![In the Court of Appeal of New Zealand Ca80/05 Ca177/06 [2007] Nzca 302](http://data.docslib.org/img/e7ba726e560268d6d1f6c583f46e70ea-1.webp)
IN THE COURT OF APPEAL OF NEW ZEALAND CA80/05 CA177/06 [2007] NZCA 302
BETWEEN TRANSPOWER NEW ZEALAND LIMITED Appellant
AND TODD ENERGY LIMITED Respondent
Hearing: 17, 18 and 19 October 2006
Court: Chambers, Robertson and Ellen France JJ
Counsel: D J Goddard QC and L Theron for Appellant G P Curry and J D Palmer for Respondent B W F Brown QC and N S Wood for Powerco Limited (observing)
Judgment: 20 July 2007 at 3 pm
JUDGMENT OF THE COURT
A The appellant’s appeals against the decisions of the High Court dated 26 April 2005 and 15 August 2006 are allowed in part, the effect of such partial allowance being reflected in order C.
B The respondent’s cross-appeal against the decision of the High Court dated 26 April 2005 is allowed, with the consequence that the respondent’s tenth cause of action is reinstated.
C The respondent, on or before 24 August 2007, must file and serve an amended statement of claim complying with the following requirements so far as its claim against the appellant is concerned:
TRANSPOWER NEW ZEALAND LTD V TODD ENERGY LTD CA CA80/05 20 July 2007 (a) It may contain the third, fourth, and thirteenth causes of action of the statement of claim dated 24 February 2006 (“the 2006 statement of claim”), but in each case only with respect to alleged wrongdoing up to 9 April 2004;
(b) It may contain the first, second, tenth, and twelfth causes of action of the 2006 statement of claim, but only with respect to alleged wrongdoing in the period 10 March 2003 to 9 April 2004;
(c) It must not contain the sixth, seventh, and eleventh causes of action of the 2006 statement of claim;
(d) It must not seek mandatory relief;
(e) Any declaratory relief sought must reflect the above ruling that only alleged wrongdoing within specified periods may be in issue;
(f) It may at this stage contain a prayer for an enquiry into damages, but on the understanding that the respondent, if the appellant so requests, must provide to the appellant, within such period as the High Court may determine at a case management conference:
(i) Particulars of the loss said to have been suffered with respect to each cause of action; and
(ii) A sum certain by way of damages for each cause of action in substitution for the prayer for an enquiry.
D There will be no order for costs in this Court.
E All matters of costs in the High Court relating to the applications under appeal are remitted to that court for reconsideration in light of this judgment and the reasons therefor. REASONS OF THE COURT
(Given by Ellen France J)
Table of Contents
Para No Introduction [1] Factual background [6] Decisions of the High Court [21] Judgment of MacKenzie J and Dr Small [22] Judgment of MacKenzie J [31] The pleadings [37] The s 27 claims [38] The s 36 causes of action [41] The s 29 cause of action [43] The pleaded markets [44] Statutory context [51] Limitation issues [59] Tying/bundling claim [67] Change to the nature of competition [70] Changes to the markets [75] Pleading of exclusivity provision [82] Conclusions on limitation issues [84] Application for summary judgment [91] Summary judgment: why the first cause of action may succeed [95] Contract, arrangement or understanding? [99] Effect on competition? [106] Existence of pleaded market [116] EMBEDDED GENERATION A SUBSTITUTE? [120] COMPETITION BY RESELLING SERVICES? [127] SEPARATE MARKETS NECESSARY FOR BUNDLING CLAIM? [136] Strike-out application [143] First cause of action [146] Second cause of action [147] Third and fourth causes of action [148] Sixth and seventh causes of action [159] A complaint about over-charging? [162] Transpower and Powerco dominant in the same market [169] Tenth cause of action – the cross-appeal [176] Eleventh cause of action [186] Twelfth and thirteenth causes of action [190] Availability of relief [196] The relevant provisions [197] Does s 19 amount to an authorisation? [200] Do the Regulations amount to an authorisation? [207] Effect of the 2004 cut-off date [210] Proof of damage or loss [211] Costs [215] Other Matters [218] Result [219]
Introduction
[1] Todd Energy Limited has brought proceedings alleging a number of breaches of the Commerce Act 1986 by Transpower New Zealand Limited, as first defendant, and Powerco Limited, as second defendant. The dispute is focused on Transpower’s charges to Powerco for interconnection services in relation to Transpower’s substation at Hawera.
[2] In a judgment delivered on 26 April 2005, MacKenzie J, sitting with Dr J P Small, dismissed Transpower’s application to strike out the proceedings but did strike out the tenth cause of action: HC WN CIV-1999-485-43. Transpower’s application for summary judgment was also unsuccessful. Transpower appeals against the refusal to strike out or to grant summary judgment. Todd cross-appeals against the decision to strike out the tenth cause of action.
[3] In a second judgment delivered on 15 August 2006, MacKenzie J concluded that Todd did not need leave to file its third amended statement of claim dated 24 February 2006 (“the 2006 statement of claim”) because none of the causes of action in that claim were fresh: HC WN CIV-1999-485-43. A further application by Transpower to strike out the 2006 statement of claim and for summary judgment was also dismissed. Transpower appeals against these decisions.
[4] The appeal raises issues about the ability of Todd to amend its pleadings and as to whether conceptual difficulties Transpower identifies are fatal to Todd’s claim. There is also an issue about the effect of various statutory provisions relating to Transpower’s pricing methodology on the remedies sought by Todd.
[5] Powerco took no part in the High Court hearings on these interlocutory matters, maintaining through its counsel only a watching brief. Powerco was not named as a respondent to this appeal, although again its counsel were present as observers. Nothing in this judgment directly affects Powerco, although some of the rulings will indirectly end up conferring benefits on it.
Factual background
[6] We adopt the summary of the factual background in the first judgment of the High Court at [2] – [11]. As MacKenzie J and Dr Small observe, there is a Co-generation plant (“the co-gen plant”) within the dairy factory at Whareroa near Hawera in South Taranaki. The co-gen plant supplies the factory with steam and electricity. The plant also generates some electricity which is surplus to the requirements of the dairy factory. The plant is connected to Transpower’s substation at Hawera, about six kilometres away.
[7] The Hawera substation is part of the national grid for the transmission of electricity. There are transformers at the substation for the conversion of electricity from 110kV to 33kV. On the 110kV side, the Hawera substation is connected by transmission lines to two other substations (Waverley and Stratford). There is also, on the 110kV side, a transmission line from a 30MW-hydro-electric generating plant on the Patea River (“the Patea generation station”).
[8] On the 33kV side, the Hawera substation is connected to the local distribution lines network, which serves electricity customers in South Taranaki. When the co-gen plant was first commissioned in July 1996, the connection to the Hawera substation was by means of a 33kV line. That line formed part of the local electricity distribution lines network in South Taranaki. In 1998 a 110kV line to the Hawera substation was built and this replaced the 33kV connection.
[9] Throughout the relevant period, Transpower has owned and operated the national grid including the Hawera substation. The co-gen plant is owned and operated by a joint venture between Todd and Kiwi Co-generation Limited. Todd, a 50 per cent partner in the joint venture, is the only plaintiff. We use the terms “Todd” and “the joint venture” interchangeably. [10] At the time the co-gen plant was commissioned, the local distribution network including the 33kV line connecting the co-gen plant to the substation was owned by Egmont Electricity Limited. That company owned the South Taranaki distribution network (“the lines business”) and was also a retailer of electricity to customers served by that distribution network (“the energy business”). In 1997, Egmont became a wholly owned subsidiary of Powerco. Egmont was amalgamated with Powerco in 1999.
[11] The Electricity Industry Reform Act 1998 required a split of the lines and energy businesses. As a result of that legislation, in 1998, the energy business was sold by Powerco, which has since retained and operated only the lines business.
[12] The Patea generation station and the line connecting it to the Hawera substation were, at the start of the relevant period, owned by Egmont and subsequently by Powerco. In 1998, Powerco sold the Patea generation station to TrustPower Limited.
[13] MacKenzie J and Dr Small then set out the relevant contractual arrangements. Transpower has contracts with a number of parties with respect to the national grid. Transpower’s policy is to contract only with parties who are directly connected to its network. As the High Court at [7] identified, those parties fall generally into two categories, first, generators (connected to inject electricity into the national grid) and, second, offtake customers. The latter fall broadly into two categories:
(i) Large-scale users of electricity, with installations connected directly to the national grid; and
(ii) Distribution companies, that is, companies operating lines networks through which electricity is transmitted to end users.
[14] Transpower’s methodology for calculating its prices involves calculating a revenue requirement for Transpower. That revenue requirement is to reflect the cost of owning and operating the national grid and that requirement is allocated among its customers. As the High Court at [8] noted, the exact details have changed over the period but the essential structure has at the relevant times had these components: (a) A connection charge allocating Transpower’s revenue requirement in respect of those transmission assets which can be identified as serving specific customers. The connection charge allocates the cost of those assets to those customers.
(b) An HVDC (High Voltage Direct Current) charge that allocates Transpower’s revenue requirement in respect of the HVDC link (via the Cook Strait cable) to, since October 1996, South Island generators connected to the grid.
(c) A demand charge that allocates the remainder of Transpower’s revenue requirements in respect of all HVAC (High Voltage Alternating Current) assets not recovered by a connection charge. The demand charge is payable by all off-take customers, and is based on electricity flows at the relevant grid exit point. In the case of the Hawera substation, the only off-take customer directly connected to that grid exit point is Powerco.
[15] Prior to the commissioning of the 110kV line from the co-gen plant in 1998, the joint venture had no direct contract with Transpower. At that point, the only contracting party for the connections at the Hawera substation was Powerco (for all 33kV connections and for the 110kV connection from the Patea generation station). Since the 110kV line from the co-gen plant was commissioned, the joint venture has had a direct contract with Transpower for its injection into the Hawera substation. The joint venture pays the connection charge for that connection. It has no direct contract with Transpower for offtake from the Hawera substation, or any other substation.
[16] Turning then to Powerco, electricity is conducted across Powerco’s distribution lines network from the Hawera substation to end users. Powerco enters into a number of contracts with its users of its services. It contracts with end users of electricity, or with retailers who sell electricity to end users, to provide that distribution service. The amounts Powerco pays to Transpower by way of demand charges are recovered through the price which Powerco charges. Until the separation of the lines and energy businesses, Powerco also had contracts for the sale of electricity direct to end users but that stopped in 1999.
[17] At the time when the 33kV connection between the co-gen plant and the Hawera substation was in place, Powerco had a contract with the joint venture for the use of that line. That contract ended in 1998. Powerco also has a contract with Todd, which, as well as being a partner in the joint venture, is also a retailer of electricity. That contract is for the use of Powerco’s distribution network for the carriage of electricity that Todd sells to its customers on that distribution network.
[18] In the period between 1996 and 1998, the co-gen plant was treated as being physically embedded. (Embedded generation is electricity generation that is connected to the distribution network rather than to the high voltage national grid.) The effect of physical embedding is that Transpower reduced the interconnection charges payable by Powerco by netting the electricity injected from the co-gen plant off against offtake services Transpower used. Todd sought to purchase injection and offtake services directly from Transpower. Transpower refused. This refusal meant those services were purchased from Powerco who packaged those services with distribution services.
[19] At the end of 1998, the 33kV leased line had been abandoned and the joint venture owned the 110kV line connected to the substation. Transpower charges Powerco interconnection charges for long distance transmission for the power produced at the co-gen plant. These charges are passed onto the joint venture by Powerco.
[20] A diagrammatic view of the arrangements looks like this:
Powerco Network
33kV leased line (pre 1998) Co-gen 33kV side Plant Hawera Joint venture Substation 110kVline (post Stratford 1998) 110kv side Substation
Patea Hydro Waverley Station Substation Remainder of the National Grid Decisions of the High Court
[21] We deal first with the judgment of MacKenzie J and Dr Small on Transpower’s application for summary judgment and strike-out. We then turn to the judgment of MacKenzie J determining Todd’s application for leave to file the 2006 statement of claim and Transpower’s application to strike out the 2006 statement of claim.
Judgment of MacKenzie J and Dr Small
[22] In terms of the s 27 causes of action, the Court dealt first with the need for a contract, arrangement or understanding. The Court concluded that the evidence was such that it could not be said that the allegation that there was a contract, arrangement or understanding between Transpower and Powerco as alleged should be dismissed without being tested at trial.
[23] In response to Transpower’s pleading objections, the Court relied on what the Court described as the acknowledged difficulties of giving particulars in relation to claims based on “clandestine” contracts: at [33] – [34].
[24] Finally, under this head, the Court dealt with Transpower’s submission that a term in the Powerco connection contract could not be the basis for an understanding. Transpower relied on the fact the understanding pleaded was alleged to have been reached prior to July 1996 but the Powerco connection contract was not entered into until October 1996. On this, the Court said that the later contract “might well be supporting evidence for an earlier understanding”: at [35]. This was a matter that could only be resolved at trial.
[25] Dealing then with the second key element of s 27, that is, the contract, arrangement or understanding has the purpose, or has or is likely to have the effect of substantially lessening competition in a market, the Court looked at the definition of market. The Court then dealt with the two pleaded markets, namely, the market for wholesale transmission services in South Taranaki and the South Taranaki local delivered electricity market. [26] On the first of these two markets, the Court took the view it was at least conceptually possible that if one firm controlled all three sources of supply to the Hawera substation it could, profitably, implement a small but significant non-transitory increase in price (SSNIP: for a discussion of the SSNIP test see Gault (ed) Gault on Commercial Law (looseleaf ed) at [CA47.12(2)]). Accordingly, the Court said at [41] that “while the construct of such a market is clearly hypothetical, it is not possible to preclude its potential existence”.
[27] The Court saw this as a question of fact to be determined at trial. A similar approach was taken in relation to the South Taranaki local delivered electricity market where, at [43], the Court took the view that there was no basis to depart from the assumption that the facts pleaded were capable of proof in light of the conflicting evidence.
[28] On the third element, that is, the purpose, effect or likely effect of substantially lessening competition, the Court addressed Transpower’s argument that unless Todd was able to provide a complete substitute for grid services, it could not be treated as a substitute for those services. The Court said at [48] that, at this stage, “that argument should not be accepted as one which must necessarily succeed”, noting that substitution was a matter of degree.
[29] The Court dealt then with the s 36 causes of action. Transpower had admitted substantially that it was in a dominant position or has a substantial degree of power (the old and new s 36). On the second element of a s 36 action, that is, the use or taking advantage of that position (the old and new s 36) for one or more of the proscribed purposes, it followed from the Court’s earlier position that there was no basis for striking out. In terms of use of position, the Court emphasised that the issue is not what Transpower might do but what it has done.
[30] Finally, the Court dealt with the s 29 cause of action. This claim was struck out on the basis that it was fatally flawed. Under this head, Todd had to establish that Transpower and Powerco were in competition with each other. Todd sought to establish that by its allegation that, but for the contract or understanding, Transpower and Powerco would compete for the supply of wholesale transmission services at the Hawera substation. The Court rejected that possibility.
Judgment of MacKenzie J
[31] On Transpower’s further application to strike out the 2006 statement of claim, MacKenzie J took the view that as Transpower had already appealed the earlier judgment declining strike-out and Todd had cross-appealed, the appropriate procedure to determine the strike-out claim was an appeal.
[32] In terms of whether leave to file an amended claim was necessary, MacKenzie J applied the test in Ophthalmological Society of New Zealand Inc v Commerce Commission CA168/01 26 September 2001 at [22] - [24]. The Judge rejected Transpower’s argument that the pleaded markets had changed from those pleaded in Todd’s second amended statement of claim filed on 30 October 2003 (“the 2003 statement of claim”). Either there was no significant or material difference in the two sets of markets or what was new amounted to particulars. In reaching that view, MacKenzie J said there was no material change in the way “South Taranaki” was defined.
[33] MacKenzie J similarly rejected Transpower’s argument that the definition of the various services had changed. This submission related to the addition of “interconnection services” to the definition of “transmission services”. The Judge saw this alteration as a particularisation of the existing claim, not the formulation of a new claim.
[34] MacKenzie J considered Transpower was wrong to say the new information about the Powerco-Transpower contract gave rise to a new cause of action. Again, the new material was the particularisation of the existing claim.
[35] The Judge said the addition of the allegations about tying/bundling were not new. “At most” there may have been an addition as to the “precise terms” of the tying/bundling arrangement: at [24]. MacKenzie J took the same approach to Transpower’s argument that the new pleadings altered the nature of the Transpower/Powerco understanding and of its purpose or effect.
[36] Finally, the Judge dealt with the twelfth and thirteenth causes of action, which had not been in the 2003 statement of claim. MacKenzie J at [26] accepted Todd’s argument that these causes of action were not new “but … another way of claiming relief for Todd’s core complaint, and a refocusing of the bundling complaint”.
The pleadings
[37] There are 13 causes of action in the 2006 statement of claim, six are causes of action under s 27, one under s 29 and six under s 36.
The s 27 claims
[38] These causes of action are against both defendants. Todd alleges that Transpower had a direct contract with Egmont (now Powerco) and says that contract made it impossible to have a direct contract with the joint venture, Todd or Kiwi Cogeneration Limited.
[39] Todd further pleads an understanding between Transpower and Powerco (the “Transpower/Powerco understanding”) which was arrived at prior to July 1996. Todd avers that the understanding was that:
(a) Transpower would not provide Transmission Services at the substation unless the users are physically connected to the substation; and
(b) Transpower could not offer users (including on-sellers) of the substation the same or better terms for the supply of Transmission Services at the substation than those terms offered by Transpower to Powerco for the supply of Transmission Services at the substation.
[40] Todd’s claim is that the exclusivity term in the Powerco connection contract and/or the Powerco understanding had either a substantial purpose of substantially lessening competition in either the South Taranaki Wholesale Transmission Services market (“STWTS”) market and/or in the South Taranaki Retail Delivered Electricity market (“STRDE”) or had that effect.
The s 36 causes of action
[41] Three of these causes of action relate to Transpower and the other three to Powerco. In terms of Transpower, the claim is that it has used its dominant position or substantial market power in the STWTS market, in the STRDE market or in the New Zealand Transmission Services Market to prevent the joint venture from engaging in competitive conduct in those markets.
[42] The use of the dominant position is said to arise either from Transpower’s refusal to deal with the joint venture in relation to Offtake Connection Services and Interconnection Services or from its restriction of entry into the market.
The s 29 cause of action
[43] The pleading is that:
134. The Powerco Connection Contract and/or the Transpower/Powerco understanding is an exclusionary provision and in contravention of section 29 of the Act. In breach of section 29(4) of the Act Transpower and Powerco have given effect to and continue to give effect to the exclusionary provision.
The pleaded markets
[44] The relevant markets are pleaded as set out below. First, the particulars of the New Zealand Transmission Services market are as follows:
30 …
(a) The New Zealand Transmission Services Market encompasses the supply of transmission services from around New Zealand to distributors and retailers of electricity. (b) The New Zealand Transmission Service Market includes services for the injection of electricity into the national grid by the generators and the offtake of electricity from the national grid for the distribution of electricity to the national electricity consumers.
(c) Suppliers in this market include:
(i) Transpower; and (ii) Resellers of Transpower’s services, including distribution companies.
(d) Customers and potential customers in this market include:
(i) Retailers; and (ii) Distribution companies.
[45] Second, as to the market for the wholesale provision of transmission services in South Taranaki (STWTS), at [31] Todd pleads:
(a) The South Taranaki Wholesale Transmission Services Market is a “complex” market that includes all transactions for the provision of one or more of the Transmission Services in respect of the substation.
(b) Suppliers in this market prior to 1998 were:
(i) Transpower, who provided: (A) Interconnection Services via the national grid; (B) Injection Connection Services; and (C) Offtake Connection Services:
(ii) Powerco, also provided: (A) Interconnection Services via the Patea 110kV line; (B) Interconnection Services from the national grid (onsold from Transpower); (C) Injection Connection Services (onsold from Transpower); (D) Offtake Connection services (onsold from Transpower);
(iii) Todd, who provided: (A) Interconnection Services via the leased 33kV line; and (B) Injection Connection Services for this line (onsold from Powerco)
(c) Suppliers in this market post-1998 are:
(i) Transpower, who provides the services pleaded at (b)(i) hereof;
(ii) Powerco, who provides the services pleaded at (b)(ii) hereof; and (iii) Todd, who provides:
(A) Interconnection Services via the Joint Venture 110kV line; and (B) Injection Connection Services for this line (onsold from Transpower).
(d) Customers in this market prior to 1998 included:
(i) Powerco, who purchased those services set out in (b)(i) above;
(ii) Todd, who purchased those services set out in (b)(ii)(B)- (b)(ii)(D) above; and
(iii) Other retailers of Delivered Electricity.
(e) Customers in this market post 1998 include:
(i) Powerco, who purchased those services set out in (b)(i) above;
(ii) Todd, who purchased those services set out in 31(b)(i)(B) (for the Joint Venture 110kV line), (b)(ii)(B) and (b)(ii)(D) above;
(iii) other retailers of Delivered Electricity.
[46] Third, Todd says at [32] that there is a market for the provision of distribution services in South Taranaki (“South Taranaki Distribution Services Market”) which is particularised as follows:
(a) The supplier in this market at all times was (and is) Powerco.
(b) Customers in this market at all times were (and are):
(i) Todd; and (ii) Other retailers of Delivered Electricity.
[47] Finally, as to the market for the retail provision of delivered electricity in South Taranaki (STRDE), Todd pleads at [33] that:
(a) Suppliers in this market are: (i) Powerco, until 1999; (ii) Todd; and (iii) Other retailers.
(b) Customers in this market include industrial, commercial, farming and residential users with “loads” connected to the Hawera Distribution Network. [48] In the 2006 statement of claim, “Injection Connection Services” are defined as the “right to connect a line to the substation, and then the use of that connection to inject electricity into the substation”: at [28(a)].
[49] “Offtake Connection Services” are defined at [28(b)] as follows:
(b) “Offtake Connection Services”, which is the right to connect a line to the substation, and then the use of that connection to offtake electricity from the substation. It includes the use of all required substation services (including metering, fuses, surge protection) and includes, where required, conversion of the electricity to the correct voltage for the offtake line;
[50] “Connection Services” are made up of “Injection Connection Services and/or Offtake Connection Services”. “Interconnection Services” are the transmission of electricity over a high voltage transmission line to or from the substation (or a substitute therefor). Finally, “Transmission Services” are “Connection Services and/or Interconnection Services”.
Statutory context
[51] There are a number of enactments making up the statutory context. The first group of relevant provisions is found in the Commerce Act 1986. The overall purpose of the Commerce Act is set out in s 1A (inserted from 26 May 2001) and is to promote “competition in markets for the long-term benefit of consumers within New Zealand”. Competition is defined in s 3(1) as “workable or effective competition”. The other pertinent parts of the Act are Part 2, which deals with restrictive trade practices, and Parts 4 and 4A.
[52] In terms of Part 2, the relevant provisions are ss 27, 29, and 36. Section 27 prohibits a person from entering into a contract or arrangement, or arriving at an understanding, “containing a provision that has the purpose, or has or is likely to have the effect of substantially lessening competition in a market”. No person shall give effect to such a contract or arrangement and such provisions of a contract are not enforceable. [53] Section 29(1) provides that a provision of a contract, arrangement, or understanding is an exclusionary provision if it is a provision of a contract, arrangement or understanding entered into “between persons of whom any two or more are in competition with each other” (s 29(1)(a)). The provision must have the purpose of preventing, restricting or limiting the supply of goods or services to, or the acquisition of goods or services from, any particular persons or class of persons, either generally or particularly (s 29(1)(b)). Further, the particular person or class of persons to which the provision relates must be in competition with one or more of the parties to the contract, arrangement or understanding in relation to the supply or acquisition of “those” goods or services (s 29(1)(c)).
[54] For the purposes of s 29(1)(a) and (c), a person is in competition with another person if that person is, or is likely to be, or “but for the relevant provision”, would be or would be likely to be in competition with the other person, “in relation to the supply or acquisition of all or any of the goods or services to which the exclusionary provision relates” (s 29(2)).
[55] Finally, in terms of Part 2, s 36 deals with using or taking advantage of market power. A person that has “a dominant position” in a market must not “use” that power for any one of three specified purposes. The relevant purpose for this case is that in s 36(2)(b), that is, “preventing or deterring a person from engaging in competitive conduct in that or any other market”. Section 36 was amended in 2001 so as to refer to “tak[ing] advantage” of “a substantial degree of power” in the market. However, the effect of the transitional provision in the Commerce Amendment Act 2001 (s 26(b)) is that the amendment does not apply to the present proceedings: Foodstuffs (Auckland) Ltd v Commerce Commission [2004] 1 NZLR 145 at [32] (PC).
[56] Up until 2001, complaints about the price/revenue charged by Transpower could be the subject of control under Part 4. Since the enactment of Part 4A, those matters are dealt with under Part 4A which allows the Commerce Commission to make a declaration subjecting transmission and lines businesses to price control. Indeed, the Commission has declared its intention to subject Transpower to price control. [57] The second relevant group of statutory provisions is those relating to State-Owned Enterprises (SOEs). As an SOE, Transpower is subject to the State-Owned Enterprises Act 1986. That Act provides for statements of corporate intent to be prepared each year in consultation with the SOE’s shareholding ministers (s 14). Transpower’s recent statements of corporate intent set out its objectives and its revenue policy.
[58] Finally, reference should be made to the Electricity Amendment Act 2001 and to the Electricity (Transpower’s Pricing Methodology) Regulations 2004 which deal with Transpower’s pricing methodology. We will come back to the detail of these provisions.
Limitation issues
[59] We start by addressing Transpower’s argument that the Judge erred in concluding that the 2006 statement of claim did not give rise to a fresh cause of action. That will assist in determining which statement of claim should be considered.
[60] Transpower says that because the causes of action in the 2006 statement of claim are fresh, leave cannot be granted for those parts of the claim which are time-barred (r 187(3)(a) of the High Court Rules). There is a three year limitation period in the Commerce Act in terms of ss 80(5) and 82(2). Section 82(2) was amended in 2001 by the Commerce Amendment Act 2001 but, by virtue of s 26 of the 2001 Act, s 82(2) in its unamended form applies to these proceedings: Foodstuffs (Auckland) at [32]. Transpower submits leave should not be granted for those parts of the claim which are not time-barred.
[61] The relevant principles as to when a cause of action is fresh are summarised in the Ophthalmological case at [22] - [24] as follows:
(a) A cause of action is a factual situation the existence of which entitles one person to obtain a legal remedy against another (Letang v Cooper [1965] 1 QB 232 at 242 – 243 (CA) per Diplock LJ); (b) Only material facts are taken into account and the selection of those facts “is made at the highest level of abstraction” (Paragon Finance plc v D B Thakerar & Co (a firm) [1999] 1 All ER 400 at 405 (CA) per Millett LJ);
(c) The test of whether an amended pleading is “fresh” is whether it is something “essentially different” (Chilcott v Goss [1995] 1 NZLR 263 at 273 (CA) citing Smith v Wilkins & Davies Construction Co Ltd [1958] NZLR 958 at 961 (SC) per McCarthy J). Whether there is such a change is a question of degree. The change in character could be brought about by alterations in matters of law, or of fact, or both; and
(d) A plaintiff will not be permitted, after the period of limitations has run, to set up a new case “varying so substantially” from the previous pleadings that it would involve investigation of factual or legal matters, or both, “different from what have already been raised and of which no fair warning has been given” (Chilcott at 273 noting that this test from Harris v Raggatt [1965] VR 779 at 785 (SC) per Sholl J was adopted in Gabites v Australasian T & G Mutual Life Assurance Society Ltd [1968] NZLR 1145 at 1151 (CA)).
[62] Transpower also relies on Attorney-General v Carter [2003] 2 NZLR 160 at [48] (CA) where the Court observed:
The circumstance that the underlying facts may be the same or similar does not save a cause of action from being fresh if the plaintiff seeks to derive a materially different legal consequence from those facts.
[63] The Court acknowledged “matters of degree” can be involved but there the situation was plain. The breach of statutory duty causes of action had asserted negligence as an element but the plaintiff then wanted to assert liability without negligence. That amounted to a fresh cause of action. [64] Transpower says the changes made in the 2006 statement of claim comprise fresh causes of action when viewed at both a general level and at the level of detail. At a general level, Transpower identifies three changes:
(a) a shift in focus from a claim of discriminatory conduct to a tying/bundling complaint;
(b) a new underlying theme of Todd providing a substitute for Transpower’s services and so a potential competitor to Transpower. The previous claim was that Todd needed to buy transmission services from Transpower to on-sell them in competition with Powerco; and
(c) the key markets are different.
[65] At a detailed level, Transpower focuses on matters such as the changes to the markets; the introduction of “interconnection services” as a service supplied in the relevant markets; changes in geography; and the introduction of new suppliers into the STWTS market.
[66] Todd’s response is that under any of the tests, these are not new causes of action. Rather, Todd says, the claim is the same but with additional particulars. Todd argues that while there has been a “refocusing”, for example, in the twelfth and thirteenth causes of action, the material facts, and law on which they are based remain the same. Todd says that if leave is required leave should be granted.
Tying/bundling claim
[67] Transpower’s first submission that the shift in focus to a tying/bundling claim gives rise to a fresh cause of action can be shortly dealt with. The description of this part of the claim has changed from one of discriminatory conduct. Further, the labels given for the wanted and unwanted services have changed and there are further particulars. [68] However, as Todd submits, the genesis of the bundling/tying complaint is present in the 2003 statement of claim. Paragraph [76] of that statement of claim pleads that the costs of the transmission services at the substation offered to the joint venture in respect of the co-gen plant are “significantly higher” than those paid by Powerco in respect of the Patea generation station. It is further pleaded at [77] that the joint venture only requires input transmission services at the 110kV side. We also agree with Todd that the shift in focus to “Interconnection Services” is no more than further particularisation. That is because the actual service in issue was a part of the earlier claim.
[69] Accordingly, we consider MacKenzie J was right to conclude that the “essence” of Todd’s complaint is the same as it has been “from the outset” (at [21]). Namely, Todd pays for some services that it does not need. This deals with the main argument advanced by Transpower as the basis for its submission that the thirteenth cause of action is fresh.
Change to the nature of competition
[70] We accept Transpower’s second submission that the effect of the explicit claim that the joint venture, Powerco and Transpower are in competition with each other is significant. Todd argues that this claim is implicit in the 2003 statement of claim. We do not agree.
[71] The relevant pleadings in the 2006 statement of claim assert that Transpower, Powerco and Todd are all suppliers in the market. Todd essentially now pleads that there is, or could be but for the anti-competitive conduct, competition between two bundles of services: interconnection services via the national grid and connection services on the one hand and interconnection services via embedded generation together with connection services on the other.
[72] There is no pleading in the 2003 statement of claim that embedded generation is a substitute for interconnection services. Nor is there any suggestion Todd can compete with Power and Transpower other than by reselling their services. For example, at [42] Todd pleads that “[i]n order to compete in the South Taranaki wholesale transmission services market transmission services need to be purchased on the 33kV side of the substation.” Transmission services are defined as “transmission, metering and transforming of electricity to distribution voltages”: at [27]. The same pleading is made at [148] with respect to the South Taranaki retail electricity market and at [155] with respect to the New Zealand wholesale transmission services market.
[73] In our view, the shift to a claim that the joint venture, Powerco and Transpower are in competition with each other is a fresh one. As this Court said in the Ophthalmological case, “the defendants must necessarily now re-direct their analysis of relevant competition”: at [31].
[74] This change underpins the first, second, sixth, seventh, tenth and twelfth causes of action. Those causes of action are accordingly fresh. We come back to the effect of that finding later in the judgment at [84] - [88].
Changes to the markets
[75] Transpower’s third submission relies on changes to the markets pleaded.
[76] Transpower’s submissions about the effect of changes to the boundary and the nature of suppliers in the South Taranaki Wholesale Transmission Services market (STWTS) relate to the first, second, sixth and seventh causes of action. We have already dealt with the effect of the change in suppliers and have concluded these causes of action are fresh. For completeness, we add that we see no significance in the boundary change.
[77] In terms of the South Taranaki Retail Delivered Electricity market (STRDE), Transpower says there have been changes to the geographical boundary and to the services supplied. This potentially affects the third, fourth and sixth causes of action but for present purposes we only need consider the third and fourth as we have already concluded that the sixth cause of action is fresh. [78] The change to the market boundary is in our view simply a correction of the pleading in the 2003 statement of claim. In the earlier claim, Todd pleaded that “South Taranaki includes Stratford, Hawera, Opunake and Waverley”. South Taranaki now relates only to the Hawera distribution network. However, on a fair reading of the 2003 statement of claim, the references to “South Taranaki” are references to Hawera. For example, the “South Taranaki electricity network” is defined as the “Powerco Hawera network.”
[79] The change to the services supplied in this market is from “local delivered electricity to consumers in South Taranaki” to “delivered electricity” i.e. “the provision of all necessary generation services, Transmission Services, Distribution Services and Retail Value Added services, sufficient to allow electricity to be used at a load connected to the Hawera Distribution Network”. We agree with Todd that this change is explanatory and does not alter the nature of the pleaded market.
[80] We turn then to Transpower’s submission about the changes to the New Zealand transmission services market (“NZTSM”). This potentially affects the eleventh cause of action. Transpower describes the NZTSM as an amalgamation of the high voltage transmission services market and the New Zealand wholesale transmission services market. Transpower points to differences in the physical location of the markets, the services supplied and to the claim that this is both a springboard and an impact market. Todd previously pleaded there were two different springboard and impact markets.
[81] Todd says the high voltage transmission services market and the NZTSM are essentially the same. We agree. There are new particulars but in factual terms the allegations are the same. We do not accept the submission that the eleventh cause of action is fresh.
Pleading of exclusivity provision
[82] We need then to address one of Transpower’s submissions as to the detail of some of the changes as they relate to the third and fourth causes of action. [83] The argument we need to consider in respect of the third and fourth causes of action is that based on the pleading that all contracts for the supply of transmission services after the Powerco connection contract contained an “exclusivity provision”. While that term was not expressly pleaded, plainly Todd’s complaint was of a refusal to deal because of an exclusive arrangement with Powerco whether contractual or otherwise. This difference does not make these causes of action fresh.
Conclusions on limitation issues
[84] On this analysis, Transpower succeeds in its argument that the first, second, sixth, seventh, tenth and twelfth causes of action are fresh.
[85] The consequence of our finding is that these causes of action may be introduced only if “not statute-barred”: r 187(3)(a). Todd’s counsel accepted that, if these causes of action were fresh, then at least some of Transpower’s alleged wrongdoing would now be time-barred. Todd’s counsel contended, however, that the nature of these causes of action was such that a fresh cause of action accrued on a daily basis. There are some conceptual problems with that assertion, but Mr Goddard QC, for Transpower, did not take issue with the Todd approach. So it was accepted that the last three years (the limitation period) of alleged wrongdoing could be in time.
[86] Todd’s fallback position, therefore, was that it should be allowed to advance any fresh causes of action for the three years immediately preceding the filing of its 2006 statement of claim (i.e. 2003-2006). Since this proceeding had been commenced in 1999, that meant that each of the fresh causes of action had arisen since the filing of the original statement of claim. That is a situation which engages r 187(5) of the High Court Rules:
Where a cause of action has arisen since the filing of the statement of claim, that cause of action may be added only by the leave of the Court and shall, if that leave is granted, have effect from the date of the filing of the application for leave to introduce that cause of action.
[87] The date of filing of the application for leave (an application made by Todd as a fallback) was 10 March 2006. The combined effect of s 82(2) of the Commerce Act and r 187(3) and (5) is, therefore, that the fresh causes of action can cover wrongdoing only from 10 March 2003. Any earlier wrongdoing would be time-barred. If, therefore, we are to grant leave to these fresh causes of action, they will need to be restricted to the post-10 March 2003 period.
[88] In our view it is appropriate to grant leave for the causes of action which are fresh. There is some merit in Transpower’s submission that Todd should not be able to readily frustrate the summary judgment process merely by filing amended pleadings introducing new causes of action. Todd could, and should, have put its pleadings in order at an earlier point in time. However, given the way matters have developed there is no prejudice to Transpower in granting leave. We need later to consider Transpower’s separate arguments that, even for the post-10 March 2003 period, these causes of action are fatally flawed. So our acceptance of these causes of action is subject to that later consideration of alleged non-limitation flaws.
[89] We mention in passing one other matter. We are conscious that at best we shall be permitting Todd to proceed with these fresh causes of action only with respect to a period beginning on 10 March 2003, whereas the rough equivalents of those causes of action in the 2003 statement of claim would have allowed consideration of Transpower’s alleged wrongdoing from a much earlier date. In light of that, we have considered whether fairness dictates Todd should be given the opportunity to “resurrect” any of the causes of action in its 2003 statement of claim which do not have equivalents in what is now permitted as a result of this judgment. The argument in favour of that course of action is that, when Todd sought to amend its 2003 statement of claim, it believed its amendments were not significant and not “fresh”. We have disagreed with Todd on that.
[90] In the end, however, we have decided that fairness does not require that Todd be given the opportunity to resuscitate abandoned causes of action. Todd chose to amend to seek to respond to the various challenges Transpower had made to the 2003 statement of claim and presumably did so because it accepted there were problems with those causes of action as framed. It sought to defend Transpower’s challenge both in the High Court and in this Court on the basis of the 2006 statement of claim. It should not now be able to go back and potentially force Transpower again to challenge earlier pleadings it chose to abandon. We also note that Todd did not ask us to permit such resuscitation should its primary argument, namely that none of the new causes of action were fresh, not prevail.
Application for summary judgment
[91] We turn now to consider Transpower’s application for summary judgment, which the High Court dismissed. We note at this point that the way in which this matter has developed has given rise to some difficulties for this Court on appeal. When the High Court first considered the applications for strike-out and summary judgment, those applications related to the 2003 statement of claim. However, at the hearing in the High Court, Todd advanced arguments based, at least in part, on anticipated changes to its pleadings. Similarly, some of Todd’s evidence anticipated the foreshadowed changes. The High Court in turn dealt with matters, at least to some extent, on the basis of the anticipated changes.
[92] Mr Goddard submitted to us that the High Court had erred in declining strike-out or summary judgment on the basis of allegations made by Todd in argument when those allegations were not then reflected in Todd’s pleadings. While we have some sympathy with that argument, the plain fact of the matter is that both Transpower’s and Todd’s written submissions and oral argument before us were based principally on the 2006 statement of claim. It is unrealistic now to disentangle the procedural morass which has developed. We have not had the benefit of detailed submissions on the causes of action as pleaded in the 2003 statement of claim. The only sensible course now is to concentrate on the 2006 statement of claim (limited, however, so far as fresh causes of action are concerned, to alleged wrongdoing in the post-10 March 2003 period).
[93] With that background, we now turn to consider whether Transpower’s application for summary judgment should have succeeded. In this regard, we note that the parties were in agreement as to the relevant principles on an application for summary judgment: Pemberton v Chappell [1987] 1 NZLR 1 at 3 (CA). The issue between the parties was as to the application of those principles to the facts. [94] Since this was a defendant’s application for summary judgment the Court may give judgment against the plaintiff only if the defendant satisfies the Court that none of the causes of action in the plaintiff’s statement of claim can succeed: High Court Rules, r 136(2). We are satisfied that at least some of the causes of action in Todd’s 2006 statement of claim may succeed. It follows that the High Court was right not to grant Transpower summary judgment. In order that these reasons for judgment not be inordinately long, we choose to deal only with the first cause of action, that being a cause of action which may succeed.
Summary judgment: why the first cause of action may succeed
[95] The first cause of action is based on s 27. To succeed under s 27 Todd would have to show there was a contract, arrangement or understanding, which had the purpose (or effect) of substantially lessening competition in a market. The pleading is that the Transpower/Powerco understanding and/or the exclusivity term of the Powerco connection contract and subsequent contracts had a substantial purpose of substantially lessening competition in the STWTS markets.
[96] Todd pleads that the exclusivity provision enabled Powerco to be the monopoly reseller of transmission services in the STWTS markets. Potential competitors in the sale of transmission services including the joint venture were forced to purchase any elements of those transmission services that they could not provide themselves from Powerco. Because of Powerco’s monopoly, it could charge excessive margins and tie wanted and unwanted elements of transmission services. The joint venture incurred greater cost than Powerco for the purchase of those elements of the transmission services that it wanted to onsell. The number of competitors supplying transmission services in the STWTS was lower than otherwise would be the case.
[97] Post-1998, it is pleaded that the exclusivity provision was also intended to and did protect Powerco and Transpower from competition in the STWTS market. It is further pleaded that if the joint venture had been able to deal directly with Transpower in relation to the interconnection services, it would have resisted paying for them on the basis that the local distributor generation from the co-gen plant avoided the need for interconnection services and the imposition would be an unlawful tie. Further, that if the joint venture had been able to separately purchase connection services from Transpower, it would have been able to sell its own transmission services (being a bundle of resold Transpower connection services and its own substitute for the interconnection service) in competition with Powerco and Transpower.
[98] Transpower says, first, there is no evidential basis for the allegation of a contract, arrangement or understanding in terms of s 27. Second, no such agreement could have the required effect on competition and, third, the STWTS market does not exist. We take each in turn.
Contract, arrangement or understanding?
[99] Transpower’s argument is that there is no such term, express or implied, and no agreement to that effect. Rather, Transpower has a unilateral policy, which is simply reflected in its customers’ contracts. In response, Todd points out that Transpower treated its agreement with Powerco as requiring it not to deal with Todd. This is a reference to legal advice to that effect which was relayed by Transpower to Todd. Todd also says the contract embeds Transpower’s policy and entitles the recipient of the promise to act anti-competitively downstream with the knowledge that Transpower’s conduct will not change.
[100] The High Court referred to the evidence of a letter from Transpower dated 19 December 1996 to the joint venture in which Transpower said it could not accommodate the joint venture’s request for a direct customer contract without breaching an existing contract with another customer. The Court also discussed the affidavit evidence of a meeting at about this time in which Transpower’s legal adviser told Todd that there was an implied term in the Powerco connection contract which prevented Transpower from dealing with anyone else at the Hawera substation and that Transpower could be exposed to a claim by Powerco for damages if it breached that implied term. [101] Transpower’s current position is that it no longer considers the advice in respect of the implied term to be correct as a matter of law. That may be so but we agree with the High Court that there is an evidential basis for Todd’s argument.
[102] We also consider there may well be some merit in Todd’s submissions that Transpower’s argument, that any such term would be unlawful and so not implied, would undercut the Act. Parties could otherwise act under anti-competitive “implied terms” in the knowledge that they would not be treated as contractual. However, we do not need to decide that. That is because, as the High Court said in its first judgment at [32], “the existence of circumstances which would otherwise justify the implication of such a term would be sufficient to give rise to an ‘arrangement or understanding’”.
[103] Similarly, we reject Transpower’s submission that the pre-July understanding would have to have been entered into in May or June 1996 or claims based on it would be time-barred. Todd is right that the provision would still have been given effect to within the limitation period. The existence of an implied term could, as the High Court said, evidence a pre-existing understanding.
[104] Finally, we agree with Transpower that the High Court probably overstated matters in describing this as a clandestine contract. But to the extent an “understanding” is relied on, it is not express. However, nothing turns on this characterisation.
[105] Accordingly, for the purposes of the s 27 causes of action, the High Court’s finding that evidence of the existence of a contract, arrangement or understanding was not baseless was open to it.
Effect on competition?
[106] Transpower says that no such agreement could increase market power or decrease competition. That is because, on Transpower’s analysis, a lessening of competition equates with an increase in market power or a reduction in constraints on market power. As Transpower and Powerco are natural monopolies, controlling the essential inputs, they cannot increase their market power. Nor can any agreement between the two affect competition in a downstream market in which Transpower is not a participant.
[107] Transpower also argues there can be no lessening of competition in the market because the only harm alleged is harm to Todd. Finally, Transpower is critical of what it says is the absence of any fact-based discussion of these issues by Todd.
[108] On the first point, Todd says that while an increase in market power will often coincide with anti-competitive behaviour that need not be so. Behaviour may be anti-competitive in that it may maintain an existing level of market power and prevent it from being ended. Todd maintains that a monopoly can lessen competition by foreclosing the threat of potential competition.
[109] Second, Todd says the effect on Todd is relevant. Todd argues that harm to Todd is indicative of a systematic bias not just against Todd but against all actual and potential locally connected generators. Todd would otherwise have been able to present to the market a substantial cost saving. This would have encouraged price competition and an increase in competition.
[110] On Transpower’s final point about the facts, Todd says Transpower did not seek summary judgment (or strike-out) on the basis there was no material impact on competition in any of the markets. If Transpower had raised this issue, Todd could and would have responded with evidence.
[111] The test for determining whether competition has been substantially lessened was described in the following terms in Dandy Power Equipment Pty Ltd v Mercury Marine Pty Ltd (1982) 64 FLR 238 at 259 - 260 (FCA) per Smithers J:
To apply the concept of substantially lessening competition in a market, it is necessary to assess the nature and extent of the market, the probable nature and extent of competition which would exist therein but for the conduct in question, the way the market operates and the nature and extent of the contemplated lessening. To my mind one must look at the relevant significant portion of the market, ask oneself how and to what extent there would have been competition therein but for the conduct, assess what is left and determine whether what has been lost in relation to what would have been, is seen to be a substantial lessening of competition.
[112] Gault on Commercial Law (at [CA27.15(3)]) notes that several New Zealand cases have cited the above test with approval: Auckland Regional Authority v Mutual Rental Cars (Auckland Airport) Ltd [1987] 2 NZLR 647 at 674 - 675 (HC); Tru Tone Ltd v Festival Records Retail Marketing Ltd [1988] 2 NZLR 352 at 362 (CA); and Fisher & Paykel Ltd v Commerce Commission [1990] 2 NZLR 731 at 759 (HC).
[113] On that test, a monopolist could breach s 27 if, but for their conduct, new competition would emerge. The cases relied on by Transpower as indicative of a requirement of an increase in market power (Air New Zealand Ltd v Commerce Commission (1993) 4 NZBLC 103,230 at 103,235 (HC); Air New Zealand v Commerce Commission (No 6) (2004) 11 TCLR 347 at [42] (HC); and Commerce Commission v New Zealand Bus Ltd (2006) 11 TCLR 679 at [121] (HC)) all reflect the particular form of the statutory provisions. Todd should be able to argue the point at trial so that the court has the benefit of expert evidence on the matter.
[114] As to Transpower’s argument that harm to Todd is not sufficient, Gault on Commercial Law (at [CA27.15(5)]) observes that there are “several statements” in New Zealand and Australian authorities that suggest s 27 is concerned with “the level of rivalrous conduct in the market rather than the fate of individual competitors”. The issue here is whether Todd has advanced a basis for the claim that the impact on Todd tells something more about the market and we agree with the High Court that there is sufficient to support this claim proceeding.
[115] Finally, we turn to Transpower’s criticism based on the absence of evidential support for Todd’s claim as to the effect on competition. Transpower’s application for summary judgment did include as a ground that, for example, in terms of the s 27 causes of action, the alleged agreement could not harm competition in downstream markets. However, Todd is right that the focus was on theoretical or conceptual impossibility rather than factual inaccuracy. Existence of pleaded market
[116] Transpower and Todd agree as to the basic principles relating to market definition, namely:
(a) market definition is a tool for competitive analysis, not an end in itself;
(b) whether or not a market exists is a factual inquiry; and
(c) the focus is on substitution in response to a change in price. This includes both demand and supply side substitution. (These principles are discussed in Brunt Economic Essays on Australian and New Zealand Competition Law (2003) at 194, 198 and 203 - 204.)
[117] Transpower, however, says that neither Todd’s experts nor the High Court have applied the orthodox tests in relation to markets and that their approach is not related to commercial reality. Transpower provides services to Todd and Todd has all the services it needs to supply electricity to the national retail market. Only Transpower can supply transmission services, making it a monopoly supplier. Transpower’s case that the pleaded market, STWTS, does not exist raises a number of issues.
[118] The first conceptual difficulty Transpower identifies with the market definition is that both Transpower and Todd are said to be dominant in the same market. As will be seen in our discussion on the s 36 causes of action, we agree with Transpower’s criticism. However, this does not affect the s 27 claim because that section is not concerned with a firm’s degree of market power. While Transpower’s criticism is conceptually correct, it is not a basis for summary judgment.
[119] We turn to Transpower’s other criticisms about the pleaded markets. EMBEDDED GENERATION A SUBSTITUTE?
[120] Transpower takes issue with the High Court’s conclusion that it is arguable that TrustPower and the joint venture are potential suppliers of wholesale transmission services (in the form of embedded generation) to retailers. Transpower says that this approach conflicts with that in Vector Limited v Transpower New Zealand Limited: HC AK CL 1/98 17 August 2000 where Transpower says that the High Court struck out Vector’s claim on the ground (among others) that, as a matter of economic logic, embedded generation is not supplied in the same market as transmission services. Transpower submits that the present case is on all fours with Vector.
[121] Todd’s response is that Vector is distinguishable on a number of grounds. First, Todd’s claim is not one of prime necessity. Second, the problem in Vector was that there was no market pleaded in which Vector’s entry was prevented or its competitive conduct deterred. Third, as a matter of commercial reality, Todd’s transmission services can replace Transpower’s at Hawera. Fourth, unlike Vector, Todd does have an embedded generation capacity. Finally, Todd says that unlike Vector, Todd’s claim is not about paying a higher charge but rather is a claim it is paying for an unused service/an unlawful tie.
[122] There are some similarities between Todd’s and Vector’s claims. The relevant pleading in Vector was Vector’s claim that Transpower used its dominant position to deny locational benefits to electricity generators located at or in close proximity to the load and to deter the use of economic substitutes for its network. That part of the claim sounds very much like Todd’s claim. When Vector argued it was charged “more”, that meant the difference between Transpower’s standard charges and Vector’s preferred location-based charges. Further, as Transpower says, Todd’s claim also depends on the argument that local generation is a substitute for long distance transmission.
[123] We agree in principle with the approach in Vector on this aspect. The Court said at [72] and [74]: [72] The only economic substitute of those listed by Vector, that would make sense – ie. would be in accordance with economic logic and the concept of the market in competition law – would be the rival supply of transmission services. But transmission services are pleaded seemingly only as an after-thought in para 38 of the claim. As noted, no particulars are given. It would appear to contradict the characterisation of Transpower as a natural monopoly. The claim appears to contain little but assertion. For the reasons given, it does not plead a claim under s 36.
…
[74] As to the other economic substitutes specified by Vector, especially the embedded generation and demand-side management particularised in para 34, the plaintiff is confusing the kind of substitution that can take place in the economy at large with the substitution that takes place in a market. An economy is a network of substitution possibilities. If a monopolist raises it price it loses some custom. But its customers disperse to more or less remote substitutes, not close substitutes. The mere fact that Transpower’s demand rises and falls in accordance with its charging methodologies is not to say that it could be vulnerable to competition, or that particular pricing strategies might be used to deter Vector and others from competing against it.
[124] There is, however, merit in Todd’s argument that Vector is distinguishable in relation to the pleaded South Taranaki market. That is because – unlike Vector – Todd can point to evidence it has an embedded generation capacity. For example, Bryan Leyland a consulting engineer with experience in the electricity industry, gives evidence on behalf of Todd about the capacity of the co-gen plant and about Todd’s ability to bypass Transpower and/or Powerco. While Mr Leyland says there would be some cost to that, on his analysis bypass options are viable. Mr Bahirathan, an engineer with experience in the electricity industry and the Commercial Operations Manager at Todd, says that “to all intents and purposes the co-gen plant and the factory are entirely self-sufficient from the national grid”.
[125] In these circumstances, Todd has an argument that embedded generation is a substitute for long distance transmission. Mr Bahirathan puts it in this way:
Once Todd Energy pays a price that reflects the fact that the transmission services it receives are just conversion of voltage at the Hawera GXP, and not services from the national grid, Transpower will receive less revenue because Todd Energy will be paying less. That will oblige Transpower to raise its prices to its other remaining customers in order to meet its revenue requirement. That in turn will cause those customers to look for ways to avoid Transpower’s charges by using embedded generation themselves. As more customers do so and Transpower’s revenue falls, it will again be obliged to raise prices. While this process is never likely to terminally threaten Transpower’s business, it may have the effect of reducing the revenue it receives from outlying areas of its network, such as South Taranaki.
[126] Again, there is a basis for Todd’s claim in this respect.
COMPETITION BY RESELLING SERVICES?
[127] Transpower says Todd attempts to differentiate between a national transmission market and a local “wholesale” distribution market by arguing that Powerco resells transmission services (as part of a bundled package with distribution services) into the South Taranaki region. However, Transpower submits that simply reselling a service without adding any value does not constitute a separate market for the “wholesale” of that service. That contention is supported by Professor Hausman, a professor of economics, in his evidence on behalf of Transpower.
[128] Transpower argues that the correct way to view this is that Transpower is providing an essential input for the distribution services provided by Powerco. The High Court accepted this and found that Transpower and Powerco were not in the same market (thus striking out the s 29 claim).
[129] Transpower says Todd argues that Transpower is preventing Todd from delivering services in competition with Transpower. At the same time Todd maintains that it needs to buy the same services from Transpower in order to compete. Transpower says this is nonsensical. If a product or a service is a substitute for another service, it is not a necessary input into that service.
[130] Todd, in response, argues that it would not compete directly against Transpower but it would compete directly in the New Zealand wholesale transmission markets against the distributor companies to whom Transpower currently sells its transmission services. Todd says it does want to resell transmission services. Todd says that in many markets, resale of products creates competition for the original seller. The example given is companies selling to the public over the internet in competition with independent retailers whom they supply at wholesale. [131] Todd argues it is not claiming that transmission services are both an essential input and a substitute. Rather, Todd claims that some transmission services (connection services) are essential inputs while others (interconnection services) are substitutable by local generation. It is admitted that Transpower alone sells injection and offtake services (except where Powerco resells them).
[132] We agree that Todd and distribution companies do not compete with Transpower just by reselling Transpower’s services without adding any value. As Professor Hausman stated: “Absent price regulation of Transpower, Transpower controls the price of services it sells to Powerco. Powerco’s resale of these services does not create competition for Transpower”. Reselling these services without more does not constrain Transpower’s pricing power. If Transpower raised its prices, the reseller could not respond in a way that would bring to bear on Transpower the discipline of the market.
[133] However, we consider Todd can argue that such competition is possible on the pleadings. Todd’s claim is based on the premise that there is a separate interconnection service, i.e. electricity transmitted over the national grid. For the purposes of the current applications, Transpower accepts that. Todd then says there is an offtake connection service i.e. the right to offtake electricity from the substation. Todd is charged for interconnection services as per the volume of offtake connection services when transferring electricity across the substation is all that is needed. That is because offtake connection services are tied to interconnection services.
[134] If there was no tie, Todd says it would have been able to sell its own transmission services in competition with Powerco and Transpower. Importantly, for Todd’s argument, “Transmission” services are the bundle of connection services and/or Interconnection Services. Connection services are the Injection Connection Services and/or Offtake Connection Services. Injection services are the right to connect to the substation and then the use of that connection to inject electricity into the substation. [135] On this analysis, it is arguable Todd can compete by offering transmission services from its embedded generation and the offtake connection services onsold from Transpower. Transpower would continue to sell interconnection and offtake services. At a conceptual level, it is the availability of embedded generation that means Todd’s claim is arguably not just about competition through resale without more. Todd put it this way in its submissions: “Todd wanted to be able to wholesale all required transmission services (being its substitute for Transpower’s interconnection service, injection connection services from Transpower and offtake connection services from Transpower) to retailers. It also wanted to act as a retailer itself, selling these transmission services to local users.”
SEPARATE MARKETS NECESSARY FOR BUNDLING CLAIM?
[136] Transpower says Todd would have to plead separate markets for each service that it alleges is being bundled. The pleadings relate to services all supplied within the one market and that, Transpower argues, is contrary to a bundling claim.
[137] Todd’s response that there is no requirement to plead different markets is supported by an observation to that effect in Port Nelson Ltd v Commerce Commission [1996] 3 NZLR 554 (CA) where, at 578, the Court said:
The decision that [Port Nelson] used its dominant position in tugs against [Tasman Bay] for prescribed purposes was open; indeed it was inevitable, probably even if the market had properly been defined as one of vessel movements [such that both products were supplied in the same market].
[138] Transpower says this was an aside, and not fully argued. However, that observation is consistent with the language of s 36. There is nothing before us to say that, in economic terms, it is not possible for tying or bundling to take place in the same market. There is no reason why Port Nelson’s behaviour would have been any less anti-competitive had there been one market for vessel movements instead of separate pilotage, tug and port services markets.
[139] Accordingly, Transpower has not demonstrated that Todd’s first cause of action is not reasonably arguable. As already explained, since that cause of action must be allowed to proceed to trial, Transpower’s application for summary judgment must fail. The High Court was correct to dismiss it.
[140] We make one further observation. It was always a long shot that Transpower would be able to persuade the High Court (or indeed this Court) that all of the causes of action were doomed to failure. The issues in most Commerce Act claims are intensely factual, at the same time necessitating detailed economic analysis. Almost invariably, the court, before it can make a decision, needs to have the facts tested and rival economic theories subjected to cross-examination. It will be rare for a defendant to be able to show conceptually that a claim is hopelessly flawed. We acknowledge that Transpower did provide evidence and Mr Goddard’s submissions did address aspects of the evidence advanced by Todd. Nonetheless, the primary focus was on conceptual matters and we agree with the observation made by Williams J in Commerce Commission v British American Tobacco Holdings (New Zealand) Limited (2001) 10 TCLR 320 at [39] (HC):
Courts should be more than usually cautious in striking out claims under the Commerce Act 1986 (Clear Communications Limited v Telecom Corp of NZ Limited 4/4/97, Smellie J, HC Auckland CL54/96, pp 11-12) because of the elusive nature of some of the concepts involved and the multitude of transactions against which they are often to be measured.
[141] His Honour was writing in the context of a strike-out application, but his observation applies equally to applications for summary judgment in the Commerce Act context. This is not to say that there are different tests in the Commerce Act context for strike-out and summary judgment, it is just that the established tests will be harder to meet.
[142] In our view, this case was unsuitable for a summary judgment application. As we observe later, that should have costs ramifications with respect to the two High Court hearings.
Strike-out application
[143] We turn now to consider Transpower’s appeal against the High Court’s refusal to strike out all of Todd’s claim. Both parties accept that the applicable principles on a strike-out application are those set out in Attorney-General v Prince and Gardner [1998] 1 NZLR 262 at 267 (CA). We reiterate Williams J’s comment just cited as to the need for particular caution when considering applications to strike out Commerce Act claims.
[144] In determining the strike-out application, we put to one side the evidence filed in support of the application for summary judgment. Strike-out applications conventionally proceed on the assumption that statements of fact contained in a statement of claim are true. Additional facts may be taken into account only in so far as they are incontrovertible.
[145] We now turn to consider each of the causes of action in turn.
First cause of action
[146] On the analysis adopted for summary judgment, the High Court was correct not to strike out this cause of action.
Second cause of action
[147] The second cause of action differs from the first only in alleging effect rather than purpose. Applying the reasoning adopted for the first cause of action, the High Court was correct not to strike out.
Third and fourth causes of action
[148] These causes of action rely on the same factual allegations as the first cause of action but allege that there has been a substantial lessening of competition in the STRDE market instead of the STWTS market. The third cause of action is based on purpose and the fourth on effect. The issue here is whether there is a STRDE market. This turns on Transpower’s argument that national and regional markets cannot co-exist. Transpower says the High Court erred in not addressing this argument. [149] Todd argues that there is no principle in law or in economics which prevents the recognition of both national and regional markets with respect to different aspects of the same competition case. Todd also emphasises that markets, in a real world sense, may overlap: Queensland Wire Industries Pty Ltd v Broken Hill Pty Co Ltd (1989) 167 CLR 177 at 196 per Deane J.
[150] A “market” is defined in s 3(1A) of the Commerce Act as a market in New Zealand for goods or services as well as other goods or service that “as a matter of fact and commercial commonsense, are substitutable for them”.
[151] Transpower may well be right that there cannot be both a national and a regional market for the same product. That follows from the definition of “market” and the resultant emphasis in defining markets is on substitution in response to a change in price: Re Queensland Co-operative Milling Association Ltd (1976) 8 ALR 481 at 517 (TPT) and Port Nelson Ltd v Commerce Commission at 560. As Transpower put it, drawing on Queensland Milling, the key question is “if a firm were to give less and charge more, would there be much of a reaction? And … from whom?” Looked at in this way, it is difficult to see how there can be both a national and regional market for the same product. If there is a national market, supply and/or demand-side substitution occurs at a national level and prices cannot be raised at a local level independently of prices in other parts of New Zealand.
[152] However, although there is merit in principle in Transpower’s submissions on this point the reality is that this means Todd would be able to prove one market but not the other. It is not clear now which of the two may possibly be proven and nor how central this is to Todd’s claim. Todd should have the opportunity at trial to establish its position. At some point, that may require an election on Todd’s part but not at this point.
[153] In any event, market definition is a “practical jury question of fact and degree”: Tru Tone at 358. As the High Court recognised, there is a limit as to how far the court should go on a strike-out in seeking to resolve such questions. [154] Transpower also says that there is no evidence of a local market and that Todd’s experts support the existence of a national market instead. For example, Transpower points to the evidence on behalf of Todd from Dr Ivo Bertram, a consultant with economics expertise, that many retailers in South Taranaki “operate on a nationwide scale”. However, as Todd says, there is also material in the evidence of its experts, which supports the existence of a local market. There is some basis for Todd’s propositions and this is a matter for trial.
[155] The same approach applies to Transpower’s criticism of inconsistencies in the evidence of Todd’s experts and the criticism that they do not apply the orthodox Queensland Milling test to determine the geographical boundaries of the market.
[156] Finally, Transpower says that the markets alleged by Todd are inconsistent with the market definition applied by the Commission and the courts. Todd’s response is that prior market definitions are of limited assistance.
[157] Market definitions may change over time reflecting the factual nature of the question. The fact that markets are pleaded which are inconsistent with previous market definitions cannot be sufficient to succeed on a strike-out. It is noteworthy that the Commission’s approach to market definition in the electricity industry has changed since the electricity industry reforms: Genesis Power Ltd/Energy Online Ltd Commerce Commission Decision No 476 10 October 2002 at [37] - [38] and [59].
[158] The High Court was correct not to strike out these two causes of action.
Sixth and seventh causes of action
[159] The sixth and seventh causes of action are the first of the s 36 claims. The thrust of these claims is that Transpower has used its dominant position in the STRDE and STWTS markets to refuse to provide transmission services to the joint venture. This in turn forces the charges for “Interconnection Services” onto the joint venture. [160] In order to succeed at trial, Todd will have to show:
(a) a dominant position in a market;
(b) use of that dominant position; and
(c) one of the proscribed purposes.
[161] The criticisms particularly impacting on these causes of action are, first, that this is a complaint about over-charging, not a refusal to deal, and second, that it is not possible for two firms to be dominant in the same market.
A complaint about over-charging?
[162] Transpower says that over-charging is an issue to be dealt with under Parts 4 and 4A of the Commerce Act. Todd’s response is that its complaint is a mainstream Commerce Act complaint of a refusal to deal.
[163] In Todd’s written statement of the issues, Todd sets out its two central complaints in these terms:
2.1 Transpower charges “interconnection charges” for the long distance transmission of … electricity, even though [the electricity] is generated locally and consumed locally; and 2.2 Transpower refuses to deal with Todd directly in relation to such charges: rather it will deal only with Powerco.
[164] Todd says its case is like Port Nelson’s attempts to charge for forklift services whether used or not (Union Shipping NZ Ltd v Port Nelson Ltd [1990] 2 NZLR 662 (HC)) i.e. Transpower charges for an unused service, not that it merely charges too much. There is an analogy also, Todd says, with Telecom charging end users its usual price for toll calls even where another carrier provides the long- distance leg: Telecom Corporation of New Zealand Ltd v Clear Communications Ltd [1995] 1 NZLR 385 (PC). Another way of describing the complaint Todd says is as a tie between connection services and unwanted, unused interconnection services, like Port Nelson v Commerce Commission. [165] Transpower argues that Union Shipping was not just about charging for an unwanted service. It was also about preventing or deterring competition between the two sets of forklifts and drivers. In Transpower’s written submissions, Transpower says:
[P]utting the present case another way, interconnection/access to the grid is not an unwanted and unused service – Powerco wants it and uses it, and pays for it. The complaint is that for the brief times it is required, the charge is too much. In Union Shipping, USSL did not want [Port Nelson’s] forklifts and drivers at all – it really did want to provide a substitute.
[166] Transpower similarly argues that Port Nelson can be distinguished because the purpose of Port Nelson’s pricing was, in part, to prevent or deter competitive activity by Tasman Bay. The real issue, Transpower says, was that customers did want both services and Port Nelson used its market power in respect of tugs to prevent the use of the Tasman Bay pilots.
[167] The case does, however, establish that tying services or products together is one way in which a firm can use its dominant position. That is Todd’s allegation here and, on that basis, there is also some analogy with the situation in issue in Telecom v Clear.
[168] The tying or bundling allegation distinguishes this case at the strike out stage from that of Vector v Transpower. In Vector at [73] the Court said that the s 36 cause of action “appear[ed] more to be asking the Court to review Transpower’s pricing decisions rather than pleading how those decisions could arguably amount to Transpower using its dominant position in the national electricity market for anti-competitive purposes”. That observation reflected the fact that in Vector the relevant pleading as to Transpower’s conduct did not relate to any of the proscribed purposes in s 36(2) but rather focused on Vector’s inability to pursue “economic substitutes for transmission services”. As we have noted, the Court concluded that the substitutes pleaded were not in the same market, which meant that there was no pleading as to purpose that could amount to a breach of s 36. Transpower and Powerco dominant in the same market
[169] Transpower identifies as one of the conceptual difficulties in Todd’s claim the pleadings that both Transpower and Powerco are dominant in the same market. Transpower says Todd pleads that Transpower has a natural monopoly in the New Zealand Transmission Services market and in the STWTS market. Todd disputes that and says its pleading is that it is not worthwhile to duplicate the national grid but acknowledges some localised substitutes for Transpower’s transmission services. There is a further pleading that Powerco is also dominant in the STWTS market.
[170] Todd pleads that Powerco’s dominance arises as a result of the exclusivity provision which transfers Transpower’s monopoly power to Powerco. Todd relies on MacLean v Shell Chemical (Australia) Pty Ltd 2 FCR 593 (FCA). Todd says that case involved a market with two potential suppliers. A refusal to deal by one supplier meant the other was “in a position effectively to control” the supply to the applicant: at 598. However, the present case is different because MacLean involved a failure by one competitor to supply to the other, it did not deal with the situation arising from the relationship between Transpower and Powerco vis a vis Todd. Further, MacLean was dealing with the test as it was then in s 46 of the Trade Practices Act 1974, namely, whether a corporation was in a “position substantially to control a market for goods or services”.
[171] In any event, it is apparent from Telecom Corporation of New Zealand Ltd v Commerce Commission [1992] 3 NZLR 429 (CA) that only one firm can be dominant in a particular aspect of the market at any one time. At 434 Cooke P in Telecom observed:
Clearly there could be no more than one dominant influence over each of the aspects of a market specified in the Act – “the production, acquisition, supply or price of goods or services” – but it may be theoretically conceivable, for instance, that one person could be in a position to exercise a dominant influence over supply, while another was in a position to exercise a dominant influence over price. Yet probably that would be an uncommon situation. [172] At 442 Richardson J said:
Clearly the dominance test sets a rigorous threshold. It is not sufficient that the influence be advantageous or powerful. It must be dominant. The word comes from the Latin dominus meaning master. Only one person can be dominant in a particular aspect of the market at any one time. Not surprisingly standard dictionaries give meanings such as “ruling”, “governing”, “commanding”, “reigning”, “ascendant”, “prevailing” and “paramount”.
[173] Casey, Hardie Boys and McKay JJ did not, in their judgments, comment on whether two firms could be dominant in the same market. Casey J did, however, endorse Richardson J’s comments about the concept of dominance.
[174] There is no suggestion in the pleadings that the respective dominance of Transpower and Todd relates to different aspects of the market. Both are alleged to be dominant in respect of supply and, presumably, price. We accept Transpower’s submission that this is not possible.
[175] For these reasons, we agree with Transpower that two firms cannot be dominant in the same market. Because Todd has pleaded that both Transpower and Powerco are dominant in the STWTS market (at [34(a)] and [54]), Transpower is correct that the pleaded markets are incapable of proof. These two causes of action should have been struck out.
Tenth cause of action – the cross-appeal
[176] This is the s 29 claim that was struck out. Todd cross-appeals.
[177] For present purposes, in order to establish a breach of s 29:
(a) Transpower and Powerco must be in competition with each other (or would be, but for the provision);
(b) the provision must have the purpose of preventing, limiting or restricting the supply of services to Todd; and (c) Todd must be in competition with either Transpower or Powerco or both in relation to the supply or acquisition of services.
[178] Todd submits that in terms of limb (a), competition between Transpower and Powerco, there are two possibilities:
(i) But for the Exclusivity Provision, Transpower would have sold its transmission services (for transmission over the national grid) to retailers in competition with Powerco’s interconnection services (for transmission over the Patea 110kV line prior to its transfer to Trustpower).
(ii) But for the Exclusivity Provision, Transpower would have sold transmission services direct to retailers, in competition with Powerco, which would continue to resell transmission services it had purchased from Transpower.
[179] As to limb (b), Todd says the provision has a substantial purpose of restricting the supply by Transpower of transmission services to Todd, and potentially other downstream participants.
[180] On limb (c), Todd’s argument is that there are three possibilities:
(i) Prior to 1999 Todd and Powerco were competitors in the South Taranaki [Delivered Electricity Market].
(ii) Powerco was (prior to its sale of the Patea 110kV line to Trustpower) in competition with Todd to sell transmission services to retailers in South Taranaki.
(iii) Transpower (but for the Exclusivity Provision) would be in competition with Todd to sell transmission services to retailers in South Taranaki.
[181] Transpower says the High Court’s approach is correct because Todd is not in competition with Transpower or with Powerco.
[182] The High Court’s approach is set out in the following excerpt at [61]:
The only wholesale transmission services, which Powerco could supply at the Hawera substation are services purchased from Transpower. In relation to the s 27 causes of action, we have in effect held that the possibility that the on-sale of services purchased from Transpower might form the basis for, or be part of, a South Taranaki wholesale transmission services market cannot at this preliminary stage be excluded. However, the proposition that one potential purchaser from Transpower of these services, for on-sale in that market, is in competition with Transpower for the supply of those services does not follow. If the alleged contract or understanding is established, its effect is, on the s 27 causes of action, said to be to prevent Transpower from providing a direct connection to Todd and so hindering competition between Todd and Powerco. Viewed from the s 29 perspective, the effect of that would be to preclude competition by Transpower against Powerco. Accordingly, it cannot be said that Transpower and Powerco are in competition with each other so as to be in breach of s 29 in giving effect to a contract which precludes competition between them.
[183] Todd is right that the Court incorrectly stated that Powerco could only supply the transmission services it purchased from Transpower because, for a period, Powerco was able to sell interconnection services from its Patea 110kV line. Further, we accept Todd’s submissions that s 29(2) does alter the position because that deems two firms to be in competition if they would be in competition but for the exclusionary provision. Todd can argues that, in terms of limb (a), its first scenario is competition in a Commerce Act sense because it involves competition for transmission services between two bundles. (We note that due to the change in the nature of competition in the 2006 statement of claim this pleading was not before the High Court.) Transpower takes no issue with limb (b). On limb (c), the second and third options appear arguable.
[184] The difficulty Todd faces is that prior to 2001, limb (c) did not include the phrase “but for the provision”. However, as Todd points out, the authors of Gault on Commercial Law at [CA29.07A(2)] suggest that this was an oversight. For these purposes, we are content to adopt the suggestion in Gault and read the “in competition” requirement in s 29(1) as “including an interconnected body corporate of one of the parties to the boycott, as well as a potential competitor of one or more of such parties”.
[185] On this basis, Todd has an arguable claim and the cross-appeal will be allowed. We record here that Todd abandoned its cross-appeal against the requirement amended pleadings be filed prior to discovery. Eleventh cause of action
[186] This is a claim under s 36 and it relates to the New Zealand Transmission Services Market. Todd claims Transpower used its dominant position in this market by refusing to sell transmission services to Todd and this prevented Todd from competing with Transpower in this market. Todd says it wants to compete by reselling Transpower’s services or by combining Transpower’s offtake connection services with “substitutes for Interconnection Services”.
[187] There may be factual issues in relation to this cause of action in terms of whether or not Todd has an existing embedded generation capacity. Unlike the South Taranaki market, Todd relies in this market on its ability to operate distributed generation at Mangahao, Hawera and Kapuni near many of the substations named. Transpower says Todd does not have an embedded generation capacity as yet at those substations. If Transpower was right, the only competition could come from resale and Vector would be directly applicable.
[188] However, Todd’s problem here is that it does not plead that competition in this market comes by way of embedded generation and reselling as it does in relation to the STWTS market. The pleading is that the suppliers are Transpower and resellers of Transpower’s services.
[189] On this basis, as pleaded, Todd’s claim must fail. We do not consider this is an appropriate case for allowing Todd to replead. It has had numerous opportunities to get its case right since the proceedings were filed (on 28 May 1999).
Twelfth and thirteenth causes of action
[190] These are the two bundling/tying claims alleging a breach of s 27 in, respectively, the STWTS and the STRDE markets. Two issues should be considered in relation to these two causes of action.
[191] First, these two causes of action bring into focus Transpower’s criticism that a bundling/tying claim cannot succeed because Todd in fact wants all of the services Transpower provides. We agree with Todd that it must be arguable that the fact it may occasionally use all of the services does not necessarily mean it should pay for interconnection services for all of its electricity all of the time.
[192] We acknowledge that on this analysis, the claim starts to look more like a claim Todd pays too much. However, Todd should have the chance at trial to argue the matter and whether that results in a substantial lessening of competition.
[193] Second, Transpower says that tying without more is not a Commerce Act issue. In particular, Transpower says that Todd would have to show that the bundling of connection services/voltage conversion and “Interconnection Services” has the effect of preventing Todd from selling into some market, and that price in that market is affected as a result (i.e. the competitive process is harmed).
[194] In response Todd accepts that tying on its own is not sufficient but argues that it is not necessary to show that Todd is wholly precluded from selling in a particular market. We agree. Here, Todd has to show that the tie has the effect or likely effect of substantially lessening competition in a market. However, it is not necessary for Todd to show that it has been prevented from selling in a particular market so long as there is a substantial lessening of competition. Accordingly, this ground does not provide a reason to strike out Todd’s claim.
[195] To summarise, we consider that the first, second, third, fourth, twelfth and thirteenth causes of action were properly not struck out. The tenth cause of action is reinstated. The sixth, seventh and eleventh causes of action should have been struck out.
Availability of relief
[196] We turn now to consider Transpower’s arguments about the effect of the statutory scheme relating to Transpower’s pricing methodology on Todd’s claim. The relevant provisions
[197] The first relevant provision is s 19 of the Electricity Amendment Act 2001. Section 19 provided that any person who has assets directly connected to the national grid “must pay for grid connection services” provided on and after 26 July 2001 “the amount that is charged by Transpower” in accordance with the “transitional pricing methodology”. The transitional pricing methodology is defined as the methodology set out in Pricing for Grid Connection Services from 1 April 2001 as published by Transpower in December 2000. Importantly for these proceedings, s 19(3)(b) provides that the amount payable under subs (1) may be challenged in any proceedings to recover the debt on the ground that Transpower has incorrectly applied the methodology in a manner adverse to the payer but the methodology itself may not be challenged.
[198] The 2001 Act was overtaken from 6 April 2004 by the enactment of the Electricity Amendment Act 2004. That Act established the Electricity Commission. Section 172ZR(b) of the Electricity Act 1992 provides that various rules are specifically authorised for the purpose of s 43 of the Commerce Act, namely:
[A]nything done, or omitted to be done, by the Commission, the Rulings Panel, or an industry participant, that is reasonably necessary to comply with, enforce, or otherwise administer any electricity governance regulations or rules.
[199] The other relevant measure is the Electricity (Transpower’s Pricing Methodology) Regulations 2004. Regulation 3 defines methodology as the pricing methodology contained in Transpower’s December 2000 Pricing for Grid Connection Services document. Regulation 4 importantly provides that Transpower must use the methodology for allocating Transpower’s revenue requirement to individual electricity generators, electricity distributors or consumers, or classes of any of those persons. Each of those persons who has assets that are directly connected to the national grid must pay for grid connection services the amount that is charged by Transpower in accordance with the methodology. Does s 19 amount to an authorisation?
[200] Section 43 of the Commerce Act provides that nothing in Part 2 of the Act applies in respect of any act, matter or thing that is of a kind “specifically authorised” by any enactment or Order in Council.
[201] Transpower argues that s 19 is an authorisation for the purposes of s 43. If it is an authorisation, then Todd’s claim could not succeed.
[202] Todd’s response is essentially two-fold. First, Todd says s 19 was enacted in the context of litigation over Transpower’s prices and was intended to ensure continuity and security of supply. Second, Todd argues that s 19 is not an authorisation in terms of s 43 of the Commerce Act because it is not specific as required in terms of New Zealand and Pear Marketing Board v Apple Fields Ltd [1991] 1 NZLR 257 at 265 (PC).
[203] We agree that the purpose of s 19 was principally the narrower one identified by Todd. That is apparent from debate in the House of Representatives on s 19. At (25 July 2001) 593 NZPD 10351 Hon Dr Michael Cullen in Committee observed as follows:
This [s 19] arises out of the problem created by an ongoing dispute between Transpower and Meridian Energy over Transpower’s posted price methodology. … The result of the court decision was that Meridian Energy did not have to pay posted prices, but Transpower’s only remedy was to turn off the power. That, of course, creates an unacceptable policy outcome from an overall national interest perspective. Clearly, the Government and the country at large cannot encompass a situation where Transpower’s only mechanism for negotiation at the end of the day is to turn off electricity supplies to a very large part of the country.
The Supplementary Order Paper tries to draw a curtain at this stage. From here on, until the Electricity Governance Board has completed its work on the pricing methodology, posted prices will obtain. …
The issue is continuity and security of supply. That is why we have not accepted Transpower’s application that it should have the right to continue legal action to try to recover where people have not paid posted prices, so in that respect Transpower has not received what it was seeking from the Government. We must not have power supplies placed at risk because of ongoing legal disputation. [204] The ongoing dispute to which Dr Cullen refers gave rise to Transpower New Zealand Ltd v Meridian Energy Ltd [2001] 3 NZLR 700 (HC), which was decided on 6 June 2001.
[205] We do not consider s 19 is sufficiently specific to comprise an authorisation. It would be going well beyond its intended purpose to conclude that it had the effect of shielding Transpower from any allegation of non-compliance with Part 2 of the Commerce Act. The effect of s 19 is to make sure that services are paid for but it does not follow that Transpower is not liable for damage caused by, for example, its refusal to deal or to refuse to depart from its policy in some way.
[206] It follows that we consider Mr Curry put it correctly when he said in his submissions: “It is clear from its introduction to the House of Representatives (by supplementary order paper) that the problem being solved was a contract law problem, not a competition law problem.” Section 43(2) makes it clear that an enactment or Order in Council does not provide specific authority for something if it “provides in general terms” for that act or thing. That a high level of specificity is required is apparent from Apple Fields at 265 where the Privy Council said that what was required was an authorisation “of the very act in question or, if it is one of a class or kind of authorised acts, that the whole authorised class would, if not so authorised, fall foul of the prohibitions in Part II of the Act of 1986”.
Do the Regulations amount to an authorisation?
[207] Regulation 4(5) of the Regulations says expressly that “the methodology is specifically authorised for the purpose of” s 43. Regulation 4(1) limits the effect of the Regulations to Transpower’s dealings with “electricity generators, electricity distributors, or consumers, or classes of any of these persons”. That limitation does not, in our view, alter matters because it is the methodology per se which is authorised.
[208] Todd submits that if the Regulations are interpreted as broadly as Transpower would have it, i.e. as an authorisation, then reg 4 is inconsistent with the enabling provision. Todd says the failure to consult on this issue as part of the mandatory consultation preceding the making of the Regulations indicates the narrow scope of the Regulations. Nor can Transpower rely on s 172ZR because that only authorises matters necessary for compliance with the Regulations.
[209] There is no merit in these arguments. The empowering section expressly provided that the Regulations might require Transpower to use a specific methodology and might “authorise” a way or ways “in which Transpower [might] apply the methodology”: s 172D(7)(d) of the Electricity Act. That is exactly what the Regulations do. Further, s 43 of the Commerce Act provides that a Commerce Act authorisation might be in any “enactment or Order in Council”. A regulation is, of course, “an enactment”. The consequence of the 2004 Regulations is that there can be no challenge to Transpower’s actions after 9 April 2004. For that reason, each cause of action permitted to continue must have a cut-off date of 9 April 2004.
Effect of the 2004 cut-off date
[210] The effect of the 2004 cut-off date is, as Transpower submits, that all mandatory relief is unavailable. The only available relief now is historical. So far as declaratory relief is concerned, that too should be restricted to the periods of alleged wrongdoing we are permitting the claims to be brought within. The High Court was not attracted to Transpower’s arguments on the effect of the statutory scheme noting that damages remained a possibility. It appears, however, that Transpower’s arguments on this aspect have been given greater emphasis than was the case in the Court below.
Proof of damage or loss
[211] Transpower also says that there is no pleading or evidence of any loss to Todd. For example, Transpower submits, there is no evidence of any transaction Todd wanted to enter into, but could not, in the impact markets. Rather, Transpower says, the only allegation is of the increased costs in doing so. [212] Todd’s response is that it has pleaded in each cause of action the ways in which it has suffered loss. Quantification, Todd says, will be a difficult and expensive exercise and is best dealt with once, preferably after a liability trial.
[213] The approach taken in the pleadings is illustrated by [89] in the 2006 statement of claim. This paragraph alleges that, as a result of Transpower and Powerco giving effect to the exclusivity provision, Todd has suffered loss of profits arising from:
(a) its 50% Participating Interest in the Joint Venture;
(b) the increased transmission costs charged by Powerco for Transmission Services it sells to the Joint Venture;
(c) the Joint Venture’s inability to take advantage of the ability of its local generation to substitute for Interconnection Services; and
(d) the Joint Venture’s inability to on-sell Transmission Services on the same terms as Powerco.
[214] We agree that there are inadequacies in these pleadings but this is not a basis for a strike-out. We accept Todd should be permitted to continue with a prayer for an enquiry for damages because, ultimately, that may suit both parties. If, at a later point, Transpower does want to know what the losses claimed are, Transpower should be entitled to insist on that given that the claim for damages is now entirely historical.
Costs
[215] In terms of costs in the High Court, Transpower submits that if it succeeds, even in part, in this Court, Transpower should be awarded full costs in respect of both High Court hearings. Transpower says that course would reflect the fact that Todd has wasted the time of the courts and the parties through its failure to amend its pleadings in a timely way.
[216] As the case will be being dealt with in the High Court, it is appropriate for the question of costs in that Court to be determined by the High Court in light of this judgment. It is particularly relevant to that exercise that Todd has successfully defended the claim to summary judgment both in the High Court and in this Court. [217] As to costs in this Court, we have decided there should be no order for costs. That reflects the respective outcomes for both parties each of whom have had successes and failures.
Other matters
[218] Finally, we note that Todd will need to reconsider its claim against Powerco in light of this judgment.
Result
[219] The orders made reflect the following conclusions:
(a) The first, second, tenth and twelfth causes of action in the 2006 statement of claim are fresh but the High Court was right that the third, fourth and thirteenth causes of action are not;
(b) The sixth, seventh, and eleventh causes of action should have been struck out;
(c) The tenth cause of action should not have been struck out;
(d) The fresh causes of action are affected by the three year limitation period in the Commerce Act and by r 187(5) of the High Court Rules; and
(e) The Electricity (Transpower’s Pricing Methodology) Regulations affect the available relief.
Solicitors: Simpson Grierson, Wellington for Appellant Russell McVeagh, Auckland for Respondent Horsley Christie, Wanganui for Powerco Limited