the exercise of power to impose a two-part tariff does not mean that all of the provisions of the chapter must be complied with exactly if a resolution imposing such a charge is to be valid. The provisions may not rank equally in importance. Some requirements may be of such significance that it must be presumed that Parliament intended exact compliance. Others may admit of the interpretation that substantial compliance will be sufficient to ensure validity. Some others may be of such a nature as to make it unlikely that Parliament intended a resolution to be invalid where a council did not comply at all. See Victoria v Commonwealth and Connor [1975] HCA 39; (1975) 134 CLR 81 at 179 per Stephen J and the discussion in Statutory Interpretation in Australia, 3rd edition by Pearce and Geddes par 11.22. It is necessary to consider separately the respects in which the plaintiff complains that the defendant did not follow the requirements of ch 10 and determine whether there has been precise or substantial compliance with the particular provision and, in the event there has not been exact compliance, consider what consequence the statute provides. The concept appears adequately summarised by proposition 4 in Tasker.

Before doing so, it is convenient to deal with the defendant's contention that ch 10 is not the source, or the only source, of its power to impose water charges.

[21] The argument starts with s 963, found at the commencement of Pt 2 of ch 14, which provides that a local government may make and levy separate rates and charges, special rates and charges and utility charges. Section 973 provides that a local government may levy a utility charge on any land and may do so "on the bases [it] considers appropriate."

[22] The defendant relies on these sections which, it submits, were left untouched when ch 10 was introduced. Section 973, it is said, confers "great flexibility" on a local authority when deciding the basis on which to charge for water. The section is sufficient statutory authority for the charge made by the defendant in its budget.

[23] The plaintiff's answer is that the provisions of ch 14 have to be read subject to ch 10. The latter effected a radically new approach to local government cost recovery in general and charging for the supply of water in particular. Chapter 10 is said to be an elaborate code allowing local authorities to obtain a state government subsidy should it resolve to implement a two-part tariff in an endeavour to effect the efficiency desired by COAG. Because of the novelty in approach the State government has thought it necessary to provide for specific procedures to be followed to ensure that a local authority has fully investigated whether it should implement such a scheme and how it should do so. This specific topic is covered by ch 10 which is to be taken as restricting the more general authority to charge for water found in ch 14.

[24] The plaintiff relies upon the principle of statutory construction which is given expression in such cases as Anthony Hordern & Sons Ltd v The Amalgamated Clothing and Allied Trades Union of Australia [1932] HCA 9; (1931-2) 47 CLR 1 at 7 (per Gavan Duffey CJ and Dixon J):

"When the Legislature explicitly gives a power by a particular provision which prescribes the mode in which it shall be exercised and the conditions and restrictions which must be observed, it excludes the operation of general expressions in the same instrument which might otherwise have been relied upon for the same power".

The passage was quoted by McHugh J in Saraswati v The Queen [1991] HCA 21; (1990-1) 172 CLR 1 at 24 where his Honour continued:

"The principle that a statutory power, expressed in general form, is not to be construed so as to avoid any condition or limitation placed on the exercise of a specific power has been recognised in this Court on other occasions ... in Leon Fink ... Mason J. said:

'It is accepted that when a statute confers both a general power, not subject to limitations and qualifications, and a special power, subject to limitations and qualifications, the general power cannot be exercised to do that which is the subject of the special power'."

[25] It is true that when ch 10 was introduced into the Act the powers contained in s 963 and s 973 (which were renumbered) were not expressly circumscribed. However, the Act, including ch 10, has to be read as a whole. So regarded it contains ch 14 conferring general powers to levy water charges on any basis thought appropriate by the local authority and ch 10 introducing a wholly new concept of full cost recovery for water charges and a new means of achieving that end. The general powers conferred by ch 14 predated the specific provisions found in ch 10. The two must be read so that ch 14 operates with respect to water charges that do not involve full cost recovery by a two-part tariff. If, as I think, ch 10 does contain restrictions upon a local authority's power to impose two-part tariffs those restrictions must, of necessity, apply to the charging power found in ch 14. It would be nonsense if the Act contained two separate conferrals of power to impose a two-part tariff: that found in ch 10 and that found in ch 14: one subject to restrictions and the other not. The restrictions must apply to both.

[26] The defendant argued that even if it were mistaken about the source of its power to impose the two-part tariff, because there was in fact sufficient statutory authority for it in s 973, the charge would be valid. Like Moliere's middleclass aristocrat who wrote prose without knowing he was doing so, the defendant may have levied a lawful charge though mistakenly thinking its power to do so came from ch 10. This argument cannot be accepted. For the reasons I have explained the power to impose a charge for water based upon a two-part tariff is specifically dealt with in ch 10. Section 973 does not contain an alternative, untrammelled, power.

[27] It follows that a local authority may not lawfully proceed to the new basis of charging without following the legislative steps which were enacted to protect ratepayers from hastily devised or ill advised charges.

[28] The plaintiff complains that in a number of respects the defendant did not comply with statutory procedures. The first batch of complaints stems from the terms of s 773 which oblige a local authority to have an assessment of the cost effectiveness of the application of a two-part tariff carried out, and to have a report prepared consequent upon the assessment. Section 774, it will be recalled, compels the local authority to decide how the assessment is to be conducted, the matters which must be addressed in the report and when the report is to be presented. The plaintiff asserts that the defendant did not perform any of these obligations. The facts do not bear out this particular lament.

[29] On 14 August 1997 the defendant's Finance and Corporate Services Committee ("Finance Committee") met to consider a report from Mr Barwise, the director of engineering services, on the subject of "National Competition Policy - Full Cost Pricing and Two Part Water Tariff". The report noted that the defendant had received a report from Arthur Andersen which indicated

"... that the issue of full cost pricing particularly in water supply needs to be considered in conjunction with the possible introduction of two part tariffs ... The issue of two-part tariff needs to be considered in the light of the COAG requirements ... There are ... implications in respect of full cost pricing and two-part tariffs through the Local Government Legislation Amendment Act 1997 recently adopted by the State Government. This legislation requires Councils to undertake a further assessment of the cost effectiveness of introducing two-part tariffs. A 'two-part tariff report' is required ... for the ... assessment report process, Council must decide on how the assessment is to be conducted and the matters the report must deal with and when the Report is to be presented to Council ... it is considered that significant further work will be required to fully assess the implications ... of introducing full cost pricing and particularly two-part tariffs ... It is suggested that this further work needs to proceed by way of a further consultancy which would address in far greater detail the costing of all relevant services that need to be considered in arriving at a full cost pricing regime together with factoring in all of the other requirements for full cost pricing ... Upon completion of this costing analysis, further assessment can then be made of the desirable pricing structures for a two-part water tariff that could possibly be applied and the costs and benefits of such under Council's overall charging structure ...".

"(a) Council authorise the Consultancy to address the implementation of full cost pricing for ... Water Supply ... and to assess the cost effectiveness of applying a two-part tariff for water supply ... including proposals for implementation if deemed to be cost effective.

(b) The Chief Executive Officer be delegated authority to award a Consultancy based on submissions received through invitations to quote ...

(c) The final Reports ... to be presented to Council by no later than the end of February 1998.

[30] The Finance Committee resolved to receive and adopt Mr Barwise's report when it met on 14 August 1997. The defendant's minute recording its adoption of the finance committee's report and recommendation may not be in evidence. It appears from a notation on p 5 of the finance committee's report that by minute 288/97 the council resolved in terms of the recommendations. This minute is not in evidence, but minute 300/97 which is, notes that the defendant resolved to adopt item F1 (inter alia) of the finance committee's report of 14 August 1997. Item F1 was the report on two-part tariffs from which I have quoted.

Mr Keller deposes that he was authorised by the defendant to engage consultants to make the assessment referred to in the finance committee report. Pursuant to that authority he engaged Marsden Jacob Associates, a firm of consulting economists, who produced a report entitled "Cost effectiveness study of two part tariffs" on 3 March 1998.

[31] These facts establish compliance with the requirements of s 774. The section does not require an assessment to be conducted in a particular way. It requires only that the council determine how the assessment should be done. It did so by engaging consultants to address the questions put to them and which had been identified in the finance committee report. The defendant did resolve the date by which the report should be presented.

[32] Although the plaintiff has not made good its allegation that s 774 was not obeyed, a point does arise from the second requirement that the defendant must decide what matter should be addressed in the report. This has an importance when consideration turns to the requirements of s 773 which appear to have been taken seriously by Mr Keller and his staff. They produced a document entitled

"Consultancy for full cost pricing and two-part water tariff

The document formed the basis on which Marsden Jacob Associates were retained. The conditions of tender provided:

"It is proposed that the Consultancy will generate two separate reports. The First ... will address the issue of full cost pricing ... The second ... will deal with the issues of a two-part tariff for Water Supply."

What follows is important. I reproduce it with the addition of numeration for ease of understanding and emphasis.

"The Report will (1) develop a proposed two-part tariff structure and if deemed to be cost effective ... (2) will make recommendations on the extent to which it is to be applied, (3) strategies for application and (4) [the] timetable for implementation. In particular, the Report must (5) address any implications for additional infrastructure such as meter replacement programmes, billing systems, any additional operating costs and impacts of bulk water supply agreements currently in place. (6) Quantitative and qualitative impacts of both costs and benefits of moving to a two-part tariff arrangement will need to be addressed.

(7) The Report should also address the expected range of demand responses arising out of introduction of a two-part tariff taking into account the particular environment applicable for Logan in terms of climate, soils and socio-economic profile of the City. (8) The report should also provide data on possible additional complimentary strategies for demand management, which could be adopted with a two-part tariff as an integrated package.

(9) The report should address possible impacts of differing two-part tariff structures on different customer grouping. (10) The report should provide advice on any implementation strategies deemed necessary to address social consequences of implementing two-part tariffs.

(11) In addition the Report will need to address any cross subsidies arising out of the proposed tariff structures ...

(12) It will also need to identify any community service obligations for ... water ...

(13) The Report will also need to identify any classes of customers who, under the proposed tariffs, will be provided with services at prices below full cost recovery."

[33] Section 773, which requires a local authority to have a two-part tariff report prepared, follows on from s 774. The report which s 773 obliges a local authority to procure is the report which, by s 774, must deal with the matters identified by the authority. If the report does not address those matters it is not a report of the type which s 773 insists upon. The report must, obviously, tackle the question of the cost effectiveness of a two-part tariff but it must do so in a way which addresses specifically the matters the local authority decides need to be reported on. The defendant in the composition of its conditions of tender specified what Marsden Jacob Associates were required to consider. A perusal of their report shows they did not do so. It would be tedious to set out in full, or even substantially, what is contained in the Marsden Jacob report. In essence it assumes that the introduction of a two-part tariff will result in a 10 per cent reduction in demand for water. It assumes that capital expenditure on water infrastructure would remain unchanged but that there will be an increase in water metre usage and therefore replacement cost. It calculates the savings to be had in the purchase of bulk water by reason of the reduced demand. It allows for the reduced costs of pumping the reduced amount of water and makes some minor adjustments for increased costs of administration. It concludes that the reduced demand caused by a two-part tariff will result in savings of about $7.3m per year and ends on this note:

"A cost effective analysis ... indicates that substantial benefits are potentially achievable through the introduction of a two part tariff. These benefits largely flow from a net reduction in bulk water charges payable ... The level of demand reduction ... required in order for net benefits to accrue ... is around 3%. Experience elsewhere would suggest that this level of reduction should easily be achieved."

[34] The Marsden Jacob report deals with the question of two-part tariffs and their cost effectiveness at a marked level of generality, and even abstraction. Although it runs to 12 pages it appears superficial. Of the 12 topics identified in the conditions of tender it spoke only to number 7 and partly to number 6. It did not mention the first topic, "Develop a ... two-part tariff structure ..." nor did it consider the impact of differing two-part tariff structures on different consumer groups. The defendant's request for specific information was ignored. The critical assumption that water consumption will reduce by 10 per cent to generate savings is not justified by reference to data or argument. It is silent on the question of what type of two-part tariff is appropriate for the defendant.

[35] The Marsden Jacob report was prepared as a draft. The means by which it became accepted as the final report for the purposes of s 773 is glossed over in the defendant's evidence. According to Mr Oberhardt, the defendant's City Governance Manager, their report was:

"Considered and discussed by various council officers and counsellors in informal meetings ... Marsden Jacob also participated in these discussions. An outcome ... was that the draft report ... was to stand as the final report."

There is no satisfactory proof that the defendant altered its resolution to adopt the finance committee's report and recommendations which outline the need for a two-part tariff report which condescended to detail. Nor is there any evidence that Mr Keller was authorised by the defendant to commission a two-part tariff report other than one which dealt with the matters contained in the finance committee report and for which conditions of tender were prepared. In short there is no evidence that the defendant decided that the report did address all the matters which it thought necessary to a careful judgment on whether to introduce a two-part tariff. It does not seem to have occurred to anyone that the Marsden Jacob report did not meet the conditions of tender nor address the specific points raised in the finance committee report.

[36] The plaintiff complains that the Marsden Jacob report did not:

1. recommend the application of a two-part tariff;

2. recommend the extent to which a two-part tariff should be applied;

3. propose any strategies for the implementation of a two-part tariff.

Section 773(2) provides that a two-part tariff report must include each of these matters. It follows, the plaintiff argues, that a mandatory pre-condition to the defendant's resolving to apply the two-part tariff was not satisfied. It is true that the Marsden Jacob report does not contain a specific recommendation that a two-part tariff be applied or the extent to which it should be applied. It does not propose any strategies for implementation.

The defendant submits that the Marsden Jacob report:

1. identified the existing regime for water supply and tariff structure noting specifically that effectively all properties were fitted with water meters;

2. noted weaknesses in the current tariff structure;

3. noted that the purpose of the report was to assess the benefit and cost of restructuring the current tariff in order to implement a more efficient and effective two-part tariff;

4. expressed the opinion that a restructuring would achieve a more efficient outcome in terms of the use of the water supply system;

5. concluded that substantial benefits were potentially achievable through the introduction of a restructured tariff;

6. concluded that those benefits would come from a reduction in the cost of water to the defendant;

7. concluded that sufficient demand reduction would be achieved to realise those benefits.

The argument continues that the foregoing lead inevitably to a conclusion that the report recommended "a change of the existing tariff structure to a more efficient two-part tariff" which would apply to all consumers of water within its area and that no strategies were necessary to implement the two-part tariff.

There is no doubt that the tenor of the Marsden Jacob report favours two-part tariffs and asserts that considerable cost savings will result from their introduction. It may be possible to draw the inferences for which the defendant contends.

[37] However, a deeper problem remains. Section 773 is not concerned with generalities. I have already noted (par [19]) the importance which the legislation imparts to a two-part tariff report. Its evident purpose is to require a local authority to focus upon whether it should introduce a two-part tariff to achieve the objectives described in ch 10. In my opinion a local authority is not in a position to make that decision unless it has a report which discusses, with particularity, the introduction of a two-part tariff. To comply with s 773 the report must specify a particular tariff structure (or perhaps several such structures) and address specifically how each would work in terms of the effects it had on consumers and revenues. The defendant seems clearly to have had this in mind when it prepared the terms of the retainer for Marsden Jacob & Associates. It specifically required them to develop a proposed two-part tariff structure and to report upon possible impacts of differing two-part tariff structures on different consumer groupings. Their report did not begin to do so.

[38] The omission of the specific concerns raised by s 773(2) is symptomatic of this fundamental failure of the Marsden Jacob report to deal with what the defendant had asked for and what, in my opinion, the section required. It is not just that the report failed to state explicitly conclusions which may be implicit. The content of the report was insufficient to allow its author to make the recommendations described in the sub-section or to decide whether any strategies were necessary to implement a two-part tariff.

[39] I conclude that the defendant did not have prepared the two-part tariff report which s 773 insists upon. There are two bases. The first is that the report must be that which addresses the matters which the local authority decided should be discussed. The second is that s 773 itself required the report to deal with a particular tariff structure (or particular tariff structures). The recommendations and any necessary strategies to implement a two-part tariff can only be decided on with reference to a particular proposal. The decision required of a council is whether a particular two-part tariff should be implemented and the extent to which and the means by which it should be implemented. A decision whether to apply such a tariff cannot be sensibly or responsibly made except with reference to a specific proposal the effect of which on the community is assessed in the report.

[40] The need for particularity when considering cost effectiveness of two-part tariffs is, I think, clear. Some two-part tariffs may be cost effective but others may not be. Unless the report deals specifically with particular tariff structures a local authority may resolve to adopt a two-part tariff which is not cost effective. A local authority cannot sensibly decide, pursuant to s 778, whether to apply a two-part tariff if it does not know what it is deciding to apply. The same is true of the decision required by s 783 and s 784 to implement a two-part tariff.

[41] The defendant's answer to these criticisms of its two-part tariff report is to emphasise the distinction between full cost recovery for the supply of water and the cost effectiveness of a two-part tariff. It submits that

(a) s 773 does not require that there be an assessment of a tariff which achieves full cost recovery and

(b) the section requires only a consideration of the cost of applying a two-part tariff and the benefit resulting from that application.

It is pointed out that the Marsden Jacob report identified "cost effectiveness" in these terms:

"The purpose of the study is to assess whether the costs associated with developing, refining and implementing a two-part tariff are cost-effective when measured against the savings in capital and operating expenditures that might result from any reductions in demand that could reasonably be attributed to the introduction of a two-part tariff."

The criticism that whether costs associated with developing, refining and implementing a two-part tariff are less than the resulting savings, cannot be determined until the costs and savings are known, is not met by the defendant's analysis. The comparison cannot be made in the abstract.

[42] Moreover the distinction which the defendant draws misses the point. It may be true that full cost recovery is conceptually different from the cost effectiveness of implementing a two part tariff, but the existence of the distinction does not detract from the requirement that a report into the cost effectiveness of applying the tariff should define the tariff and identify both costs and savings. Moreover the distinction is not great. The express object of ch 10 as set out in s 769 is to achieve "efficiency and sustainability in the use of water" by:

(a) requiring decisions by local governments whether two-part tariffs are to be applied;

(b) if two-part tariffs are to be applied - requiring implementation of tariffs in accordance with the decision;

(c) requiring charges for water to be based on consumption; and

The definition of two-part tariffs concludes with the admonition that they are meant to achieve "efficiency and sustainability in the use of water". In my opinion the intention of ch 10 is that the designated goal is to be achieved by applying a two-part tariff which charges for water on the basis of consumption and recovers the full cost of supplying water. This is the evident purpose of a two-part tariff, and the cost effectiveness of the tariff cannot be assessed without regard to the fact that it is to effect full cost recovery by charges based on the amount of water consumed. I noted in paragraph [9] the implicit assumption that full cost recovery is to be achieved by the application of a two-part tariff.

It may be observed that when the defendant set about the statutory tasks of obtaining reports and resolving whether to implement a two-part tariff it did not draw the distinction now advanced on its behalf.

[43] The defendant further submits that a consequence of finding that an assessment of cost effectiveness must involve specificity in terms of revenue to be raised from a two-part tariff, would be that a local authority could never vary its tariff charges unless it first obtained a two-part tariff report. This does not follow from the legislation. It is the initial decision to implement a two-part tariff in order to achieve statutory objectives they must be preceded by a report. The Act says nothing about alterations in the level of charges which may appear expedient by reason of accumulated experience.

[44] Chapter 10 does not expressly prohibit a local authority from resolving to implement a two-part tariff without first obtaining a s 773 report. It is, however, necessarily implicit from the terms of s 773, s 775, s 779 and s 780 that the preparation and presentation of the two-part tariff report is to precede a local government resolving whether to apply a two-part tariff. I conclude that obtaining a report dealing in detail with

2. the social and financial burden on ratepayers if such a tariff is imposed;

3. the effect of the tariff on consumption and revenue

lies at the heart of the processes which local authorities are commanded to follow as they move to implement the COAG reforms. In my opinion the preparation of a report in accordance with s 773 and s 774 is a pre-condition to the decision which a local authority must make pursuant to s 780 whether to apply a two-part tariff.

[45] The Marsden Jacob report does not fulfil the requirements of s 773. It does not even do so substantially. It follows that the defendant was not authorised to proceed as it purported to do on 2 June and 14 July 1998 to levy water charges on the basis of a two-part tariff.

The plaintiff complains also that the report was not presented to a meeting of the defendant as required by s 775. What happened was that Marsden Jacob Associates delivered the draft report on 3 March 1998. On 14 April 1998 a copy of the report was sent to each of the defendant's counsellors. On 25 May 1998 the defendant's Works and Engineering Services Committee ("work committee") met to consider, inter alia, a report from Mr Barwise on the subject of "two-part water supply tariffs". Mr Barwise's report noted that a copy of the Marsden Jacob report had been supplied to counsellors and that a copy of the report would be tabled at the committee meeting. An executive summary of the Marsden Jacob report was included with his report which itself summarised what Marsden Jacob had said and concluded with recommendations:

"1. [The defendant] receive the reports prepared by Marsden Jacob Associates ... 'Cost Effectiveness Study on Two Part Tariffs'.

2. [The defendant] agree in principle to introducing a two part tariff for water supply ... the timing for the introduction being further considered during formulation of [the defendants] 1998/99 budget."

The works committee resolved to recommend Mr Barwise's recommendations to a full meeting of the defendant. On 2 June 1998 by minute 187/98 the defendant resolved to adopt the recommendation of the Works Committee in respect of items "W9 to 13 inclusive". Mr Barwise's report was item W11. In this cryptic way the defendant resolved to receive the Marsden Jacob report and to decide "in principle to introduce a two-part tariff for water supply ... with the timing for the introduction being further considered during formulation of the next budget."

[46] The plaintiff's point is that the Marsden Jacob report was not presented to a meeting of the defendant because copies of the report were not given to the counsellors at the meeting or with the agenda papers prior to the meeting. At most what was provided was the executive summary attached to the Works Committee report.

There is a dearth of evidence about what papers were provided to the counsellors for the meeting of 2 June 1998. What evidence there is suffers from confusion. It is not altogether clear that the executive summary was included in the papers provided to counsellors. Had the full report or even the executive summary been included in the papers given to counsellors for the meeting it should have been relatively easy for the defendant to prove the fact. It was slow to understand that the plaintiff's point was that the report had not been "presented to the meeting", although the argument was advanced plainly by counsel for the plaintiff and Mr Keller, the defendant's chief executive officer, was cross-examined explicitly on the point. When the point was stressed in submissions the defendant was given leave to adduce further evidence, after it had closed its case. Even so there is no direct evidence as to what was before the counsellors at the meeting. No set of the agenda papers has been put into evidence. No counsellor has deposed to having been given a copy of the Marsden Jacob report for the meeting. In the ordinary course, the defendant's files relevant to items on the agenda for a particular meeting are held in an office approximate to the defendant's counsel chamber from whence they can be fetched if, during debate, any counsellor requests them. Mr Oberhardt thinks it likely that the Marsden Jacob report would have been in a file held in the office I have mentioned during the meeting of the defendant on 2 June 1998. There is no evidence that the report was sent for.

Mr Keller's recollection was that the executive summary was included with the agenda papers and that bound copies of the full report were brought to the council chamber prior to the meeting. Despite Mr Keller testifying that the agenda papers would be in the bound minute book neither that book nor a copy of it was put into evidence. Nor did the defendant produce one of the bound reports which Mr Keller thought had been at the meeting.

I conclude from this that the Marsden Jacob report was not given to the counsellors with the agenda for the meeting nor were copies distributed at the meeting. It may be accepted that a copy was in a file not far away but no-one appears to have known that fact or cared about it. It is, I think, clear from Mr Oberhardt's evidence that the report of the Works Committee did include the executive summary and I am prepared to find that that report, including the summary, was supplied to counsellors with the agenda. It would be remembered that copies of the Marsden Jacob report had been sent to counsellors on 14 April 1998.

[47] The question is whether the delivery of the full report in April and the delivery of the executive summary as part of the agenda for the 2 June meeting constitute the report being "presented to a meeting" of the defendant. The plaintiff submits, I think correctly, that the purpose of the provision is to ensure that a local authority gives due consideration to the contents of the report which must lead to the imposition of a two-part tariff, if that is recommended, or an explanation of why the tariff should not be introduced. As the plaintiff's counsel submit, the defendant was required to give the contents of the report "mature deliberation and debate". But even so it does not follow that the only means of achieving that purpose is to give out a copy of the report at the meeting or shortly before. The executive summary went out with the agenda. It was prepared by the author of the report and is a fair precis of the longer document. The full report had been given to counsellors six weeks before the meeting. The agenda informed the counsellors that they were recommended to receive the report and agree in principle to introduce a two-part tariff. A summary reminded them of what the report said. In my view, what was done was sufficient to amount to "presenting" the report to a meeting of the defendant. The section does not require an empty ritual. What was required was something that would focus the minds of the counsellors on the report and whether the defendant should move to introduce a two-part tariff. If that were done by whatever means the report was presented to a meeting. I think it was done.

[48] The plaintiff complains that the two-part tariff report was not open to inspection as required by s 779. The failure is said to be two fold: the report was not relevantly open to inspection by members of the public and the time during which it could be inspected was less than that prescribed.

[49] I do not think the complaints have any substance. Between 2 June and 14 July 1998, which are respectively the dates the defendant contends the report was presented to a meeting of the defendant and the date on which it resolved to apply a two-part tariff, copies of the report were held at the defendant's public offices. Its practice is to allow members of the public access to documents which the defendant has resolved to receive, such as the report. The documents are kept in a separate office but are produced on request. In addition, copies are held in the defendant's library access to which is not open to the public but from which documents are supplied to the public who ask to read them.

[50] The plaintiff argues that the report was not open to inspection unless it could be read by a member of the public who did not have to ask for it. The plaintiff also hinted at an argument that the report could not be open to inspection unless in some way the defendant advertised the fact that it was accessible. There is nothing in this point. The Act does not require that public notice be given of the adoption of the report or that it is available to be read. It requires only that the report be open to inspection. Nor is the complaint that a member of the public had to ask for the report legitimate. The phrase "open to inspection" is defined by s 7 which provides that a document open to inspection must be held at a local authority's public office. A member of the public must be able to inspect the document and make copies of or take extracts from it without fee. By sub-s 4 the custodian of the document is relieved of any obligation to assist in making a copy or taking an extract. There is no warrant in these provisions for a conclusion that to be open to inspection a document must be in those parts of the local authority's offices into which the public has free access. If a document is kept in an area reserved for employees, but is produced on request, it is "open to inspection". Requesting the document for perusal is no obstacle to its inspection. There would be obvious inconvenience if a council had to keep all of its documents which are required to be open to inspection in waiting rooms or foyers or the like. There would be a considerable risk that the documents might be mislaid or become disordered if they were not kept in a secure place. A local authority could not select which of the many documents it is obliged to keep open to inspection should be held in a public area. It would have to keep them all there. Section (7)(4) seems to contemplate that documents which are open to inspection are "kept in custody".

[51] There is more substance in the complaint that the report was not open to inspection for the requisite period, but it too fails. Section 779 requires the report to be available for perusal between the meeting at which the report is presented and that which decides to apply the tariff. On 2 June the defendant resolved to adopt the report of the Works Committee of 25 May 1998. On 14 July 1998 the defendant resolved to adopt the "formally tabled consolidated budget and supporting documentation including the statement of rates and charges". The plaintiff submits that it was the meeting of the defendant on 2 June which decided to apply a two-part tariff. I agree. It was that meeting which accepted the works committee recommendation thereby resolving in principle to introduce a two-part tariff. The decision to adopt the budget was no more than the implementation of the earlier resolution.

[52] Section 779, which requires the report to be open to inspection between its presentation to a meeting and the decision to apply the tariff, assumes that presentation and decision will not occur at the same meeting. However the Act does not in terms forbid the same meeting from being the one to which the report is presented and the one which makes the decision. It would seem important that the report be available for public inspection before a decision is made to adopt a two-part tariff which will have a substantial impact on costs levied on ratepayers. Moreover implementation of the tariff is complex and problems that might be overlooked could be brought to light by the public being informed of what was contemplated. However the Act does not specify a period for which the report is to be publicly available except by reference to events which may occur simultaneously.

The assumption that underlies s 779 does not find expression in the wording of the section and it is not a legislative imperative that there be two meetings.

[53] There is a question whether the water charges which the defendant resolved to make as part of its budget are in reality a two-part tariff as defined by s 772. There is no doubt the defendant believed it was implementing such a tariff. Mr Keller, in his affidavit, deposed that the defendant resolved on 14 July 1998 to adopt a two-part water pricing tariff discussed in the Marsden Jacob report. Mr Oberhardt deposed that

"The two-part tariff system was adopted by Council by resolution on 14 July 1998. The system is set out in the statement of rates of charges adopted by that resolution."

[54] A two-part tariff is a basis for a water charge which consists of access and consumption components. The legislation contains no help in understanding what an "access component" may be. The parties accept that it is a reference to the extent to which a property has access to the reticulation networks. Ratepayers are to be charged not only for the cost of water consumed (which would include the cost of water itself, the cost of electricity to pump it through the mains and chemicals to treat it) but the cost of the network of pipes, valves, pumps and meters through which the water is distributed.

[55] Section 783 which is found in Pt 5 of ch 10 - "Implementation of ... Charging Arrangements ..." provides that if a local government has resolved to apply a two-part tariff it must do so and ensure that consumption is the basis for charging for water. As well, the amount charged must effect a recovery of the full cost of supplying water.

[56] At first sight there is an inconsistency between insisting upon

1. a two-part tariff which includes a component of charge referenced to access to the reticulation network; and

It is apparent that a charge based on access is not the same as one based on consumption. Ratepayers connected to larger pipes by larger valves requiring larger meters, the cost of which will be greater than the cost of providing smaller pipes and fittings, may consume less water than some connected to smaller pipes.

[57] There is a means by which the conflicting requirements can be reconciled. That is by charging different unit rates for water depending on the size of the pipe through which it is supplied. So a litre of water will cost more if it is supplied through a larger (and therefore more expensive) pipe than a litre of water supplied through a smaller (and cheaper) pipe.

[58] The defendant's water charge does not answer the statutory description of a two-part tariff. That definition requires a single basis for charging which includes components referable to

The reconciliation between these apparently conflicting requirements which I have essayed is the only means I can see by which a charge based on consumption may include an access component. The parties have not suggested any other.

[59] The defendant's water charge adopted in its last budget contains no component at all for consumption, at least so far as concerns the plaintiff. It is charged $12500 calculated by reference to the apparatus by which it is connected to the pipe network. Consumption is not any part of the basis on which the plaintiff is charged for water.

[60] Section 783 appears explicit in its terms and, in the old terminology, is mandatory. The whole point of the COAG reforms on water charging is to bring about the regime which is described by s 783. If a local authority resolves to apply a two-part tariff it must ensure that consumption is the basis for water charges. The defendant has resolved to apply a two-part tariff but it has not done so.

[61] The defendant argues that a two-part tariff, and the requirement that charges for water are to be based on consumption, are separate and distinct matters. It refers to some of the provisions in ch 10, such as s 784 and s 786, which "provide for completely separate timetables for the start of work to apply two-part tariffs and strategies for charging on a consumption basis." Those two sections do create different time frames but I cannot accept the defendant's point. The sections are concerned separately with when a local authority must resolve to adopt a two-part tariff and when it must implement that resolution. They do not affect what is meant by a two-part tariff or how it is to operate. Section 783 insists that if a local authority resolves to apply two-part tariff it must do so and make consumption the basis for its water charges. If the section is to be obeyed it is not possible for there to be a two-part tariff that does not charge for water on a consumption basis. It may, of course, be possible for a local authority which has not resolved to apply a two-part tariff to make consumption the basis on which it charges for water. The defendant, however, is not in that category. It has resolved to apply a two-part tariff. It must therefore ensure that it charges for water on the basis of consumption.

[62] On this ground, too, I would hold that the defendant's water charge is invalid.

[63] The trial concluded on 22 October. Having considered submissions briefly it occurred to me that some of the points I have canvassed in the judgment had not been identified, or fully developed. Accordingly the matter was listed for further consideration and, on 27 October, I asked whether the parties wished to address further arguments with respect to the points discussed under the headings "Non-complying Report", and " Has the Defendant Applied a Two-Part Tariff?". The plaintiff responded affirmatively and a timetable was set for the delivery of written submissions. I indicated that if the defendant wished to adduce further evidence, particularly with respect to the first topic, it should indicate its position and the matter would be re-listed.

No application to re-open either case was made, but submissions were received from both parties. The defendant objects that the plaintiff's further arguments should not be considered because they were not included in its Points of Claim. I overrule the objection, which comes rather late, and in the absence of an application to introduce further evidence. The points raised are ones of law and arise out of a consideration of the arguments initially advanced.

[64] I declare that the water charges particulars of which are set out in part 4 of the defendant's statement of rates and charges for the year 1998/99 levied against the plaintiff are invalid. I order that the defendant pay the plaintiff's costs of and incidental to the action to be assessed on the standard basis.