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ORDER LIMITING DISTRIBUTION OF THE UNREDACTED VERSION OF THE JUDGMENT TO THE PARTIES AND THEIR LEGAL RESPRESENTATIVES. THIS REDACTED VERSION (FROM WHICH MATERIAL HAS BEEN OMITTED FOR CONFIDENTIALITY REASONS) IS FOR PUBLIC RELEASE. IN THE COURT OF APPEAL OF NEW ZEALAND CA508/2010 [2015] NZCA 71 BETWEEN TODD POHOKURA LIMITED Appellant AND SHELL EXPLORATION NZ LIMITED First Respondent AND OMV NEW ZEALAND LIMITED Second Respondent Hearing: 15–23 September 2014 Court: Stevens, Wild and Cooper JJ Counsel: J A Farmer QC and A S Olney for Appellant L J Taylor QC and O J Meech for First Respondent D J Goddard QC and T C Stephens for Second Repondent Judgment: 20 March 2015 at 10 am JUDGMENT OF THE COURT A The appeal is dismissed. B The cross-appeal by Shell Exploration NZ Ltd is dismissed. C Todd Pohokura Ltd must pay costs to Shell Exploration NZ Ltd and OMV New Zealand Ltd calculated as for a complex appeal on a band B basis, together with usual disbursements, provided that the daily recovery rate is to be uplifted by 50 per cent. We certify for two counsel. TODD POHOKURA LIMITED V SHELL EXPLORATION NZ LIMITED CA508/2010 [2015] NZCA 71 [20 March 2015] D An order is made limiting distribution of the unredacted version of the judgment to the parties and their legal representatives. E An order is made prohibiting search of the Court file unless permitted by a Judge of this Court after hearing from the parties. ____________________________________________________________________ REASONS OF THE COURT (Given by Cooper J) Table of Contents Para No Introduction [1] Factual background [9] The work programme [32] The proposed gas balancing agreement [39] Offtake rules and nomination protocols [45] Challenge to offtake regime [52] The contract claims The proceeding in the High Court [55] The appellant’s arguments in this Court [66] The respondents’ arguments [76] Approach to interpretation of the JVOA [80] Analysis [87] The Commerce Act causes of action The claims [150] High Court findings [154] The Commerce Act appeal [170] The relevant market [171] Approach to market definition [175] Market definition: this case [180] The factual and counterfactual analysis (i) The factual [198] (ii) The counterfactual [205] The effect of the alleged anti-competitive conduct [212] The purpose of the alleged anti-competitive conduct [253] Sections 30 and 31 [272] Damages [284] Shell’s cross-appeal [285] Result and costs [300] Introduction [1] The appellant, Todd Pohokura Ltd (Todd) and respondents, Shell Exploration NZ Ltd (Shell), and OMV New Zealand Ltd (OMV), are participants in a joint venture that mines petroleum from a field at Pohokura, located offshore from Motunui, on the North Taranaki Coast. Todd appeals and Shell cross-appeals against a decision of the High Court resolving disputes arising from the joint venture.1 [2] The activities of the joint venture are governed by a Joint Venture Operating Agreement (JVOA). Todd, Shell and OMV were successors to the rights of the original parties. Pursuant to the joint venture, petroleum is mined and supplied to the parties as gas and condensate in quantities intended to reflect their respective participating interests in the joint venture. [3] Under the JVOA, mining activities are controlled by an Operating Committee consisting of representatives of the parties. On 3 March 2006, the Operating Committee purported to make a resolution on behalf of the “Pohokura Joint Venturers” to adopt, be bound by and to direct the Operator of the gas field to implement certain “offtake rules” governing the production of gas. Todd’s representative on the Operating Committee voted against the adoption of the offtake rules. Todd alleged that both the rules and associated “nomination protocols” had not been validly adopted and breached its contractual rights. It is said the rules and protocols had the effect of depriving Todd of its proper entitlement to gas under the JVOA. [4] Todd’s contract claim was founded on art 10.1 of the JVOA. Todd claimed art 10.1 gave it the right to take petroleum in amounts that reflected the extent of its participating interest in the joint venture, calculated on the basis of the facility operating at maximum capacity. However, Shell and OMV claimed that the Operating Committee could control the rate of production having regard to the relevant provisions of the JVOA. [5] Todd also claimed that the offtake rules and actions taken to implement them constituted contracts, arrangements or understandings between Shell and OMV that were in breach of ss 27, 29 and 30 of the Commerce Act 1986. Todd claimed they had the purpose, effect or likely effect of substantially lessening competition in a 1 Todd Pohokura Ltd v Shell Exploration NZ Ltd HC Wellington CIV-2006-485-1600, 13 July 2010 [High Court judgment]. market comprising producers of gas and first point of sale customers.2 For the purposes of this part of the claim, Professor Martin Richardson, a Professor of Economics at the Australian National University, sat as a lay member of the High Court. Dobson J recorded that: [5] Professor Richardson, a Lay Member of this Court, was appointed to sit in respect of the Commerce Act causes of action. Those parts of the judgment considering and determining those causes of action … are our joint work, so that our views in that part of the judgment are appropriately expressed in the plural. Because the evidence on Todd’s damages claims was linked closely to the economic evidence on the Commerce Act issues, the Professor has also contributed to the analysis of the damages claims … The remainder of the judgment is my sole responsibility. To the extent that our joint reasoning relies upon factual findings in the earlier part of this judgment, Professor Richardson agrees with those findings. [6] Todd’s claims were rejected by the High Court. The Court held Todd could not establish the various causes of action it had pleaded and, even if it could, it had not shown the impugned conduct had resulted in loss to Todd. [7] Todd now appeals. [8] We begin by setting out the factual background. We then address Todd’s appeal against the High Court’s conclusions on the claims under, respectively, the JVOA and the Commerce Act. A concluding section will deal with a cross-appeal by Shell. Factual background [9] The original parties executed the JVOA on 15 July 1999. As the High Court noted, its terms were substantially based on a standard form contract developed in 1995 by the Association of International Petroleum Negotiators, widely used as a starting point for such contracts.3 Although the Association is an organisation based in the United States, the model contract was one intended for use outside the United States, Canada and the United Kingdom. It covers the three broad phases of petroleum mining: appraisal, development and production. 2 A further claim that the offtake rules had the purpose, effect or likely effect of controlling or maintaining the price of gas and were exclusionary provisions for the purposes of s 29 of the Commerce Act 1986 was rejected in the High Court and has not been pursued on appeal. 3 At [45]. [10] The original parties to the JVOA were Fletcher Challenge Energy Taranaki Ltd (Fletcher) and Preussag Energie GmbH (Preussag), a company incorporated in Germany. Those parties and two others had previously been granted a permit effective from 1 December 1995, giving them the exclusive right to explore for petroleum in an area of over 780 square metres in the North Taranaki Bight. The other two parties subsequently withdrew from the permit, leaving Fletcher and Preussag with the participating interests of 66.667 per cent and 33.333 per cent respectively, as recorded in art 3.2 of the JVOA. [11] The permit was granted by the Minister of Energy under s 25 of the Crown Minerals Act 1991, for a term of five years. The permit remained in force when the JVOA was executed. The definition of “permit” in art 1 specifically referred to the permit in the following terms: Permit means Petroleum Exploration Permit No. 38459 issued by the Minister on 1 December 1995, including any variations, extensions or renewals of it, and any other permit acquired or granted in substitution (in whole or in part) for it (including a Mining Permit). [12] As contemplated by that definition, the exploration permit was subsequently replaced by a mining permit but the exploration permit remained in force when the JVOA was executed and although there were subsequent amendments, many of the key provisions that need to be construed are unaltered from their original form. The fact that the JVOA was executed at a time when the parties originally bound by it were still in the exploration and appraisal phase, unaware whether they would find an exploitable resource and if so, what it would comprise, is an important part of the factual matrix in which the agreement must be construed. [13] Fletcher agreed to assign separate participating interests under the agreement to Shell (Petroleum Mining) Ltd and Todd Petroleum Mining Company Ltd of 18.333 per cent and 15 per cent respectively. As a consequence, Fletcher’s share was reduced to 33.3337 per cent. A significant discovery was made in February 2000. In September 2000, Fletcher amalgamated with a number of other companies into a newly named company, Energy Exploration NZ Ltd (EENZL). Fletcher Challenge Ltd (which included EENZL) sought to sell its energy business and on 17 November 2000 the Commerce Commission issued a determination giving a clearance for Shell Overseas Holdings Ltd’s acquisition of the shares of Fletcher Challenge Ltd associated with Fletcher Challenge Energy and its holding company, Energy International Holdings Ltd.4 As a consequence, EENZL changed its name to Shell Exploration NZ Ltd and Shell’s interest under the JVOA became 48.0003 per cent: the combination of the interests of Shell Exploration NZ Ltd (29.6673 per cent) and Shell (Petroleum Mining) Ltd (18.333 per cent).

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