Brian Fallow: When a final decision really does not appeal

Lawmakers, it seems, are increasingly reluctant to have judges second-guessing regulators even as they have given them bigger jobs to do.

The final plan delivered on Monday of the Waitaki Catchment Water Allocation Board is a case in point.

For those for whom the board's decisions do not appeal - most likely the environmentalists as it turns out - the right to appeal against them is severely circumscribed.

It is limited to questions of law. The substantive merits of the decisions are off limits.

This is frequently the way with regulatory decisions these days.

The Commerce Commission's decisions under generic competition law can be appealed against on their merits as well as points of law but when it is acting as an industry-specific regulator in electricity or telecommunications, or imposing price control, as recently over two gas distributors, it is questions of law only.

The Waitaki water case starkly shows the dangers of this approach of allowing one shot to get it right.

The board's draft plan released in February horrified much of the electricity sector.

The Government was distinctly unimpressed as well.

The draft plan threatened to nearly double the minimum flow of water Meridian Energy would have to maintain downstream of its dams and to raise the minimum level below which the water in Lake Tekapo would not be allowed to fall.

These requirements would have dramatically changed the way Meridian manages the hydro scheme that generates about a quarter of the country's power and represents 60 per cent of its hydro storage.

Water would have had to go through the turbines or over the spillways at all the wrong times. Generation would shift from winter when demand is greatest to summer when demand is relatively low.

It was a recipe for a more hand-to-mouth electricity supply and would have put upward pressure on prices.

The ability of farmers to draw irrigation water when they need it would also have been reduced.

Fortunately, after a torrent of submissions and weeks of hearings including a through-gritted-teeth one from the Government, the board has backed right off.

Unless someone lodges an appeal to the High Court within three weeks the board will now go out of existence.

It has no ongoing responsibility to make its plan work - that is the job of Environment Canterbury. Nor will it be around to amend it if it does not.

In those circumstances, the risks associated with severely limiting rights of appeal are especially acute.

But the narrow bases for appeal is a sore point for the network industries as well.

Basically there are three grounds for a judicial review:

* Has the regulatory body interpreted the law correctly?

They have their own legal advisers or can use Crown Law. If they are consulting, they can seek other stakeholders' views on the interpretation of the relevant statutory language as well. So the chances of a slip-up are not zero, but they are slender.

* Has it run a process which satisfies its legal obligations with respect to consultation?

The Waitaki board might have come a cropper on that one, as for a while it planned to limit appearances at its hearing to 15 minutes per submitter, even Meridian and the Government. But it relented. The commission's conferences or hearings are run on European inquisitorial rather than English adversarial lines. Only the commissioners and commission staff can ask questions. No cross-examination by other parties is allowed.

* Is the regulator's decision so unreasonable that no other regulator in the same position, presented with the same evidence, would have made the same call?

The courts have taken that to be a high hurdle.

That may reflect an understandable and appropriate reluctance on their part to try the facts all over again after an expert body commissioned to do just that has already done so.

A merits appeal puts the regulator and other parties on an equal footing. It asks if the decision made was the best one that could have been made in the circumstances. That is very different from asking if the decision was so unreasonable that no other regulator in its right collective mind would have come to the same conclusion.

To be fair to the Waitaki board, it said it would regard its own draft plan as just another submission as it embarked on its hearings and, to judge by the substantial changes made in the final plan, it was as good as its word.

One concern that is sometimes raised about allowing merits appeals is that incumbent companies in network industries have deep pockets and can afford to string out the judicial process until they get what they want. Justice delayed is justice denied.

A recent judgment of the Court of Appeal, given by Justice William Young, in a case between Unison Networks and the commission expressed a similar sentiment.

"We can hardly ignore the reality that utility operators often (and perhaps usually) resort to litigation when affected by regulatory action. Such regulatory action customarily involves staged processes. There is obvious scope for distortion of such processes if the courts insist that a challenge to one step in a statutory procedure must be be fully resolved before any subsequent procedural steps can be completed."

But large companies are as entitled to exercise their legal rights as anyone else and the courts are not without options in dealing with vexatious ligation.

And if the regulator's decision stands until it is overturned, what is the problem?

Another argument for not allowing merits appeals is that a court cannot replicate the expertise of a specialist expert body.

But courts deal with complex issues all the time. Rendering the issues intelligible to the lay but incisive minds behind the bench is a salutary discipline on the parties.

As an alternative to judicial review, appeals on the merits of a decision could be made to some independent expert body constituted for the purpose, as in Australia.

As transtasman harmonisation of competition law and practice is one of the central planks of the Single Economic Market project, the Australian approach is significant.

The possibility of being overturned on the merits or substance of a decision, and not just on process or points of law, is not just a matter of accountability.

It is an additional incentive for the regulator to take pains and is likely to increase confidence in the integrity of the process.

The more of a risk there is of being overturned for not getting it right the first time, the more likely it is that regulators will get it right the first time.