Survey Nelson Limited v Maritime New Zealand [2010] NZCA 629 (21 December 2010)

Last Updated: 5 January 2011

IN THE COURT OF APPEAL OF NEW ZEALAND

CA245/2010 [2010] NZCA 629

BETWEEN SURVEY NELSON LIMITED Appellant

AND MARITIME NEW ZEALAND Respondent

Hearing: 6 October 2010

Court: Harrison, Wild and Heath JJ

Counsel: H Cull QC, J A Porter and P C Dawson for Appellant M T Scholtens QC and H L Dempster for Respondent

Judgment: 21 December 2010 at 10.45 am

JUDGMENT OF THE COURT

1. The appeal is allowed.
   
2. Orders are made:
   1. declaring that the decision of the Director of Maritime New Zealand dated 20 November 2009 withdrawing Survey Nelson Ltd’s approval as a safe ship management company is invalid;
   2. quashing the Director’s decision; and
   3. declaring that Survey Nelson Ltd’s approval as a safe ship management company is reinstated and is deemed to resume effect according to its original terms from the date of this judgment.

100. The Director must pay costs and disbursements to Survey Nelson Ltd on a standard basis according to Band A. We certify for two counsel.
     

REASONS OF THE COURT

(Given by Harrison J)

Introduction

[1] Survey Nelson Ltd (SNL) appeals against a decision of the High Court which dismissed its application for orders reviewing decisions made by the Director of Maritime New Zealand to cancel the approval earlier given to SNL which authorised it to offer specified services as a safe ship management (SSM) company. While Simon France J was satisfied that the Director had made errors of law, he declined to grant relief.[1]
[2] The Director has sought to uphold the judgment on other grounds. By this means, she challenges Simon France J’s primary finding that she erred in law when cancelling SNL’s approval. Accordingly, the Director’s counsel, Ms Scholtens QC, carried the primary burden of argument on appeal.
[3] We add that after the appeal was heard both counsel submitted a series of memoranda. Originally they were directed to the issue of whether SNL’s appeal was moot. But they have expanded into wider issues of relief which were plainly live and should have been the subject of consideration and submission before the appeal was heard. We will deal with counsel’s supplementary arguments to the limited extent permissible in the course of this judgment.

The safe ship management regime

[4] We respectfully adopt Simon France J’s summary of the SSM regime as follows:

[1] The primary responsibility for the safety of ships rests with the owner. However a second tier of oversight is provided by what are known as safe ship management companies. Commercial vessels registered in New Zealand must be aligned with one of these companies which will not only do the periodic physical inspections and surveys, but will also monitor [the] adequacy of safety systems and compliance with those systems.

[2] [SNL] is such a company. It has over 700 ships on its books. In November last year the Director of Maritime New Zealand cancelled [SNL]’s authorisation to offer these services. In these proceedings [SNL] challenges that decision.

...

What is a safe ship management company?

[4] Safe ship management companies perform a quality assurance role. The starting point is that there is a safety code with which all ships must be compliant and all owners must comply. Primary and immediate responsibility for the safety of the vessel, the crew and any passengers rests with the owner.

[5] There has been established, however, a second level of protection. It is not solely a matter of checking up on the boat. The safe ship management company must itself have an approved safe ship management system. Obviously that system must incorporate and reflect the Code which binds ships, but it adds another layer of system which is designed to provide a consistency about how ships and their owners approach the tasks of ensuring safety. The move is away from ad hoc compliance and assessments focussed on a single “warrant of fitness” day to more of a systematic approach applying across the whole year and across all the vessels registered with the particular company. Whilst the process applies only between the individual vessel and the management company, the safety system the vessel is following is one that should be being applied by and to all the vessels registered with that company.

[6] The system has been described in these terms, the second paragraph of which highlights Maritime New Zealand’s concerns with [SNL].

3.97 The approach of the [Maritime Transport Act 1994] is to ensure that participants, once admitted into the system, carry out their responsibilities properly. It does this by ensuring that the participant has appropriate internal control systems. Those systems are subject to audit by the SSM Companies, which are, in turn, required to maintain proper internal control systems. These systems are equally subject to audit by the regulator.

3.98 The monitoring of those systems is a vital element in providing confidence that the vessels within an SSM company’s SSM system are safe. The identification of problems either in an SSM company’s system, or in its adherence to its systems erode that confidence.

Factual background

[5] On 17 January 1998 SNL entered into an agreement with the then Director “relating to operation of safe ship management system under delegated authority”. On 26 January 1998 the Director issued certificates of approval and an instrument of delegation of the Director’s powers to Terry and Jean Reynolds, SNL’s directors. Included within those instruments was the power to issue SSM certificates.
[6] The Director conducted a series of audits of SNL’s operations between 2004 and 2007. As a result, the Director advised of concerns about the company’s performance as a SSM organisation, culminating in the Director’s letter to SNL in October 2007. She advised that she would need to carefully consider her ongoing approval of SNL if serious audit non-conformities remained or others were detected. An audit conducted subsequently, on 29 November 2007, found further non-conformities.
[7] In April 2008 the Director decided to commission Mr Duncan Ferrier, a Wellington barrister, and Ms Margaret Roberts, a director of PriceWaterhouseCoopers, to conduct an independent review of SNL. On 30 June 2008, while the reviewers were conducting an investigation, the Director granted SNL a certificate of approval (“the approval”) with effect from 1 July 2008 until 28 February 2010.
[8] On 7 August 2008, after SNL had accepted an opportunity to respond to their provisional report, the reviewers published a final report (“the Ferrier Roberts report”). The reviewers identified two primary issues: one was how the Director might assure herself of the safety of vessels within the SNL SSM system; the other was what action should now be taken on the various maritime documents and delegations held by the company. On the latter issue, the reviewers recommended these three options to the Director:

• take no action and retain the status quo;
• take action either to suspend or revoke the delegations held by Mr and Mrs Reynolds and/or the approval of [SNL’s] SSM system; or
• appoint a Commissioner to oversee implementation of an improvement of standards within [SNL’s] SSM system.

[9] The Ferrier Roberts report concluded that SNL was unlikely to change its level of performance without the Director exercising some degree of control over the process. The reviewers noted that suspending or revoking SNL’s delegations would require alternative regulatory coverage for the 700 vessels within the company’s system. However, they hoped that:

... with goodwill from both [the Director and SNL], the appointment of a Commissioner to oversee the necessary organisational change required of [SNL] might provide a mechanism by which to ensure an adequate standard of performance.

[10] The Director accepted the reviewers’ recommendation to commission a new panel to oversee and monitor SNL. Messrs Cowper and Maddick were engaged. When seeking ministerial approval for their engagement, the Director noted that the Ferrier Roberts report highlighted two specific areas of deficiency:

(1) The adequacy and robustness of the surveys being performed under the [SNL] SSM system.

(2) The appropriateness of and accountability for the exercise of the safety regulatory functions that have been delegated to [SNL].

[11] Messrs Cowper and Maddick carried out their engagement between October 2008 and May 2009. During that period they progressively produced three reports. Copies of each were provided to SNL for comment. The final report, produced in May 2009, concluded:

Whilst there are fairly comprehensive systems in place within SNL’s Head Office, which have had some improvements since our involvement, these are still not effective in assuring the way in which the business operates and particularly how surveyors in the field are required to deliver. ... The systems in place in essence are not effectively implemented in their operation.

SNL having implemented some changes to their core systems are now focussing on training their surveyors in these system requirements. ... Of key concern is the fact that the surveyors we have interviewed are functioning in a fairly independent manner, rather than being clearly linked to the systems in place. System compliance ... is what drives action rather than understanding their functions should be taking a holistic approach to the vessel and its operation [sic].

We have spoken at length with Terry and Jean Reynolds regarding how they should be managing the conversations with their surveyors and how they need to drive them. They have progressed this to some extent, not enough or quick enough from our perspective and now need to accelerate this process.

[12] The report also advised:

In summary, the SNL systems have the basis to support the [SSM] processes and requirements effectively. From a systems perspective, there are many ways to achieve this although at this stage the SNL approach is not working to deliver a consistent safety outcome. SNL’s previous philosophy and culture was based on market share and not risk management. The lack of health and safety enforcement and no vessel operational and emergency training, together with [a] minimum of customised ships manual documentation meets expectations of their high risk clients but it does not fulfil their statutory delegation requirements to [MNZ]. This previous management culture still leaves the question of the risk status of all SNL’s fleet. A failure to implement all MNZ regulations and rules together with a lack of training of their surveyors on how to function in the risk management environment presents a high risk to their clients. The lack of a complete management systems approach and reluctance to enforce all of the statutory requirements together with the lack of risk assessment by their surveyors encourage[s] risk-taking rather than helping to reduce the overall risk.

[13] On 1 September 2009 the Director formed a provisional view that she ought to withdraw her approval of SNL’s SSM system. She gave the company notice of her intention on 7 September 2009, and invited submissions before 30 September. At SNL’s request, the Director agreed to extend the time for submissions and to postpone her decision until 30 October. Correspondence and meetings followed between the parties. On 20 November 2009 the Director advised SNL of her decision to withdraw its approval, and wrote to the owners of all vessels within its system advising of her decision.
[14] SNL applied without notice that day for interim orders restraining the Director from implementing her decision. On 26 November 2009, after hearing argument on notice, Miller J granted interim orders.[2] On 12 February 2010 the Director made an interlocutory application to discharge the interim orders. Instead, the Court ordered an urgent fixture for the substantive hearing on 9 March. Simon France J delivered a comprehensive judgment on 31 March 2010.

Issues

[15] Simon France J identified three principal questions for determination.[3]

• (a) first, whether the Director followed the correct statutory process in cancelling the approval: the answer depended on whether or not the approval fell within the statutory definition of a “maritime document”;
• (b) second, if SNL was correct and the approval was not a maritime document, whether the Director followed the correct legal process for cancellation: the answer would determine whether proper notice of the Director’s intention to cancel was given to SNL; and
• (c) third, whether the decision to cancel was unreasonable in that it was a disproportionate response to problems in the shipping industry in general.

[16] The Judge answered the first two questions adversely to the Director. He was satisfied that an approval of an organisation to be a SSM company is not a maritime document.[4] Furthermore, he was satisfied that the Director’s notice of cancellation was inadequate; and that as a result SNL was unable to provide the Director with material which may have led her to a different conclusion.[5] He rejected SNL’s alternative claim that the Director’s decision to cancel was unreasonable.[6]
[17] Nevertheless, as we have noted, Simon France J declined to intervene and quash the Director’s decision. That was because he was not satisfied that the Director’s errors led to a defect of process of a nature sufficient to justify that course;[7] and he was satisfied that the Director had proper grounds for withdrawing the approval regardless of the process defects.
[18] We will consider the first two substantive issues identified by Simon France J but not the third. As will become apparent, we endorse his conclusions both that the Director erred and that her notice of cancellation to SNL was inadequate. Thus it is unnecessary to consider the company’s alternative claim of unreasonableness. We will then review what has become the critical question of relief.

Question (1): was the approval a maritime document?

[19] The significance of whether the approval was a maritime document is this. the Maritime Transport Act 1994 (the MTA) specifies criteria for the issuing, suspension and revocation of maritime documents. The Director, who worked on the premise that the approval was a maritime document, followed that specific process when withdrawing SNL’s approval.
[20] However, the Maritime Rules which derive from the MTA provide a different set of criteria for granting, revoking or withdrawing an approval. The Director did not follow that separate process when withdrawing SNL’s approval. As will become apparent, the consequences are real and material.
[21] By way of introduction, we accept Ms Scholtens’ submission that the MTA’s focus is to achieve safety through empowering the Director to control entry into the maritime transport system through the issue of maritime documents; to place responsibility on participants in the maritime system to carry out activities and functions safely and in accordance with the relevant safety standards and practices; and to strengthen the Director’s ability to take enforcement action when necessary.
[22] We accept also that the MTA is modelled on the Civil Aviation Act 1990 and posits a safety regulation system which divides responsibility between the Director and those who, broadly speaking, participate in the system. The latter bear the primary responsibility for ensuring that their operations are managed and carried out safely, including having and implementing systems which ensure safe operations. The former’s role is to maintain an appropriate level of oversight over others by auditing their performance against prescribed safety standards and procedures. Ms Scholtens describes the Director as the “gatekeeper”, although her functions in the supervisory area extend to those of a watchdog.
[23] We also agree with Ms Scholtens that these two provisions of the MTA hold the key to the answer to the first question:

17 General requirements for participants in maritime system

(1) Every person who does anything for which a maritime document is required (in the succeeding provisions of this section called a participant) shall ensure that the appropriate maritime documents and all the necessary qualifications and other documents are held by that person.

(2) Every participant shall comply with this Act, regulations made under this Act, maritime rules, and the conditions attached to the relevant maritime documents.

(3) Every participant shall ensure that the activities or functions for which the maritime document has been granted are carried out by the participant, and by all persons for whom the participant is responsible, safely and in accordance with the relevant prescribed safety standards and practices.

(4) Every participant—

(a) Shall, if so required by maritime rules, establish and follow a management system that will ensure compliance with the relevant prescribed safety standards and the conditions attached to the document; and

(b) Shall provide training and supervision to all employees of the participant who are engaged in doing anything to which the document relates, so as to maintain compliance with the relevant prescribed safety standards and the conditions attached to the document and to promote safety; and

(c) Shall provide sufficient resources to ensure compliance with the relevant prescribed safety standards and the conditions attached to the document.

18 General requirements for persons other than participants

Every person, other than a participant (within the meaning of section 17 of this Act), who—

(a) Operates any ship; or

(b) Is responsible for any maritime product; or

(c) Is otherwise engaged in any maritime activity—

shall comply with the relevant provisions of this Act and any relevant rules.

[24] The threshold question is whether SNL fell within the statutory definition of a “participant” under s 17(1). Ms Scholtens accepts that, if Simon France J is correct that the approval was not a maritime document, SNL was not a participant. That is because the responsibilities of all persons other than a participant who are otherwise engaged in any maritime activity are governed by “the relevant provisions of [the MTA] and any relevant rules”. Whether SNL was a participant will be determined, in turn, by whether its SSM functions were performed in accordance with a maritime document – that is, in terms of s 17(1), whether it “does anything for which a maritime document is required ...”. That question will ultimately be answered by whether the approval was a maritime document.
[25] A maritime document is defined by s 2 of the MTA thus:

Maritime document—

(a) Means any licence, permit, certificate or other document issued under Part 5 of this Act to or in respect of any person, ship, cargo, maritime procedure, or maritime product; and

(b) Includes any foreign licence, permit, certificate, or other document recognised by the Director under section 41 of this Act or accepted by the Director under section 42 of this Act:

[26] Part 5 of the MTA governs the Director’s powers and duties in relation to maritime activity. The gateway to its implementation is through s 41(1), which materially provides:

(1) After considering any application under section 35 of this Act, the Director shall, as soon as practicable, grant the application if he or she is satisfied that—

(a) All things in respect of which the document is sought or, in the case of an application for recognition of a document as a maritime document, all things to which the document relates, meet any relevant prescribed requirements; and

(b) The applicant and any person who is to have or is likely to have control over the exercise of the privileges under the document—

(i) Either hold the relevant prescribed qualifications and experience or hold such qualifications as are acceptable to the Director under subsection (2) of this section; and

(ii) Are fit and proper persons to have such control or hold the document; and

(iii) Meet all other relevant prescribed requirements; and

(c) It is not contrary to the interests of maritime safety for the document to be granted, renewed, or recognised.

[27] Also significant, in this context, are the Director’s powers of suspension and revocation. In particular s 43 provides:

The Director may from time to time—

(a) Suspend any maritime document issued by the Director under this Act or under any maritime rules, or impose conditions in respect of any such maritime document; or

(b) Suspend the Director's recognition as a maritime document of any document issued by another person or any organisation, or impose conditions in respect of such recognition,—

if he or she considers such action necessary in the interests of maritime safety, and if he or she—

(c) Is satisfied that the holder has failed to comply with any conditions of the relevant maritime document or with the requirements of section 17 of this Act; or

(d) Is satisfied the holder has contravened or failed to comply with section 406 of this Act; or

(e) Is satisfied such action is necessary to ensure compliance with any provisions of Parts 1 to 15 of this Act or any regulations or maritime rules made under this Act; or

(f) Considers that the privileges or duties for which the document has been granted, or the relevant document has been recognised as a maritime document, are being carried out by the holder in a careless or incompetent manner.

[28] Furthermore, the Director is empowered to revoke a maritime document as follows:

44 Revocation of maritime documents

(1) If, at any time after an investigation carried out to decide whether any action should be taken under section 43, the Director believes that any relevant maritime document or the recognition of a document as a maritime document should be revoked, the Director may revoke that document or the recognition of that document.

(2) Where the Director proposes to revoke a maritime document or the recognition of a document as a maritime document, the Director shall give notice in accordance with section 51 of this Act, which shall apply as if the proposed revocation were a proposed adverse decision under this Act.

(3) Where a maritime document or recognition of a document as a maritime document has been revoked under this section, the holder shall forthwith surrender that document or notification of recognition of that document to the Director.

(4) Any person in respect of whom any decision is taken under this section may appeal against that decision to a District Court under section 424 of this Act.

The detailed notice provision is found in s 51.

[29] An application to issue a maritime document must be made under s 35, falling within Part 4 of the MTA governing the further regulation of maritime activities. Section 35 directs that an application “... shall be made to the Director in the prescribed form ...” or if there is no form, in a manner required by the Director. Ms Scholtens advises that there is no such prescribed application form.
[30] In accordance with s 34, Maritime Rules made under Part 4 may require that a maritime document be held by or in respect of, amongst other things:

(f) persons or organisations that provide –

(i) Maritime training; or

(ii) the testing, inspection, audit, or certification of ships or maritime products ...

[31] By s 36(1) the Minister may from time to time make Maritime Rules for a number of purposes including those:

(f) prescribing the requirements for the maintenance and periodic inspection or testing of the hull, machinery, and the systems of any ship, safety equipment, or any maritime products of any ship

...

(j) prescribing standards and requirements for the safe management of commercial shipping operations.

[32] It is at this point that the Maritime Rules assume importance. They are divided into two sections. The second section, within rr 21.9 to 21.13, governs commercial vessels which stay within restricted waters and some fishing boats. That section, in particular r 21.12, is relevant.
[33] The Maritime Rules state that the statutory basis for r 21 is in ss 17(4)(a), 34 and 36(j) (presumably referring to s 36(1)(j)). The first two provisions are respectively “general requirements for participants in maritime system”; and “maritime rules relating to maritime documents”. By contrast, s 36 is headed “maritime rules related to other matters” and s 36(1)(j) allows rules to be made “prescribing standards and requirements for the safe management of commercial shipping operations”. Ms Scholtens accepts that s 34 was not the empowering provision for r 21.12; by inference that rule can only derive from s 36.
[34] Rule 21.12 provides:

21.12 Safe Ship Management System

(1) If an organisation applies in writing to the Director for approval of that organisation’s safe ship management system, and the Director is satisfied that–

(a) the organisation possesses a valid certificate issued by a recognised accreditation body indicating that the organisation has implemented a quality assurance system which has been approved by that body and is subject to continuing audit; and

(b) the scope and field of application of the quality assurance system is for the safe management of ships in accordance with the New Zealand Safe Ship Management Code; and

(c) the organisation has been granted quality assured supplier status in terms of:

(i) AS/NZS ISO 9001:1994 as amended from time to time, for organisations which are not the owners of the ships which are in their safe ship management system; or

(ii) AS/NZS ISO 9002:1994 as amended from time to time, for organisations operating a safe ship management system for ships of which they are the owners;

then the Director must grant approval in writing to that organisation’s safe ship management system.

(2) for the purposes of approving a safe ship management system, the Director may permit an organisation to operate a safe ship management system for an agreed period and maximum number of ships prior to the organisation‘s system obtaining the approval in writing referred to in r 21.12(1).

[35] In our judgment, once it is accepted that r 21.12 derives from s 36 – dealing with matters other than maritime documents – an approval of an organisation’s SSM system cannot fall within the category of a maritime document. The organisation thus falls outside the statutory definition of a participant. A comparison of the relevant provision of the Maritime Rules and the MTA supports this conclusion.
[36] Rule 21.12(1) is a self contained set of criteria governing an application for approval. Its terms are mandatory; the Director is bound to grant approval to an applicant if she is satisfied that the application meets three specific conditions. In terms of s 36(1)(j) those conditions, particularly r 21.12(1)(b), prescribe standards and requirements for the safe management of commercial shipping operations.
[37] As Simon France J observed, the application process under r 21.12(1) requires a limited enquiry; it sets three relatively minimal requirements, is mandatory in tone and vests the Director with little if any discretion.[8] By contrast, much more rigorous obligations are imposed on a participant – a person who does anything for which a maritime document is required – when applying for the grant of a maritime document. The applicant for a maritime document must satisfy the Director of a number of criteria, including that it is a “fit and proper person” to have control of or hold the document; and that “it is not contrary to the interests of maritime safety” to grant the application. These powers are wide ranging, and vest the Director with a considerable degree of discretion.
[38] The same contrast exists in the revocation and withdrawal provisions. In this respect, r 21.12 provides:

(6) If at any time after an organisation’s safe ship management system has been approved by the Director under rule 21.12(1)–

(a) the organisation ceases to have a valid certificate issued by a recognised accreditation body indicating that the organisation has implemented a quality assurance system which has been approved by that body and is subject to continuing audit; or

(b) the scope and field of application of the organisation’s quality assurance system ceases to be for the safe management of ships in accordance with the New Zealand Safe Ship Management Code; or

(c) the organisation ceases to have quality assured supplier status as referred to in rule 21.12(1)(c); or

(d) the organisation fails to meet the requirements of rules 21.12(3), 21.12(4), 21.12(5), 21.13(6), 21.13(8) and 21.13(10);

then the Director may, in writing, withdraw his or her approval of that organisation’s safe ship management system, and that system will cease to be an approved safe ship management system under Part 21.

[39] The requirements listed in r 21.12(6) – which an approved organisation’s failure to meet may justify withdrawal of approval – are specific: namely, maintenance of the record of audits, inspections etc (r 21.12(3)); provision of information from records as requested by the Director (r 21.12(4)); provision of details about ownership of ships (r 21.12(5)); conducting an initial audit of ships’ safety management to ensure compliance with the New Zealand Safe Ship Management Code (which is defined in r 21.11 as a maritime document) (r 21.13(6)); conducting subsequent audits to ensure ongoing compliance with the code (r 21.13(8)); and inspection of ships for maintenance purposes (r 21.13(10)). All relate to what are factually ascertainable acts or omissions of compliance by the approved organisation.
[40] By comparison, the Director’s powers of suspension or revocation of a maritime document are much wider, and less factually ascertainable. Section 43(1) vests the Director with a range of powers to suspend – three for breaches of specific statutory provisions and the fourth, generally stated, for acting “in a careless or incompetent manner”. Furthermore, the Director may revoke the document after conducting an investigation to decide whether to suspend, in accordance with the express notice provisions in s 51.
[41] Simon France J was satisfied that a number of other factors supported his primary conclusion that the specific withdrawal of approval provisions of r 21.12(6) were inconsistent with the Director’s opinion that a SSM approval was a maritime document. However, it is unnecessary for us to consider them given our agreement with the Judge’s primary conclusion – one which he reached with a degree of firmly expressed reluctance.[9] In our judgment the specific provisions governing both approval and withdrawal of an approval, coupled with the derivation of those provisions from a section of the MTA dealing with maritime rules relating to matters other than maritime documents, lead inevitably to a conclusion that SNL’s approval was not a maritime document and the company was not a participant under s 17.

Question (2): did the Director follow the correct legal process for cancelling the approval?

[42] As Simon France J observed, the key document in answering the process question is the Director’s notice given on 7 September of an intended adverse decision.[10] That is because it was the formal step necessary to trigger the process of cancelling maritime documents.[11] Given that the approval was not a maritime document, but was issued in accordance with r 21.12, the Director must establish that her notice of withdrawal of approval was given in compliance with the Maritime Rules and was based upon one or more of the grounds specified in r 21.12(6).
[43] While the Director did not plead affirmatively to this effect, Simon France J recited her assertion at the substantive hearing that she acted on the ground that SNL failed to meet the requirements of r 21.13(8) and r 21.13(10) as follows:[12]

(8) The organisation must carry out subsequent audits of the safety management of each ship in that organisation’s approved safe ship management system to ensure compliance with the New Zealand Safe Ship Management Code. These subsequent audits are to be undertaken when the ship is operational, and in its normal service.

...

(10) The organisation must carry out inspections of each ship from time to time to ensure that the ship and its equipment are being maintained in accordance with the approved maintenance plan and remain fit for their intended purpose. These inspections are to include the inspections required by rule 46.17, and such inspections are to be independent of any audit required by rule 21.13(8).

[44] The Director’s case strikes an immediate and obvious obstacle at this point. Her notice of intended cancellation did not refer to particulars of SNL’s breach of the generic withdrawal of approval provision in r 21.12(6) or the two specific provisions now relied upon. Her letter stated as follows:

Review of Survey Nelson – Notice of proposed adverse decision

I am writing to advise that I have received a report from the General Manager Maritime Services (Sharyn Forsyth) following the ongoing review of [SNL] over an extended period.

The report notes (at page 4) amongst other things that despite direct and ongoing assistance and oversight from Maritime New Zealand over the period May 2006-May 2009, “... SNL’s systems [are] not delivering against the core requirements of an SSM company – assuring the safety of the vessels within their system.” A copy of that report is attached for your attention.

I also attach for your attention a copy of my memorandum outlining my initial response to the report, which summarises the concerns I have about the performance of SNL. In considering the options presented to me by Ms Forsyth I have taken particular regard of my responsibilities as safety regulator under the [MTA], which includes taking such action as is appropriate in the public interest to enforce the MTA. As noted in my memorandum I am very concerned that the safety of people and vessels within the SNL system may be compromised despite the interventions undertaken by this office to date. The numerous reports and reviews suggest to me that the imposition of conditions or suspension of the approval of SNL as an SSM Company will not ensure the implementation of adequate safety systems by SNL.

For those reasons and for the reasons set out in my memorandum I have therefore decided to propose revocation of the approval as an SSM Company made in accordance with section 44(1) of the MTA and rule 21.12 of the maritime rules.

In accordance with sections 44(2) and 51(2) of the MTA you are hereby notified that I propose to make this adverse decision (i.e. revoke your approval as an SSM Company), which will take effect on 9 October 2009 unless I determine otherwise before that date.

In accordance with section 51(2)(c) you are invited to make submissions to me in respect of this proposed decision, such submissions must reach me no later than close of business on 30 September 2009. In accordance with section 51(2)(e) you are notified that you have the right to appeal a decision to revoke your document to the District Court under section 424 of the MTA.

[45] It is plain that, taken as a whole, the Director’s letter was purporting to give notice in accordance with the statutory provisions for cancellation of a maritime document, and not for withdrawal of an approval. We respectfully adopt Miller J’s description, which is as applicable to the letter as it is to other events occurring at that time, as follows:[13]

I accept that a great deal of detailed information was provided to SNL over a period of time. However, it is plainly arguable that at no point in the withdrawal process did the Director clearly invoke specific grounds for withdrawal under R 21.12(6). It is necessary not only to identify which provisions were relied upon, but also to identify the facts on which the Director relied. That was not done with any clarity. Rather, the complaints were expressed in a remarkably diffuse way and appeared to put the whole of the conduct of SNL’s business and attributes of its Directors in issue. In my view, the reference to R 21.12(6)(d) on 20 October 2009 could not sufficiently address that problem, at least on the material before me. This development was late and it was not accompanied by specific instances of SNL allowing vessels to continue operating when they were not fit for purpose.

[46] Simon France J carefully reviewed all the documents which accompanied the Director’s letter – an internal memorandum, the Ferrier Roberts report and the Cowper/Maddick report.[14] It is unnecessary for us to replicate the Judge’s exercise, because we are not satisfied that these documents are relevant to this question. We will, however, return to the reports when considering relief.
[47] In an unusual move the Director produced at trial what Simon France J called a “draft imaginary notice” prepared (after cancellation) in accordance with r 21.12(6).[15] The document runs to 12 pages and purports to incorporate the findings of the Ferrier Roberts and Cowper/Maddick reports, before providing full details in support of SNL’s alleged breaches of rr 21.13(8) and 21.13(10) and including the company’s responses and the consideration of them. It is difficult to follow the Director’s purpose in producing this document at trial, or Ms Cull QC’s objection to its production, because it is a blue print for the process which the Director should have followed but did not follow.
[48] The imaginary notice reinforces Simon France J’s finding that the Director’s notice dated 7 September 2005 was inadequate in two important respects. The notice failed both to identify SNL’s alleged breaches giving rise to the Director’s powers of withdrawal of approval; and to allow SNL an opportunity to submit material in response which would have been directly relevant to the Director’s final decision.[16] As a result, the Judge found, the notice did not adequately identify for SNL its alleged specific breaches of statutory duty; nor did it link them to the relevant rules.[17]
[49] We concur with these findings. It follows in our judgment that the Director, having erred in law in concluding that the approval was a maritime document, erred further in following an unlawful process for withdrawal. As a further result, as the Judge found, SNL was misled in responding to the Director, because its reply focussed on systemic issues rather than specific breaches.[18]
[50] The Director must have foreseen the prospect of this result. SNL’s solicitors, Dawson and Associates, wrote the Director a comprehensive letter on 14 October 2009 in reply to her notice of intended cancellation. In the lawyer’s opinion, the Director’s threat to cancel was unlawful. The firm succinctly and correctly explained the reasons for its view that an approval was not a maritime document. Apart from briefly rejecting Dawson’s view in a letter dated 15 October, the Director did not attempt to engage on the issue. The result may have been different if the Director had lawfully invoked her powers.

Question (3): was SNL entitled to relief?

[51] The burden of SNL’s appeal is that Simon France J erred in refusing to grant relief after finding that the Director had committed reviewable errors of law.
[52] As Ms Cull submits the starting point is settled: once a Court has found that a public decision-maker has erred in law, a claimant is entitled to relief unless there are extremely strong reasons for refusal. The discretion to be exercised is very narrow or exceptional because of the usual presumption of substantial prejudice to the claimant: see Air New Zealand v Ministry of Transport.[19] As this Court has recently observed, it would be “rare” to refuse relief where an error of law is established: see GXL Realties Ltd v Minister of Energy for New Zealand.[20] GXL was one of those rare cases, because the reviewable error was limited only to a process issue involving a failure by the Minister of Energy to advise of a change of position.[21] Furthermore, in GXL the Court was influenced by the High Court’s conclusion that the erroneous decision had serious implications for third parties;[22] this Court was not satisfied that the High Court erred in giving weight to the applicant’s conduct.[23]
[53] Simon France J relied on two main grounds for refusing to grant relief: first, that the defects identified in the Ferrier Roberts report and summarised in the Director’s imaginary notice were sufficient to justify invoking the withdrawal of approval power contained in r 21.12(6); and, second, the Director’s decision was within her discretion and unsurprising.[24] This conclusion was preceded by the Judge’s express acknowledgement that SNL was prejudiced as a result of the defects in the Director’s notice.[25]
[54] Simon France J later explained his grounds in more detail as follows:

[143] Whilst there are accordingly explanations for some of the errors, and for the slowness of the response, it has to be recalled that the approval to be a safe ship management organisation is a central document in a system of ensuring the safety of ships and those on them. It is true, as [SNL] is wont too often to say, that the key responsibility for safety lies with the owner, but the very repetition of this by [SNL] at the times it was said reflect, for me anyway, the reasons why [the Director] had concerns. It failed to grasp what its role was.

[144] These balancing assessments are made on the basis of written material, and I do not make definitive conclusions about many of the issues. Rather, I observe that it was no surprise to me, having read the materials, that the Director had concerns. Given that the system involves important aspects of maritime safety, if engaged in a balancing exercise, I would have required myself to be satisfied that there had been a significant breach that could actually have made a difference to the outcome before I would have quashed the decision. I consider overall here the plaintiff has had ample opportunity to understand the problems and correct them.

[55] We agree with Ms Cull that the Judge erred in this conclusion. We acknowledge that he was exercising a discretionary power. But we are respectfully satisfied that he failed to apply the correct principles once he found that the Director had made two errors of law. He did not refer to the settled principles or identify the exceptional ground which might justify a refusal of relief.
[56] The Maritime Rules provide specific grounds for withdrawal of an approval. Proof of breach of one or more six factually ascertainable requirements is a pre-condition to withdrawal. Unlike s 51 of the MTA, which relates to cancellation of maritime documents, r 21.12(6) does not provide a formal process for giving notice of withdrawal. But Ms Scholtens accepts that the rules of natural justice apply; and that the Director must follow a process which provides for reasonable notice as well as substantive details of the alleged breach(es). The Director’s notice failed to properly and adequately identify SNL’s alleged breaches of the Maritime Rules.
[57] The process followed by the Director was flawed from its inception. The Judge was satisfied, and so are we, that SNL was misled as a result. It must follow that the Director committed a substantial breach of her statutory duties which caused a substantial prejudice to SNL.
[58] As noted, the Judge exercised his discretion against granting relief to SNL because he considered that the Director had a proper basis for cancelling the approval based upon the defects identified in the Ferrier Roberts report. He found that SNL had ample opportunity to understand and correct those defects. With respect, that approach cannot justify a refusal of relief. It is irrelevant that SNL was on notice before 7 September 2009 of the Ferrier Roberts concerns; or that it had had an earlier opportunity to rectify them. The Director’s notice of intention to withdraw the approval superseded what had gone before. That event entitled SNL to be placed in a position where it could adequately address the specific allegations of breach set out in the Director’s notice (rather than the generic criticisms made in the earlier reports) in order to protect its commercial interests. In the result, because of the Director’s error, the parties were talking past each other.
[59] Furthermore, the Director’s notice dated 20 November 2009 gave these two specific grounds for withdrawing the approval:

(a) Failure to ensure adequate delivery of Safe Ship Management system. The approval of an organisation (SSM Company) under rule 21.12(1) carries with it the obligation to ensure the implementation of a structured and documented system that enables owners and ship and shore based personnel of ships to execute a comprehensive safety and pollution prevention policy. The obligation is met when the SSM Company system delivers, through its inspections and oversight, appropriately maintained and surveyed vessels. Numerous examples cited in the various reports over the past 18 months and highlighted again in Ms Forsyth’s memorandum, demonstrate that SNL has filed to ensure an adequate delivery of its safe ship management system.

(b) Concerns for safety. The failure to deliver a safe ship management system not only raises questions regarding SNL competence to provide vessel owners with sufficient assistance and oversight to implement a comprehensive quality manual but also raises serious doubts about the ability of SNL to properly manage the carrying out of inspections and survey of vessels to ensure that they are maintained appropriately and are fit for their intended purpose.

[60] While the Director’s notice purports to refer to r 21.12, neither of the grounds upon which her decision relied relates to breaches of the factually ascertainable requirements set out in the rule which justify withdrawal of an approval. The Director’s grounds are, on analysis, broad and general, and themselves reinforce the Judge’s earlier findings about the defects in her notice of intention to withdraw approval. Moreover, the Director’s notice was, as earlier noted, flawed from inception. Her imaginary notice, which was never served, set out the proper procedure.
[61] With respect, the Judge’s refusal to grant relief contradicts his earlier identification of the specific breaches of r 21.13(8) and r 21.13(10)[26] on which the Director relied at trial; and his express acceptance[27] that:

Process is important and [SNL] should have [had] a proper opportunity to present its case and protect its business.

[62] It was denied that opportunity, as Simon France J found, because of the defective process followed by the Director. It follows that we are satisfied that the Director’s decision to withdraw SNL’s approval made on November 2009 should be quashed. However, this issue of relief was the subject of counsel’s supplementary memoranda. Its genesis lay in Simon France J’s observation towards the end of his judgment that the case may have been moot given that by the time of hearing SNL’s approval had actually expired. That observation, which was raised at the end of the hearing before us, has generated differences between counsel, and a submission from Ms Cull – opposed by Ms Scholtens – that, if we quash the Director’s decision, we should also quash her contemporaneous decision to revoke delegations given to SNL’s employees. Simon France J expressed concerns about this situation.[28]
[63] SNL sought the specific remedy of a declaration that the Director’s decision to cancel the approval was invalid and an order quashing or setting it aside. The company did not seek relief relating to revocation of the delegations or raise that issue in its statement of claim. Nor has it applied to amend. We cannot grant relief on this point. However, if SNL is correct that as a matter of law the Director’s decision to cancel the approval and revoke the delegations are interlinked, then we assume that the Director will act accordingly.
[64] The other issue is whether it would be futile to grant relief given that the approval may have expired by effluxion of law or time. The certificate of approval issued on 30 June 2008 was expressed to expire on 28 February 2010. However, Ms Cull argues that it still remains legally valid, given that r 21.12 does not prescribe a time limit for expiry; and that quashing the Director’s decision will place SNL in its former position as at 20 November 2010. On that basis, the approval was invalidly suspended three months before its actual expiry date, if it was in law due to expire on 28 February 2010.
[65] SNL expressly sought the further remedy of a declaration that its approval is to continue in force and is to be deemed to have continued in force from 20 November 2009. We are satisfied that an order of that nature should be made to ensure that SNL is put back in the position in which it should have been on 20 November. We add that we are aware SNL has made arrangements to protect its commercial position in the interim.
[66] However, fixing a reinstatement date of 20 November 2009 will not fully protect SNL. Ms Scholtens asserted that it is not open to this Court to reinstate what she termed the expired SSM approval given that SNL did not apply for a stay following the High Court judgment. We disagree; SNL should not be penalised for failing to follow that procedural route when the Director’s originating error in withdrawing the approval wrongfully deprived the company of its lawful status. We are satisfied that the approval should be deemed to be in force as from the date of this judgment, in order to suspend the adverse effect of the withdrawal in the interim.

Result

[67] SNL’s appeal is allowed. We make orders:

• (a) declaring that the decision of the Director dated 20 November 2009 withdrawing SNL’s approval as a SSM company was invalid;
• (b) quashing the Director’s decision; and
• (c) declaring that SNL’s approval as a SSM company is reinstated and is deemed to resume effect according to its original terms from the date of this judgment.

[68] The Director must pay SNL costs and disbursements on a standard basis according to Band A. We certify for two counsel.

Solicitors:
Dawson & Associates, Nelson for Appellant
Crown Law Office, Wellington for Respondent

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[1] Survey Nelson Ltd v Director of Maritime New Zealand HC Wellington CIV-2009-485-2395, 31 March 2010 [Survey Nelson – March 2010].

[2] Survey Nelson Ltd v The Director of Maritime New Zealand HC Wellington CIV-2009-485-2395, 26 November 2009 [Survey Nelson – interim orders].

[3] Survey Nelson – March 2010 at [17]–[22].

[4] At [53].

[5] At [98].

[6] At [121].

[7] At [139], [143] and [144].

[8] At [45].

[9] At [52].

[10] At [61] below.
[11] Maritime Transport Act 1994, s 51.

[12] At [57].

[13] Survey Nelson – interim orders at [27].

[14] At [66]–[80].

[15] At [90] and [97].

[16] At [98].

[17] At [136].

[18] At [137] and [138].

[19] Air New Zealand v Ministry of Transport [2008] NZCA 26 at [59], [60] and [61], applying Berkeley v Secretary of State for the Environment [2001] 2 AC 603 (HL) at 608 and 616.

[20] GXL Realties Ltd v Minister of Energy for New Zealand [2010] NZCA 185 at [67].

[21] At [67].

[22] At [70]–[73].

[23] At [74].

[24] At [135].

[25] At [98] and [99].

[26] At [90]–[94].
[27] At [141].

[28] At [132]–[134].