Charles Levin: No safe harbour for council in storm

Hundreds of protesters marched on Quay St to oppose the wharf expansion. Photo / Dean Purcell

Opinion

The Super City's hands are tied when it comes to the law and telling the port what to do, writes Charles Levin.

The headline, "Raw anger at Brown's port stand" in Monday's Herald is probably a fair representation of the sort of pressure the Auckland Council must now be under to be more hands-on with the Ports of Auckland following the overturning of the wharf extension resource consents.

This will place the council in a real quandary as it really doesn't have the power to do this under little known and somewhat obscure provisions in the Port Companies Act.

None of the normal local government levers apply to port companies. Ports of Auckland Ltd's constitution expressly negates the ability of the council and its investment arm, Auckland Council Investments Ltd, to give it binding directions.

The company's constitution does not permit it to act in ACIL's interests and the constitution can be changed only with the consent of the Minister of Transport.

Operationally, port companies have a high degree of independence. The effect is to create a degree of separation between port companies and the local authorities that effectively own them, by emphasising the commercial considerations relevant to running a port company (as if it were privately owned).

The normal rule is, of course, that shareholders can ultimately control the direction of a company, even against the wishes of the directors, and even to the shareholder's own detriment (as long as the interests of creditors and other stakeholders are not prejudiced). Hence, the popular misconception that ultimately the board of the Ports of Auckland must do the bidding of the populace in this matter. However, this rule is subject to any other specific law to the contrary.

This law, in fact, exists. The background to this law is that at the time of the 1988 port reforms the then government wished the traditional owners of the ports, local authorities such as the Auckland Council, to divest themselves of their commercial port interests. This was because the traditional owners had a history of involving themselves in port operations for non commercial reasons. Sound familiar?

In the end a compromise was reached where local authorities were allowed to retain their ownership of these interests subject to sections 5 and 6 of the Port Companies Act. Section 5 states port companies must have the principal objective of operating as a successful business. Section 6 states all decisions relating to the operation of the port company shall be made by the directors. Directors must achieve the objective of operating as a successful business.

While Section 11 gives the shareholder power to modify the statement of corporate intent, any modification must not interfere with the principal objective of operating a successful business. The parliamentary draftsmen have certainly done their job.

It is clear and consistent. Of course, there is room for secondary social or amenity objectives. But the directors of the Ports of Auckland, in general terms, are required to be left alone to run the business without shareholder interference.

Any direction by the Auckland Council to the directors to the contrary would be illegal. So would replacing directors to achieve a non-commercial objective. Significant losses to the ratepayers could accrue from any illegal acts for which the councillors and senior staff may be personally liable.

The recent problems in the Kaipara district spring to mind as an example of the sort of mess that can be created when a local authority acts illegally.

The Auckland Council seems to be caught in a legal storm without any prospect of shelter. Following the overturning of the resource consents the public mood is for the council to ensure accountability and change at Ports of Auckland but achieving this will be difficult, if not impossible, due to an inconvenient law.

A law perhaps only surpassed in inconvenience by the idea that if present trends in global warming continue unabated, the extensions may be returned to the public domain by the end of the century in any event.

• Charles Levin is a former lawyer who was involved with the drafting of the Port Companies Act.