Godfrey Hirst NZ Limited v Commerce Commission [2016] NZHC 1601 (15 July 2016)

	Home \| Databases \| WorldLII \| Search \| Feedback High Court of New Zealand Decisions

UNDER	the Commerce Act 1986
BETWEEN	GODFREY HIRST NZ LIMITED Appellant
AND	COMMERCE COMMISSION First Respondent CAVALIER WOOL HOLDINGS LIMITED Second Respondent NEW ZALAND WOOL SERVICES INTERNATIONAL LIMITED _{Third Respondent}

Hearing:	12 July 2016
Appearances:	J C L Dixon, S D J Peart and A B Richards for Appellant N F Flanagan for First Respondent D J Goddard QC and S J P Ladd for Second and Third Respondents
_Judgment:	_{15 July 2016}

This judgment is delivered by me on 15 July 2016 at 11.45 am pursuant to r 11.5 of the High Court Rules.

..................................................... Registrar / Deputy Registrar

GODFREY HIRST NZ LTD v COMMERCE COMMISSION & ORS [2016] NZHC 1601 [15 July 2016]

[1] Cavalier Wool Holdings Ltd (Cavalier) wishes to acquire the wool scouring business and assets of New Zealand Wool Scouring International Ltd (NZWSI). Cavalier and NZWSI are the only providers of wool scouring services in New Zealand so, if the acquisition proceeds, the merged entity will have a domestic monopoly for such services.

[2] Following a comprehensive investigation extending over a 12 month period, the Commission concluded that although the acquisition would be likely to result in scouring price increases, the public benefits of the transaction were likely to exceed its detriments. The acquisition will enable significant efficiency gains to be made through the rationalisation of the existing Cavalier and NZWSI scouring operations from five to two, one in the North Island and one in the South Island. The Commission accordingly granted authorisation for the acquisition pursuant to

[3] Godfrey Hirst appealed to this Court against the Commission’s determination

(a) The Commission ought to have discounted that proportion of the benefits of the acquisition that will accrue to the foreign shareholder of the merged entity, Lempriere (Australia) Pty Ltd. Lempriere will own 45 per cent of the merged entity with an option to increase its shareholding to 72.5 per cent. Godfrey Hirst argued that the benefits that will flow to Lempriere are not benefits to the public of New Zealand and should have been disregarded.

(b) The Commission underestimated the likely price increases for scouring services for wool destined for export following the acquisition. Godfrey Hirst argued that the likely price increases will be in the range of 10 to 20 per cent, not five to 15 per cent as assessed

(c) The Commission overestimated the benefits because it is likely that NZWSI will relocate its scour at Kaputone to Timaru whether or not the acquisition proceeds.

[5] Godfrey Hirst now seeks leave to appeal to the Court of Appeal pursuant to s 97 of the Act. It wishes to re-run the entire argument on all of these grounds in the Court of Appeal. It contends that this Court failed to follow the approach mandated by the Supreme Court in Austin, Nichols & Co Inc v Stichting Lodestar.³It therefore seeks to appeal to the Court of Appeal on the grounds that this Court:

(a) misdirected itself as to the proper approach to an appeal by way of rehearing;

(b) erred in law in holding that the Commission was right to treat productivity gains flowing to foreign shareholders as benefits of the transaction;

(c) erred in concluding that the maximum likely price increase for scouring of wool destined for export was 15 per cent (rather than

(i) unduly deferring to the Commission’s evaluation of the evidence and therefore misdirecting itself as to the proper approach to an appeal by way of rehearing;

³Austin, Nichols & Co Inc v Stichting Lodestar [2007] NZSC 103, [2008] 2 NZLR 141.

(iv) failing to have sufficient regard to evidence that a price increase of 20 per cent for scouring of wool destined for export was likely.

(d) erred in concluding that there was no real chance that NZWSI, if the acquisition does not proceed, would close its wool scouring plant at Kaputone and establish a new operation at Timaru (or elsewhere) including by:

(i) unduly deferring to the Commission’s evaluation of the evidence and therefore misdirecting itself as to the proper approach to an appeal by way of rehearing;

(ii) erring in concluding that there was no evidence that NZWSI had given any consideration to the possibility of relocating the plant at Kaputone to Timaru, or anywhere else;

(iii) erring in finding that the Commission did not err by failing to make additional enquiries of the parties as to the likelihood that NZWSI would move the Kaputone scour in the counterfactual; and

(iv) failing to have sufficient regard to evidence that, in the counterfactual, there was a real chance that NZWSI would close and relocate the Kaputone scour.

[6] Godfrey Hirst contends that if any one of these proposed grounds of appeal meets the statutory criteria, leave to appeal should be granted for all. It argues that the Court cannot impose any restriction on the scope of an appeal claiming that if leave is given, the appellant is entitled to “a general admission ticket”.

[7] Cavalier opposes the application for leave. Its primary contention is that none of the proposed grounds of appeal meets the criteria for leave. Alternatively, it argues that the only ground that might raise a question of sufficient importance to

outweigh the cost and delay of a further appeal concerns the proper treatment of gains to foreign shareholders. Cavalier argues that if leave is granted, the appeal should be confined to this issue thereby limiting the cost and delay of a further appeal. Cavalier claims that any delay in completion of the acquisition will cause significant and irrecoverable losses. It therefore asks the Court to impose a condition requiring Godfrey Hirst to provide an undertaking as to damages if leave to appeal is granted.

[8] The Commission was represented at the leave hearing to assist the Court but is neutral about whether leave to appeal should be granted. However, the Commission advises that it does not require guidance from the Court of Appeal on how to treat gains to foreign shareholders.

(1) Notwithstanding anything in any enactment, any party to any appeal before the High Court against any determination of the Commission who is dissatisfied with any decision or order of the court may, with the leave of the court or of the Court of Appeal, appeal to the Court of Appeal; and section 66 of the Judicature Act 1908 shall apply to any such appeal.

(2) In determining whether to grant leave to appeal under this section, the court to which the application for leave is made shall have regard to the following matters:

(b) the importance of the issues to the parties: (c) the amount of money in issue:

(3) The court granting leave under this section may in its discretion impose such conditions as it thinks fit, whether as to costs or otherwise.

(5) An appeal to the Court of Appeal under this section may be made against either of the following only on a point of law:

(b) a decision or order of the High Court on an appeal under section 91(1) or (1B) against a determination of the Commission made under section 52P.

[10] It is clear from s 97 that decisions or orders made pursuant to ss 52P and 52Z of the Act can only be appealed to the Court of Appeal on a point of law but there is no such restriction on appeals from other determinations. These may be appealed on questions of law or fact so long as the criteria for leave are met.

[11] Section 97 provides that s 66 of the Judicature Act 1908 shall apply to any appeal if leave is given. Section 66 provides:

The Court of Appeal shall have jurisdiction and power to hear and determine appeals from any judgment, decree, or order save as hereinafter mentioned, of the High Court, subject to the provisions of this Act and to such rules and orders for regulating the terms and conditions on which such appeals shall be allowed as may be made pursuant to this Act.

[12] The Court performs an important gatekeeper role when determining whether leave should be given for a second appeal. Although s 67 of the Judicature Act does not apply, the cases decided under that provision provide guidance on the correct approach. The leading case is Waller v Hider.⁴Blanchard J, who gave the reasons for the Court, made the following observations which are pertinent here:⁵

Notwithstanding frequent reminders of the test, applications continue to be made which have little or no prospect of success. Counsel are of course to be commended for making all reasonable efforts to advance the cause of their clients but after a first appeal they must draw back and appraise the state of the case dispassionately, asking whether in truth the disputed matter contains the requisite element of sufficient importance. The scarce time and resources of the High Court and of this Court are not to be wasted, nor additional expense for an unsuccessful client incurred without realistic hope of benefit.

Upon a second appeal this Court is not engaged in the general correction of error. Its primary function is then to clarify the law and to determine whether it has been properly construed and applied by the Court below. It is not every alleged error of law that is of such importance, either generally or to the parties, as to justify further pursuit of litigation which has already been twice considered and ruled upon by a Court.

When the disputed matter is entirely or largely a question of fact the task of the applicant under s 67 is harder. An issue of fact in a matter falling within the jurisdiction of an inferior Court will seldom be of public importance. It is better that we make no attempt to define the circumstances in which a factual contest can be taken to have private importance but obviously it may do so if the amount at stake is very substantial or the decision reflects seriously on the character or conduct of the would-be appellant or, as in Cuff, the judgment below has special consequences (for example, bankruptcy) for the losing party. Even then, however, leave cannot be anticipated if the applicant is seeking to disturb concurrent findings of fact in the lower Courts.

[13] Although Waller v Hider was determined under s 67 of the Judicature Act, the Court of Appeal confirmed in Chief Executive of Land Information New Zealand v Luke & Ors that these statements of principle also apply to leave applications brought under s 18A of the Land Valuation Proceedings Act 1948.⁶This is significant because s 97 of the Commerce Act is in all material respects in the same terms as s 18A of the Land Valuation Proceedings Act. Indeed, as Cooke P observed in Email Ltd v Fisher & Paykel Ltd, s 97 of the Commerce Act is modelled on s 18A.⁷It follows that the principles set out in Waller v Hider are also relevant to

[14] The mandatory considerations under s 97(2) of the Commerce Act mirror those in s 18A of the Land Valuation Proceedings Act. The Court of Appeal stated in Chief Executive of Land Information New Zealand v Luke & Ors that these criteria must be evaluated as a whole. The Court emphasised the importance of keeping sight of the fundamental role of the Court of Appeal in dealing with a second appeal and the need for proportionality in civil litigation.

[15] The practice of the Court when considering applications for leave to appeal under s 18A has been to assess each of the proposed grounds of appeal against the statutory criteria. For example, the Court of Appeal carried out this exercise in

⁶Chief Executive of Land Information New Zealand v Luke & Ors [2008] NZCA 43 at [16]- [18].

⁸The Major Electricity Users’ Group Inc v Commerce Commission [2014] NZHC 1765 at [37].

grounds but declined leave on the other four.⁹Wylie J adopted a similar approach in

[16] It would be odd if the same approach did not also apply to leave applications under s 97 of the Commerce Act. For example, if an appellant sought to appeal on

10 grounds, nine of which related to alleged factual errors with no significance to anyone but the parties and where concurrent findings had been made by the Commission and by the High Court, would the Court be obliged to allow all of these issues to be ventilated again in the Court of Appeal regardless of the cost or the consequent delay in having the proceeding finally disposed of, merely because the

10^thground raised a discrete issue of law of significant public importance? Why

should the appellant be given a general admission ticket and consume many hearing days on appeal in re-running the argument on all 10 issues when only one of these warrants consideration by the Court of Appeal? That would be contrary to the interests of justice and would defeat one of the purposes of leave which is to ensure that the scarce time and resources of the Court of Appeal are confined to the discharge of its proper function on a second appeal.

[17] Mr Dixon relied on the following passage in the judgment given by Cooke P in Telecom Corporation of New Zealand Ltd v Commerce Commission (AMPS-A) in support of his submission that if leave is justified on one ground, Godfrey Hirst will be entitled to pursue all grounds:¹¹

It has to be borne in mind as well that s 97 provides, if leave is granted, a full right of appeal to this Court. The wide prescription in s 97(2) of the matters to which regard is to be had in determining whether to grant leave, including “the importance of the issues to the parties”, underlines that an effective appeal on the merits is intended by Parliament. While this Court will of course not allow an appeal unless satisfied that the decision under appeal is wrong, there can be no suggestion of rubber-stamping a decision simply because it represents the views of experts.

[18] This statement of principle is uncontroversial and was quoted in part in the substantive judgment in the present case.¹²However, I do not consider that it

supports Mr Dixon’s submission. It is directed to the proper approach of the Court in dealing with an appeal but does not address the earlier question concerning the scope of any leave to appeal.

[19] Mr Dixon also referred to Woolworths Ltd v Commerce Commission.¹³That was a leave decision under s 97. Mallon J considered that the Court did not need to assess the grounds and determine whether each met the criteria. In her view, it was sufficient if one or more of the grounds did so:

[9] The proposed of appeal if leave is granted are set out in a draft notice attached to the application for leave. It is not necessary for me to go through each of those grounds and determine whether each of them meet[s] the criteria for leave under s 97. It is enough if one or more of those grounds do so.

[20] The issue in that case was whether leave should be given at all, not whether leave should be confined to particular grounds. That issue did not arise. I do not consider that Woolworths stands for the proposition that a general admission ticket must be issued enabling an appellant to pursue any number of discrete grounds, no matter how unmeritorious or inconsequential, so long as one of the proposed grounds meets the statutory criteria and warrants consideration by the Court of Appeal on a second appeal. To the extent that it does, I respectfully disagree with it.

[21] There is no dispute about the proper approach to a general appeal by way of rehearing and there is no need for the Court of Appeal to consider this issue. It has been authoritatively determined by the Supreme Court in Austin, Nichols. This proposed ground of appeal does not meet the criteria. Leave to appeal on that ground must be declined.

[22] This ground does raise a question of general principle and has wider application, beyond the present case. In my view, it does concern a matter of some

¹³Woolworths Ltd v Commerce Commission [2008] NZHC 34; (2008) 12 TCLR 154 (HC).

public importance and is likely to be relevant to many other applications for authorisation under s 67 of the Act.

[23] As noted in the substantive judgment, there is a paucity of authority dealing with the issue of how to treat benefits to foreign shareholders.¹⁴It was dealt with by this Court in Telecom Corporation of New Zealand v Commerce Commission (AMPS-A).¹⁵That decision was reversed by a full court of the Court of Appeal but there was no discussion in any of the five judgments about the statements of principle regarding the proper treatment of returns to foreign shareholders. The only other case which refers to the issue is Air New Zealand v Commerce Commission (No 6) but there is little discussion of the relevant principles in that case.¹⁶

[24] There is also little Australian authority on this issue. However, the Australian

Competition Tribunal applied the AMPS-A approach in Qantas Airways Limited.¹⁷

[25] In the present case, the Court considered that it should follow its earlier decision in AMPS-A because: this approach was tacitly approved by the full court of the Court of Appeal; the Commission has applied AMPS-A in accordance with its published guidelines since that case was decided 25 years ago; the Court was not referred to any authority doubting the correctness of the AMPS-A approach; AMPSA has been followed by the Australian Competition Tribunal in at least one case; and despite subsequent reviews of the Commerce Act, Parliament has not seen fit to amend the Act which it might have been expected to do had it been concerned that the approach to foreign shareholding outlined in AMPS-A was contrary to its intention.

[26] Although it might be assumed from this that the law is now settled, the parties were unable to agree on the correct approach to gains to foreign shareholders: Godfrey Hirst contended that such gains should be disregarded in every case;

_{Cavalier contended that they should be counted in every case; and the
Commission}

¹⁵_{Telecom Corporation of New Zealand v Commerce
Commission (1991) 4 TCLR 475 (HC).}

¹⁷Qantas Airways Limited [2004] ACompT 9, [2004] ATPR 42-027, [2005] ATPR 42-065.

took the view that it depended on whether these gains constituted supra competitive profits.

[27] This is a discrete issue of considerable potential public importance. It has not been ruled on by the Court of Appeal. Given the significance of the issue in the present case, where at least 45 per cent of the gains will flow to a foreign shareholder, I consider that leave should be granted to enable the Court of Appeal to consider it.

[28] There are concurrent findings by the Commission and this Court on the likely maximum price increase. The Commission and the Court adopted a conservative approach to this issue, tending to overstate the detriment by assuming that the full price increase will occur immediately following the acquisition rather than incrementally and by pairing the maximum demand elasticity with the highest prospective price change.

[29] This ground raises no issue of general principle or particular importance. If leave to reconsider it on appeal were granted, the Court of Appeal would be required to examine afresh extensive evidence on this issue to determine whether the Commission and this Court were wrong in their concurring assessments. At best, this could provide an opportunity for error correction but that is not the function of the Court of Appeal on a second appeal.

[30] While Godfrey Hirst can expect price increases if the acquisition proceeds because it manufactures woollen carpet and will have to pay increased scouring prices, the cost of scouring the wool is only a tiny proportion of the final carpet price which the Commission assessed to be 0.2 per cent. Godfrey Hirst claims that scouring represents 2.8 per cent of the cost of carpet. Either way, the likely cost to Godfrey Hirst if the acquisition proceeds will be modest.

[31] Godfrey Hirst does not challenge the Commission’s assessment of the likely price increase it will face. This ground of appeal, which Godfrey Hirst wants to argue for a third time, is solely concerned with the price that will be paid by others.

[32] Most industry participants favour the acquisition. Many consider that it is inevitable and necessary to ensure the continuing viability of the wool scouring industry in New Zealand given the declining wool clip, increased competition from offshore scourers, particularly in Asia, and synthetic fibres.

[33] Delay is also a relevant factor in considering whether the interests of justice require that leave be given to pursue this ground of appeal. If this ground is included, it will increase the hearing time required and delay the ultimate disposal of the appeal. It will also add to the cost. The Commission and the Court have both found that the proposed acquisition is in the public interest and should proceed. Irrecoverable losses continue to be suffered as a result of foregone efficiency gains while the acquisition is deferred. There has already been considerable delay. Cavalier filed its application for authorisation in October 2014 and has been ready to complete the acquisition since then. Parliament contemplated that such applications

[34] This ground of appeal does not meet the criteria. Leave to appeal on this ground must also be declined.

Ground 4 – is there a real chance that Cavalier will relocate the Kaputone wool scour to Timaru whether or not the acquisition proceeds?

[35] This is essentially a factual issue. It concerns a new possible counterfactual that was not advanced before the Commission by Godfrey Hirst or anyone else. The chances of this ground succeeding are remote. Leave to appeal on this ground should be declined for much the same reasons as for ground 3.

[36] Cavalier asks the Court to require Godfrey Hirst to give an undertaking as to damages as a condition of any grant of leave. It accepts that there is a “high hurdle” for imposing such a condition but says that it is warranted in this case because:

[37] Godfrey Hirst opposes such a condition. First, it contends that orders staying the Commission’s determination pending any appeal have already been made by consent and these orders address the terms of stay. Godfrey Hirst submits that there has been no change of circumstances and there is no other basis for re-visiting these terms. It argues that any damages suffered by the merging parties will result from the stay, not the grant of leave to appeal. Second, Godfrey Hirst contends that there is nothing unusual or exceptional about the proposed appeal that could justify a departure from the normal rule that undertakings are not required. Third, Godfrey Hirst argues that although it pursues the appeal in its own interest, it also effectively does so in the public interest. It has already undertaken to prosecute the appeal with due speed and diligence and will cooperate with Cavalier to obtain the earliest possible fixture in the Court of Appeal.

[38] I declined Cavalier’s application for an undertaking as to damages as a condition of ordering a stay of the Commission’s determination pending Godfrey Hirst’s appeal to the High Court.¹⁹I accept that the present position is different in that Godfrey Hirst is no longer entitled to appeal as of right. However, given the narrow scope of the appeal for which leave will be given, the appeal ought to be able to be heard and determined expeditiously, mitigating any further losses to

Cavalier and the other merger parties. The ground of appeal that will be allowed to proceed is one that raises wider public interest considerations. I do not consider that Godfrey Hirst should be required to provide an undertaking as to damages as the price for pursuing this ground of appeal, particularly given the public interest in having it determined.

[39] In view of this conclusion, it is not necessary for me to consider whether an undertaking as to damages should not be required in any event because of the terms of the consent orders for stay.

[40] Godfrey Hirst is given leave to appeal to the Court of Appeal on the ground stated in [5(b)] above.

High Court of New Zealand Decisions

Godfrey Hirst NZ Limited v Commerce Commission [2016] NZHC 1601 (15 July 2016)

High Court of New Zealand

Godfrey Hirst NZ Limited v Commerce Commission [2016] NZHC 1601 (15 July 2016)