VECTOR LIMITED v ELECTRICITY AUTHORITY [2018] NZCA 543

VECTOR LIMITED v ELECTRICITY AUTHORITY [2018] NZCA 543 [30 November 2018]IN THE COURT OF APPEAL OF NEW ZEALANDI TE KŌTI PĪRA O AOTEAROACA481/2017[2018] NZCA 543BETWEEN VECTOR LIMITEDFirst AppellantPAUL HUTCHISON, WILLIAM CAIRNS,JAMES CARMICHAEL, KAREN SHERRYAND MICHAEL BUCZKOWSKISecond AppellantsAND ELECTRICITY AUTHORITYRespondentHearing: 9 May 2018 (further submissions received on 30 May 2018)Court: Kós P, Winkelmann and Asher JJCounsel: J A Farmer QC and S M Hunter for First AppellantD R Bigio QC for Second AppellantsA R Galbraith QC and L A O'Gorman for RespondentD A Laurenson QC and J L W Wass for Commerce Commissionas intervenersJudgment: 30 November 2018 at 3.00 pmJUDGMENT OF THE COURTA The appeal is allowed in part.B A declaration is made that proposed cls 12A.4(1)(b) and 12A.10(2) ofthe Electricity Industry Participation Code 2010 would be unlawful.C Further directions are given at [59] of this judgment for the determinationof Issue 2.D Costs are reserved.____________________________________________________________________REASONS OF THE COURT(Given by Kós P)[1] May the Electricity Authority prescribe standard terms for contracts betweendistributors and retailers of electricity? In particular, may it prohibitindividually-negotiated terms in distribution agreements? Simon France J held thatthe Authority could do both.1 Vector Ltd, one such distributor of electricity, and itsprincipal shareholders, the second appellants, now appeal.2Background[2] We may begin by largely adopting the Judge's summary of background facts.3[3] The Electricity Authority was established by the Electricity Industry Act 2010(the Act). Its role is to make and administer the Electricity Industry Participation Code2010, to monitor compliance with that Code and to enforce it.[4] The New Zealand electricity industry comprises four sectors: generation,transmission, distribution and retail. Generators and retailers are permitted to bevertically integrated, but the intermediate sectors must be distinct. Transmission isundertaken by the national grid operator, Transpower. Some large industrialconsumers connect directly to the grid. But otherwise Transpower transmits electricityto distributors (that is, lines companies). Distributors convey the electricity toretailers. Retailers buy electricity from generators through a wholesale market andsell it on to consumers.[5] Retailers must enter into agreements with distributors to use the distributor'snetwork to get the electricity to their customers. These agreements are known inthe industry as use-of-system agreements.4 The Authority intends to make changes tothe Code that will affect UoSAs.1 Vector Ltd v Electricity Authority [2017] NZHC 1774 [High Court judgment].2 The second appellants are trustees of Entrust, an electricity consumer trust which hold threequarters of Vector's share capital.3 High Court judgment, above n 1, at [1]–[6].4 Referred to hereafter as "UoSAs".[6] From the distributors' viewpoint, the Authority's proposals mean that much ofthe content of UoSAs will be set and made mandatory by the Authority unlessthe retailer agrees to different provisions. It is common ground that these newproposals, if implemented, will result in significant portions of the contracts beingfixed. Indeed that is the Authority's objective. It wants these agreements standardised.[7] The exercise remains at the proposal stage. Vector seeks declarations aimed atstopping the proposal before it gets any further. Vector has two primary propositions:(a) the Authority has no power to interfere with freedom of contract in thisway; or(b) alternatively, if it does have some power to do so, the proposed contentof these changes is outside the matters the Authority can prescribe.Rather, the subject matter falls within the exclusive domain ofthe Commerce Commission.[8] Vector is supported in its argument by the trustees of Entrust. Entrust ownsapproximately three quarters of the share capital of Vector. It distributes its income toconsumers. It is concerned the proposed changes will prevent it doing so by limitingVector's ability (through the UoSA) to obtain information for Entrust from retailers.[9] As the Judge went on to observe:[6] There has for some time been a push for the UoSAs betweendistributors and retailers to be standardised. Regulators have sought toachieve it by promulgation of model agreements which it was hoped wouldlead to voluntary standardisation. In the Authority's view this has nothappened and so it has moved to a more mandatory model. The followinglengthy passage from a 2014 Authority Consultation Paper is enough tocapture the history of the matter and to set out the motivations behindthe proposed steps:Executive Summary[UoSAs] are used by distributors and retailers to formalise agreementof the terms under which each provides services to the other.The primary service covered in UoSAs is the distribution service thata distributor provides to a retailer so that the retailer may sellelectricity to consumers on that distributor's network.Industry participants began developing voluntary standard or modeluse-of-system agreements (MUoSAs) at the end of the 1990s,following the separation of network and retail functions.The Authority investigated the merits of requiring distributors to usemore standardised UoSAs in 2011 and 2012. The Authority publishednew MUoSAs in September 2012 and expected that distributors andretailers would voluntarily use the new MUoSAs to developstandardised UoSAs, to replace legacy UoSAs and form the basis ofUoSAs with new entrant retailers.The Authority also committed to monitoring the uptake ofthe MUoSAs. The objectives of this initiative were to promoteefficiency and competition for the long-term benefit of consumers.The Authority's monitoring of the uptake of the MUoSAs indicatesthe Authority's expectations for MUoSAs are not being met, meaningthat the competition and efficiency objectives are not being achieved.Specifically, the Authority has found that:• distributors are not engaging with retailers to negotiate newUoSAs that reflect the MUoSA• retailers are not engaging with distributors who seek tonegotiate new UoSAs that reflect the MUoSA• in one case, a distributor is offering retailers a UoSA thatmaterially varies from the MUoSA.The Authority now considers that less voluntary measures arenecessary to achieve the efficiency and competition objectivesexpected from introducing the MUoSAs.The Authority's preliminary conclusion is that these objectives can bebest achieved by amending [the Code] to establish the UoSA asa default set of terms that can be varied by mutual agreement betweeneach distributor and retailers on that network.The Authority considers a default agreement would reduce transactioncosts for retailers and distributors, and improve the conditions thatwould lead to enhanced retail competition across more network areasin New Zealand.(Footnote omitted.)[10] Clause 12A.4 of the proposed amendment to the Code would provide:(1) Each distributor must have a default distributor agreement that—(a) includes—(i) each default core term set out in the default distributoragreement template; and(ii) operational terms that meet each of the requirementsset out in the default distributor agreementtemplate for operational terms that are italicisedand in text boxes in the default distributoragreement template; and(b) does not include any other terms.[11] UoSAs between Vector and its retailers currently require the latter to collectinformation from consumers. That information has been used by Entrust to identifythe recipients of its dividends. The effect of cl 12A.4(1)(b) is that such a provisionwould no longer be permitted. Nor could that information be obtained underthe limited exception to cl 12A.4(1)(b) found in cl 12A.10 (as proposed):(1) A distributor and a trader may enter into a distribution agreementon terms that differ from the terms set out in the distributor's defaultdistributor agreement (an "alternative agreement").(2) However, a distributor and a trader that enter intoan alternative agreement must ensure that the terms of the alternativeagreement—(a) address only the subject matter of the terms of the defaultdistributor agreement; and(b) relate only to distribution services.[12] Obtaining the information Entrust seeks would not be impossible. But it woulddepend on other collateral arrangements being entered into between Vector andretailers beyond the terms of the UoSAs.Declarations sought and issues on appeal[13] The declarations sought originally by the plaintiffs were these:A declaration that the Act does not permit the Authority to amend the Code soas to require distributors to offer a Default UoSA containing core termsprescribed by the Authority and operational terms consistent with principlesand policies set by the Authority.A declaration that section 32(2) of the Act prohibits the Authority fromspecifying terms for the supply of electricity lines services including byrequiring distributors to offer a Default UoSA containing core termsprescribed by the Authority and operational terms consistent with principlesand policies set by the Authority.[14] At the hearing of this appeal we indicated that these declarations were cast infar-too-sweeping terms. The Judge was right to refuse relief in those terms.As a result, the declarations sought were revised, and were that:(a) the Act does not permit the Authority to amend the Code to requiredistributors to offer a default distributor agreement either: (i) on termsprescribed by the Authority; or, in the alternative, (ii) which prohibitsthe inclusion of terms whose purpose is to confer a benefit on personsor entities over whom the Authority has no jurisdiction;(b) section 32(2) of the Act prohibits the Authority from amendingthe Code to prescribe quality standards for suppliers of electricity linesservices that are subject to default/customised price-quality regulationunder pt 4 of the Commerce Act 1986; and(c) the Authority may not amend the Code to require those suppliers ofelectricity lines services to offer a default distributor agreementcontaining quality standards prescribed by the Authority or to be fixedby the Rulings Panel.[15] The parties have submitted these agreed issues for this Court's consideration:(a) Issue 1: does the Act permit the Authority to amend the Code to requireelectricity distributors to offer retailers a default UoSA on termsprescribed by the Authority? In particular:(i) do ss 42 and 44 of the Act permit the Authority to imposea complete contractual framework on parties to electricitydistribution agreements; and(ii) does the Act permit the Authority to prohibit parties to electricitydistribution agreements from including terms that confer benefitson third parties over whom the Authority has no jurisdiction?(b) Issue 2: does s 32(2) of the Act prohibit the Authority from amendingthe Code to require distributors to offer a default UoSA (because suchamendments prescribe quality standards for distributors, a matterreserved to the Commerce Commission)? In particular:(i) is the Authority prohibited from prescribing quality standards fordistributors, because that is a matter for theCommerce Commission; and(ii) in setting a comprehensive set of standardised contractual termsfor distributors, is the Authority prescribing quality standards?Issue 1: does the Act permit the Authority to amend the Code to requireelectricity distributors to offer retailers a default UoSA on terms prescribedby the Authority?[16] We will analyse this issue after setting out the relevant statutory history andframework, the judgment appealed and the submissions made before us.Statutory history and framework[17] The electricity industry has been the subject of almost unrelenting review andreform since the mid-1980s. In 1989 the Electricity Task Force recommendedseparation of the ownership of generation and transmission assets, corporatisation ofelectricity supply authorities and a light-handed regulatory regime.5 That regimewould draw on both the Commerce Act (to address anti-competitive conduct) andadditional public information disclosure regulation. It would be underpinned bythe prospect of more heavy-handed regulation, such as price control, if marketdominance was misused. The result of this was the Electricity Act 1992.[18] That new legislative scheme anticipated further review, and that occurred in2000 with a Ministerial Inquiry chaired by the Hon David Caygill(the Caygill Inquiry). The Caygill Inquiry recommended a new governance structure5 The legislative and industry history is set out in Daniel Kalderimis "Pure Ideology:The 'Ownership Split' of Power Companies in the 1998 Electricity Reforms" (2000) 31 VUWLR255.(a compulsory single market governed by an elected board), an increased role forthe Commerce Commission (setting information disclosure regulation and targetedprice control for distributors) and the creation of an industry-ledelectricity-ombudsman scheme.6[19] The Caygill Inquiry noted that UoSAs had "been criticised for being toocomplex, inconsistent and imposing conditions out of line with commercial norms",7and concluded:8The Electricity Networks Association (an association representing nearly allthe network companies in New Zealand) is developing principles to coverthe development of these agreements. We welcome this as an initiative thatwill lead to greater consistency, lower compliance costs and increasedcompetition. It is important, however, that the principles are developed in sucha way that they do not unduly reduce flexibility to negotiate tailor madeagreements or other opportunities for innovation. To achieve this,the principles should be developed within the new market arrangements.This will also allow other interested parties to contribute to their development.In the light of these developments, we do not see the need for a compulsorystandard [UoSA] at this stage.[20] After the Caygill Inquiry, Parliament enacted legislation implementingthe recommendations of the Inquiry. But those reforms made no provision forstandardisation of distribution terms. Part 4A of the Commerce Act was added bythe Commerce Amendment Act (No 2) 2001, creating a targeted price control regimein relation to distributors. An Electricity Governance Board was established bythe Electricity (Commencement of Electricity Governance Board) Order 2003.But further reform soon followed and the Board was replaced bythe Electricity Commission under pt 15 of the Electricity Act with effect fromOctober 2004. The Electricity Commission's functions included to "formulate andmake recommendations concerning electricity governance regulations and rules" to"establish, operate, and facilitate the operation of markets for industry participants orconsumers, or both".9 The Commission had responsibility for regulating the industryvia the Electricity Governance Rules 2003, which imposed common quality6 David Caygill, Susan Wakefield and Stephen Kelly Inquiry into the Electricity Industry(Ministry of Economic Development of New Zealand, Wellington, June 2000).7 At [224].8 At [225].9 Electricity Act 1992, s 172O(1)(a) and (c), added by the Electricity Amendment Act 2004, s 16.obligations for load shedding and voltage ranges by distributors.10 The Ministerretained power to make regulations providing for pricing methodologies for recoveryof revenue requirements of distributors.11[21] The Electricity Commission developed model UoSAs in the mid-2000s.They were not however published until 2008. Concerns were expressed about theircontent and it appears little progress was made in their adoption. At this point, in 2009,yet another Ministerial Review was held, the report on which was produced bythe Electricity Technical Advisory Group led by Dr Brent Layton(the Layton Report).12 The Layton Report referred to more standardised line pricingand UoSA business rules to promote competition.13 It recommended that legislativeprovision be made for the Minister to make rules if the Electricity Commission failedto make progress in these areas. It did not refer to standardisation of UoSAs moregenerally.[22] The present Act, the Electricity Industry Act, is a product of the Layton Report.In revising industry governance arrangements it replaced the Electricity Commissionwith a new independent Crown entity, the Authority. The Act was intended to alterand improve governance arrangements in the electricity sector. As a Minister put it inthe House:14Functions better undertaken elsewhere are transferred, such as the promotionof energy efficiency to the Energy Efficiency and Conservation Authority,the approval of grid upgrade proposals to the Commerce Commission, andthe management of supply emergencies to Transpower. The new Authoritywill be required to focus on getting the rules right, with the objective ofimproving competition, reliability, and efficiency in the industry.[23] Section 4 states that the Act's purpose is to "provide a framework forthe regulation of the electricity industry". The Authority is established as a Crownentity by s 12. Section 15 states the objective of the Authority, which is: to promote competition in, reliable supply by, and the efficient operationof, the electricity industry for the long-term benefit of consumers.10 Section 172E, added by the Electricity Amendment Act 2004, s 16.11 Section 172D(9).12 Electricity Technical Advisory Group and the Ministry of Economic DevelopmentImproving Electricity Market Performance: Volume one: Discussion paper (August 2009).13 At [154].14 (23 September 2010) 667 NZPD 14292.[24] Functions of the Authority are provided in s 16. The second stated function, ins 16(1)(b), is "to make and administer the Electricity Industry Participation Code inaccordance with subpart 3". Upon the relevant part of the Act coming into force,the Act gave effect to a draft Code compiled from various sources,15 including aconsolidation of the former Electricity Governance Rules and parts ofthe Electricity Governance Regulations 2003.16 The draft Code was required to becertified by the Minister under s 35(1). It was then deemed to have been made bythe Authority.17[25] Section 42 of the Act required the Authority, within one year of that provisioncoming into force, to amend the Code to include all the matters set out in s 42(2):1842 Specific new matters to be in Code(1) Before the date that is 1 year after this Section comes into force,the Authority must either—–(a) have amended the Code so that it includes all the mattersdescribed in subsection (2) (the new matters); or(b) to the extent that the Code does not include all the newmatters, have delivered to the Minister a report described insubsection (3).(2) The new matters are as follows:(a) provision of compensation by retailers to consumers duringpublic conservation campaigns:(b) imposing a floor or floors on spot prices for electricity inthe wholesale market during supply emergencies(including public conservation campaigns):(c) mechanisms to help wholesale market participants manageprice risks caused by constrains on the national grid:(d) mechanisms to allow participants who buy electricity onthe wholesale market (commonly called the demand side) tobenefit from demand reductions:(e) requirements for distributors that do not send accounts toconsumers directly to use more standardised tariff structures:15 Electricity Industry Act 2010, s 36(1).16 Section 34(1).17 Section 36(2).18 Or, to the extent it had not, to deliver a report to the Minister identifying why not: s 42(1)(b).(f) requirements for all distributors to use more standardised[UoSAs], and for those [UoSAs] to include provisionsindemnifying retailers in respect of liability underthe Consumer Guarantees Act 1993 for breaches ofacceptable quality of supply, where those breaches werecaused by faults on a distributor's network:(g) facilitating, or providing for, an active market for tradingfinancial hedge contracts for electricity.[26] The Act provides that the Authority may amend the Code at any time, subjectto s 39 (and s 54V of the Commerce Act).19 Before amendment, the Authority isrequired to publicise a draft of the amendment, and a regulatory statement, and consulton both.20[27] We now turn to the core provision of the Act for present purposes, whichspecifies the content of the Code, and therefore constrains the power to amend unders 39. That is s 32:32 Content of Code(1) The Code may contain any provisions that are consistent withthe objective of the Authority and are necessary or desirable topromote any or all of the following:(a) competition in the electricity industry:(b) the reliable supply of electricity to consumers:(c) the efficient operation of the electricity industry:(d) the performance by the Authority of its functions:(e) any other matter specifically referred to in this Act as a matterfor inclusion in the Code.(2) The Code may not—(a) impose obligations on any person other than an industryparticipant or a person acting on behalf of an industryparticipant, or the Authority; or(b) purport to do or regulate anything that theCommerce Commission is authorised or required to do orregulate under Part 3 or 4 of the Commerce Act 1986 (otherthan to set quality standards for Transpower and set pricing19 Section 38(1).20 Section 39(1). Urgent amendments without full compliance with s 39 are permitted under s 40.methodologies (as defined in section 52C of that Act) forTranspower and distributors); or(c) purport to regulate any matter dealt with in or underthe Electricity Act 1992.(3) The Code may incorporate by reference any of the following:(a) New Zealand Standards, or standards, requirements, orrecommended practices of any overseas or international body:(b) codes of practice issued under Part 4 of the Electricity Act1992:(c) any other written material dealing with technical matters that,in the opinion of the Authority,—(i) is too long to publish as part of the Code; or(ii) it is impracticable to publish as part of the Code.(4) Schedule 1 applies to any material incorporated by reference intothe Code.[28] Finally, for present purposes, we note that the Act provides that the Code mayrequire Transpower and other industry participants to enter into transmissionagreements involving connection and use of the national grid. That is provided for ins 44:44 Transmission agreements(1) Without limiting section 32, the Code may require Transpower and 1or more industry participants to enter into 1 or more agreements forconnection to, use of, and (where relevant) investment in, the nationalgrid (a transmission agreement).(2) The Code may prescribe default terms and conditions that are deemedto be included in transmission agreements.(3) The parties to a transmission agreement may, by mutual consent, agreeto modify any default terms and conditions, but only if and tothe extent that the Code permits those terms and conditions to bemodified.(4) Every transmission agreement between Transpower and an industryparticipant is deemed to include a provision under which the industryparticipant agrees to pay Transpower any amounts that Transpowercharges the industry participant in accordance with the transmissionpricing methodology.(5) A transmission agreement is binding on both parties and enforceableas if it were a contract between the parties that had been freely andvoluntarily entered into.(6) If the parties do not comply with a requirement in the Code to enterinto 1 or more transmission agreements, the default terms andconditions in the Code, and the provision in subsection (4), arebinding on both parties and enforceable as if they were set out ina transmission agreement.Judgment appealed[29] The Judge concluded that the Act allowed the Authority to dictate the contentof "core" terms in the agreement between distributors and retailers.21 He based thatconclusion on the purpose of the legislation, the context that a distributor has a naturalmonopoly (so restraints on its unequal bargaining power are to be expected), the roleof the Authority, the scheme of the Act (including the ability to amend it at any timeand in any way) and the import of s 42(2)(f) of the Act.22 The Judge said he did notexpressly determine if the Authority could dictate all terms. But he went on:23However, for the reasons given, it seems to me difficult once some dictationby the Authority is allowed to sensibly draw a line as to how much. I do notaccept that the use of the term "more standardisation" in s 42(2)(f) requiresthat exercise to be done, or prevents complete standardisation.Earlier (and consistently) he had also said this:24[It] is with respect difficult to accept the legislature contemplated authorisingthe Authority to impose some standardisation of these agreements but not totalstandardisation, thereby leaving "how much" (surely an unquantifiablestandard) to be somehow determined in the future. The key issue must bewhether compulsion is permitted or not, not the extent of it.[30] The Judge did not consider the power to amend in s 42 to be timebound, unableto be revisited after one year. He said:25That would be to say to the Authority you must get it right first time becausethereafter you are stuck with it. The present situation provides an illustrationof the difficulties that would cause. The Authority considers its initialapproach, which focused on providing model UoSAs and hoping for voluntarystandardisation, has not achieved its aim. So a more stringent standardisation21 High Court judgment, above n 1, at [64].22 At [64].23 At [65].24 At [31].25 At [30].approach is proposed as being necessary to achieve the aims of the legislation.There is no policy argument that would support reading s 42 in the wayproposed so as to prevent this type of reassessment of the on-going utility ofCode provisions.There is now no challenge to that finding in this appeal.[31] The Judge did not consider that s 44 had the effect of limiting the prescriptionof default terms to transmission agreements. He noted this was a legacy provisionfrom the Electricity Act, and should not be used to read down the newer Codeprovisions to limit the scope of s 42(2)(f).26[32] Finally, he concluded that the plaintiffs had not established that there was inNew Zealand "a presumption of strength that clear words are needed before legislationis seen as conferring a power to interfere with freedom of contract".27 Rather, that isa relevant factor to construction, but meaning remained to be discerned from the textin light of purpose and the context of the legislation as a whole.[33] It may be noted that no one in the High Court addressed s 17 ofthe New Zealand Bill of Rights Act 1990, concerning the protected right to freedomof association. And no one raised it in this Court either, until the Court raised it.We received written submissions on that subject from parties after the hearing.Submissions[34] Mr Bigio QC (who argued this part of the case for all the appellants) submittedthat s 42(2)(f) did not authorise the Authority to require the use of fully standardisedUoSAs by distributors and retailers. Section 42(2)(f), even if not spent, contemplatedand permitted only a requirement for more standardisation. That is, a reduction indifferences between distributor agreements. Only via s 44 is full standardisationperhaps mandated, and then only in the case of transmission agreements. The contrastin drafting is significant. Parliament could have imposed a similar power under s 42,but chose not to. Mr Bigio also drew attention to s 44(5), which he said indicated apredisposition in favour of freedom of contract and the need for that freedom to be26 At [37].27 At [62].expressly overridden by statute. He submitted the Judge was wrong to read down s 44as a mere carry-over from the Electricity Act. Mr Bigio submitted that the implicationof the Judge's conclusion was that Parliament intended s 32 to be interpreted withoutreference to s 44, a conclusion he submits was impermissible.[35] Mr Bigio also submitted that there was a body of authority providing thatfreedom of contract should only be limited if the wording of the statute expresslyprovides, or clearly implies, that limitation. He prays in aid the judgment of Arden LJin the England and Wales Court of Appeal in Contour Homes Ltd v Rowen, whereher Ladyship said that in interpreting legislation clear wording was required forfreedom of a contract to be limited even if there had been significant restriction to thatfreedom by regulation.28[36] For the respondent Authority, Mr Galbraith QC submitted that the Judge wascorrect in his analysis of the Act and the scope of the Authority's power to amendthe Code. The proposed provisions of the Code are consistent with s 32 of the Act:the default-agreement proposal furthered the statutory objective in s 15 by promotingcompetition in the retail electricity market and promoting efficient operation ofthe electricity industry. Default contract terms would lower retail market entry andexpansion barriers and reduce both the cost of doing business and the potential forUoSAs to stifle competition and innovation at the retail and related markets.The Authority expected the present proposal to promote competition in the electricityindustry (consistent with s 32(1)(a)) by promoting even-handed treatment of tradersand equal access to distribution services, and by reducing transaction costs for tradersentering local distribution networks. Further, it would promote the efficient operationof the electricity industry by reducing transaction costs for traders and distributors indeveloping, negotiating, agreeing and maintaining disparate distribution agreements.Analysis[37] The question in this appeal is not so much the capacity of the Authority toimpose standard terms in distribution agreements via the Code. This it clearly can do,as we will explain. Rather, the present issue really concerns the power of the Authority28 Contour Homes Ltd v Rowen [2007] EWCA Civ 842, [2007] 1 WLR 2982 at [19].to prevent parties negotiating other terms. In particular, terms that confer benefitson third parties over whom the Authority has no jurisdiction. The core questionhere is the validity of proposed cl 12A.4(1)(b) which, quite baldly, purports to precludethe inclusion of any other terms in a distributor agreement.29 We do not here overlookthe exception provided in proposed cl 12A.10.30 But it is apparent from its terms thatit is an extremely limited exception, confining alternative agreements to the subjectmatter of the terms of the Authority's default distributor agreement and further limitedto terms concerning "distribution services" only.[38] It does not follow logically that a statutory power to amend the Code, whichpermits the mandating of certain standard terms in a distribution agreement, wouldextend so far as to entirely exclude any other terms outside those prescribed inthe default distributor agreement (or otherwise relating to distribution services).The question we must determine is whether Parliament intended the statutory powerit conferred on the Authority to extend so far.[39] In answering that question we make eight points.[40] First, these proceedings require this Court to consider what constraints exist onthe exercise of a statutory power by the Authority. In doing so we must bear in mindthe requirement of s 5(1) of the Interpretation Act 1999 that the meaning of anenactment "must be ascertained from its text and in the light of its purpose". As theSupreme Court observed in Unison Networks Ltd v Commerce Commission:31[53] A statutory power is subject to limits even if it is conferred inunqualified terms. Parliament must have intended that a broadly frameddiscretion should always be exercised to promote the policy and objects ofthe Act.It may be observed, however, that in this case the statutory power is by no meansconferred in unqualified terms.29 See above at [10].30 See above at [11].31 Unison Networks Ltd v Commerce Commission [2007] NZSC 74, [2008] 1 NZLR 42.[41] Secondly, it cannot be said that our examination of the legislative history priorto the Act indicates a legislative intent to facilitate total standardisation of UoSAs.32To the contrary, the Caygill Inquiry identified a concern with inefficiencies inindividual bespoke agreements and was encouraging of greater levels ofstandardisation. But that is about all. Complete standardisation was neitherforeshadowed nor discussed. And there is nothing in the parliamentary debates on thatsubject either.[42] Thirdly, and addressing statutory purpose, Parliament has conferred statutorypower on the Authority to amend the Code, provided it undertakes the consultativerequirements in s 39. But the power to amend is not unlimited. Apart entirely fromprocess considerations, the power is expressly constrained by s 32. The objectsunderlying both the work of the Authority and the content of the Code are readilyinferred from ss 15 and 32(1). They overlap and concern the promotion of competitionin, reliable supply by, and efficient operation, of the electricity industry forthe long-term benefit of consumers. Under s 32(1)(a) the Authority may notpromulgate amendments that are inconsistent with the s 15 objectives of the Authority.And it may not promulgate amendments that are not necessary or desirable to promotethe objects of competition in the electricity industry, reliable supply of electricity toconsumers, efficient operation of the electricity industry, or performance ofthe Authority's functions.[43] The essential question arising is whether the Authority's claim to powers toboth prescribe terms (in aid of greater standardisation) and proscribe other terms(in aid of full standardisation of UoSAs) conform to those objects and limits.As s 42(2)(f) suggests (and we will turn to that provision shortly) such objects primafacie would permit greater standardisation of UoSAs. We accept Mr Galbraith'ssubmission that greater standardisation of UoSAs would lower retail market entry andexpansion barriers, reduce the cost of doing business and reduce the potential forUoSAs to stifle competition and innovation at the retail and related markets.Indeed, little contrary argument was advanced. The more difficult question is whether32 See above at [17]–[22].they permit full standardisation (with individual negotiation confined to distributionservices under proposed cl 12A.10).[44] Fourthly, we turn to the specific statutory text. The three provisions mostrelevant are ss 32(1), 42(2)(f) and 44(2). The first contains a very generalised powerto incorporate "any provisions" within the Code that are consistent with the object ofthe Authority and are necessary or desirable to promote any of the s 32(1) objects.Taken in conjunction with s 42(2), its terms would appear to permit boththe prescription of certain terms, and the proscription of other terms either contrary toterms prescribed or to the objects stated in s 32(1).[45] Section 42(2)(f) informs the power in s 32. It confirms that s 32(1) and (2)both anticipate and permit the prescription of terms via use of "more standardised[UoSAs]". The expression "more standardised" does not convey to us a proscriptionagainst collateral provisions beyond the scope of imposed standard terms. Its naturaland ordinary meaning is to permit: (a) prescription of particular terms; and(b) proscription against inclusion of terms inconsistent with (as opposed to merelycollateral to) those terms. That impression is reinforced by the drafting of s 44.[46] Section 44(2) expressly empowers the Authority to promulgate a Codeprescribing default terms and conditions for inclusion in transmission agreements.It may be noted that it does not compel that course. Nor does it state explicitly thatthe Code may mandate the entirety of a transmission agreement. We considerthe omission of such an express power significant in construing s 32. It does at leastfollow that parties to a transmission agreement could not incorporate termsinconsistent with default terms prescribed by the Code (assuming the validity thereof).[47] We do not accept the submission for the Authority that s 44 is to be given lessevaluative weight because it reflects a carry-over from the Electricity GovernanceRules 2003 (which provided for the former Electricity Commission to determinebenchmark transmission agreements). The Code was a new industry instrument.Sections 42 and 44 both provide the Authority power to prescribe certain terms inindustry agreements via Code provision. There is no indication in the Act thatthe distinct drafting of s 44 should not inform in the usual way the meaning of itsneighbour provision in s 42.[48] Fifthly, we consider the statutory purpose and language permitsthe prescription of standard terms and conditions for UoSAs where necessary ordesirable to achieve the s 15 objects. And, similarly, they would permit theproscription of provisions that are inconsistent with those objects or with provisionsprescribed in accordance with the Code. Nor do we see difficulty with a provisionrequiring a particular contractual structure, and requiring specific terms to be locatedparticularly within that structure. As noted above, we accept that greaterstandardisation of UoSAs is demonstrably desirable to promote both competitionwithin, and efficient operation of, the electricity industry. We accept that morestandardisation will reduce transaction costs for parties in delivering and negotiatingUoSAs. It may be expected to lower barriers to competition in retail electricitymarkets. It will encourage entry into new (and potentially multiple) networkarrangements.[49] Furthermore, differential trading terms have the potential to deter or diminishcompetition in retail markets. Standardised terms will mean retailers (including newentrants) are treated even-handedly, which is consistent with the pro-competitiveobjectives provided in ss 15 and 32(1). There could be little argument that the Codemay impose mandatory contractual terms in UoSAs concerning matters such asdelivery service standards and service levels, service interruption arrangements,load shedding and control, transmission losses, price categories, payment terms andconditions, and connection arrangements of course. Their inclusion may readily beconnected to both the statutory objective of the Authority and necessary to achieveone or more of the specific objects in s 32(1).[50] Sixthly, as we have noted already, the real question here is not whetherthe Authority can justify making mandatory the core terms of the draft default UoSA.There is no real challenge here to proposed cl 12A.4(1)(a) which does precisely that.Per se it is lawful, though it is susceptible to a vires challenge on a case-by-case basis.That is true whenever delegated statutory powers are involved. Rather, the realquestion is whether proposed cls 12A.4(1)(b) and 12A.10(2) are necessary or desirableto achieve one or more of the specific objects in s 32(1).[51] Nothing placed before us in affidavit or documentary evidence demonstratedwhy the statutory objects in ss 15 and 32 compel the exclusion from the UoSA of anyother contract terms apart from terms regulating distribution services. The argumentmade was that such additional terms may delay negotiation, and thereby addtransaction costs. And that substantial distributors (such as Vector) will use theirmarket power to impose collateral terms on retailers (in particular, new entrantretailers). However, if that is the real objection, it is difficult to understand thepermission extended in proposed cl 12A.10 to negotiate bespoke terms concerningdistribution services. At the end of the day there was no substantial evidence from theAuthority evaluating these potential inefficiencies, which are speculative only at thisjuncture. Their likely competitive effects may only be guessed at, when there has beenno experience yet of a regime of greater (but incomplete) standardisation.[52] In other words, while the Authority made its case for greater standardisation ofUoSAs, it did not do so for complete standardisation. In the context of a claim topower so extensive, we do not consider the words "or desirable" in s 32(1) set a lowerstandard than the word "necessary". The necessity for proposed clauses 12A.4(1)(b)and 12A.10(2) was never demonstrated to our satisfaction, and for all practicalpurposes that determines the present issue.[53] Seventhly, any asserted constraint upon freedom of action or association,including the freedom to contract, must be justifiable by reference to a lawful power.Where the source of the power is said to lie in statute, the statute must authorisethe constraining power, either expressly or by necessary implication. Plainly thatprinciple applies where the right constrained is a fundamental one, such as the right ofcitizens to contract with one another.33 Any participant in the electricity industry hasthe right to challenge the imposition of standard terms on the basis of illegality33 See for example Biotechnology Australia Pty Ltd v Pace (1988) 15 NSWLR 130 (NSWCA) at133 per Kirby P. As to statutory intrusion upon freedom of contract see Patrick Atiyah The Riseand Fall of Freedom of Contract (Oxford University Press, 1979) ch 16; and Jack Beatson,Andrew Burrows and John Cartwright Anson's Law of Contract (30th ed, Oxford University Press,2016) at 4.(absence of power), irrationality or invalid process. Unpalatable as it might perhapsbe to the Authority, its standard terms are always going to be susceptible to challengein this way. Only contract terms set forth in a schedule to an Act of Parliament couldbe immune from judicial review of this kind. That is the constitutional settlementunder which we — including the commercial sector — get by with one another. It isby the application of the principle of legality that we have reached alreadythe conclusion that proposed cls 12A.4(1)(b) and 12A.10(2) lie beyond the Authority'spowers to impose, because the statutory language simply does not reach as far asthe Authority would have us go.[54] Finally, in this appeal we sought further submissions on the question whetherrights of freedom of expression or of association (under ss 14 and 17 ofthe New Zealand Bill of Rights Act respectively) were engaged. The point has reallybeen considered only at High Court level previously, by White J in Turners & GrowersLtd v Zespri Group Ltd (No 2).34 There a challenge was made to regulationsprohibiting export of kiwifruit other than via the single-desk respondent, Zespri.One of the grounds of challenge was that the relevant Act did not permit regulationsinfringing the applicant's s 17 rights of freedom of association (here to contract withother buyers). White J concluded that s 17 rights were not engaged by regulationinhibiting parties to a contract from making their own export arrangements.35Not every activity involving or carried on by more than one person would amount to"association" for the purposes of the New Zealand Bill of Rights Act.36Freedom of association and freedom of contract are distinct concepts, and the Judgewas wary of constitutionalising ordinary contractual relationships.37 We observe thatthe distinction drawn in this decision is not an easy one, and not necessarily anattractive one either, given the capacity of a court to find that a regulation limitingfreedom of contract and association may nonetheless be justifiable in a particular34 Turners & Growers Ltd v Zespri Group Ltd (No 2) (2010) 9 HRNZ 365 (HC).35 At [72]–[77].36 At [72].37 At [73].case.38 In the present appeal it is demonstrably unnecessary to reach a view on thisaspect of the argument, and we prefer not to do so given the absence of oral argumenton it.Conclusion[55] The first declaration sought by the appellants (set out above at [14(a)]) was thatthe Act does not permit the Authority to amend the Code to require distributors to offera default distributor agreement either: (i) on terms prescribed by the Authority; or(in the alternative) (ii) which prohibits the inclusion of terms whose purpose is toconfer a benefit on persons or entities over whom the Authority has no jurisdiction.[56] Consistent with the reasoning above we decline to make the first part of thatdeclaration. Nor are we convinced that the second aspect is appropriately cast, becausewe imagine there may be some such terms whose express prohibition may yet belawful. That will depend on an analysis of legitimacy in the particular case and shouldnot be resolved, in the abstract, now.[57] However, for the reasons set out above at [37]–[53], we will make a declarationthat proposed cls 12A.4(1)(b) and 12A.10(2) of the Code would be unlawful.Issue 2: does s 32(2) of the Act prohibit the Authority from amending theCode to require distributors to offer a default UoSA (because suchamendments prescribe quality standards for distributors, a matter reservedto the Commerce Commission)?[58] The Court has been unable to reach agreement on this issue. In order to resolveIssue 2 it will require additional submissions and evidence from the parties on theregulatory and operational context applicable at the time the Electricity Industry Actwas enacted (including the regulatory functioning of the Authority'sstatutory predecessor, the Electricity Commission, and in particular the extent to38 New Zealand Bill of Rights Act 1990, s 5. In Turners & Growers Ltd v Zespri Group Ltd (No 2),above n 34, White J concluded that if he was wrong about s 17 being engaged, single-desk exportregulation was nonetheless justifiable under s 5: at [77]. The core conclusions in that case havebeen criticised as unduly narrowing of the scope of s 17: see Andrew Butler and Petra ButlerThe New Zealand Bill of Rights Act: A Commentary (2nd ed, LexisNexis, Wellington, 2015)at [15.7.3].which it was responsible for the imposition of quality standards affectingdistributors).39[59] A telephone conference is to be convened at a time to suit the convenience ofthe Court and counsel in the week of 3 December 2018 to timetable the provision offurther submissions and evidence on Issue 2.Result[60] The appeal is allowed in part.[61] A declaration is made that that proposed cls 12A.4(1)(b) and 12A.10(2) ofthe Electricity Industry Participation Code 2010 would be unlawful.[62] Further directions are given at [59] of this judgment for the determination ofIssue 2.[63] Costs are reserved.Solicitors:Gilbert/Walker, Auckland for AppellantsBuddle Findlay, Auckland for Respondent39 Limited affidavit evidence (not addressing Issue 2) and a common bundle of some publiclyavailable material was filed in the High Court. We have not found this adequate to resolve Issue 2.