Guadalcanal Province v Solomon Islands Electricity Authority [1993] SBHC 47; HCSI-CC 375 of 1992 (5 March 1993)

CC - 375/92.HC

IN THE HIGH COURT OF SOLOMON ISLANDS

Civil Case No. 375 of 1992

GUADALCANAL PROVINCE

-v-

S. I. E. A.

High Court of Solomon Islands
(Palmer J.)

Civil Case No. 375 of 1992

Hearing: 12 February 1993
Judgment: 5 March 1993

P. Tegavota for Appellant
A. Nori for the Respondent

PALMER J: The Premier of Guadalcanal Provincial Assembly, who is the Applicant in this case seeks by originating summons as against the Solomon Islands Electricity Authority (the Respondent), answers to the following questions:

1. Whether or not the Lungga Power Station which is being operated by the Respondent is situated within the boundaries of the Guadalcanal Province.

2. If the answer to question (1) is in the affirmative, then whether the operation of the said power station amounts to running a business within the meaning of business as defined in the Guadalcanal Province Licensing Ordinance 1985.

3. If the answer to question (2) is in the affirmative, then whether or not the respondent is required to pay its licence fee under schedule 1 Part 1 of the Guadalcanal Province Business and Hawkers Licensing (Amendment) Ordinance 1992.

4. If the answer to question (3) is in the affirmative, then whether or not the applicant is barred or stopped by the Electricity Act from charging licence fee against the respondent.

5. If the answers to questions (1-4) are all in the affirmative then what IS the total amount of licence fee that the respondent has to pay to the applicant.

Mr. Philip Tegavota appears for the Applicant, and Mr. Nori appears for the Respondent.

The claim of the applicant has been derived through the following process.

By the Guadalcanal Province Devolution Order (No.1 of 1984) at paragraph 6, the Minister for the Guadalcanal Provincial Affairs declared that:

“ ... all matters included in Schedule 4 to the Act (Provincial Government Act) shall, subject to the exceptions specified in that Schedule, be within the Legislative competence of the new Provincial Assembly on and from the second Appointed Day.”

A copy of that Order was annexed to the affidavit of Eric Seri filed on the 10 February 1993 and marked ‘annexure A’.

Paragraph 6 of that order was made pursuant to section 28(3) of the Provincial Government Act. The relevant item in Schedule 4 is item 1(1), which deals with the “local licensing of professions, trades and businesses ....”

Under the Devolution Order of 1984, the Guadalcanal Provincial Assembly had legislative competence over the licensing of trades and businesses. Under section 33(1) of the Provincial Government Act, the Guadalcanal Provincial Assembly had power to make laws inrespect of the licensing of trades and businesses within its locality.

Subsequently, The Guadalcanal Province Business and Hawkers Licensing Ordinance, 1985 was enacted. In its interpretation Section, the word ‘business’ was defined as:

“any trade, profession, vocation, service or other venture determined by the Provincial Executive to be undertaken for the purpose of gain or profit within the boundaries of Guadalcanal Province ....”

In 1992 The Guadalcanal Province Business and Hawker’s Licensing (Amendment) Ordinance 1992 was passed. In the interpretation section it contained inter alia, the following:

“Electrical Supply Service, means the business of managing and erecting electrical installations for the transmission and distribution of electrical energy for sale to customers,”

A copy of that amendment was annexed to the affidavit of Daniel Ngatonga filed on the 30th of December 1992 and marked ‘annexure A’.

That amendment of 1992 was gazetted and brought into effect on the 10th July 1992.

A debit note number 22/92 was subsequently sent to the respondent dated 3 November 1992 for the sum of $551,563.00. This was based on the rate of $0.025 per KWH chargeable on the previous year's total KWH consumed. The total KWH consumed for 1991 was listed as 29,416,683.

This claim was made inrespect of the Lunga Power House.

The argument put forward by the applicant is that the Lunga Power House is within the boundaries of the Guadalcanal Province and that the respondent is operating a business of Electrical Supply Service.

The first crucial question therefore is to ascertain whether the respondent is operating a business inrespect of the Lunga Power Station.

The word ‘business’ as used in schedule 4 to the Provincial Government Act is not defined in that Act. However, I take notice of the fact that the definition accepted by both parties as applicable to the use of the word ‘business’ in this case is its use in the ordinary commercial sense; for gain or profit.

The Guadalcanal Province Business and Hawkers Licensing Ordinance 1985 defined the word ‘business’ along the same lines. I accept it as correct and in accordance with the meaning that should be ascribed to its use in Schedule 4 to the Provincial Government Act, 1981.

Is the respondent running a business in the commercial sense, for gain or profit inrespect of its operations of the Lunga Power Station? Is the respondent in the business of managing and erecting electrical installations for the transmission and distribution of electrical energy for sale to customers?

If the answer is yes, then the second crucial question is whether The Guadalcanal Provincial Assembly is debarred from charging business licence fees by the provisions of the Electricity Act (Cap.16).

If the answer to the first question is no, then that should be the end of the matter.

The respondent is a body corporate. It is incorporated by an Act of Parliament, the Electricity Act (Cap.16). It is one of those creatures of statute commonly referred to as a Statutory Authority.

Its functions, duties and responsibilities are specified by statute.

The Electricity Act was passed into law on the 1st of January 1969. The respondent was then known as the British Solomon Islands Electricity Authority. The word British was deleted after independence in 1978.

Before 1969, the supply of electricity was the responsibility of Government. That responsibility was transfered to the respondent by the Electricity Act.

Sections 3 to 10 of the Electricity Act deal with the establishment, incorporation and constitution of the respondent.

Sections 13 to 16 of the same Act refer to the functions and duties of the respondent.

Sections 17 to 27 cover the general financial provisions relating to the respondent.

I will now consider the important provisions in detail.

Section 13 states:

“The Minister may by order declare any part of Solomon Islands to be a Supply Area.”

For the Honiara Electricity Supply Area, the order passed was The Electricity Supply Area (Honiara) Order (L.N.44/1967). In the schedule to that order it delineated the extent of the Honiara Electricity Supply Area. It read as follows:

“All that area bounded on the East by the meridian of longitude 160 10’E, on the West by the meridian of longitude 159 53’E, on the North by high water mark, and on the South by the paralled of latitude 9 28’S, as is more particularly delineated and edged green on Plan Number 1462 deposited in the office of the Commissioner of Lands and Surveys at Honiara.”

A peek at Plan Number 1462 will show clearly that the Lunga Power Station is well within the boundaries of the Honiara Electricity Supply Area.

The Lunga Power Station belongs to the respondent. Its operations and management are the responsibilities of the respondent.

How long ago it was set up is not stated in the submissions made before me. But it certainly was established quite sometime back. It was set up to provide for the supply of electricity to the Honiara Electricity Supply Area. The respondent is responsible for managing and operating that installation. That responsibility is imposed by law under the Electricity Act.

Sections 14, 15 and 16(1) specify those duties and functions of the respondents, and it would only be proper to quote them in full.

“14. - (1) Subject as hereinafter in this Ordinance provided, it shall be the duty of the Authority -

(a) in respect only of Supply Areas -

(i) to manage and work any electrical installations transfered to the Authority by the Government and such other installations and apparatus as may be acquired by the Authority;

(I am not sure if it was the Government that set up the Lunga Power House and then have it transferred to the respondent in 1969)

(ii) to establish, manage and work such electrical installations as the Minister may from time to time require or as the Authority may from time to time deem it expedient to establish;

(iii) to secure the supply of energy at reasonable prices;

(b) throughout Solomon Islands

(i) to promote and encourage the generation of energy with a view to the economic development of Solomon Islands

(ii) to advise the Minister on all matters relating to the generation, transmission, distribution and use of energy.

(2) For the purposes of subsection (1), the Authority may-

(a) subject to the provisions of this Ordinance, generate, transmit, transform, distribute and sell energy either in bulk or to individual consumers in Supply Areas;

(b) in Supply Areas, purchase, construct, reconstruct, maintain and operate supply lines, generating stations, transformer stations and all other appropriate stations, buildings and works;

(c) sell, hire or otherwise supply electrical plant and electrical fittings and apparatus, and in Supply Areas, install, repair, maintain or remove any electrical plant, fittings and apparatus;

(d) acquire, in accordance with the provisions of this Ordinance or otherwise, any property, real or personal, which the Authority deems necessary or expedient for the purposes of constructing or extending or maintaining any installation or otherwise for carrying out its duties and functions under the provisions of this Ordinance;

(e) carry on all such other activities as may appear to the Authority requisite, advantageous or convenient for it to carry on for or in connection with the purposes of its duties under the provisions of this Ordinance.

15. -(1) The Minister may, from time to time, after consultation with the Authority, give the Authority directions of a general character not inconsistent with the provisions of this Ordinance as to the policy to be followed in the exercise of the powers conferred and the duties imposed on the Authority by or under the provisions of this Ordinance in relation to matters which appear to him to affect the interests of Solomon Islands and the Authority shall, as soon as possible, give effect to all such directions.

(2) The Authority shall furnish the Minister with such returns, accounts and other information with respect to its property and activities as he may from time to time require.

16. - (1) Subject to the provisions of subsection (2) and section 22(1), in so far as it is able to do so, the Authority shall in supply Areas supply energy to any person, other than a licensee, requiring a supply of energy, if such undertakes to receive and pay for or to continue to receive and pay for a supply of energy upon such terms and conditions as the Authority may determine.”

In performing its statutory functions the respondent is obliged to deal prudently.

It can sell energy in bulk or to individual consumers in supply areas. It can sell or hire electrical plant and electrical fittings and apparatus.

There is therefore present an element of trading in the activities of the respondent. In performing its statutory functions and duties, the respondent is obliged to trade. And this is inevitable, because section 19 of the Electricity Act states that:

“It shall be the policy of the Authority so to exercise and perform its functions under this Act as to secure that the total revenues of the Authority are sufficient to meet its total outgoings properly chargeable to revenue account, including depreciation, loan redemption and interest on capital, taking one year with another.”

Embedded in the operations of the respondent is the obligation to recover all its expenses to make ends meet. This is logical. One of the main reasons it would seem for establishing such an Authority was so that it can become self-reliant, be able to meet all its expenses, and not be a financial burden to Government, but at the same time providing an essential service to the public.

The least or the minimum that the respondent can do as a matter of policy therefore is to break-even. And when it performs well it makes a surplus.

But, that surplus has a tag to it. Section 25 of the Electricity Act states:

“Any funds of the Authority not immediately required to be expended in the meeting of any obligations or the discharge of any functions of the Authority may be invested from time to time in securities authorised for the time being for the investment of trust funds or in such other investments and securities as may be approved from time to time by the Minister.”

It may be argued that, that section refers to profits. However, it needs to be distinguished in that, it is not profit for the use and benefit of the members of the authority. It is surplus funds that is being set aside so that it can be used for the purpose of the authority in the performance of its statutory functions and duties.

Profit making is not the purpose or objective of the respondent. It is not free to compete and fix prices in the business world according to the laws of supply and demand. It is not in existence with the view to making gains or profit. It is in existence to provide a service to the public. It is under a duty to ensure that service is provided at reasonable prices for the benefit of the public. The surplus funds do not belong to the members of the Authority to use as they choose or please. The Act settles that for them. The surplus funds therefore cannot be regarded as business profits or gains.

I am strengthened in that view by the effect of section 20: It states that:

“That part of the income of the Authority which is derived from the sale of electricity shall not be liable to income tax”

The respondent does engage in an activity that generates revenue. However, it seems clear to me that parliament must have intended that the income generated through such activity (the sale of electricity) should not be regarded as profit or gain in the business sense, and liable to income tax. This all adds up.

The supply of electricity is not a business that any Tom, Dick, Jane and Mary and any firm or organisation can start up, run or operate for gain or profit. It has rather become the subject of an Act of Parliament and made the concern of a creature of statute. There is therefore no competition for the supply of electricity in the commercial sense. The Authority created is not set up to provide that service as a commercial enterprise but as a corporate body with statutory functions and duties to perform for the benefit of the public.

There is a lot of wisdom in this course of action because if the supply of electricity was made a concern of any commercial entity then it could easily be exploited to the extent that electricity is not supplied at reasonable prices but at competitive market prices, and the public will have to pay for electricity with the ramifications of a free market commodity’s pricing mechanism at work. The primary concern of such an enterprise would then be gain or profit.

Such an enterprise would then be subjected to all the market forces of supply and demand and the service provided could easily be affected.

The establishment of the Authority therefore with statutory functions and duties meant that it is insulated to a large extent and at the same time is able to concentrate on providing the best possible service for the supply of electricity.

So, under section 14(1) (iii) it is duty bound ‘to secure the supply of energy at reasonable prices’. It is not at liberty to fix prices in accordance with the laws of supply and demand.

Under Section 22(1):

“The prices to be charged by the Authority for the supply of energy shall be in accordance with such tariffs as may, from time to time, be fixed by the Authority subject to the approval of the Minister.”

The hands of the Authority in fixing prices are restricted to the extent that the Government through the Minister keeps a watchful eye on its performance.

Under Section 24, the purposes for which the revenue of the respondent is to be used is spelled out. The list runs from Section 24(1) (a) to 24(1) (j). The respondent therefore has to be very careful about how it uses its money.

Under Sections 24(2) and 24(3), further directions are given as to the application of such funds and topped up with a proviso that says that “no part of the moneys comprised in such general or other reserve shall be applied otherwise than for the purposes of the Authority”.

I am therefore convinced that the respondent is not engaged in business in the commercial sense.

With specific reference to the Lunga Power House or electrical installation, I am unable with due respect to accept that it is a business being run or operated by the respondent.

The Lunga Power House or electrical installation was not set up as a business for purposes of gain or profit. It was established, managed and operated by the respondent pursuant to a statutory duty imposed by section 14 of the Electricity Act for the purposes of supplying or providing electricity to the designated supply areas. The sale of electrical energy from the power generated by the Lunga Power House is not for purposes of gain or profit but for purposes of generating revenue so that the Authority can fulfil its statutory obligations. Ultimately, the public benefits, through a better service at a reasonable price.

I am therefore unable to describe the operations and management of the Lunga Power House as amounting to running a business in the commercial sense, as used in Schedule 4 to the Provincial Government Act and The Guadalcanal Province Business and Hawkers Licensing Ordinance 1985.

The respondent therefore cannot be charged business licence fees.

There is a case from the jurisdiction of Scotland which sheds some light on the use of the word ‘business’ in the commercial sense on one hand and on the other hand the performance of a statutory duty to provide a public service.

The name of the case is Lord Advocate -v-Glasgow Corporation 1985 S.L. T. 2 (Scot.)

The brief facts are as follows. A vehicle was purchased by the Glasgow Corporation for use in inspecting street lights and replacing street lamps. The vehicle however as bought was not suitable and so the Corporation did some work on it so that it can be used. It was the subsequent conversion of the vehicle that the Commissioners of Customs and Excise sought to argue that rendered the said vehicle liable to tax. The relevant provision is section 18 of their Finance Act 1946 and reads:

“... every person who, in the course of or for the purposes of his business, applies a chargeable process shall, whether or not he would otherwise be so treated, be treated as a manufacturer for all purposes of the enactments relating to purchase tax ....”

It was argued by the Commissioners of Customs and Excise that the conversion of the vehicle was done ‘in the course of or for the purposes’ of the business of the Corporation.

In the First Division Court, the Lord President Clyde made the following statements:

“The defenders (the corporation) were not applying this process to the Ford chassis with a view to any commercial dealing with the resultant product, but were carrying out this operation in order to enable them to perform their statutory obligation to light the public streets.”

“.... they are not in my view carrying on a business within the meaning of that word in the section by merely repairing street lighting and taking the necessary steps to maintain it. In these circumstances I am not able to construe the operations on this vehicle as being performed in the course of or for the purposes of their business. Business in the present context must relate to some gainful or commercial rather than to a purely public service activity.”

The second Lord Justice, Lord Russel also said the same things. He defined the word business as denoting commercial or gainful activity and continued:

“The statutory duty of public street lighting undertaken by a local authority as a public service financed by the imposition of local rates is not gainful and it seems very difficult to describe it as a business in a commercial sense.”

In that case from the Scottish jurisdiction, although the use of the word ‘business’ was made in the context of a taxing statute, it bears similarities to this case in the distinctions made in respect of the activities performed pursuant to a statutory obligation as opposed to a purely commercial one. The application to this case I feel is very similar.

The establishment, management and operations of the Lunga Power House was done: (i) pursuant to a statutory duty imposed by the Electricity Act; (ii) Its management and operations are governed by the Electricity Act; (iii) It was set up to provide a service to the public within the Honiara Electricity Supply Area; (iv) It has to trade to generate revenue, but that does not make it a business set up for gain or profit.

But, if I am wrong, there is also another important point that should be mentioned. Does the respondent need a licence from the Guadalcanal Provincial Executive to carry out its statutory functions! Did it need a licence from the Government or the Honiara Municipal Authority to provide the essential service of supply of electrical energy? Does it actually need a licence to authorise or permit it to manage and operate the Lunga Power House?

Definitely not, in the designated supply areas.

Section 31(1) of the Electricity Act makes this absolutely clear. It states and I quote:

“In Supply Areas, no person other than the Authority shall -

(a) use, work or operate, or permit to be used, worked or

operated any installation, or

(b) supply to or for the use of any other person energy from any installation, except under and in accordance with the terms of a licence expressly authorising such use or supply, as the case may be.”

With specific reference to the Lunga Power House or installation, no one else has the authority or right to use, work and operate that plant, other than the respondent. The respondent does not need to get permission from the Guadalcanal Provincial Assembly to operate that plant. It does not need a licence from the Guadalcanal Provincial Executive to operate, use or work the Lunga Power House.

The respondent has something stronger than the authority of a license to use, work or operate the Lunga Power House. It has the authority of the law itself to do that.

The Provincial Government Act did mention something about the provision of electricity services by the Provincial Government Executives. Section 35(5) of The Provincial Act states:

“Subject to the provisions of any enactment (wherever made or passed), a Provincial Executive -

(a) may provide services for the province in respect of any of the matters mentioned in Schedule 6,”.

Schedule 6 is headed ‘Provincial Services’ and one of the sub -headings is listed as ‘Electricity’. Under that sub-heading it reads:

“Supply of· electricity outside supply areas (within the meaning of the Electricity Act).”

In other words, the Guadalcanal Provincial Executive may provide service of electricity supply outside the Honiara Electricity Supply Area. Within the Honiara Electricity Supply Area, the responsibility for providing the supply of electricity vests the in respondent.

The respondent does not need The Guadalcanal Provincial Assembly to give it a licence to legitimize its operations. The Provincial Government Act 1981 recognises that the respondent has the sole responsibility under the Electricity Act to provide the supply of electricity in the supply areas. The Guadalcanal Provincial Assembly therefore has no jurisdiction whatsoever to intervene into that arena by requiring that a licence must be obtained before the Lunga Power House can be managed and operated.

The answers therefore to the questions raised are as follows:

(i) It is Immaterial

(ii) No.

Questions (iii), (iv) and (v) subsequently do not need to be answered.

Application dismissed. Costs to the respondent.

(A.R. Palmer)
JUDGE