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Unison Networks Limited v/s The Commerce Commission & Another

    CA No. 161 of 2005

    Decided On, 24 August 2005

    At, Court of Appeal of New Zealand

    By, THE HONOURABLE MR. JUSTICE ANDERSON P
    By, THE HONOURABLE MR. JUSTICE WILLIAM YOUNG & THE HONOURABLE MR. JUSTICE ROBERTSON

    For the Appellant: D J Goddard QC, R J Leonard, Advocates. For the Respondent: R1, T Arnold QC, J S McHerron, R2, V L Heine, Advocates.



Judgment Text

William Young, J.

Introduction

[1] This is an appeal from a judgment of MacKenzie J delivered on 29 July this year in which he dismissed an application for interim relief made by the appellant (to which we will refer as "Unison") under s 8 of the Judicature Amendment Act 1972.

The regulatory context

[2] Unison is a "large electricity lines business" ("LELB") for the purposes of Part 4A of the Commerce Act 1986. As such it is subject to the regulatory regime provided for under subpart 1 of Part 4A of the Commerce Act 1986. This provides for what is usually described as "targeted control" of services supplied by LELBs.

[3] Fundamental to this system of "targeted control" is the establishment by the Commerce Commission of "thresholds". This is provided for by s 57G of the Act:

57G Thresholds for declaration of control

(1) The Commission must, as soon as practicable after the commencement of this subpart, and may from time to time--

(a) consult with participants in the electricity distribution and transmission markets and with consumers as to possible thresholds for the declaration of control in relation to large electricity lines businesses; and

(b) set thresholds for the declaration of control in relation to large electricity lines businesses; and

(c) publish those thresholds in the Gazette, on the Internet, and in any other manner (if any) that the Commission considers appropriate.

(2) Thresholds can be expressed in quantitative or qualitative terms.

[4] LELBs can avoid control by conforming to the thresholds so established. Such conformity, however, may not be easy to achieve. The Commission and statute recognise that some LELBs which breach the thresholds may not warrant control (the "false positive" problem). We interpolate that there is also a "false negative" problem, but this is not relevant to the present appeal.

[5] In any event, the Commission is required to assess LELBs against the thresholds and identify any which are in breach. Where breaches are identified, the Commission must decide whether to make a declaration of control. All of this is provided for by s 57H:

57H Process for making decisions on declaration of control

The Commission must--

(a) assess large electricity lines businesses against the thresholds set under this subpart; and

(b) identify any large electricity lines business that breaches the thresholds; and

(c) determine whether or not to declare all or any of the goods or services supplied by all or any of the identified large electricity lines businesses to be controlled, taking into account the purpose of this subpart; and

(d) in respect of each identified large electricity lines business,--

(i) make a control declaration; or

(ii) publish the reasons for not making a control declaration in the Gazette, on the Internet, and in any other manner (if any) that the Commission considers appropriate.

[6] Section 57I provides for the process which must be followed before the Commission can make a declaration of control:

57I Process before declaration made

(1) Before making any declaration of control under section 57F, the Commission must--

(a) publish its intention to make a declaration and invite interested persons to give their views on the matter; and

(b) give a reasonable opportunity to interested persons to give those views; and

(c) have regard to those views.

(2) The notice of intention to declare must--

(a) be published in the Gazette and in any other manner (if any) that the Commission considers appropriate; and

(b) specify that the matter relates to the making of a declaration; and

(c) invite interested persons to give their views on that matter to the Commission and specify the time and manner within which they may do so.

[7] A declaration of control may be made under s 57F, which provides:

57F Commission, not Minister, may declare that goods or services supplied by large electricity lines businesses are controlled

(1) The Commission may, by notice in the Gazette, declare that all or any goods or services supplied by a large electricity lines business in markets directly related to electricity distribution and transmission services are controlled.

(2) No Order in Council may be made under Part 4 in respect of goods or services supplied by a large electricity lines business in markets directly related to electricity distribution and transmission services.

(3) A declaration must be made by notice in the Gazette, with a copy to the electricity lines business.

(4) The Commission must publish the declaration on the Internet and in any other manner (if any) that the Commission considers appropriate.

[8] The effect of a declaration of control is set out in s 57J. This is to subject the LELB to price control, so that goods and services which are the subject of control may not be sold except with an authorisation given by the Commission under Part 5 of the Act.

Factual background

[9] The Commission has set thresholds under s 57G and these thresholds have been breached by Unison. As a result the Commission has been considering whether it ought to take further action.

[10] In May 2004 Unison filed application for review proceedings it which it challenges the thresholds set by the Commission and also the approach generally taken by the Commission in its inquiry into the breaches. This proceeding is set down for hearing commencing on 10 October 2005. Counsel told us that the case was ready to be set down from late last year and efforts were made with registry staff to obtain a fixture. However, neither side applied to a Judge or Associate Judge for an order directing the allocation of a fixture.

[11] The Commission’s position throughout has been that, despite the filing of the application for review, it will continue with the statutory processes associated with implementation and enforcement of the regime vis vis Unison. Unison made it clear (in December last year) that it would seek interim relief, if and when this process reached the point where a declaration of control was either made or imminent. It did not suggest that it would be seeking relief at the s 57I stage of the proceedings and it continued to engage with the Commission in the Commission’s own processes. So the post-breach inquiry phase of the process has continued in tandem with Unison’s application for review.

[12] In July this year, Unison concluded that a s 57I notice was likely to be given in the near future. This prompted the application which was dismissed by MacKenzie J in the judgment now under appeal.

The High Court judgment

[13] MacKenzie J discussed the comparative strengths of the parties cases in these terms:

[8] ... it is difficult to make an assessment of the strength or otherwise of Unison’s case, without an extensive examination of the merits of the application for judicial review. Unison’s claim is essentially based on the proposition that the Commission has not, in fixing the thresholds, properly applied the relevant statutory provisions. Any examination of the strength of that case would require an extensive analysis of the scheme and purpose of the relevant parts of the Act. That analysis would need to be informed by economic evidence, and evidence as to fact on the relevant issues. It is not feasible to conduct that exercise on the hearing of this application. With some prompting from the Bench, counsel were content to approach this issue on the basis that Unison’s case falls into a category where it is sufficiently strong to meet the threshold test which is usually applied on such an application, but that the claim is neither so demonstrably strong, nor so demonstrably weak, that its strength or weakness should be taken into account by the Court in the exercise of the discretion which s 8 confers. I gratefully approach the matter on that basis.

[14] The Judge then evaluated the adverse consequences for Unison if a s 57I notice is issued ahead of the hearing of the application for review in October.

[9] It is clear that, if the Commission were to make a declaration under s 57F, the position of the plaintiff would be prejudiced. Its legal ability to charge prices fixed by it for its services would be curtailed. That would clearly prejudice the plaintiff’s position, and the Commission does not contest that. That, however, is not the issue here. That stage, if it is to be reached, will not be reached before the substantive hearing. The issue here is whether the prior decision, under s 57I, to publish its intention to make a declaration (and, Mr Goddard submits, the making of a decision by the Commission internally to make that publication) will prejudice Unison’s position. Unison submits that its position will be prejudiced by this step in a number of ways. First, it submits that there is prejudice inherent in the taking of this step in that, once a notice of intention is published, a full public submission and conference process will take place. That process will involve Unison in significant time, cost and disruption to its business. Second, Unison claims that there will inevitably be reputational damage to Unison, which it submits would not be removed if the substantive proceedings are successful. Third, Unison submits that there is prejudice from the risk of an adverse impact on Unison’s current funding facilities, and its current negotiations for new facilities.

[15] The Judge evaluated each of these areas of detriment.

[16] He was unimpressed by the concerns about reputational damage (particularly as Unison in its own annual reports has acknowledged breaches of the thresholds) and impact on banking facilities (given that Unison’s bankers must be aware of the statutory processes which are underway and their possible implications).

[17] The Judge discussed the practical implications of a s 57I notice:

[10] Mr Sutherland, the Chief Executive Officer of Unison, deposes that publication of an intention to declare control will set off a public process which will most likely involve a public conference at which Unison’s affairs will be examined in detail. He says that Unison will inevitably have to devote a large amount of resources to this process, affecting its executives’ ability to run the business, and involving significant time and expense. I accept that that is likely to be so. The issue is whether the avoidance of that public process is necessary to preserve Unison’s position. The position which Unison seeks to have preserved, in this regard, is that it should be spared the time, expense and disruption that that process will cause. Mr Dobson for the Commission accepts that the publication of an intention, and the process that that would trigger, would undoubtedly create compliance costs for the plaintiff, but submits that such costs are an inevitable part of the regulatory regime which Parliament has enacted for lines businesses. He submits that Unison has already faced such regulatory costs and will continue to do so.

[11] I am satisfied that the additional costs, both direct and indirect, to which Unison will be subjected if an intention to declare control is published are not of such a nature or magnitude to amount to a change in position, so that the avoidance of those costs is necessary to preserve Unison’s position. There have already been costs involved in the regulatory process consequent upon the declaration of thresholds. I do not consider that the additional costs which will arise if intention to declare control is published are different in nature from those already incurred. Nor do I consider that their likely difference in magnitude is sufficient to place them in a different category from those which have already been incurred, and which are an inevitable consequence of the regulatory regime.

[12] Section 8 provides a means whereby the position of an applicant for judicial review can be preserved pending the outcome of the substantive application. However, that section does not require, or contemplate, that, where a challenge by way of judicial review is commenced, all further action must stop until the application for judicial review has been dealt with. A plaintiff is entitled to have its position protected, not to be placed in the same position as it would be in if the action had never been taken. Unison’s legal position, if the further step is taken by the Commission, will be unchanged. I do not consider that the fact that additional time, cost and disruption will be incurred if the Commission continues its processes constitutes a change in position of the sort for which interim relief is appropriate.

[18] The Judge then concluded his judgment in this way:

[18] Accordingly, I consider that none of the three aspects raised, considered separately, would justify the granting of interim relief. Nor do I consider, viewing the matter as a whole, that collectively they do so. In reaching that conclusion, I have regard to the balance of convenience, and where that lies. On the one hand, Unison seeks to have the process halted for a sufficient period to enable the judicial review application to be heard and determined. It seeks to have its position preserved, in the sense that the Commission can proceed no further down the path upon which it has embarked, during that period. To do so would seem likely to delay the final resolution of the matter, if the Commission is subsequently successful in the judicial review proceedings, by an equivalent period of time. The possibility, on that analysis, is that there would be a delay of that period before the controls for which the legislature has provided in s 57F could be implemented. In my view, the Court should hesitate before exercising its discretion in a way which will interfere with the on-going performance by the Commission of its statutory functions under the legislation. On-going statutory processes should, in general, be able to continue notwithstanding an application for judicial review. Balancing the respective interests, I am satisfied that the prejudicial effect on Unison of further action by the Commission is outweighed by the interruption to the Commission’s processes and procedures which an interim order would entail.

[19] For those reasons, the application for interim relief is dismissed.

The appellant’s argument

[19] In his written argument, Mr Goddard QC for Unison advanced the appeal on the basis that the Judge had made four errors of principle:

(a) He set the s 8 threshold for change of position too high.

(b) He placed undue emphasis on the inconsequential immediate legal consequences of a s 57I notice.

(c) He placed undue weight on the desirability of the current statutory process continuing given Unison’s unresolved challenge to the jurisdictional basis of the Commission’s course of action and what he claimed was the relatively limited likely delay which would be caused if relief was granted.

(d) A wrongful exercise of discretion overall given that no factors other than "continuing the process" weighed against a short pause.

[20] In the course of the argument, Mr Goddard explained to us the nature of the jurisdictional challenge to the thresholds set by the Commission and we understand the competing arguments as to that (at least at a general level). We were not, however invited by either Mr Goddard (or the Solicitor General who appeared for the Commission) to differ from the approach taken by the Judge as to the comparative strength of the competing cases which will be resolved by the substantive application for review proceedings.

[21] As the argument developed, it became clear that the primary focus of Mr Goddard’s argument was that the Judge inappropriately balanced the possible prejudice to Unison (and possibly third parties who might incur wasted costs) if interim relief is refused but the Court holds that the thresholds were wrongly set as against possible prejudice to the Commission and the public interest if interim relief is granted but Unison’s jurisdictional challenge later fails.

Evaluation

[22] This is an appeal against the exercise of a discretion. So the onus is very much on Unison to show where the Judge went wrong. It is not enough to make complaints about matters of evaluation such as placing a threshold "too high", giving "undue weight" to certain factors and the balancing of conflicting considerations. Yet this is very much what Mr Goddard’s argument as summarised in [19] above really came down to.

[23] We are content to decide the case on the basis that Unison has not shown that the Judge made an error. However, in deference to the arguments which we have heard, we think it right to add a few observations.

[24] We are prepared to treat this case as largely (although as will be apparent, not entirely) coming down to balance of convenience considerations.

[25] We are prepared to assume (although we are not deciding) that Unison and the Commission’s prospects of success in the application for review proceedings are equal.

[26] For the reasons given by the Judge we are untroubled about the possibility that Unison will be exposed to reputational damage and problems with banks. We are equally untroubled about the possibility of wasted costs incurred by third parties who might become involved in the sequels to a s 57I notice; this because such third parties are under no obligation to participate in such procedures and will do so at their own risk. On the other hand, we accept that if Unison is held to be right in the substantive proceedings, the refusal of relief now will have adverse consequences in terms of management resources and wasted (or at least partly wasted) costs. Mr Goddard suggested that wasted costs might be as high as $250,000. We have some reservations about that figure as it is far from clear just how far the s 57I process could realistically proceed before the substantive hearing starts in October. Such reservations, however, are of limited significance because the more that could be achieved in relation to that process (and thus the greater the potential for Unison to incur wasted costs), the greater the potential detriment to the Commission in not being able to get on with the process. Conversely the less that could be realistically achieved during this period (and thus the lower the potential for wasted costs) the less the detriment to the Commission.

[27] In this regard it is also right to note that we were told that there have been extensive interaction between the Commission and Unison in which the parties have explored the possibility of an administrative resolution. This must inevitably have involved Unison in substantial time and effort and at least some of the outcomes of this time and effort should be able to utilised in any responses which Unison is forced to make if the current process continues prior to the substantive hearing of the judicial review proceedings. We also suspect that there will be some overlap between the content of such a response and the arguments which Unison will wish to deploy in the judicial review proceedings. So not only do we have reservations as to the extent of the costs likely to be incurred, we are also at least doubtful as the extent to which such costs are at risk of being "wasted" if Unison succeeds in the substantive proceedings.

[28] It is often not easy to put a dollar value on the adverse consequences of a regulator being restrained from implementing a statutory process.

[29] We can hardly ignore the reality that utility operators often (and perhaps usually) resort to litigation when affected by regulatory action. Such regulatory action customarily involves staged processes. There is obvious scope for distortion of such processes if the courts insist that a challenge to one step in a statutory procedure must be fully resolved before any subsequent procedural steps can be completed. Waste of resources arguments, as advanced by Mr Goddard, can almost always be invoked in this context. When this consideration was put to Mr Goddard, he responded primarily by referring to the particular circumstances of the case

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and especially the imminence of a fixture for the substantive hearing. But recognising, as we do, that each case must be addressed on its merits, we consider it would be wrong to overlook the broad public interest associated with the smooth implementation of regulatory processes in the manner contemplated by Parliament. So, although the Commission has not put a dollar value on the consequences of being wrongly prevented from continuing the present statutory process, this does not mean that there is no appreciable prejudice to balance against the wasted resources and costs argument advanced by Mr Goddard for Unison. [30] The legislation proceeds on the basis that, in certain circumstances, declarations of control and the associated consequences are appropriate. Given the scale of the industry and indeed of Unison’s own activities, a deferral of what might be a merited declaration of control is likely to have adverse consequences which equate or exceed the detriment to Unison of wasted resources and costs. [31] In those circumstances, we are of the view that Unison has not shown that interim relief is appropriate on orthodox balance of convenience considerations. [32] There is another factor which tells heavily against Unison’s appeal, albeit neither mentioned by the Judge nor bearing on balance of convenience. As we have indicated, Unison’s stance last December suggested that it would not be applying for interim relief until the point when a declaration of control was made (or was imminent). If it had signalled then an intention to seek to prevent the Commission getting as far as issuing a s 57I notice, it would have been open to the Commission to seek from a Judge an early fixture for the substantive proceedings. As well, since then, the Commission has devoted time and resources to the post-threshold breach phase of the exercise on the basis that this phase could continue up until the point where a declaration of control was imminent before interim relief would be sought. In light of this consideration we would see the making of an interim order as particularly unjust from the point of view of the Commission Result [33] The appeal is dismissed. Unison is to pay the Commission costs of $3,000 and usual disbursements.
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