Air New Zealand Limited v Commerce Commission
[2025] NZHC 359
•28 February 2025
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE
CIV-2025-485-94
[2025] NZHC 359
UNDER the Judicial Review Procedure Act 2016 and pt 30 of the High Court Rules 2016 IN THE MATTER
of Airport Services Input Methodologies (IM Review) Amendment Determination 2023 [2023] NZCC 34
AND
an application for judicial review
BETWEEN
AIR NEW ZEALAND LIMITED
First Applicant
AND
QANTAS AIRWAYS LIMITED
Second Applicant
AND
BOARD OF AIRLINE REPRESENTATIVES OF
NEW ZEALAND INCORPORATED
Third ApplicantAND
COMMERCE COMMISSION
First Respondent
AND
NEW ZEALAND AIRPORTS ASSOCIATION INCORPORATED
Second Respondent
AND
AUCKLAND INTERNATIONAL AIRPORT LIMITED
Third Respondent
AND
WELLINGTON INTERNATIONAL AIRPORT LIMITED
Fourth Respondent
AND
CHRISTCHURCH INTERNATIONAL AIRPORT LIMITED
Fifth Respondent
AIR NZ LTD & ORS v COMMERCE COMMISSION & ORS [2025] NZHC 359 [28 February 2025]
Hearing: 26 February 2025 Counsel:
J C L Dixon KC, J Q Wilson and S C Trevella for First Applicant A S Butler KC, S C Keene and D T Haradasa for Second Applicant
T J A Lindsay for Third Applicant
J D Every-Palmer KC, T G Bain and S Hartley for First Respondent
K M Massey for Second Respondent
M N Dunning KC and K M Massey for Third Respondent
J B M Smith KC and T D Smith for Fourth and Fifth Respondents
Judgment:
28 February 2025
JUDGMENT OF RADICH J
Introduction
[1] The Commerce Commission’s 13 December 2023 Airport Services Input Methodologies (IM Review) Amendment Determination 2023 (the Determination)1 set charges—essentially, landing charges—for certain airport services provided by regulated airports.2
[2] The Airports brought appeals from the Determination on 1 February 2024 on three separate grounds. The appeals are due to be heard over two weeks from 21 July 2025. The Commission made an early concession on one of the appeal grounds: errors had been made in the R-code, which was used to determine the asset beta as a parameter for the cost of capital figures used. In my decision of 20 December 2024 in the appeal proceeding, I declined the application by the Airlines for an order adjourning or staying the appeal pending the Commission first amending the Determination to address the R-code errors.3
1 Commerce Commission Airport Services Input Methodologies (IM Review 2023) Amendment Determination 2023 ([2023] NZCC 34, 13 December 2023).
2 I will refer to the parties generally in this decision as the Commission, the Airports and the Airlines.
3 NZ Airports Assn Inc v Commerce Commission [2024] NZHC 3948 [20 December decision].
[3] In the 20 December decision, I upheld the position advanced by the Commission and the Airports that, in light of the accepted errors, the remaining issues on appeal will be determined by the Court and that (unless superseded by the Court’s findings on the remaining errors) R-code issues would be disposed of by the Court following submissions from the parties on its jurisdiction to refer them back to the Commission.
[4] However, on 11 February 2025, the Airlines filed a judicial review proceeding in which they seek an order quashing the Determination on the basis it is unlawful because of the R-code errors and requiring the Commission to reconsider the Determination in light of the corrected code.
[5] The Airlines want the judicial review proceeding to be heard and determined on an expedited basis, before 21 July when the appeals are to be heard.
[6] The Commission and the Airports say that the judicial review proceeding will, both substantively and in the interests of justice, most appropriately be heard together with the appeals in July.
The nature of the appeals and the judicial review proceeding
[7] In order to consider whether an expedited hearing of the judicial review proceeding is warranted so that a result can be obtained before the hearing of the appeal, an understanding of the nature and grounds of appeal, and of the nature of the judicial review proceeding, is needed. Relevant also is the basis for the 20 December decision, in which it was concluded that the appeals should be heard without the need for the Commission to first address the errors in the Determination—and the relevance of those findings to the approach the Airlines now seek.
[8] The grounds of appeal, the nature of the R-code errors, and the positions of the parties on the errors in December last year are explained in the 20 December decision. For consistency, it is best to set out the relevant paragraphs in full:
The grounds of appeal
[9] In the Determination, the Commission amended the Cost of Capital Input Methodology. The Cost of Capital Input Methodology requires the Commission to determine, for each disclosure year, a mid-point estimate of the vanilla and post-tax weighted average cost of capital (WACC) of a supplier of specified airport services using a specified formula that is set out in cl 5.1 of the Cost of Capital Input Methodology.
[10] The parameters of the formula in cl 5.1 include certain fixed WACC parameters. The parameters include an “equity beta” (a parameter used to estimate the cost of equity) and “leverage” (which is used to weight the cost of debt and the cost of equity in calculating the WACC).
[11] Historically, the Commission has estimated the equity beta based on a broad range of comparator firms and observations of those firms over the two most recent five year periods.
[12]The Airport’s grounds of appeal include the following:
(a)Comparator Sample: It is alleged that the Commission was wrong to apply various filters that excluded firms from the comparator sample used to estimate the equity beta.
(b)COVID Uplift: It is alleged that the Commission was wrong to have excluded observations of those firms during the COVID period and to have applied, instead, an uplift to the pre-COVID beta using a method modelled on that developed by the economic consultancy Flint Global.
(c)R-code errors: It is alleged that the Commission’s implementation of its approach to calculation of the assets beta, even if correct in principle, included errors in the R-code it used.
[13] The Airports say that success on either of the Comparator Sample or COVID Uplift grounds of appeal will mean that the R-code errors either fall away or can be addressed on any referral back to the Commission. In particular, it is said that success on both the Comparator Sample and COVID Uplift grounds means that the correct parameter figure can be adopted from the record without referral back to the Commission and the need to address the correction of R-code errors falls away. Conversely, it is said, if the Airports are successful on only one of the first two grounds, then there would be a question of how the R-code errors should be corrected.
[14] The Commission puts it on the basis that, even with the closed record,4 there are a number of possible alternative options. For example, if the Commission succeeded on the first appeal ground, but the Airports on the second, there would be at least three alternative options for the COVID adjustment methodology available on the record.
4 Under s 52ZA(2) of the Commerce Act 1986, the appeal must be by way of rehearing and must be conducted solely on the basis of the documentary information and views that were before the Commission when it made its determination, and no party may introduce any new material during the appeal.
[15] However, as the Commission says, it is not possible to give more guidance at this point in time as to the changes that may have been made in the Determination if the R-code errors had not been made as there are a myriad of judgments involved and there is no way to know in advance, if any changes were made, the way in which they would traverse across other grounds of appeal.
The nature of the R-code errors
[16] There are two R-code errors. The first involves the calculation of the pre-COVID adjustment asset beta. The Commission intended to take the average of weekly and four weekly observations but, in error, took the average of weekly observations only.
[17] The second was in the calculation of the COVID Uplift. The Commission intended to use a weighted-leased square regression but, due to a coding error, failed to implement it.
The positions of the parties on the way in which the R-code errors should be dealt with
[18] On 2 April 2024, New Zealand Airports Association wrote to the Commission about the R-code errors it had identified. It enclosed a report from Competition Economists Group explaining them. The letter and report were published on the Commission’s website on 9 September 2024.
[19] The Commission, after some consideration, accepted the existence of the errors. It considered whether it would be preferable to amend the Input Methodologies immediately and sought feedback on that from the Airports and the Airlines. On balance, it decided not to because it did not believe it would be possible to confine such an amendment in a way that would avoid the risk of traversing the other issues on appeal. That, it considered, would interfere with the integrity of the appeal process.
[20] The Airlines consider that the best approach is for the Commission to amend the Determination now so that, essentially, there is a fresh start. It has proposed a timetable that would involve the Commission issuing a notice of intention by the end of the working year, issuing a consultation paper in February 2025, issuing (following consultation) an updated methodology determination by early July 2025 and a timetable for all pre-hearing steps in fresh appeals leading to a hearing (on dates that the Court has indicated already are available) beginning on 16 February 2026.
[21] The Airlines say that this cause of action is necessary because, first, agreeing now to refer the R-code errors back to the Commission gives rise to significant jurisdictional challenges that may render the appeal process pointless and, secondly, the procedural complexities of the Commission’s proposal are such that it is in the interests of justice for an amendment process to take place in the first instance.
[9] Under s 52Z(4) of the Commerce Act 1986, the Court may only exercise its powers and allow an appeal if it is satisfied that the amended or substituted input methodology proposed by appellants is “materially better in meeting the purpose of
this part, the purpose in s 52R, or both”. Accordingly, the basis for allowing an appeal is quite different to the basis for granting relief in a judicial review proceeding. In December, the Airlines said that there was no basis upon which the Court could be satisfied that the R-code errors are such that an input methodology that did not include them would be “materially better” having regard, amongst other things, to the need to proceed on appeal with a closed record under s 52ZA(2) of the Commerce Act such that information about the errors, only available since the Determination, could not be taken into account on appeal. The Airlines’ position was that the matter needed to be resolved first and could not be left until the substantive appeal because, without the errors being corrected, the Court would be proceeding on an abstract basis—it would not be able to ascertain whether the amended methodology proposed by the Airports would be “materially better” than the counterfactual involving a methodology with corrected R-code.
[10] In the 20 December decision I said that, ultimately, I was not satisfied that it was appropriate to determine those issues conclusively in advance of considering the other issues on appeal.5 I reached that view because, by way of summary:
(a)the issues raised by the Airlines were substantive questions on the availability and form of relief;6
(b)the outcomes on the two other issues on appeal (relating to the comparator sample and the covid uplift) may render consideration of the R-code errors unnecessary;7
(c)the Airports have raised three primary sets of issues in the appeals they have filed and are entitled to answers from the Court on them;8
5 20 December decision, above n 3, at [32].
6 At [32].
7 At [32].
8 At [32].
(d)it is not clear that, as the Airlines submitted, there is no jurisdiction at all on the Court’s part to refer the R-code errors back to the Commission under s 52Z(3);9
(e)it could at least be possible for the Court to conclude that an input methodology that does not rely on reasons that contain mathematical errors is materially better than one that does; accordingly, there was potential for the R-code errors to be dealt with in the context of the appeals;10
(f)the arguments the Airlines make would likely impact all three grounds of appeal and should be made in the context of the substantive appeal hearing;11 and
(g)the Airlines’ approach was pre-emptive and it was not appropriate to, essentially, seek determination of a preliminary question in advance of the hearing of the appeals.12
[11] An issue arose as to whether there was any power on the part of a court to direct (in the event that a stay of the appeal was granted) an amendment process to take place for the errors under s 52X of the Commerce Act. I referred to draft judicial review papers that had been prepared by the Airlines at that point in time and observed that proceedings of that sort may well put the question to the test.13
[12] On balance, I found that the interests of justice did not favour an approach requiring the appeals to be stayed pending an amendment process.14 Now, the Airlines pursue an approach that would involve the Court directing an amendment process, this time through a judicial review proceeding and following a finding that the Determination was invalid because of the R-code errors.
9 At [34].
10 At [36].
11 At [38].
12 At [40].
13 At [47].
14 At [53].
[13] In the judicial review proceeding it is pleaded, in three causes of action, that the R-code errors amount to material errors of fact, errors of law or unreasonableness. In each case a declaration is sought that the Determination was flawed and orders are sought quashing the Determination and requiring the Commission to reconsider it “in light of the correct R-code calculations and any further analysis it considers, after consultation with affected parties, is required to determine the appropriate asset beta, and ultimately the appropriate WACC”.
[14] The Airports seek orders that they be joined as respondents in the proceeding under s 14(2)(b) of the Judicial Review Procedure Act 2016.
The position of the Airlines
[15] The Airlines say that the judicial review proceeding needs to be heard first. They emphasise that the outcome of the judicial review proceeding, if successful, would be a finding that the Determination was unlawful. If that was the case, then the appeals would fall away. The assumption, it is said, behind the statutory scheme is that a decision was made lawfully and that legality must be a bottom line before a merits based appeal using the “materially better” test—could be considered. Mr Butler KC emphasised that the input methodology is essentially a form of secondary legislation and that it is constitutionally appropriate to test its legality, if an issue arises, in the first instance.
[16] The Airlines say that, if the Determination is unlawful, as they believe it to be, and is set aside accordingly, the Commission’s approach to setting an amended methodology—including on the two other points on appeal—could be quite different.
[17] The point is made for the Airlines that the Court, in considering the R-code errors in a judicial review proceeding, is not hindered by the closed record requirement in an appeal proceeding. Determining the judicial review application will enable, it is said, the Court to engage with evidence on the impact and materiality of the R-code errors. In addition, it is said that the Commission’s proposal—which would see the appeals and the judicial review heard together—would require the appeal to be heard by the Court sitting with two lay members dealing with a closed record while the judicial review proceeding would require the Judge to sit alone, to hear evidence as to
the impact and materiality of the R-code errors and then to try not to take that into account when assessing whether proposed amendments to the Determination would result in a materially better input methodology. This, it is said, would not be feasible.
[18] Looking at it all from a practical perspective, and taking into account the interests of justice, Mr Dixon KC put it on the basis that the approach proposed by the Airlines is the “least worst”. It is said that, while there may be some wasted work and costs in relation to the upcoming deadlines for the filing of submissions and bundles in the appeals, an element of wasted work and cost may be inevitable on any scenario. He referred to the work and cost involved in the Airlines’ approach as paling in comparison to the time, work and costs of the parties and the Court if the appeals are heard before the implications of the R-code errors are first determined. Moreover, it is said, it is possible that there would be no appeal brought from an amended input methodology in the event that the judicial review proceeding was successful. It is an approach that has, the Airlines say, the potential to render a two week hearing unnecessary.
Discussion
[19] The answer, as I see it, to the issues that were discussed at this hearing lies in the inextricably linked nature of the appeal proceedings and the judicial review proceedings together with the need to uphold the integrity of the bespoke appeal process for appeals from input methodology decisions.
[20] It is right to say that a successful judicial review proceeding may give rise to a direction of unlawfulness and a direction of unlawfulness cannot follow a successful appeal. But that is a point that can equally tend to emphasise the importance of maintaining the integrity of the statutory appeal process. Any of the bases for bringing appeals from input methodology decisions could equally be pleaded in judicial review language: an error of fact, a failure to take into account relevant considerations, an improper purpose, unreasonableness and the like. Judicial review grounds of that sort could, if established, all lead to a finding of invalidity. But it could not properly be said that, because that could be the outcome of a judicial review proceeding, a judicial
review cause of action must be pursued in the first instance. That would undermine the appeal process altogether.
[21] A judicial review proceeding might need to be heard first if, for example, it alleged process errors such as a breach of legitimate expectation or of consultation or general unfairness in the way in which a statutory process is conducted.15 They are issues that could not form part of an appeal. But, in a case like this where, as I said in the 20 December decision, it is possible for relief on the R-code errors to be considered in the appeal,16 the same considerations do not apply and it cannot be said that hearing the judicial review proceeding first is the only constitutionally appropriate way to determine the issue.
[22] Moreover, as the Commission has said, if the Court does not direct it under s 52Z to amend the Determination in relation to the R-code errors—whether because the first two grounds of appeal succeed and the Court directs the Commission to amend the Determination under s 52Z in relation to those two grounds only, or because the first two grounds fail and the Court declines to make a s 52Z direction in relation to the R-code errors–then the Commission would most likely undertake a self-directed s 52X amendment process in relation to the R-code errors. Accordingly, one way or another, the R-code errors can be addressed through the appeals.
[23] The Airlines say that a standalone judicial review proceeding could well lead to an amended Determination which the Airlines do not appeal. That would be an efficient outcome.
[24] However, it is far from certain that this outcome would arise. The Airports have appealed the Determination on three separate grounds, two of which they see as being more significant than the R-code errors. In those circumstances, it seems doubtful that the Airports would, if the Commission amended the Determination only to correct the R-code errors, no longer wish to pursue the other two grounds.
15 As was the case, to take an example on point, in Wellington International Airport v Commerce Commission, HC, Wellington, CIV-2011-485-1031 at [18] where the need to deal with an alleged process error in advance of the input methodology appeal was discussed.
16 20 December decision, above n 3, at [36].
[25] More fundamentally, as I said in the 20 December decision, the Airports have raised three primary sets of issues in the appeals they have filed and they are entitled to have answers from the Court on them.17 By way of contrast, if the judicial review proceeding is heard and decided first, and if it was to succeed, then the Commission would need to reconsider the Determination without the benefit of the Court’s views on the questions of economic principle raised in the first two grounds of appeal. If the Commission decided to maintain its position on those issues, the points would not be heard for a considerable period of time: if the July hearing dates for the appeals is lost, the next available two week fixture is 22 June 2026.18
[26] Furthermore, there is a prospect of the Court declining to grant any relief on review given the existence of the bespoke appeal process, given the interference that would be run across the Airports vested appeal rights, and given the potential mootness of the issues on review if one of the other appeal grounds is made out. The point is that if a flaw, or error, is found to exist on review, that will not necessarily lead to the Determination being set aside.19
[27] In a related way, the arguments that would be made on the grounds of appeal are likely to be relevant to the question of the relief that should be granted if the judicial review application was to succeed. If the judicial review proceeding was dealt with in isolation and was found to have merit, the Court would need, in considering the appropriate relief, to consider hypothetical, not actual, scenarios.
[28] If the Court was to grant orders, on review, quashing the Determination then, as the Commission says, the notion that the appeals are then moot and would not be heard is only provisional. The Commission or the Airports could, conceivably, seek to stay the decision pending the appeals or, if the July hearing did not proceed but the review decision was reversed on appeal, then the merits review appeals would be alive again, but delayed significantly.
17 20 December decision, above n 3, at [32].
18 That date will move further into 2026 as time passes.
19 See Ririnui v Landcorp Farming Ltd [2016] NZSC 62, [2016] 1 NZLR 1056, where the Supreme Court made declarations that a decision was a wrongful exercise of a public power because it was made under a material mistake but declined to set aside the decision on the basis of invalidity.
[29] Conversely, if the Determination was upheld at an early review hearing then there might be an appeal. That would not be able to be considered before the July hearing. Further procedural issues would then arise: I have already determined that the July hearing should not be stayed but that might, in circumstances such as those, need to be revisited.
[30] Quite apart from these substantive issues, there is a range of practical considerations which lead me to the conclusion that it is in the interests of justice for the judicial review proceeding to be heard alongside the statutory appeals.
[31] First, from the perspective of pure efficiency, two days will be needed for the Court to hear the judicial review proceeding whereas only half a day, it is estimated, would be needed for the hearing if heard consecutively with the appeals, given that the Court will be familiar with the R-code errors and the record from the appeals.
[32] Secondly, hearing the appeal and judicial review proceedings together will simplify materially appeal rights to the Court of Appeal. Splintered appeal proceedings can be avoided.
[33] Thirdly, it will become procedurally complex for all concerned to shoehorn the judicial review proceeding, and the timetable leading up to it, on top of the existing timetable for the appeals, which includes substantive steps in March and June this year.
[34] Fourthly, while counsel for the Airlines would need to attend the appeal hearing, as interested parties, it is anticipated that they would have been present in any event. They will be able to advance arguments on the R-code errors in both proceedings but will have additional possible remedies available to them in the judicial review proceeding. In this way, the Court will be able to consider judicial review within its proper context; as a possible alternative to allowing the Airports’ appeals.
[35] A procedural factor is that, for the appeals, the Court includes two lay members and uses a closed record whereas, for the judicial review proceeding, the Court comprises a Judge sitting alone and the record is not closed. However, I agree with Mr Every-Palmer KC that insurmountable difficulties do not arise. Judges sitting as a
Tribunal of fact are required regularly to put from their minds inadmissible information they have been required to engage with before or during trial. And the need to give reasons in a judgment assist in ensuring that a Judge has not had regard to inadmissible evidence.
Outcome
[36]I make the following directions and orders:
(a)New Zealand Airports Association Incorporated, Auckland International Airport Ltd, Wellington International Airport Ltd and Christchurch International Airport Ltd are joined as second to fifth respondents respectively in this proceeding;20
(b)this proceeding is to be heard immediately after the hearing of the appeals (in CIV-2024-485-61, 66 and 68) during the fortnight beginning 21 July 2025; and
(c)the parties are to confer with a view to filing a joint memorandum with a timetable for the filing of pleadings, evidence, the common bundle and submissions in the judicial review proceeding. However, because of time constraints, I make an initial timetabling direction that statements of defence are to be filed by the respondents by 5:00 pm on Friday, 7 March 2025.
[37] In the event that any timetabling issues arise, arrangements should be made through the Registry for a teleconference.
[38] I am not minded, at this stage at least, to make an order or to give a direction on costs. In many ways, the hearing that led to this decision was an extension of a first call, or a first case management conference, in which the issues advanced by all parties needed to be considered actively by the Court in any event. Arguments were
20 There is in the circumstances no opposition to the Airports’ application to be joined and the judicial review proceeding could not properly be heard without them as parties in any event. See Wilson v Attorney-General [2010] NZAR 509, (2010) 19 PRNZ 943 at [20].
advanced reasonably and logically and there was no easy answer. However, in the event that any issue arises on this front, memoranda may be filed by any party within 10 working days of the date of this decision and by any other party in response within a further 10 working day period. Any such memoranda should be limited to five pages in length (including any schedules).
Radich J
Solicitors:
Shortland Chambers, Auckland for First Applicant Webb Henderson for Second Applicant
Lindsay Francis & Mangan, Auckland for Third Applicant Luke Cunningham Clere, Wellington for First Respondent Russell McVeagh for Second and Third Respondent Chapman Tripp, Wellington for Fourth and Fifth Respondents
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