Jamaica Public Service Company Ltd v The All Island Electricity Appeal Tribunal and Others (Jamaica)
| Jurisdiction | UK Non-devolved |
| Judge | Lord Carnwath |
| Judgment Date | 06 July 2017 |
| Neutral Citation | [2017] UKPC 20 |
| Docket Number | Appeal No 0002 of 2016 |
| Court | Privy Council |
| Date | 06 July 2017 |
[2017] UKPC 20
Privy Council
From the Court of Appeal of Jamaica
Lord Mance
Lord Carnwath
Lord Hughes
Lord Hodge
Lord Toulson
Appeal No 0002 of 2016
Appellant
B St Michael Hylton QC Kevin O PowellSundiata J Gibbs
(Instructed by Myers Fletcher and Gordon Solicitors)
Respondent (All Island Electricity Appeal Tribunal)
Marlene Malahoo Forte QC (Attorney General)
Althea Jarrett (Director of State Proceedings)
(Instructed by Charles Russell Speechlys LLP)
Respondent (Office of Utilities Regulation)
Dr Lloyd Barnett
Annaliesa Lindsay
(Instructed by Simons Muirhead and Burton LLP)
Heard on 7 June 2017
The appellant company ("JPS") generates and supplies electricity to the Jamaican public pursuant to the All-Island Electric Licence 2001 ("the Licence"), which grants it the exclusive right to do so throughout Jamaica for a period of 20 years. Its operations are regulated by the Office of Utilities Regulation ("the OUR"), a statutory body established under the Office of Utilities Regulation Act.
The Licence provides for the charges for electricity to be set by the OUR in accordance with a formula set out in Schedule 3. In summary (see Schedule 3 para 2(C)) OUR is required to conduct a quinquennial review in accordance with a detailed formula prescribed by the schedule, thereby fixing rates at a level that allows JPS to recover "all prudently incurred costs" in providing the service, including "salaries and other costs related to employment". The first such review was to take effect from 31 May 2004, based on information filed by JPS not later than 1 March 2004. The information was to be related to a "test year", being the latest year for which there were audited accounts, adjusted to reflect (inter alia) (at Part 1(ii)):
"Such changes in revenues and costs as are known and measurable with reasonable accuracy at the time of filing and which will become effective within 12 months of the time of filing … Extraordinary or Exceptional Items as defined by The Institute of Chartered Accountants of Jamaica shall be apportioned over a reasonable number of years not exceeding five years …"
The rates resulting from the quinquennial review were subject to annual adjustment to take account of certain factors specified in Exhibit 1 to Schedule 3, including for example changes in rates of inflation, and (relevant to this appeal) a so-called "Z factor" representing an adjustment for "special reasons not captured by other elements of the formula". The Z-factor was further defined:
"The Z-factor is the allowed percentage increase in the price cap index due to events that:
a) affect the Licensee's costs;
b) are not due to the Licensee's managerial decisions; and
c) are not captured by the other elements of the price cap mechanism."
The present appeal arises from the settlement in 2008 of a long-running dispute between JPS and the unions over levels of pay, resulting in a substantial payment in respect of back-pay due from 2001. The OUR determined that this sum could not be taken into account under Schedule 3 because:
i) It related to costs which were "known and measurable with reasonable accuracy" at the time of the filing in March 2004, and therefore could and should have been included (if at all) in the 2004 review.
ii) Even if that were wrong, there could be no question of an annual adjustment under the Z-factor, since the costs resulted from events due to JPS' "managerial decisions" (excluded by para (b) of the definition).
It will be convenient to refer to these issues respectively as the "2004 filing issue" and the "Z-factor issue". To succeed in the appeal, JPS needs to win on both issues.
In 1990 JPS had entered into Heads of Agreement with the National Workers Union ("NWU") for a proposed job evaluation exercise to be conducted by Trevor Hamilton & Associates, whose recommendations would be binding on all the parties. That exercise resulted in JPS and the NWU agreeing to its compensation levels being placed within the top five to ten percentile of the benchmarked companies surveyed. In 2000 there was a further agreement with the unions for the period 1 January 2000 to 31 December 2001, providing for a further "Job Reclassification/Evaluation exercise" to be conducted by the same firm. To assist the process of re-evaluation there was established a so-called "Oversight Committee" which included representatives of stakeholders at all levels.
Until 2001 the Government of Jamaica was the majority shareholder in JPS. In March 2001, the government's controlling interest was acquired by Mirant Corporation, a global energy company based in Atlanta, Georgia. The terms of acquisition included the 2001 Licence. In April 2001, the new management signed a Memorandum of Understanding with the unions, agreeing to continue amicable discussions on the outstanding issues from the first negotiations.
Following completion of the classification exercise in February 2002, JPS engaged Peat Marwick & Partners ("KPMG") to carry out a salary survey to be used to develop a salary structure to complement the reclassification exercise. KPMG benchmarked JPS' salaries against 17 local companies selected by reference to various factors including size and range of activities; 11 of the companies participated in the survey. KPMG submitted their final report in June 2002.
A dispute arose between JPS and the unions as to whether the salary structure should be aligned with salaries of the top five to ten percentile of the benchmarked companies, as the unions proposed (in line with the previous position), or the average of the 11 local companies which participated in the survey, as JPS contended. This dispute was referred to the Industrial Disputes Tribunal ("IDT") which on 29 August 2003 made an award resolving the issue of principle in favour of the union, and determining the effective date for the payment of the new rates as 1 January 2001. The IDT did not fix the amounts of pay, but it recommended that the award should be implemented with the guidance of the consultants previously engaged and "in conjunction and in collaboration" with the Oversight Committee. JPS's challenge to this award in the courts failed, ultimately in the Court of Appeal on 7 March 2007.
At this stage the Oversight Committee was reconvened and KPMG were re-instructed to assist the process of implementation, as recommended by the IDT. On 6 May 2008, an agreement was concluded whereby JPS agreed to make a net payment of $2.3 billion in back-pay for the years 2001–2007 and JPS' future salary structure was adjusted in accordance with the award.
On 11 March 2009 JPS filed a Z-factor Submission which sought the OUR's approval for JPS to recover some $4.3 billion (made up of salary payments to employees and related tax) by way of a tariff adjustment using the Z-factor component. In a determination notice dated 2 March 2010 the OUR dismissed the claim. It rejected any argument based on Mirant's asserted ignorance of the previous dealings between JPS and the unions, which should have been revealed by "any prudent due-diligence exercise" and taken into account in the terms of the purchase. (Any such argument has since rightly been abandoned.)
On the points now in issue, the OUR held:
i) The claim did not qualify under the Z-factor provision since they were the consequence of "managerial decisions" in that —
"JPS agreed with the labour unions in 2000 to embark on the reclassification exercise and must have had in its contemplation that it would result in a likely increase in overall workers' compensation";
ii) The relevant costs, "if they were to be considered as legitimate (and this is not conceded)", should have been taken into account in the 2004 submission:
"The IDT's decision was handed down in August 2003 and as such, sufficient time had been afforded the company to include such salary...
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