Commerce Commission v Orion New Zealand Limited [2013] NZHC 1181 (22 May 2013)

Last Updated: 1 July 2013

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

CIV-2013-485-437 [2013] NZHC 1181

UNDER Section 100A of the Commerce Act 1986

IN THE MATTER OF a case stated by the Commerce Commission relating to the timeframe for determination of customised price-quality paths under ss 53T and 53ZA in Part 4 of the Commerce Act 1986

BETWEEN COMMERCE COMMISSION Applicant

AND ORION NEW ZEALAND LIMITED Respondent

Hearing: 15 May 2013

Counsel: V E Casey for Applicant

V L Heine and ENL Peart for Respondent

Judgment: 22 May 2013

In accordance with r 11.5 I direct that the delivery time of this judgment is 4.30 pm on the 22nd day of May 2013.

_{RESERVED JUDGMENT OF MACKENZIE J}

Introduction

[1] This is a case stated by the Commerce Commission (the Commission) under s 100A of the Commerce Act 1986 (the Act). It seeks the opinion of the Court on two questions of law concerning the timeframe within which the Commission must

_{act in processing and making a decision on a proposal made by the respondent}

COMMERCE COMMISSION V ORION NEW ZEALAND LIMITED HC WN CIV-2013-485-437 [22 May

2013]

(Orion) under s 53Q of the Act for a customised price-quality path to apply to Orion. The questions are posed in relation to the Orion proposal, but are of general application to all such proposals.

The broad scheme of the relevant legislation

[2] Part 4 of the Act provides for the regulation of the price and quality of goods or services in markets where there is little or no competition and little or no likelihood of a substantial increase in competition.1 One or more of three types of

regulation may be imposed.2 One of those types is price-quality regulation. That is

further subdivided into two categories. The category in issue is default/customised price-quality regulation. Under that, the Commission sets default price-quality paths for regulated suppliers but individual suppliers may seek a customised price-quality path instead.3 Section 53Q provides that a supplier subject to a default price-quality path may make a proposal to the Commission for a customised price-quality path. That process will, if the proposal complies with the relevant input methodologies, lead to the fixing by the Commission of a customised path which will apply to that supplier in place of the default path.

[3] Under s 53S, the Commission has 40 working days after receipt of a s 53Q proposal to determine whether the proposal complies with the relevant input methodologies published under Part 4 subpart 3. If the proposal does not comply, the Commission may either discontinue any consideration of the proposal, or request the supplier to remedy the deficiencies by providing additional information within

40 working days. If that additional information is not provided the Commission may then discontinue any consideration of the proposal.

[4] The next step for a proposal which is not discontinued under s 53S is the assessment of the proposal by the Commission. Section 53T provides:

(1) Once the Commission decides that a proposal complies with the input methodologies relating to the process for, and content of, customised price-quality path proposals, it must—

1 _{Commerce Act 1986, s 52.}

2 _{Section 52B.}

3 Section 52B(2).

(a) give notice that the proposal is under consideration, and how copies of the proposal may be obtained; and

(b) set a date for interested persons to make submissions on the proposal; and

(c) have regard to any submissions made by that date.

(2) The Commission must make a determination on a proposal for a customised price-quality path within 150 working days of receiving a complete proposal, subject to sections 53U and 53Z.

[5] The timeframes in ss 53S and 53T may be extended by agreement by a total of up to 30 working days.4

[6] The Commission’s determination may set any customised price-quality path that it considers appropriate for the supplier.5 That may be less favourable to the supplier than the proposal. It may be less favourable than the default price-quality path.6 It will apply for up to five years.7

[7] The Commission is not required to consider any more than four proposals for a customised price-quality path relating to the same type of regulated goods or services in any one year.8 If it receives more than four such proposals in any one year it may defer the additional proposals to a subsequent year but must prioritise its consideration of those proposals.9 If the Commission does not make a decision within the timeframe, s 53ZA applies. That provides:

(1) This section applies if the Commission does not make a determination within 150 working days of receiving a complete proposal (or within any extended time agreed under section 53U).

(2) If the regulated supplier has not complied, in the Commission's opinion, with any reasonable exercise by the Commission of its information-gathering powers under section 53ZD or 98, the default price-quality path continues in effect at the close of that period, and the Commission must notify the supplier accordingly.

(3) If the regulated supplier has so complied, the customised proposal made under section 53Q takes effect at the close of that period.

4 _{Section 53U.}

5 _{Section 53V(1).}

6 _{Section 53V(2).}

7 _{Section 53W.}

8 _{Section 53Z(1)}

9 Section 53Z(2).

(4) If a customised price-quality path proposal takes effect under subsection (3), the Commission must immediately prepare an amendment to the relevant section 52P determination, setting out the customised price-quality path applying to the supplier.

[8] If the Commission does not make a decision within the timeframe fixed, the customised price-quality path proposed by the supplier will apply to it in place of the default of the price-quality path.10 So, certainty as to the timeframe within which the Commission must operate is important to suppliers and their customers, and to the Commission. The Commission has therefore stated this case.

The questions

[9] The two questions on which the opinion of the Court is sought are formulated in the case stated as follows:

1. Is s 53ZA(1) of the Act to be read as subject to s 53Z?

2. Does the 150 working day time period in ss 53T(2) and 53ZA(1)

commence:

A. On the date that the Commission decides that the customised price-quality path proposal complies with the input methodologies relating to the process for, and content of, customised price-quality path proposals; or

B. On the date that the Commission received a customised price-quality path proposal that the Commission subsequently decides complies with the input methodologies relating to the prices for, and content of, customised price-quality path proposals; and, if so, if the Commission has requested additional information under s 53S(2)(b) prior to reaching that decision, does the time period run:

B1. From the date of receipt of the additional information; or

B2. From the date of receipt of the initial proposal?

The Orion proposal

[10] Orion is an electricity distribution business to which a default price-quality path applies. It has made a proposal under s 53Q for a customised price-quality path

10 Section 53ZA(3).

instead. The proposal was received by the Commission on 20 February 2013. It was assessed as compliant within the 40 working day period under s 53S, on

18 April 2013.

The Court’s approach to the case stated

[11] Question 1 does not arise for Orion’s application, because the Commission has not received more than four proposals and therefore has not exercised its power to defer any proposal. Question 2 may or may not become material in Orion’s case depending on the time taken by the Commission to assess the proposal. I must first decide whether, in these circumstances, it is appropriate to answer the questions under s 100A.

[12] As a general rule, where declaratory relief is sought, the Court is reluctant to deal with abstract or hypothetical questions.11 I do not think that general rule should necessarily be applied under s 100A. Nor do I consider that a restrictive approach should, as a general rule, be taken as to what is a question of law arising in a matter before the Commission. The Commission is empowered to state a case for the opinion of the Court on any question of law arising in any matter before it. The utility of this procedure would be diminished if a restrictive approach were taken to the exercise of the jurisdiction. I therefore consider that it is appropriate to address

the questions raised in this case stated.

[13] However, the limits on the extent to which the Court’s decision will be determinative must be noted. The Commission has, quite properly, taken steps to publicise, to persons likely to be particularly affected by the interpretation of the relevant provisions, the fact of this proceeding. None has sought to be heard. This decision will be binding only on the parties. The answers to the questions will not have binding effect on any other persons who may in other cases be affected by the answer given. The opinion of the Court, as expressed in answer to the case stated, will be persuasive but not binding authority under the doctrine of precedent if any

_{point on which it is relevant arises in another case in this Court.}

11 New Zealand Insurance Co Ltd v Prudential Assurance Co Ltd [1976] 1 NZLR 84 (CA) at 85;

Gazley v Attorney-General (1995) 8 PRNZ 313 (CA).

[14] A further feature of the s 100A procedure in this case is that I have heard no argument in opposition to the answers advanced by counsel for the Commission. The Commission and Orion are agreed as to the answer to question 1, and in broad general agreement on question 2. Under the adversarial process, the Court ordinarily receives submissions which ensure that at least two views on issues are heard. In this case, I consider it is appropriate to proceed without taking steps to have an opposing view argued. I consider that the issues are sufficiently confined, and the answers sufficiently clear, to make such steps unnecessary.

Question 1: Is s 53ZA(1) subject to s 53Z?

[15] I agree with both counsel that the appropriate answer to this question is ‘yes’.

I set out my reasons for this view.

[16] Where a proposal has been deferred under s 53Z, the 150 working day period for making a determination on the proposal under s 53T(2) does not run. That is clearly so, because s 53T is expressly made subject to s 53Z.

[17] Counsel for the Commission submits that the absence of a similar provision in s 53ZA, making that section subject to s 53Z, is an error, as its absence would defeat the intended operation of s 53Z.

[18] The addition of the words “subject to s 53Z” at the commencement of s 53ZA(1) would put the point beyond argument. However, the absence of those words does not lead to the conclusion that the 150 working days timeframe referred to in s 53ZA(1) runs, for a proposal deferred under s 53Z, during the period of that deferment.

[19] The reference in s 53ZA to “within 150 working days of receiving a complete proposal” is clearly a cross reference to the period specified in s 53T. Section 53ZA is clearly intended to apply where the failure of the Commission to make a determination within 150 working days (or any extended time agreed under s 53U) is a default under s 53T(2). Where a proposal has been deferred under s 53Z, then, as s 53T(2) itself makes clear, the obligation to make a determination within the

150 working days period, referred to in s 53T(2) and again in 53ZA, does not arise. The failure to make a determination within 150 working days is not a default under s 53T(2). When the provisions are read in context, and in the light of their obvious purpose, it is clear that s 53ZA does not apply when the 150 working days period in s 53T(2) is not operative because of a deferral under s 53Z.

[20] I answer question 1 in the affirmative.

Question 2: When does the 150 working day time period in ss 53T(2) and

53ZA(1) commence?

[21] I consider that the correct answer to this question emerges clearly when ss 53S and 53T are read together.

[22] The Commission’s role in the statutory process commences when it receives a proposal under s 53Q. The Commission’s first task, under s 53S(1), is to assess whether the proposal complies with the input methodologies.

[23] There is no express provision, in s 53S(1), to address what happens if the proposal complies. Subsections (2) to (4) address what is to happen if the Commission’s determination is that the proposal does not comply. Again, there is no express provision as to what happens if, following the provision of further information under (2), the proposal complies. It is clearly implicit in the statutory scheme that once a proposal complies (either on first consideration under s52S(1) or on reconsideration after the path in s 53S(2)(b) has been followed) the Commission is to make a determination that the proposal complies.

[24] The making of that determination triggers the next step in the process. As the initial words in s 53T(1) make clear, s 53T is activated when the Commission decides that a proposal complies with the input methodologies. That decision may have been made either on the consideration of the proposal as initially submitted, under s 53S(1), or on the consideration of the proposal in the light of the additional information provided under s 53S(2)(b).

[25] It is clear from the wording of the two sections that the period which the Commission has for consideration of the proposal under s 53S is a separate period from that provided under s 53T. The first period comes to an end when the Commission decides that a proposal complies. At that point, the second period starts. The Commission must undertake the process described in s 53T(1), and make the determination described in s 53T(2), within that second period.

[26] That reading of the section makes it clear that the reference in s 53T(2) to the time of “receiving a complete proposal” is intended as a cross reference to the time of the Commission deciding that the proposal complies under subs (1). The reference to receipt of a complete proposal is not intended as a cross reference to any earlier point in the s 53S process.

[27] One potential problem with that analysis is the use of the word “receiving” in s 53T(2). Fixing the start of the 150 working day time period by reference to the receipt of a complete proposal might suggest that the trigger point is the earlier point at which the compliant proposal is furnished to the Commission, either under s 53Q or by the provision of further information under s 53S(2). Those possibilities are addressed by question 2B.

[28] I do not consider that the reference in s 53T to receiving a complete proposal leads to a conclusion contrary to the analysis in [26]. If the trigger point for s 53T is earlier than the determination by the Commission that the proposal which it has received is compliant, there is an internal inconsistency within s 53T. As the heading indicates, s 53T is concerned with both process and timing for assessing a proposal. The timeframe in subs (2) applies to the process in subs (1). The timeframe must start when the process is triggered. Faced with a choice between attributing the natural and ordinary meaning to the word “receiving” and avoiding that inconsistency, I prefer the latter.

[29] Section 53T refers to receipt of a complete proposal. Ms Heine for Orion submits that, applying administrative law principles to the Commission’s decision making process, a decision that the proposal complies with the input methodologies involves an element of discretion on the part of the Commission. That discretion

means that, in administrative law terms, a proposal cannot be said to be complete until the Commission has made a determination.

[30] I accept the conclusion that the proposal is not complete until the determination is made. That conclusion does not depend upon classifying the Commission’s determination in administrative law terms. It follows from the statutory language. The determination which the Commission must make under s 53S, to trigger the process in s 53T(1), is that the proposal is compliant. Under s 53T(2), time starts to run when the Commission has received a complete proposal. A proposal may be described as compliant when it meets the requirements of s 53S. But it is not at that point complete. It is not complete until the Commission has made a decision that it is compliant. Until the additional step is taken by the Commission of deciding that it is compliant, the proposal is not complete in terms of s 53T(2).

[31] Counsel for the Commission relies upon the legislative history. She also refers to preliminary material, including a Cabinet paper which made recommendations on the amendments which are now in the relevant legislation. The Court must be cautious in using such preliminary material as an aid to

interpretation.12 I have formed the view which I have expressed, without regard to

the legislative history or that preliminary material. It is however of comfort to note that in the Cabinet paper which explained the proposed legislation to the relevant Cabinet committee, the 150 working day period (now in s 53T) is described as commencing at the end of the consideration by the Commission (now in s 53S). On that description the two periods do not overlap.

[32] For these reasons, I answer question 2A in the affirmative. I consequently answer question 2B in the negative.

12 Pfizer Inc v Commissioner of Patents [2005] 1 NZLR 362 (CA) at [71]; Skycity Auckland Ltd v

Gambling Commission [2008] 2 NZLR 182 (CA) at [39]-[42].

Costs

[33] The parties did not address costs in their submissions. I assume that no issue arises. If that assumption is wrong, the parties may submit memoranda.

“A D MacKenzie J”

Solicitors: Victoria Casey, Wellington, for Applicant

Chapman Tripp, Wellington, for Respondent