Vector Ltd (formerly Mercury Energy Ltd) v Transpower New Zealand Ltd [1999] NZCA 167; [1999] 3 NZLR 646; (1999) 6 NZBLC 102,908; (1999) 9 TCLR 238 (31 August 1999)

Last Updated: 1 December 2011

IN THE COURT OF APPEAL OF NEW ZEALAND

CA32/99

	BETWEEN	VECTOR LIMITED (formerly MERCURY ENERGY LIMITED)
		Appellant

	AND	TRANSPOWER NEW ZEALAND LIMITED
		Respondent

Hearing:	2, 3 and 4 August 1999
Coram:	Richardson P Gault J Thomas J Blanchard J Tipping J
Appearances:	C R Carruthers QC, G B Chapman and A J Weir for Appellant J A Farmer QC, T Arnold QC, A Callinin and A Wing for Respondent
Judgment:	31 August 1999

JUDGMENTS OF THE COURT

RICHARDSON P, GAULT, BLANCHARD AND TIPPING JJ (DELIVERED BY RICHARDSON P)

Table of Contents

Para No

Background [1]

Commerce Act 1986 [7]

State-Owned Enterprises Act [13]

Electricity (Information Disclosure) Regulations [18]

The statement of Government economic policy and the

statements of corporate intent [20]

The challenges made to Transpower's pricing in the pleadings [25]

The judgment of Williams J and Dr Brunt [29]

Prime necessity [34]

Effect of legislation on the common law [52]

The common law doctrine in respect of transmission of
bulk electricity by Transpower: the argument for Vector [55]

Discussion [59]

Result [68]

Background

[1] This appeal is against the judgment of Williams J and Dr Maureen Brunt delivered in the High Court at Auckland and reported at (1999) 8 TCLR 554 striking out the first cause of action pleaded by Vector Limited (formerly Mercury Energy Limited) in proceedings against Transpower New Zealand Limited.
[2] Transpower is incorporated under the Companies Act 1993 and is a State enterprise pursuant to the State-Owned Enterprises Act 1986. It owns and operates the national grid by which electricity is transmitted from generators (input customers) to electricity distributors and a number of major industrial users. Vector is a company but not a State enterprise. It is a major line owner transmitting electricity from the national grid to retail companies and is Transpower's largest offtake customer.
[3] Vector's statement of claim pleads that Transpower is a monopoly supplier of essential services, in particular the transmission of bulk electricity from generators to distributors and others and, as such, is under a common law obligation to supply its services to customers on terms, including prices, which are fair and reasonable. Vector invokes what has been described as the doctrine of prime necessity contending that the supply of electricity is a matter of prime necessity and that Transpower having a practical monopoly over transmission from the national grid to line distribution companies is obliged to transmit the electricity required by Vector at fair and reasonable prices.
[4] Transpower accepts that it has a practical monopoly but denies the existence of a common law doctrine. Further, it argues, any such common law doctrine of prime necessity has been unambiguously abrogated by the enactment of the light-handed regulatory regime under the Commerce Act 1986 and the accountability and other structures of the State-Owned Enterprises Act.
[5] Williams J and Dr Brunt concluded that prior to the commencement of those two statutes prime necessity was part of the law of New Zealand, at least in areas such as water and electricity, but that those statutes eclipsed the common law.
[6] The necessary starting point is Vector's pleading of the cause of action. It runs to 26 pages plus a 4 page schedule. It was fairly characterised by the High Court as repetitious, confusing, imprecise and difficult to understand or to plead to, focussing principally on Vector's complaints rather than on the results to which Vector objected. Vector has not tendered a proposed amended pleading and accordingly we must concentrate on the thrust of the pleaded cause of action. Because of its invoking of the statement of governmental economic policy under s26 of the Commerce Act and the statements of corporate intent under the State-Owned Enterprises Act, we shall refer briefly to the central features of each statute before turning to the challenges made in the statement of claim.

Commerce Act 1986

[7] The Commerce Act 1986 was a marked departure from earlier statutory regulatory schemes. The object as stated in the long title is to promote competition in markets within New Zealand. The primacy accorded to market forces in the present circumstances is subject only to the general prohibition on the improper use of a dominant position in a market contained in s36 and the institution of price controls under Part IV which, as the Privy Council observed in Telecom Corporation of New Zealand Ltd v Clear Communications Ltd [1995] 1 NZLR 305, 404, is specifically directed to the regulation of prices in markets which are not fully competitive. Section 36(1) provides:

No person who has a dominant position in a market shall use that position for the purpose of--

(a) Restricting the entry of any person into that or any other market; or

(b) Preventing or deterring any person from engaging in competitive conduct in that or in any other market; or

(c) Eliminating any person from that or any other market.

[8] Two points should be emphasised. First, the section is not directed to the refusal or withdrawal of supply as such. By contrast, s23(2)(i) of the Commerce Act 1975 was directed specifically to unjustifiable refusal to sell or supply goods or services and at the Bill stage in 1986 an initially proposed paragraph of cl 36(1) "Preventing or hindering the supply or acquisition of goods or services by any person ... " was struck out. Reporting the Bill back to Parliament (1985) 468 NZPD 8590 the Chairman of the Commerce and Marketing Committee noted that the redrafted cl 36 required that the person concerned had used the power of a dominant position to deter competition, that assessment of dominance taking into account the dynamic competitive forces in the form of constraints on the behaviour of the firm from its competitors, potential competitors, suppliers and acquirers; and that cl 36(1)(b) had been deleted as withholding supplies was not in itself deemed to be anti-competitive, thus warranting prohibition, and could result in unintended effects on distribution arrangements.

Section 36 thus applies only where constraints on supply are for an anti-competitive purpose within (now) (a), (b) or (c) of s36(1).

[9] Second, in the Telecom case the Privy Council held (p408) that s36 does not operate to exclude a monopolist from initially charging monopoly rents and the elimination of such monopoly rents was (otherwise than by competition) within the province of Part IV.
[10] We turn to Part IV. Under s53 the Governor-General on the recommendation of the Minister may declare that prices for goods or services of any description supplied to or for the use of different persons or classes of persons are controlled. Under s53(2) the Minister cannot make such recommendation unless satisfied that the goods or services are supplied in a market "in which competition is limited or is likely to be lessened" and price control in accordance with the Act is necessary or desirable in the interests of users, or consumers or suppliers. In that regard the Privy Council saw Part IV as available where it was accepted that Telecom had a practical monopoly arising from its ownership of the fixed network to which Clear needed to interconnect. In short, present absence of competition does not bar its application.
[11] Section 54 provides for the Commerce Commission to report on the making of recommendations as to price control under s53 following the provision of reasonable opportunity for interested persons to furnish their views. Under s70(1), where goods or services are the subject of an order under s53, the Commerce Commission may authorise a "maximum, actual, or minimum price" to be charged. In exercising its powers the Commission is required to have regard to "(b) The necessity or desirability of safeguarding the interests of users, or consumers or, as the case may be, of suppliers" (s73). As well, by s26 the Commission is required to "have regard to the economic policies of the Government as transmitted in writing" to the Commission, published in the Gazette and laid before Parliament - thereby assuring transparency.
[12] Finally, by s5(1) the Commerce Act is declared to bind the Crown "insofar as the Crown engages in trade" and by s6(1) the Act is declared to apply "to every body corporate that is an instrument of the Crown in respect of the Government of New Zealand engaged in trade". Clearly these provisions cover Transpower.

State-Owned Enterprises Act

[13] As the long title states, the object of the State-Owned Enterprises Act is " ... to promote improved performance in respect of Government trading activities and, to this end, to (a) specify principles governing the operation of State enterprises; and (b) authorise the formation of companies to carry on certain Government activities and control the ownership thereof; and (c) establish requirements about the accountability of State enterprises, and the responsibility of Ministers".
[14] Part I spells out the governing principles. The principal objective of every SOE is "to operate as a successful business and, to this end, to be (a) as profitable and efficient as comparable businesses that are not owned by the Crown; and (b) a good employer; and (c) an organisation that exhibits a sense of social responsibility by having regard to the interests of the community in which it operates and by endeavouring to accommodate or encourage these when able to do so". The directors are persons who it is judged will assist the SOE to achieve its principle objective; decisions relating to its operation are to be made in accordance with the statements of corporate intent; and the board is accountable to the shareholding Ministers (s5). In turn the shareholding Ministers are responsible to the House of Representatives for the performance of their functions (s6). Part II provides for the formation and ownership of new State-Owned Enterprises and Part III concerns accountability.
[15] While it appears in Part II, s13 needs to be read with s14 in Part III. Transpower is listed in the Second Schedule and so is subject to s13. Section 13(1) reads:

Notwithstanding any other provision of this Act or the rules of any company,--

(a) The shareholding Ministers may from time to time, by written notice to the board, direct the board of a company named in the Second Schedule to this Act to include in, or omit from, a statement of corporate intent for that company any provision or provisions of a kind referred to in paragraphs (a) to (h) of section 14 (2) of this Act; and

(b) The shareholding Ministers may, by written notice to the board, determine the amount of dividend payable by any company named in the Second Schedule to this Act in respect of any financial year or years,--

and any board to whom such a notice is given shall comply with the notice.

[16] Section 14(1), (2), (3) and (4) provide:

(1) The board of every State enterprise shall deliver to the shareholding Ministers a draft statement of corporate intent not later than 1 month before the commencement of each financial year of the State enterprise.

(2) Each statement of corporate intent shall specify for the group comprising the State enterprise and its subsidiaries (if any), in respect of that financial year and each of the immediately following 2 financial years, the following information:

(a) The objectives of the group:

(b) The nature and scope of the activities to be undertaken:

(c) The ratio of consolidated shareholders' funds to total assets, and definitions of those terms:

(d) The accounting policies:

(e) The performance targets and other measures by which the performance of the group may be judged in relation to its objectives:

(f) A statement of the principles adopted in determining the annual dividend together with an estimate of the amount or proportion of annual tax paid earnings (from both capital and revenue sources) that is intended to be distributed to the Crown:

(g) The kind of information to be provided to the shareholding Ministers by the State enterprise during the course of those financial years, including the information to be included in each half-yearly report:

(h) The procedures to be followed before any member of the group subscribes for, purchases, or otherwise acquires shares in any company or other organisation:

(i) Any activities for which the board seeks compensation from the Crown (whether or not the Crown has agreed to provide such compensation):

(j) Such other matters as are agreed by the shareholding Ministers and the board.

(3) Each statement of corporate intent shall also include the board's estimate of the current commercial value of the Crown's investment in the group and a statement of the manner in which that value was assessed.

(4) The board shall consider any comments on the draft statement of corporate intent that are made to it not later than 14 days before the commencement of the financial year by the shareholding Ministers, and shall deliver the completed statement of corporate intent to the shareholding Ministers on or before the commencement of the financial year or such later date as the shareholding Ministers may determine.

[17] Following the enactment of the State-Owned Enterprises Act the Electricity Act 1968 was amended to reflect the replacement of the Ministry of Energy as the generating and supply agency by the Electricity Corporation of New Zealand Ltd (Electricity Amendment Act 1987). That included the repeal of s34 of the 1968 Act which had required the prices charged for all electricity supplied and sold to Electrical Supply Authorities under the Act to be calculated so as to produce a percentage return fixed by the Minister after consultation with the Electrical Supply Authorities Association between 25% and 50% over the charges and expenses of the management, operation and maintenance of the supply of electricity for the period. From the beginning of operations under the Electric-power Boards Act 1918 the Crown had fixed the prices for electricity generated and supplied to local supply authorities pursuant to the State Supply of Electrical Energy Act 1917 and after 1957 under a statutorily specified pricing formula (State Supply of Electrical Energy Amendment Act 1957 s2).

Electricity (Information Disclosure) Regulations

[18] The third element in the light-handed regulation applying to the conveyance of bulk electricity by Transpower is the information disclosure regime under regulations made under s170 of the Electricity Act 1992, including under s170(1)(c): "(i) prices, terms, and conditions; (ii) pricing policies and methodologies; (iii) costs; (iv) cost allocation policies and methodologies; (v) performance measures, or information from which performance measures may be derived, or both."
[19] The current regulations are the Electricity (Information Disclosure) Regulations 1999. They require the periodic disclosure by line operators, including Transpower, of financial and efficiency performance measures and specify a great deal of particularised detail (regs 15 to 24) including valuation methods and in terms of reg 24 require that the disclosure document:

(a) Describe the methodology used to calculate the prices charged or to be charged; and

(b) Include the key components of the revenue required to cover costs and profits of the line owner's line business activities, including cost of capital, which must include the numerical value of each of the components; and

(c) State the consumer groups used to calculate the prices charged or to be charged, including--

(i) The rationale for the consumer grouping; and

(ii) The method by which the line owner determines which group consumers are in; and

(iii) For each of these consumer groups, the statistics relating to that group which were used in the methodology; and

(d) Describe the method by which the line owner allocated the components of the revenue required to cover the costs of its line business activities amongst consumer groups, which must include the numerical values of the different components allocated to each consumer group and the rationale for allocating it in this manner; and

(e) Describe the method by which the line owner determined the proportion of its charges which are fixed and the proportion which are variable, and the rationale for determining the proportions in this manner.

The statement of Government economic policy and the statements of corporate intent

[20] Vector's pleading of the cause of action in question invokes the applicable statement of Government economic policy under s26 of the Commerce Act and the applicable statements of corporate intent under the State-Owned Enterprises Act. The relevant statement of 20 December 1994 under s26 of the economic policy of the Government in relation to markets for the transmission of electricity states the Government's energy policy objective as being to ensure the continuing availability of energy services, at the lowest cost to the economy as a whole, consistent with sustainable development.
[21] The objective for Transpower is stated as follows:

Trans Power is the owner and operator of the national grid for electricity transmission. Trans Power's principal objective is set out in section 4 of the State Owned Enterprises Act 1986. Given the nature of its business, Trans Power should also have the following specific objectives to assist it in fulfilling its principal objective:

i to provide an efficient, reliable and secure national grid at least practicable cost, taking into account factors relating to customer-specific transmission services;

ii to provide transmission services (including access) to all existing and future grid users with pricing and other contractual terms and conditions which:

1. are transparent;
2. reflect costs, including risk;

100. facilitate nationally efficient supply, delivery and use of electricity;

4. promote efficient use of Trans Power's resources; and
5. promote nationally efficient use of transmission services by grid users, and so facilitate efficient resource use;

iii to supply appropriate and timely information which facilitates efficient investment decisions by Trans Power, and by users of the national grid; and

iv to earn a commercially appropriate return having regard to the risk of the business.

In these objectives:

• operation of the national grid includes ensuring efficient system coordination and real time electricity security.
• efficiency includes efficiency over the longer term.
  

And, continuing as to transmission pricing:

• That Trans Power's charges should reflect the full economic costs to Trans Power of providing transmission services, including back-up.
• That variable transmission prices to grid users should reflect variable costs incurred in the transmission of electricity (including costs that arise when parts of the transmission grid are constrained), thus providing incentives to minimise those costs.
• That sunk costs of the transmission grid should be allocated in a way that minimises distortions in investment decision-making by grid users.

The Government is concerned in particular to ensure, in the interests of the economy as a whole, that the way sunk costs are recovered minimises distortions to decisions on the timing or location of investment in new generating facilities or demand-side alternatives. The comparative transmission costs of new generation opportunities should be evaluated on the basis of prices to recover marginal transmission costs (which are primarily marginal losses and marginal constraints), plus the cost of connection to the existing grid. The method of recovering the grid's sunk costs should minimise distortions to those price signals. (It is noted that redundant transmission assets are to be written down under the Optimised Deprival Value (ODV) methodology. Assets may become redundant where grid users' capacity requirements are permanently reduced. In the event of redundancy, the level of Trans Power's charge to recover sunk costs should be correspondingly reduced. [Fn: Conversely, asset values can increase under the ODV methodology, in which case charges to recover sunk costs may increase correspondingly].

• That the pricing of new replacement investments in the grid should provide grid users with strong incentives to identify least cost investment options, including energy efficiency and demand management options.
• That the pricing for new entrants should provide clear signals on the relative costs of locating in different areas.

[22] The statement of corporate intent of Transpower under s14 of the State-Owned Enterprises Act for the financial year to 30 June 1997 (and the two succeeding financial years) repeats the objective for Transpower set out in the economic policy statement above. Section 3 of Part A as to pricing policy provides:

Transpower will determine its revenue required this year and price the services it provides taking into account the specific objectives marked (i) to (iv) in Part A, having regard to:

• The budgeted costs for Trans Power for the 1996/97 financial year and the budgeted costs for the next two succeeding years.
• A commercially appropriate return on investment having regard to the risk of the business and the maintenance of commercially appropriate financial ratios.
• Price stability and predictability for Trans Power's customers.
• The benefits flowing to customers from the services provided by Trans Power.

The revenue resulting from the application of these principles will be recovered from Trans Power's customers having regard to the principles outlined by the Government in its "Statement to the Commerce Commission of the Economic Policy of the Government: Electricity Transmission".

[23] Section 4 records Transpower's intent to calculate its required rate of return on the basis of the capital assets pricing model set out in detail and based on particularised assumptions, including the post tax risk free return and the equity beta for each of the three years.
[24] Section 5 sets commercial performance targets and other measures including accounting returns. Parts F and G set commercial targets and other measures including specific accounting returns on total assets and on equity and accounting rates of profit for each of the three years, an efficient allocation of capital ratio as specified, and the business plan's provision for the dividend distribution to be a minimum of 70% of all profits after tax together with a statement of the forecast dividends.

The challenges made to Transpower's pricing in the pleadings

[25] Against that background we turn to the first cause of action pleaded by Vector. Following the general pleading that as a monopoly supplier of essential services Transpower owed duties at law to supply its services to its customers on terms including prices which are fair and reasonable, the statement of claim sets out the full text of the Government's s26 statement of economic policy and extracts from the statement of corporate intent for the year to 30 June 1997 and succeeding two years, and the next year's statement of corporate intent. The statement of claim then avers that the common law duty requires Transpower to price its services so as to (a) promote and ensure economic efficiency; (b) transparently reflect costs, and risk; (c) promote the economically efficient use of transmission services; and (d) ensure that, vis a vis electricity supply the best consumption and investment decisions are made for the country (para 12). The statement of claim goes on to plead that Transpower has failed to meet its pricing obligations in 13 specified respects which in broad terms aver subsidisation of some transmission users by other users, valuations contrary to principles set out in the handbook for optimised deprival valuation of Transpower, incorrect allocations of assets, charges and costs, misuse of its dominant position to over protect itself from business risk and collect excessive revenue, over protecting its revenue and seeking to impose its disadvantageous connection contracts on customers (para 15).
[26] Following further comments on allocation methodology (paras 16 to 18) and Transpower's pricing components (paras 19 to 21), para 22 avers that Transpower's pricing methodologies and the resultant prices which it seeks to impose on customers, and specifically Vector, are not fair and reasonable either in themselves or as between customers or classes of customers in 16 particularised respects, largely repetitious of previously stated complaints; para 23 adds that the pricing methodologies and resultant prices of Transpower are unfair and unreasonable in four respects largely matching (a), (b), (c) and (d) of para 12; para 24 goes on to aver that the pricing methodologies and resultant prices of Transpower are inconsistent with and contravene the principles for transmission pricing set out in the s26 statement to which Transpower had committed itself and "which (if applied correctly) would be consistent with fair and reasonable pricing"; and paras 30 and 31 aver that Transpower's pricing methodologies and the resultant prices when sought to be applied to Vector are unfair and unreasonable in various respects set out at length under the general headings, over-stated revenue requirement and allocation to customers of Transpower's "revenue required" figure.
[27] The parties have settled matters to 30 September 1997 and the relief now sought is a declaration that Transpower's current pricing methodology and resultant prices for transmission services to Vector are unfair and unreasonable and an inquiry as to damages suffered by Vector and repayment of the difference between prices charged since 1 October 1997 and those which would be fair and reasonable.
[28] While this summary of the statement of claim is necessarily incomplete given the length and complexities of the document it sufficiently reflects the thrust of the pleading which essentially accepts and relies on the constraints on Transpower's pricing under the Government's s26 economic statement and the statement of corporate intent. In essence the complaint is that Transpower has not adhered to its obligations under those statements and that within those constraints in some instances it has not adopted methodologies which yield prices which are fair and reasonable as between Transpower and Vector.

The judgment of Williams J and Dr Brunt

[29] On the first issue, the applicability of a common law doctrine of prime necessity in New Zealand, it was argued for Transpower that the High Court should consider the matter afresh. The court noted that in previous litigation between the predecessors to these parties where it was common ground between them that the doctrine was applicable, this court had referred to it in this way (Auckland Electric Power Board v Electricity Corporation of New Zealand Ltd [1994] 1 NZLR 551, 557):

The board does not invoke the Commerce Act 1986. It relies on the obligation imposed by the common law on monopoly suppliers of essential commodities. Those common law obligations are generally traced back to passages from Lord Hale's "Treatise de Portibus Maris", which are set out, conveniently, and substantially, in various leading cases, such as Allnutt v Inglis, Treasurer of the London Dock Company [1810] EngR 359; (1810) 12 East 527, and Munn v Illinois [1876] USSC 149; 94 US 113 (1877). Lord Hale, writing of a wharf to which the public must come, either because it is the only licensed wharf in the district or because there is no other wharf, said:

A man for his own private advantage may in a port town set up a wharf or crane, and may take what rates he and his customers may agree for cranage, wharfage, etc; for he doth no more than is lawful for any man to do, viz makes the most of his own . . . If the King or subject have a public wharf, unto which all persons that come to that port must come and unlade or lade their goods, as for the purpose, because they are the wharfs only licensed by the Queen, or because there is no other wharf in that port, as it may fall out where a port is newly erected; in that case there cannot be taken arbitrary and excessive duties for cranage, wharfage, etc, neither can they be enhanced to an immoderate rate; but the duties must be reasonable and moderate, though settled by the King's licence or charter; for now the wharf and crane and other conveniences are affected with a public interest, and they cease to be juris privati only.

The common law doctrine was applied by this Court in State Advances Superintendent v Auckland City Corporation and the One Tree Hill Borough [1932] NZLR 1709 which concerned a threatened cut off of water by a municipality which had a practical monopoly in the field. Myers CJ, at p 1715 expressed the matter in this way:

The principles upon which the Courts have acted are, as I understand them - (i) That the supply of water is a matter of prime necessity; (ii) that where a water-supply authority has a practical monopoly there lies upon it an obligation (implied where not expressed) to supply water to all those requiring it and who are prepared to pay a fair and reasonable charge; and (iii) that apt, if not coercive, language is required to confer upon the water-supply authority the right to refuse water, or stop the supply, to any particular premises by reason of non-payment of a rate or charge in respect of water previously supplied, except to the person primarily liable for, and actually in default in respect of, the arrears.

Not surprisingly those principles have been applied to the bulk supply of electricity (Wairoa Electric-Power Board v Wairoa Borough [1937] NZLR 211 and South Taranaki Electric-Power Board v Patea Borough [1955] NZLR 954).

The applicability of the common law principles is not in dispute. It is common ground that, contract or no contract, Electricorp as a monopoly supplier is obliged to supply and will supply the electricity required by the board at fair and reasonable prices. There could be no justification for granting a declaration in respect of a liability which is not in dispute. It is common ground, too, that in the absence of the particular contractual regime provided by the 1988 contract a fair and reasonable price would ultimately be fixed at law - and in the South Taranaki Electric-Power Board case the Court envisaged appointing a referee to perform that task.

[30] The further appeal to the Privy Council was confined to the striking out by this court of the statement of claim. The appeal was dismissed. While rejecting this court's view that particular commercial decisions of SOEs were not amenable to judicial review, Their Lordships held that it did not seem likely that a decision by an SOE to enter into or determine a commercial contract to supply goods or services would ever be subject to judicial review in the absence of fraud, corruption or bad faith ([1994] 2 NZLR 385, 391). But they observed at p387:

... the Corporation has continued to provide Mercury with bulk electricity and in this action conceded that it is bound to do so at fair and reasonable prices. In recording this concession Their Lordships must not be taken to accept or reject the "common ground" statement accepted by the Court of Appeal, that in default of agreement "a fair and reasonable price would ultimately be fixed at law''. This statement would result in commercial decisions confided by Parliament to the members of the Corporation by s 4 of the Act of 1986 becoming decisions made by members of the High Court or the Court of Appeal. In the absence of argument Their Lordships are unable to express any views with regard to the authorities which are said to justify the statement or as to the applicability of those authorities to a state-owned enterprise established by the Act of 1986.

[31] Williams J and Dr Brunt extensively discussed some 14 more New Zealand authorities touching on the doctrine contended for, the Privy Council decision Minister of Justice for the Dominion of Canada v City of Lévis [1919] AC 505, and a number of English, Australian, other Canadian and American cases, concluding at p576-577 that it was bound to hold that, at least until 1986, the doctrine was part of the law of New Zealand:

The great bulk of New Zealand and other authority, both in this Court and in the Court of Appeal, makes that plain. The only cases suggesting otherwise are Wellington Gas Co v Patten [1881] NZLR 3, which accepted that Allnutt was "very strong authority" in favour of the doctrine but where the results were determined by statute (and was overturned the following year). Prof Taggart persuasively argues that Wellington Gas can no longer be considered good law. The only other New Zealand authority against the doctrine is Auckland Metropolitan Fire Board and Diocesan Trust Board which must be regarded as anomalous having regard to the weight of other New Zealand authority. The minatory comments of the Privy Council in Mercury Energy also need to be taken into account but the point was not in issue. That conclusion is also consistent with authority in Canada and with such academic writing as was cited on the subject.

[32] The court then turned to the question whether, as it said, the doctrine has been clearly and unambiguously supplanted, either expressly or by necessary implication, by the Commerce Act 1986 and, to a lesser extent, by the State-Owned Enterprises Act 1986 operating in the atmosphere of economic liberalism and the light-handed regulation which has pervaded the New Zealand economy over the past dozen years.
[33] Applying well established principles governing the displacement of common law by statute, as set out in Falkner v Gisborne District Council [1995] 3 NZLR 622, the court concluded that the Commerce Act and the State-Owned Enterprises Act had "eclipsed" the common law (pp582-583):

Whilst it needs to be acknowledged that the obligation on a monopolist to sell or provide commodities or services of prime necessity only at prices which are fair and reasonable is not precisely synonymous with the tests for ministerial recommendation under the Commerce Act 1986 s53(2) - whether the goods or services will be supplied in a market of limited or lessened competition and it is necessary or desirable for those prices to be controlled in the interests of users, consumers or suppliers - there can be little doubt that in enacting the relevant statute, Parliament did not intend the doctrine to survive. The frequency of resort to the doctrine prior to 1986 is noteworthy by comparison with the paucity of authority since that date. Nothing in the Commerce Act 1986 or the State-Owned Enterprises Act 1986 expressly preserves the doctrine. None of the material put before this Court concerning the Parliamentary debates on the statutes suggests it was intended to survive. Since the mid-1980s New Zealand has opted for a light handed regulatory regime as encapsulated in the Commerce Act 1986 and the State-Owned Enterprises Act 1986. Direct intervention is plainly intended to be a last resort. The necessary broad accountabilities are to be matters of compliance with the statute and annual negotiations between shareholding ministers and the SOEs as evidence in their Statements of Corporate Intent. Significantly, no role has been spelt out for Courts other than in a conventional appellate setting. Whilst the Court is not unaccustomed to dealing with matters of complex economic theory, pricing methodologies and the like, and whilst it has mechanisms available to assist it in deciding those questions, it was common ground that the setting of pricing principles would be a protracted matter of considerable complexity, ill-suited to the adversarial process and one which would require to be regularly if not continuously repeated. It may not be overstating the position to say that if the Court became involved in such a process, it could become permanently involved. Given that the doctrine has never been invoked in this area in this way over the past dozen years or so, it would be a startling innovation for this Court now to assume and devote a considerable amount of resources to an ongoing supervisory if not regulatory role of major complexity in this sector of the electricity industry. No doubt other sectors of the industry would wish to participate. So would other sectors of the economy. Had Parliament intended the Court to fulfil such a role, in our view it would have said so unmistakably clearly.

Prime necessity

[34] We turn now to consider the common law doctrine of prime necessity. As noted earlier, Vector relies on the doctrine and submitted that Transpower, having a monopoly over the transmission of electricity between generators and local line companies, is obliged by the common law to charge only a fair and reasonable price for its services. Mr Farmer for the respondent challenged the doctrine and submitted that it has never formed part of the common law of New Zealand or that, if it has, it is now excluded by statutory developments.
[35] The first question is whether the doctrine of prime necessity ever came to form part of the common law of New Zealand. In this part of the judgment we outline the doctrine's development; a fuller discussion extensively canvassed in argument in this case is provided by Professor Michael Taggart, "Public Utilities and Public Law" in Joseph (ed) Essays on the Constitution (1995).
[36] The doctrine of prime necessity is generally traced back to passages in Sir Matthew Hale's "Treatise de Portibus Maris" written in the latter part of the 17th century. The principle was not immediately seized by the courts but, to use Professor Taggart's words, was "rescued from oblivion" by citation in two cases, upon which present counsel relied, decided early last century: Bolt v Stennett [1800] EngR 198; (1800) 8 TR 606, 101 ER 1572 and Allnutt v Inglis [1810] EngR 359; (1810) 12 East 527, 104 ER 206. In the latter case Lord Ellenborough CJ set out the doctrine, at [1810] EngR 359; 104 ER 206, 210-211, in the following terms:

There is no doubt that the general principle is favoured both in law and justice, that every man may fix what price he pleases upon his own property or the use of it: but if, for a particular purpose, the public have a right to resort to his premises and make use of them, and he have a monopoly in them for that purpose, if he will take the benefit of that monopoly, he must as an equivalent perform the duty attached to it on reasonable terms.

....

Here then the company's warehouses were invested with the monopoly of a public privilege, and therefore they must by law confine themselves to take reasonable rates for the use of them for that purpose. ... it is enough that there exists in the place and for the commodity in question a virtual monopoly of the warehousing for this purpose, on which the principle of law attaches, as laid down by Lord Hale, ...., which includes the good sense as well as the law of the subject. Whether the company be bound to continue to apply their warehouses for this purpose may be a nice question, and I will not say to what extent it may go; but as long as their warehouses are the only places which can be resorted to for this purpose, they are bound to let the trade have the use of them for a reasonable hire and reward.

[37] Section 5 of the Imperial Laws Application Act 1988 provides:

After the commencement of this Act, the common law of England (including the principles and rules of equity), so far as it was part of the laws of New Zealand immediately before the commencement of this Act, shall continue to be part of the laws of New Zealand.

[38] In considering whether the relevant common law was part of the laws of New Zealand before the commencement of that Act, it is necessary to refer back to the English Laws Act 1908 and before that to the English Laws Act 1858. The effect of these statutes is that the law of England as existing on 14 January 1840 became at that date the law of New Zealand "so far as applicable to the circumstances" of this country. Of course s5 of the Imperial Laws Application Act and also s2 of the English Laws Act 1908 require consideration of whether the English common law may have later been displaced or modified by New Zealand developments.
[39] If Hale's principle, as expressed in the two cases referred to above, was part of the common law in 1840, it thereby became part of the common law of New Zealand if applicable to the circumstances of New Zealand. The English Laws Act 1858 endorsed the principle of full inheritance: that colonists from England carried the common law with them in so far as it was applicable to the circumstances of the colonies (Blackstone, Commentaries on the Laws of England (15th ed 1809) Vol 1, p107). The applicability of the common law rule concerning the monopoly supply of essential goods and services in the circumstances of the development of New Zealand after 1840 was clear and was never doubted in the New Zealand cases.
[40] The first New Zealand case to refer to the principle was Wellington Gas Company v Patten, a decision of this Court. Judgment was delivered on 8 December 1881 and the case was later reported at (1885) 3 NZLR 205. Sir Matthew Hale's writing and its endorsement in Allnutt v Inglis were discussed but were ultimately held to be inapplicable; the relevant statute did not confer a monopoly and nor did it impose any obligation to supply. Allnutt v Inglis, together with Bolt v Stennett, was again discussed by this Court in Pollock v Saunders (1897) 15 NZLR 581 but was not applied to the facts of that case.
[41] In these cases the principle was expressed in the terms first used by Hale: where a relevant monopoly exists property becomes "affected with a public interest" and the owner is subject to common law obligations. The principle no doubt owes something to the law of common callings: the rule that those who exercised a common calling had a duty to serve all and at a reasonable price.
[42] We add here that Hale's principle has also been discussed and applied in a number of cases in the United States. Counsel emphasised in particular Munn v Illinois [1876] USSC 149; (1877) 94 US 113. The court has been aided by that discussion although we bear in mind that the cases must be located in their particular constitutional setting.
[43] The introduction of the term "prime necessity" into the common law occurred in Minister of Justice for the Dominion of Canada v City of Lévis [1919] AC 505, a Privy Council case on appeal from the Superior Court of Quebec in review, reported in French at (1917) 51 Rapports Judiciaries de Quebec 267. The case concerned the respondent's desire to charge for water supplied to a building owned by the Canadian Government. Delivering judgment for the Board Lord Parmoor first analysed the relevant statutory provisions. He concluded (at 512) that the provisions imposed on the municipality an obligation to supply in respect of taxable properties within the area of supply. The Crown, however, was not the owner of taxable property and could not take the benefit of the express statutory obligation. The Privy Council found that such an obligation could be implied. Lord Parmoor said at 513:

It must be recognized, however, that water is a matter of prime necessity, and that, where waterworks have been established to give a supply of water within a given area for domestic and sanitary purposes, it would be highly inconvenient to exclude from the advantages of such supply Government buildings, on the ground that these buildings are not liable to water taxation. The respondents are dealers in water on whom there has been conferred by statute a position of great and special advantage, and they may well be held in consequence to come under an obligation towards parties, who are none the less members of the public and counted among their contemplated customers, though they do not fall within that class who are liable to taxation, and who being in the immense majority are expressly legislated for and made subject to taxation. Their Lordships are therefore of opinion that there is an implied obligation on the respondents to give a water supply to the Government building provided that, and so long as, the Government of Canada is willing, in consideration of the supply, to make a fair and reasonable payment. The case stands outside of the express provisions of the statute, and the rights and obligations of the appellant are derived from the circumstances and from the relative positions of the parties.

[44] The decision in City of Lévis that notwithstanding the absence of an express statutory provision an obligation to supply and a corresponding obligation to pay a reasonable price could be implied from "the circumstances and from the relative positions of the parties" is similar to that reached in an earlier New Zealand case: R v The Mayor, etc, of Napier (1907) 26 NZLR 917. In that case Cooper J held that the Corporation was bound to supply water to the Crown so long as the Crown was willing to pay a reasonable charge and he said that "the rights of the Crown and the duty of the Corporation to the Crown depend upon matter outside the statute" (at 924).
[45] Although the Privy Council decision does not refer to any authorities, the decision of the Superior Court of Quebec in review cites Attorney General of Canada v Toronto (1893) 23 SCR 514, which held that a provision imposing an obligation on the city to furnish water (described as "indispensable for the preservation of the public health") to all carried with it an obligation to charge at a rate that was uniform, fair and reasonable. City of Lévis establishes that this obligation does not depend solely upon the statute but rather arises from the circumstances.
[46] The language of City of Lévis and the use of the term "prime necessity" has been adopted in a number of subsequent New Zealand cases. First, in Mayor, etc, of Auckland v The King [1924] GLR 415 Stringer J applied the principles set out by Lord Parmoor to find that the Crown was under an implied obligation to pay the city a reasonable sum for refuse collection services, such services being "a matter of necessity" (at 416). And in State Advances Superintendent v Auckland City Corporation and the One Tree Hill Borough [1932] NZLR 1709 (CA) Myers CJ referred to water being a matter of "prime necessity" and said that "where a water-supply authority has a practical monopoly there lies upon it an obligation (implied where not expressed) to supply water to all those requiring it and who are prepared to pay a fair and reasonable charge" (at 1715).
[47] Counsel cited some fifteen New Zealand cases where the doctrine has been discussed. It has been referred to in an unquestioning way in five cases in this Court in addition to the Auckland Electric Power Board case. Three of these cases concerned the supply of water services: the State Advances case discussed above; Crimp v Horowhenua County [1953] NZLR 975; and Marlborough County Council and Blenheim Borough Council v McFarlane (CA 48/84 and 51/84, judgment 19 December 1984). In the fourth, Hutt Golf Course Estate Co Limited v Hutt City Corporation [1945] NZLR 56, the Court held that City of Lévis did not apply to the question of whether the Council could charge the Crown for the cost of water-connection pipes already laid between the Council's water-mains and the boundary of the relevant allotment but did not question the decision. And in Huntly Borough v South Auckland Education Board [1963] NZLR 282 the doctrine was discussed in relation to sewage services. Prime necessity was also mentioned in passing in New Zealand Rail Ltd v Port Marlborough New Zealand Ltd [1993] 2 NZLR 641, 642.
[48] Over sixty years ago the prime necessity doctrine was applied by the High Court to the supply of electricity. In Wairoa Electric-power Board v Wairoa Borough [1937] NZLR 211 Ostler J said at 215:

...it has been laid down by the Privy Council and by our Court of Appeal that where a statutory body has a practical monopoly of the supply of a commodity of prime necessity, such as water, it is under a legal liability to supply that commodity at a reasonable price ... : see Minister of Justice for the Dominion of Canada v City of Lévis and State Advances Superintendent v Auckland City Corporation. These cases both deal with the supply of water, but, in my opinion, the supply of electrical energy is in the same category. It has become a prime necessity in recent years.

See also South Taranaki Electric-power Board v Patea Borough [1955] NZLR 954.

[49] The extension of the doctrine and the determination of what services are considered a "prime necessity" appears to have been treated as a matter of judicial notice rather than as calling for an extensive evidential inquiry. In South Taranaki Electric-power Board v Patea Borough Hutchison J said at 960 that "the Court is entitled to take judicial notice of the community's need of electricity" and that seems to have been the approach adopted by Ostler J in Wairoa Electric-power Board v Wairoa Borough. See also McIntyre J in Chastain v British Columbia Hydro and Power Authority (1972) 32 DLR (3d) 443 (SC of BC). What constitutes a prime necessity will change over time. In his foreword to Rennie, Power to the People: 100 Years of Public Electricity Supply in New Zealand (1989) the former Governor General Sir Paul Reeves comments that "[i]n the one hundred years since those first lights were turned on at Reefton on 6 August 1888, electricity has grown from being a new, untried energy source to its present all-pervasive position where society could not function without it." In the present case the court is not concerned with settling the bounds of the doctrine. Its scope will depend upon the relevant social and legal landscape. But it is clear that, leaving aside the relevant statutory provisions, the provision of water and electricity are services to which the doctrine applies where the necessary monopoly exists.
[50] We note two further points about the cases. First, our attention was not drawn to any case where the doctrine has been directly applied against the Crown as a monopoly supplier of services. Second, there has been no clear focus in any of the decided cases on the pricing regimes under the relevant New Zealand legislation. This point goes to the heart of the respondent's second argument that the doctrine has been displaced by statute.
[51] We consider that in principle and on the authorities what may be called the common law doctrine of prime necessity came to form part of the common law of New Zealand. As noted above the doctrine embodies a principle that monopoly suppliers of essential services must charge no more than a reasonable price. The doctrine is a somewhat blunt instrument. It speaks of a bygone age where legislation had a limited role. It gives no guidance as to how the doctrine is to operate to fix prices in the complex environment of a modern economy and extensive legislative landscape. It is perhaps best viewed as a backstop common law remedy applied in the absence of other remedies and where there are no contra-indications to its use. We therefore turn to consider the statutory environment in New Zealand and how this environment impacts on the operation of the common law doctrine in the present case.

Effect of legislation on the common law

[52] There are two questions for consideration. The first is whether the common law rule has been displaced in whole or in part by statute. The answer depends on whether common law and statute can live together, in some cases with some modification through the statute of the common law. That is a familiar question of statutory construction. The second and related question concerns the impact of that displacement on the common law principle. A statute may unambiguously abolish or abrogate a common law doctrine, in which case nothing will remain if the statute is repealed without any further provision for the future (Interpretation Act 1999 s17(2)). In other cases the common law may survive unutilised while the statute remains in force and spring up on its repeal. Speaking of the prerogative which is part of the common law, Lord Atkinson in Attorney-General v De Kaiser's Royal Hotel Ltd [1920] UKHL 1; [1920] AC 508, 539-540 preferred to say that, while the statute empowering the Crown to do what it may previously have done under the prerogative was in force, the Crown could only act in accordance with the statutory provisions "and that its prerogative power to do that thing is in abeyance". Queenstown Lakes District Council v Palmer [1999] 1 NZLR 549, 556 is a recent example of revival of a common law right to sue for damages where the statutory cover under accident compensation was withdrawn or contracted.
[53] As it is graphically put in Bennion, Statutory Interpretation, 3rd ed, 133:

Effect on existing law To describe the way Acts operate on existing law one can use the image of a floor upon which rugs are spread. The floor consists of unwritten law or lex non scripta, in other words common law, rules of equity, and customary rules. An Act is like a rug laid down on this floor. The Act conceals, for the area it covers, the texture underneath. That texture becomes visible again if the rug is later removed, that is the Act is repealed.

To complete the metaphor, the rug and the floor must run the same way. The Bennion explanation is subject to the obvious qualification that the statute serves similar goals to the common law rule.

[54] Whether the statute abrogates the common law rule for all time or simply displaces it while the statute remains in force is again a question of construction. The language, object and scheme of the repealed statute may be determinative. In other cases much may also depend on the subject matter, on how fundamental the common law principle is, and the apparent need in the public interest to have a governing legal rule.

The common law doctrine in respect of transmission of bulk electricity by Transpower: the argument for Vector

[55] For the whole of the 70 years from the first statutes providing for the national development of the generation and supply of bulk electricity by the Crown to local supply authorities down to 1986, the Crown determined the prices for electricity supplied; and from 1957 it did so under a statutorily specified pricing formula. Clearly, and even assuming that prime necessity could otherwise have been invoked against the Crown as monopoly supplier of essential services, the statutory provision precluded any possible application of the doctrine to those supply arrangements.
[56] Mr Carruthers QC submits on behalf of Vector that the common law rule can now co-exist with the current legislation. The Commerce Act, he contends, does not expressly or by implication preclude private law remedies for breach of the common law obligation. Section 36 is directed to anti-competitive behaviour, not to supply obligations which are independent of competition. Part IV does not create private law remedies and at best it could only suspend prime necessity while prices were controlled under that part of the Act. In that regard he referred us to a paper by Dr A E Bollard (now Secretary to the Treasury) and Mr M Pickford (of Massey University and at the time seconded to the Commerce Commission), "New Zealand's 'Light-Handed' Approach to Utility Regulation" (1995) 2 Agenda 411, 420, referring uncritically to the invoking of the doctrine of prime necessity in the courts of New Zealand. But there are no New Zealand decisions during the period of light handed regulation which have applied prime necessity to determine prices and Dr Bollard and Mr Pickford were writing after this court's decision in the Auckland Electric Power Board case where the parties agreed that the common law applied and before the Privy Council judgment querying that concession.
[57] Mr Carruthers further submitted that a private law remedy was necessary to protect those supplied by Transpower as practical monopolist from unreasonable prices.
[58] Turning to the SOE legislation Mr Carruthers submitted that the scheme and purpose of the statute deliberately distanced the Crown from the immediate operations of the SOE as a successful business, that the statements of corporate intent were just that and did not create actionable obligations, and that the accountabilities under the Act and the provisions of ss13 and 14 did not and were not intended to allow ministerial control over prices charged as distinct from providing for transparent pricing methodologies.

Discussion

[59] For reasons we can express quite shortly we are satisfied that there is no room for the operation of the common law doctrine in relation to the transmission of bulk electricity by Transpower to Vector. It is precluded by the effect of the Commerce Act and that is reinforced by the effect of the State-Owned Enterprises Act.
[60] As noted earlier in para [27], the essential complaint in the pleadings is that Transpower has not adhered to its obligations under the s26 economic statement and statements of corporate intent and that within those constraints (which Vector accepts would apply in relation to any common law obligation) there is some flexibility and margin of appreciation which in some respects yields prices which are unfair and unreasonable as between Transpower and Vector.
[61] We turn first to the Commerce Act. By that legislation Parliament clearly and deliberately moved away from earlier regulatory approaches to light handed regulation. The selection of a particular form of regulation involves consideration by Government and Parliament of fundamental issues of social and economic policy and obviously includes assessments of the tradeoffs between the costs associated with particular regulatory regimes and the benefits they are expected to deliver. If upheld in this case prime necessity would involve heavy handed regulatory intervention on Transpower's pricing, through the courts and potentially on a day to day basis at the suit of individual customers of Transpower, of a type which Parliament decided it did not wish to impose; and to do so would be inconsistent with the purpose and scheme of the Commerce Act.
[62] Price control through the courts is a form of State control. The only State control of prices contemplated by the legislation is provided for within Part IV and is available only if and when the criteria contained in Part IV are satisfied. Price control under Part IV is instituted on the initiative of the Minister who may require a report from the Commerce Commission. The only statutory role of those interested in the supply arrangements in question is the opportunity to furnish their views on the matter following a public invitation by the Commerce Commission to do so (s54(2)(a)). It is the Governor-General, not the courts, who declares that the prices for goods or services be controlled (s53). It is the Commerce Commission, not the courts, which authorises prices for those controlled goods and services (s70). It does so either on the application of "a supplier" or of its own motion (s70), not on the application of a recipient of goods or services. In that regard and as a corollary to s54(2)(a), s70 simply empowers the Commerce Commission to consult with any person who is able to assist it in making a determination under the section, or to hold conferences (s74). And s73 goes no further than requiring the Commerce Commission in exercising its powers under s70 to have regard amongst other considerations to the necessity or desirability of safeguarding the interests of users or consumers or, as the case may be, of suppliers. That statutory process is inconsistent with the kind of adversarial processes through the courts for hearing and determining price fixing proceedings under the common law doctrine of prime necessity.
[63] Further, the determiner of prices under Part IV is the Commerce Commission, not the courts; and, reflecting the policies underlying the Commerce Act, in exercising its powers the Commission is required to have regard to the economic policies of the Government as transmitted under s26. The detailed statement in the relevant economic policy document of the objective for Transpower and of transmission pricing factors and the substantial degree of specificity, go so much further than the broad obligations under the common law doctrine to fix prices which are fair and reasonable that the focus provided by those constraints could never have been intended to translate across to a parallel but otherwise blunt pricing standard still available at common law through the courts.
[64] In short, it is inherent in those features of the statutory scheme that Part IV is the exclusive means of achieving price control over the transmission of bulk electricity by Transpower. That conclusion is reinforced by consideration of the limited private remedies for misuse of monopoly power provided under s36. First, as noted earlier in para [8], s36 does not impose an obligation to supply as such, Parliament having deliberately departed from the 1975 legislation and having deliberately discarded the initially proposed paragraph to that effect. If supply is refused, s36 applies only where constraints on supply are for the specified anti-competitive purposes. Second, as noted in para [9], there is no control under s36 over monopoly rents, the Privy Council seeing their elimination in the short term as being within the province of Part IV.
[65] There are two other considerations which support these conclusions. First, the major thrust of the statement of claim is that Transpower has not adhered to its obligations under the Government's s26 economic statement (effectively incorporated in the statement of corporate intent) and the statements of corporate intent. In that regard the statement of claim smacks of judicial review in another guise in circumstances where, as indicated by the Privy Council in the Auckland Electric Power Board case, judicial review is not likely to be available because it must be assumed Vector cannot establish fraud, corruption or bad faith on the part of Transpower. In these circumstances it is for the shareholders of Transpower, not an aggrieved customer, to ensure the SOE properly observes its statement of corporate intent and the s26 statement which it incorporates.
[66] The second is that a court considering Transpower's pricing at the suit of Vector would surely have to assess allocation and subsidisation issues across the board and so look at prices and pricing implications for all customers of Transpower. That would almost certainly call for joinder of other parties and the conversion of the proceedings into the kind of inquiry that Part IV entrusts to the Commerce Commission. Prime necessity, whose origins are quite different, is an unsuitable instrument for price regulation in a multi-dimensional setting. Hence the importance of respecting the exclusivity of the price fixing mechanism under Part IV.
[67] It is unnecessary for present purposes to give equally detailed consideration to the SOE legislation. It is clearly arguable that SOEs, which are incorporated under the Companies Act in the usual way and are established as trading entities on commercial lines responsible for their operation as successful businesses, are deliberately and sufficiently distanced from the Crown so as not to be immune from the prime necessity doctrine if otherwise applicable. It is also clearly arguable that a statement of corporate intent is not contemplated as being so prescriptive of prices as to exclude prime necessity and that the scheme of the statute does not allow the Minister in exercising the powers under ss13 and 14 to go so far as to substantially fix prices. Even so, as with the s26 Government economic policy statement, the detail of the framework (and as well the accountabilities under which the SOE operates) and the substantial degree of specificity in relation to pricing (and in the disclosure requirements under the Electricity (Information Disclosure) Regulations), point strongly against a parallel private law accountability through the courts for prices to satisfy a fair and reasonable test. And to the extent that for policy reasons the Minister and Transpower have decided not to provide greater pricing specificity there could be no justification for judicial intervention in the face of the Government's policy choices.

Result

[68] The court being unanimous as to the result, the appeal is dismissed with costs to the respondent of $25,000 together with reasonable disbursements as fixed if necessary by the Registrar including travel and accommodation expenses of two counsel.

THOMAS J

[69] I agree that the appeal should be dismissed. The doctrine of prime necessity is part of the law of New Zealand. But in this case it is excluded, essentially because it is inconsistent with the Commerce Act 1986. Judicial price-fixing of the kind contemplated by Vector would be incompatible with the “light-handed” regulatory regime evidenced by that Act. The main judgment on this point is compelling.
[70] I wish only to add one or two thoughts relating to the further development of the doctrine in New Zealand.
[71] While in relation to a state owned enterprise such as Transpower, the State Owned Enterprises Act 1986 is obviously relevant to the question whether the doctrine of prime necessity is displaced in any particular case, that Act does not in itself exclude the application of the doctrine. Mr Farmer QC and Mr Arnold QC, while noting that the Act was “not an essential part of Transpower’s displacement case”, described it as providing an accountability structure and submitted that, within that structure, the statement of corporate intent is a key accountability mechanism. These accountability structures were advanced as the third component of “light-handed” regulation. This perception is correct. The State Owned Enterprises Act falls for consideration within the setting of a light-handed regulatory regime and cannot countenance “heavy-handed” Ministerial or Parliamentary control of the state owned enterprise’s trading activity.
[72] It is to be emphasised that accountability per se does not exclude the intervention of the courts. If this were so, our existing body of administrative law, which is recognised as the courts’ greatest contribution to the development of the common law this century, would not have evolved. So, too, the existence of a mechanism to provide for the accountability of state owned enterprises does not of itself exclude the operation of the common law in civil proceedings, whether in contract, tort, equity or otherwise. The doctrine of prime necessity, or a cause of action based on that doctrine, does not create an exception. It must be excluded by virtue of its inconsistency.
[73] Consequently, in my view, a proceeding based on a doctrine of prime necessity cannot strictly be perceived as a parallel means of private accountability through the courts. While, as already stated, the political accountability provided for in the Act is clearly a relevant factor in determining the scope and application of the doctrine in a case relating to a state owned enterprise, that accountability does not provide a pricing or price-fixing regime which would displace the operation of the doctrine.
[74] In this respect, I consider Mr Carruthers’ arguments to be well-founded. State owned enterprises are established as trading enterprises with a clear statutory mandate to operate along commercial lines with commercial objectives (subject to s 4(1)(b) and (c)). They are accountable to the shareholding Ministers for the outcomes which they achieve. This result-oriented accountability is evident from the Long Title, especially para (a), and ss 13 and 14(4) and (5) of the Act. A statement of corporate intent which was so specific in its terms as to be prescriptive of the prices charged by the state owned enterprise in carrying on its trading activity would be contrary to the very objective of the Act. While preserving public ownership, the legislation is deliberately intended to avoid close Ministerial or Parliamentary control over the operation of what is essentially a commercial or trading enterprise.
[75] Consequently, there is scope for the doctrine of prime necessity to develop in relation to state owned enterprises as well as private enterprises, including privatised industries. In this regard, the oviferous work of Professor Michael Taggart will be critical. (See Michael Taggart, “Public Utilities and Public Law”, in Essays on the Constitution (1995) P A Joseph (ed), 214). This distinguished academic and renowned administrative lawyer has provided the juridical basis and framework for the development of the doctrine in New Zealand. [I apologise for the use of the awful word “oviferous”, but Professor Taggart himself has objected to “the irritatingly trite word 'seminal'”, which I would as soon have used. He suggests its replacement with the word “oviferous”. See Michael Taggart, “Reprinted Government, Traffic Lights and the Convergence of Public and Private Law. Review of Harlow and Rawlings: Law and Administration, [1999] Public Law 124, ft. 78 at p 137.]
[76] If the doctrine of prime necessity is to develop in a manner which will be compatible with the complexity of modern commercial and economic conditions, however, it will require some adjustment. As presently formulated it is a crude instrument which will necessarily attract, not without some validity, the in terrorem arguments much favoured by Mr Farmer and Mr Arnold in their submissions to this Court. It is therefore necessary to resort to the basic principle underlying the doctrine with a view to reformulating it in terms which are appropriate to today’s conditions.
[77] In my perception, the doctrine of prime necessity is essentially directed at curbing the exploitation or abuse of monopoly power. A supplier enjoying a practical monopoly in supplying an essential service (or product) is vested with that power. Such a supplier may abuse the monopoly by refusing to supply the service or by offering the service at prices or on terms which effectively precludes supply. It must also be allowed, of course, that the prices may be so excessive or exorbitant that, although supply remains available, the prices may in themselves be an exploitative abuse of the monopolist’s position. But the focus of the doctrine is on the obligation to supply arising out of the law’s refusal to allow a monopoly supplier to take unfair advantage of the power it holds by virtue of being a monopolist. The law would be deficient without such a requirement.
[78] In more recent times, however, the focus in the courts when the doctrine has been in issue has shifted from the question of supply to the question whether the price is fair and reasonable. This standard has been invoked as if it were a statutory formula. It has led to attempts to fix prices. Yet, the requirement that the prices be fair and reasonable was never more than an adjunct to the objective of ensuring that a monopoly supplier of essential services did not exploit or abuse its position by evading its obligation to supply its essential service to its customers. There is much to be said for the observation that the primary cases were concerned with the obligation to supply and that the “concomitant obligation on the purchaser of the service to pay a reasonable price was in effect taken for granted.” But as the supply can be negated by an extortionate price, the obligation to supply necessarily had to be qualified by the requirement that the service be supplied at prices which did not undermine that obligation. It was never contemplated that the doctrine as formulated would be used as a price fixing formula “to deal with the difficult and complex issues of monopoly pricing.” As Cooke P stated in Clear Communications Ltd v Telecom Corporation of New Zealand Ltd (1993) 5 TCLR 413, at 417; “We [meaning this Court] are not a price-fixing authority.”
[79] Shades of this approach are evident in the comments of Lord Templeman in Mercury Energy Ltd v Electricity Corporation of New Zealand Ltd (1994) 1 WLR 521, at 529. “If abuse of a monopoly is actionable,” the learned law Lord said, “the plaintiff produced no facts in support of the allegation of abuse. The lawful termination of a contract is not an abuse. Refusal to supply bulk electricity might be an abuse but no such refusal or to supply only at an excessive price has been threatened...” (Emphasis added).
[80] I anticipate, therefore, that a reformulation of the doctrine is necessary so as to make it consonant with the law’s objective of curbing the exploitation of monopoly power in respect of the supply of essential services. The focus would be on the question whether that power was being abused by the monopolist in refusing to supply or otherwise placing supply in jeopardy. It would not be an exercise directed at ascertaining a “fair and reasonable price” for the service. Obviously, an unjustifiable price could point to an abuse of the monopolist’s power, but the fairness or reasonableness of the prices as such would not be in issue. If the monopoly supplier can show that the relevant legislation displaced the doctrine of prime necessity, that would be that. But even if the doctrine were not displaced, the monopoly supplier would be required only to resist the charge that it had abused its monopoly power.
[81] As will be apparent, the question as now framed, that is, whether the prices at which the essential services are supplied are such as to negate or undermine the obligation to supply or are so extortionate as to amount to an abuse of the monopolist’s power is a much narrower question than the question of what is a fair and reasonable price. It requires only that the court be satisfied that the monopoly supplier is not exploiting the power it holds as the sole supplier of an essential service. Although still a difficult and complex question, or having the potential to be a difficult and complex question, it is the kind of inquiry with which the courts are familiar and which are well within their capacity.
[82] If this approach is accepted, the present case would not seem difficult to resolve. Vector would need to establish that Transpower had exploited its monopoly position in the supply of an essential service by fixing prices which negated or undermined its obligation to supply bulk electricity, or which were so excessive as to indicate an abuse of Transpower’s monopoly power. Vector’s case has not been directed to that end. It is hard to see how it could be seriously argued that the supply of bulk electricity to Vector is in jeopardy provided that Transpower’s prices are arguably in accord with the applicable statement of Government economic policy under s 26 of the Commerce Act and Transpower’s statement of corporate intent under s 14 of the State Owned Enterprises Act. Nor, in such circumstances, would there appear to be any extortionate element in the prices fixed pursuant to those statements.
[83] Arguments to the effect that the prices in issue do not promote and ensure economic efficiency, do not transparently reflect costs and risk, do not promote the economic efficiency of transmission services, and do not ensure the best consumption and investment decisions in respect of the supply of electricity, or allegations that some other transmission users are being subsidised, or that various valuations and the allocation of assets, charges and costs are incorrect, and the like, may be appropriate for a price-fixing exercise, but they do not necessarily suggest that Transpower is exploiting its monopoly position. As the main judgment states, the essence of Vector’s complaint is that Transpower has not adhered to its obligations under those statements and that, within those constraints, it has not in some instances adopted methodologies which yield prices which are fair and reasonable as between it and Vector. This complaint falls short of establishing that the supply of bulk electricity to Vector is insecure or that there is an extortionate element in the prices which Transpower has imposed.
[84] Vector’s essential complaints that Transpower has failed to adhere to the Government’s statement of economic policy and its own statement of corporate intent, and that it has acted discriminatorily, are more in the nature of grounds for judicial review. For that reason it is correct, as observed in the main judgment, to say that Vector’s pleading smacks of judicial review in another guise. In the absence of evidence of the exploitation of monopoly power, however, those complaints cannot be imported into the doctrine of prime necessity. Rather, they must be pursued by way of judicial review.
[85] I appreciate at once that the approach to the judicial review of state owned enterprises taken by the Privy Council in Mercury Energy Ltd v Electricity Corporation of New Zealand Ltd (1994) 1 WLR 521, at 529, may inhibit such proceedings even where sound grounds for judicial review exist. It cannot be doubted that on its face Lord Templeman’s proclamation that judicial review of a decision by a state owned enterprise to enter into or determine a commercial contract to supply goods or services is unlikely in the absence of fraud, corruption, or bad faith is unduly restrictive. But I doubt that it was intended to exclude illegality as a ground, for that would put state owned enterprises beyond the law. Nor do I apprehend that the decisions of such enterprises should not be able to be challenged on accepted grounds such as, for example, improper purpose or motive, which would presumably include discriminatory practices.
[86] This judgment is not, however, the occasion to review that judicial limitation. That review must await another day. Arguments will no doubt then be canvassed to the effect that the considerations which led their Lordships to their conclusion are better perceived as arguments relevant to the court’s determination whether a ground or grounds of review are made out rather than to justiciability, that it is inconsistent with sound principles of administrative law relating to the devolution of a power by the State, and that it is contrary to the trend to narrow the divide between public and private law, particularly in respect of the exercise of coercive power. The response to genuine complaints can only properly be made by way of judicial review. If need be, such a proceeding may need to confront the Privy Council’s perception of the reviewability of state owned enterprises, but it is not an acceptable alternative to attempt to channel those same complaints into a civil proceeding based on the doctrine of prime necessity.
[87] Thus, I would also dismiss the appeal.

Solicitors
Russell McVeagh McKenzie Bartleet & Co, Auckland, for appellant
Simpson Grierson, Auckland, for respondent