Electricity Corporation of New Zealand Ltd v New Zealand Electricity Exchange Ltd
[2005] NZCA 127
•26 May 2005
IN THE COURT OF APPEAL OF NEW ZEALAND
CA159/04
BETWEENELECTRICITY CORPORATION OF NEW ZEALAND LIMITED
Appellant
ANDNEW ZEALAND ELECTRICITY EXCHANGE LIMITED
First RespondentANDM-CO CLEARING HOUSE LIMITED
Second RespondentANDTHE MARKET PLACE COMPANY LIMITED
Third Respondent
Hearing:14 April 2005
Court:Glazebrook, Hammond and O'Regan JJ
Counsel:I R Millard QC for Appellant
M Gilbert and M D Arthur for Respondents
Judgment:26 May 2005
JUDGMENT OF THE COURT
THE APPEAL IS DISMISSED. COSTS OF $6,000 PLUS USUAL DISBURSEMENTS ARE AWARDED TO THE RESPONDENTS. WE CERTIFY FOR TWO COUNSEL.
REASONS
(Given by Glazebrook J)
Table of Contents
Para No
Introduction [1]
NZEM rules [4]
Background facts [16]
Associate Judge Gendall’s decision [22]
Goddard J’s decision [25]
ECNZ’s submissions [39]
Respondents’ submissions [55]
Discussion [72]
Conclusion and result [82]Introduction
[1] Electricity Corporation of New Zealand Limited (ECNZ) claims that it has suffered losses related to hedge contracts, the strike price of which was fixed by reference to the published price of electricity on the New Zealand Electricity Market (NZEM). An electricity pricing error had occurred during the months of March to July 1998. ECNZ’s complaint is that the failure to recalculate and republish prices in a timely manner deprived it of the ability to pass on the adjustment ultimately arrived at to its hedge counterparties.
[2] ECNZ issued proceedings in the High Court to recover these losses. These proceedings were stayed by Associate Judge Gendall on 20 February 2003 on the basis that ECNZ is obliged to use the NZEM dispute resolution process. Goddard J, in a judgment of 12 February 2004, declined ECNZ’s application for review of the Associate Judge’s decision. On 12 July 2004 she granted leave to appeal to this Court.
[3] ECNZ contends that the stay should not have been granted because, notwithstanding that it now accepts that it remains bound by the NZEM Rules, it is entitled to bring proceedings in the High Court if it can show good reason. It maintains there is such good reason because of:
(a)ECNZ’s exclusion from the hearing as to whether there had been a breach of the NZEM Rules in breach of natural justice;
(b)The earlier involvement of the NZEM’s Market Surveillance Committee (MSC) in an administrative capacity;
(c)The involvement of the respondents in having ECNZ excluded from the breach hearing.
NZEM Rules
[4] The parties are agreed that Goddard J’s judgment is accurate in its discussion of the NZEM Rules and the relevant facts. Our summary, therefore, is based on Goddard J’s decision.
[5] The NZEM is a self-regulating private contractual arrangement, by means of which its members voluntarily traded electricity. Membership was not mandatory but approximately 75% of New Zealand electricity was traded through the NZEM. The NZEM was governed by the NZEM Rules, which constituted a multilateral contract between all of the market participants with particular focus on the supervision of market participant members. The Rules provided for a number of service providers, each of which had particular functions and obligations set out in the Rules. In this case, the relevant service providers were the Pricing Manager, the Clearing Manager and the Market Administrator.
[6] The Pricing Manager was responsible for calculating the price of electricity and publishing prices. The Clearing Manager was responsible for invoicing market participants on the basis of those published prices and then clearing the payments made by the invoiced participants. The Market Administrator was responsible for a number of functions, including providing secretarial support to the Rules Committee, administering the rule making process, and providing all necessary secretarial and other support required by the MSC. The division within the Market Administrator which actually provided the necessary support to the MSC was known as Surveillance & Compliance (S&C).
[7] At all times relevant for this case, the service provider functions of Pricing Manager, Clearing Manager and Market Administrator were carried out by the respondents. The other service provider functions provided for under the Rules were scheduling, dispatching, grid operation and reconciliation management. This group of functions was undertaken by Transpower New Zealand Limited (Transpower).
[8] Service providers were not parties to the NZEM Rules in the same way that market participants were. Rather, each service provider was required to execute a deed poll in which it expressed its commitment to carry out the functions prescribed under the Rules and the basis upon which it would be remunerated for its services. The Rules then provided for such deed polls to become a schedule to the Rules. ECNZ relies upon the deed polls that were entered into by the M-co service providers as evidence of their agreement to perform, in accordance with the Rules of NZEM, their duties and comply with their obligations set out in the Rules. The market participants were, however, parties to the Rules and thus governed by them.
[9] We provide here a brief summary of the relevant Rules, which are set out in full in the Appendix to this judgment. Rule 2.1 of Part 1 of the Rules is an agreement by the market participants, the service providers and the market administrator to submit to the jurisdiction of the MSC, a standing committee of NZEM, and not to seek to enforce any duty or obligation arising under the Rules other than through the Rule 2 procedure.
[10] The MSC is a permanent standing committee of the NZEM with functions and powers directed to the oversight of all aspects of the NZEM. Rule 2.4 provides for the functions of the MSC. Amongst these are the exercise of disciplinary powers and the investigation of alleged breaches of the Rules, as well as the more administrative functions of monitoring the performance of the service providers and maintaining work inspection programmes. The MSC is also provided with a discretion under r 2.7, if an application is made to it by the Market Administrator or a service provider or a market participant, to make rulings relating to the interpretation or application of the Rules.
[11] Rule 2.9 provides for the reporting and investigation of breaches of the Rules. If a person who alleges a breach is not the Market Administrator, or a market participant or service provider, the complainant must agree in writing to submit to the jurisdiction of the MSC and agree to be bound by any decision of the MSC, as if the complainant were a market participant. That agreement to be bound includes any order for costs the MSC may ultimately make against the complainant.
[12] When breach is alleged, the MSC is required immediately to appoint an investigator to investigate the breach. If the breach is admitted, the investigator is required to prepare a report for the MSC for disposition purposes. If there is no admission the investigator is required to conduct a full investigation of the facts surrounding the allegation, including ensuring that “all persons the subject of the investigation have a reasonable opportunity to review and comment on all material collected during the course of the investigation”. Following completion of any such investigation, the investigator is required to determine whether a complaint should be formally laid, and, if not, is required to inform the complainant of this. The complainant is then entitled to advise the investigator in writing, within 10 business days, if it nevertheless requires a complaint to be laid.
[13] The process for laying a complaint is provided for under r 2.9.9. There is a requirement for the investigator’s report to be provided to the complainant, the MSC members and the person allegedly in breach of the Rules. Rule 2.10 requires the MSC to adopt an appropriate procedure for the hearing of a complaint. It provides that the MSC can, subject to the requirements of natural justice, adopt whatever procedures it thinks fit for the hearing. Hearings are to be in private, unless the MSC directs otherwise.
[14] Rule 2.12 provides the right for persons who are “the subject” of an MSC hearing to have representation and to call witnesses and make submissions. There is no explicit rule allowing the complainant the same rights but r 2.13 provides for an informal resolution process between the complainant and the subject of the complaint. Any such resolution can be overridden by the MSC – see r 2.13.3.2.
[15] If it upholds a complaint, the MSC can make a number of orders under r 2.16, including the issuing of warnings, suspension orders, the imposition of fines and the ordering of compensation. Rule 3 provides for the appeal procedures to an independent Appeal Board. Complainants are given an explicit right of appeal.
Background facts
[16] An electricity pricing error (the “Mangahao” error) occurred when Transpower failed to supply the Pricing Manager with data for the calculation of provisional and final prices for electricity sold through the NZEM in the months of March to July 1998 (inclusive). The error was detected around 4 September 1998, so that final prices for the month of August 1998 were able to be calculated using the correct data. However, final prices for the months of March-July 1998 had already been published and the sales and purchases of electricity for these months settled. The result was that the published final prices were higher than they would have been had Transpower not made the error and the practical effect of the error was that the purchasers of electricity on the wholesale market paid too much for the energy they bought and the generators of that electricity were overpaid for what they supplied.
[17] Rule 4.5, section G of Part 2 of the NZEM Rules, as it was in force at the time, provided for the recalculation of final prices in the event of discovery of such an error. Expressly, if the MSC were to determine that the error had materially financially disadvantaged any market participant, the Pricing Manager was to recalculate the prices. The process for recalculation, as set out in r 4.5, when carried into effect, would result in a “wash-up” generally of payments between market participants to correct the effect of the error. Generators would be required to refund to electricity purchasers the amounts which the former had been overpaid.
[18] ECNZ lodged a complaint that, following the decision by the MSC on 4 February 1999 that spot market participants had suffered material financial disadvantage as the result of the Mangahao error, the Pricing and Clearing Managers then breached their obligations under the Rules by not recalculating and publishing final prices for the period of the error in a prompt and timely way and by failing also to carry out the requisite wash-up promptly. The period of these alleged breaches was 4 February to 9 November 1999. That period was circumscribed by two events: the MSC’s decision of 4 February 1999 that final prices would be recalculated and published and a successful Transpower appeal from the MSC’s decision delivered on 9 November 1999.
[19] ECNZ’s case is that the failures by the Pricing and Clearing Managers to recalculate and publish in a timely way deprived it of the ability to pass on the adjustment ultimately arrived at to its hedge counterparties, with the result that it has been unable to recover any of the $4,700,597.36 adjustment under its hedge contracts, as it says it would have been able to had the recalculation been carried out expeditiously and published promptly. We record that the respondents do not accept that ECNZ is unable to recover its loss from the hedge counterparties.
[20] At the time ECNZ lodged its complaint under the NZEM rules, it was no longer a market participant and was therefore required to submit voluntarily to the jurisdiction of the MSC under r 2.9. ECNZ did so submit. The MSC subsequently ruled that ECNZ could not attend the hearing of its complaint against the Pricing Manager on the grounds that ECNZ was not a party to the hearing of that complaint, the only parties being the appointed investigators and the Pricing Manager. The MSC viewed ECNZ’s legitimate interest as confined to any right it might have to compensation for the pricing error and it had decided not to deal with the issue of compensation until it had first determined whether the pricing error had involved any breach of the Rules by the Pricing Manager.
[21] Following the MSC’s ruling that it was barred from participating in the breach hearing, either as complainant or as an observer, ECNZ withdrew its complaint and claim for compensation from the MSC. It had also learned that, in a meeting on 18 March 1999, the MSC had agreed that final prices could be recalculated, but would not be published until Transpower’s appeal had been resolved. As a result, ECNZ issued the proceedings (now stayed) in the High Court in contract, alleging breach of obligations and duties by the first and second respondents under the deed polls they had entered into. A declaration that the third respondent is liable (as guarantor of the first and second respondent) for loss suffered by ECNZ as a result of that breach is also sought.
Associate Judge Gendall’s decision
[22] The Associate Judge found that to allow ECNZ to bring its claim in the courts would undermine the integrity of the NZEM and the principles behind self-regulation, particularly bearing in mind the specialist nature of the MSC and that it was seized of the dispute.
[23] Insofar as the allegations of breach of natural justice were concerned, the Associate Judge found no overwhelming merit in ECNZ’s claim that there had been a breach of natural justice in this regard, the Rules giving no absolute right for ECNZ to be heard. He further observed that it was important for the Court not to entertain a “back door” method of putting an application akin to judicial review before it. On that basis he was satisfied that ECNZ’s exclusion from the breach hearing did not amount to a “good reason” for refusing a stay of the proceeding in the High Court.
[24] The Associate Judge also found that meetings between the respondents and the MSC about administrative matters relating to the complaint hearing and the method of recalculation of the Mangahao error, to which ECNZ had not been privy, did not amount to evidence of pre-determination, such as to constitute “good reason” for refusing the stay.
Goddard J’s decision
[25] Goddard J noted that there were two issues said to provide good reason to allow the court proceedings. The first was ECNZ’s claim that a breach of natural justice occurred when it was denied the opportunity to be heard on the breach allegations. The second concerned the allegations that the MSC indulged in private meetings with the respondents and S&C about aspects of ECNZ’s complaint, when ECNZ was not present at those meetings. In a sense the Judge saw the two issues as related, because the overall issue was whether ECNZ had been treated unfairly and effectively shut out of its claim.
[26] The Judge considered it understandable that ECNZ wished to be present at the breach hearing and to make submissions of its own. However, she held that ECNZ was not a party to that hearing and noted that the Rules provided for such hearings to be held in private at the discretion of the MSC and that ECNZ did not challenge the validity of the Rules themselves. The decision to exclude ECNZ was, in her view, a matter entirely at the discretion of the MSC after receiving the Pricing Manager’s views and giving the matter due consideration.
[27] The decision to separate the enquiry into the breach allegations from an enquiry into any consequential loss and compensation was, in her view, also appropriate and sensible in the circumstances. Whether the reality is that ECNZ is now in practical effect precluded from succeeding in its claim for compensation was not, in her view, clear. What was clear is that the MSC is willing to hear such a claim and the view of both the MSC and the respondents is that a compensation claim can still be pursued, notwithstanding the decision of 19 December 2002.
[28] The Judge said that the provision under the Rules for an independent investigator made it clear that a complainant is not a party (as such) to any complaint proceeding. This structure, in her view, reflects the regulatory and disciplinary function of the MSC and its focus on market supervision, notwithstanding that a complainant does have status under the Rules and its position is to be considered, as it may be affected by the outcome of any complaint, for example by an award of costs against it. She pointed to a number of the Rules which specify the involvement of complainants: for instance r 2.9.9.3 and 2.9.9.4 (investigator to forward a copy of the complaint as formulated and a copy of the investigators report; and to notify the complainant and the person allegedly in breach of the hearing date); and r 2.10.3 (reference to affected parties). She said that this does not however mean ‘ownership’ of a complaint and the S&C does not require a complaint to be made before it can investigate. It can do so of its own volition.
[29] In the present case, independent investigators were appointed in response to ECNZ’s request that S&C not be involved in investigating or prosecuting its complaint. That step of itself, in the Judge’s view, put a proper distance between ECNZ, the MSC and the M-co entities, whether acting in an administrative capacity, in an adjudicative capacity or as defendants.
[30] The Judge held it impossible to find that ECNZ had suffered a breach of natural justice by its exclusion from the breach hearing. In her view, ECNZ’s right to possible future compensation was not the subject of enquiry at the breach hearing. Rather, the rights, duties and obligations of the Pricing Manager were the subject of that enquiry. Furthermore, and significantly, ECNZ was never given any assurance that it would be allowed to make submissions in relation to the recalculation of final prices for the period of the Mangahao error and it resigned from the NZEM in the knowledge that it had not received any such assurance.
[31] With regard to the submission that the MSC had compromised itself by holding private meetings with the respondents on 4 and 18 February and was thus unable to bring its objective judgment to bear in reaching its decision of 19 December 2002, the Judge was unable to find any error of process or approach in relation to the meetings in question. Whilst the respondents are all entities of M-co (and this, in her view, did not present an ideal image), examination of how that situation was managed by the MSC removed cause for doubt. Although the S&C had responsibility for providing the MSC with all administrative support, the evidence was that no S&C staff, or staff representing either of the three respondents, were present at any time when the MSC was deliberating on the issues that were to form the basis of the breach allegations, or when the MSC were deliberating on the allegations themselves.
[32] The Judge said that perusal of the minutes of the 4 February 1999 meeting, at which the MSC decided that material financial disadvantage had occurred, made it clear that all that Ms Woods (a member of M-co’s S&C team) advised the MSC of was that the recalculation of final prices would be a time consuming task for the Pricing Manager, likely to take 3-4 weeks plus a further month. There was no record of any discussion nor reflection of any view put forward by the MSC at that meeting with her about methodology or appropriate methodology. Clearly the methodology to be adopted was always going to be a matter for the Pricing Manager to determine as its judgment best dictated.
[33] In similar vein the Judge said that the minutes of the meeting of 18 March 1999 must dispel any concern. These record that at 11.45am, a Mr Dawson of the first respondent joined the meeting and then left at 11.50am. What the minutes record of his involvement in the meeting during the period of his attendance can only be described as innocuous. The minutes then record that, after he left the meeting, Ms Woods tabled a letter from Contact Energy concerning the recalculation of final prices and possible material financial disadvantage to spot market participants. The minutes then record that at 12 midday, Mr Gould of the Market Administrator joined the meeting to present the Market Administrator’s report.
[34] The Judge noted that the relationship of the various M-co entities arose from the provision under the Rules for a number of different service providers to assist and enable the NZEM to function. The issue for the High Court, in her view, was not whether all of these entities should ideally be subsidiaries of the same company. The issue was whether there was any reason to suspect that the respondents (or any of them) obtained any unfair advantage in the matter at issue by virtue of their relationship with each other and with the MSC. The Judge was satisfied there was no evidence of that. Not only were two independent investigators initially appointed to investigate and prosecute ECNZ’s complaint, it is also clear, from a reading of the MSC’s decision of 19 December 2002, that the investigation and prosecution that followed were thoroughly and scrupulously conducted.
[35] This was exemplified, in Goddard J’s view, by the manner in which the natural concern caused to ECNZ by the 18 March 1999 minutes was dealt with. That matter was examined and determined as a preliminary issue by the MSC before it turned to consider the breach allegations themselves. The Committee had received an opinion from Mr J A Farmer QC and heard submissions on that opinion from him.
[36] Three of the current members of the MSC were involved in the MSC’s decision of 4 February 1999 and the meeting on 18 March 1999, at which the recalculation and republication of final prices was discussed. Two were not but the quorum required is more than 50% of the total number of members of the MSC. Mr Farmer’s view was that there was no alternative to the present members of the MSC hearing and determining the complaint. He referred to the legal principle known as the ex necessitate principle which is stated by H.W.R. Wade and C.F. Forsyth Administrative Law (7ed 1994) at 476-477 as follows:
In all the cases so far mentioned the disqualified adjudicator could be dispensed with or replaced by someone to whom the objection did not apply. But there are many cases where no substitution is possible, since no one else is empowered to act. Natural justice then has to give way to necessity; for otherwise there is no means of deciding and the machinery of justice or administration will break down.
[37] On the basis of Mr Farmer’s opinion, the MSC decided to proceed with the hearing before the full committee as at it is presently constituted. The Judge found it impossible to quarrel with or see any viable alternative to the advice given by Mr Farmer in this matter. Axiomatically, it was impossible, in her view, to question the MSC’s decision that it had to hear and determine ECNZ’s complaint, notwithstanding any possible effect that the 18 March 1999 minutes may have had on the Pricing Manager’s non publication of any recalculated prices. The Judge was also satisfied that, despite the somewhat incestuous nature of the defendants and the (at times) close working relationship between the S&C and the MSC on administrative matters, there was no evidence that the defendants obtained any unfair advantage in relation to ECNZ’s claim by virtue of those relationships.
[38] She therefore dismissed the application for review of Associate Judge Gendall’s decision and confirmed the stay of proceedings.
ECNZ’s submissions
[39] Mr Millard QC submitted that, despite ECNZ’s very direct interest in establishing that the Pricing Manager was in breach of its duties under the NZEM Rules, the MSC decided to split the hearing into a breach hearing and, if a breach was then established, a compensation hearing. It excluded ECNZ from the breach hearing entirely. In Mr Millard’s submission, there is nothing in the NZEM Rules that overrides ECNZ’s right to be heard at a breach hearing. The fact that the Rules do not expressly provide for the attendance of ECNZ does not mean that it cannot attend such a hearing.
[40] The Rules themselves have detailed procedures up to the investigator’s report. The Rules have no detailed procedures relating to the conduct of any hearing. In Mr Millard’s submission, there is no necessary implication that the investigator is to be the prosecutor (as opposed to allowing the complainant then to take up that role if it so desires). Indeed, in Mr Millard’s submission, there may be occasions where the investigator needs to give evidence and so should not be the prosecutor. Further, the complainant can insist on the matter proceeding to a hearing pursuant to its rights under r 2.9.8.3. Again, in that event, it would be inappropriate for the investigator to be the prosecutor. Materially, although r 2.9.9.4 requires the MSC to give notice of the hearing to the complainant and the person allegedly in breach, notice to the investigator is not specifically required. Rule 2.9.10 only requires the investigator to give a written report to the MSC (with a copy to the complainant and the person allegedly in breach).
[41] Whether or not the Rules contemplate the investigator being the prosecutor, there are, in Mr Millard’s submission, strong indicia in the Rules that the complainant is also entitled to be heard before the MSC. Rule 2.9.9.3 requires service on the complainant of a copy of the final form of the complaint laid. Rule 2.9.9.4 requires the MSC to give 20 business days notice to the complainant of the place, date and time at which the complaint will be heard. This strongly suggests that the complainant is entitled to be present. The length of such notice, in Mr Millard’s submission, suggests time for preparation for the hearing. Under r 2.9.10 the complainant is also required to be given a copy of the Final Report. Implicit in all this, in Mr Millard’s submission, is that the complainant does have a right to be heard.
[42] In addition, Mr Millard submitted that r 2.13, dealing with attempted settlement, also suggests the ongoing involvement of the complainant in the hearing process. The implication is that the complainant will have full information so as to be able to make an informed decision, with the investigator performing a mediating role (rather than a prosecutorial role). Importantly, the agreement of the complainant is required before the charge can be settled. Further r 2.19 expressly contemplates that the complainant has a right of appeal. That right also stems from r 3.1 conferring a right on “any person”. The tenor of the remainder of r 3 is that, having given the appeal notice, such person (here the complainant) is entitled to appear on the appeal. Rule 2.16.9, when read with r 2.9.2, also contemplates that the complainant could be liable to costs.
[43] In Mr Millard’s submission, it is an odd result in the extreme that the complainant gets notice of the hearing at first instance, including place, time and date, gets the supporting reports but cannot attend, yet can appeal, attend and be heard on the appeal. The clear inference from the Rules, in his submission, is that the complainant is entitled to be heard at first instance. Nor is there any necessary implication that the compensation claim and the breach hearing should be heard separately. Indeed hearing them together would allow the MSC more properly to consider what fine (if any) should be imposed taking into account any compensation awarded.
[44] Turning specifically to Goddard J’s reasons for dismissing the application for review, Mr Millard submitted that the fact that ECNZ was not a party to the breach hearing and that the Rules provided for private hearings was not relevant. He submitted that the MSC does not have an unlimited discretion. It was always bound by the rules of natural justice – r 2.10.2. In addition, including ECNZ in the hearing does not destroy the “private” nature of the hearing. Mr Millard also challenged the conclusion that there was no breach of natural justice through the exclusion from the breach hearing because ECNZ’s right to possible future compensation was not the subject of inquiry at the breach hearing. In his submission, ECNZ’s claim for compensation depends on one of the respondents being in breach of the NZEM Rules. Without a breach there can be no claim. It also has to be a breach which caused loss to ECNZ. Whether or not there is any such causative breach depends on the rights, duties and obligations of the Pricing Manager which were the subject of the breach hearing.
[45] The MSC released its decision on 19 December 2002 while Associate Judge Gendall was still deliberating. Although the MSC held that the Pricing Manager was in breach of its duty to recalculate prices promptly, it held that the Pricing Manager was not in breach merely because the recalculation was not completed by 18 March 1999. In so doing, the MSC did not deal with the issue of what was the appropriate methodology. It also held that the Pricing Manager was not in breach through not publishing the new prices post 18 March 1999. This was on the basis that it may have relied on the MSC’s own (unpublished) Minute that prices would not be published until after the Transpower appeal, given the close association between the Pricing Manager and the Market Administrator (who took the Minutes).
[46] In Mr Millard’s submission, such findings (reached in the absence of ECNZ) preclude any claim by ECNZ unless it can overturn such findings. Unless the Pricing Manager is held to have breached the Rules the issue of compensation is not even reached. In his submission, ECNZ was excluded from the breach hearing, despite having a very real interest in the outcome. The whole process had been triggered by ECNZ’s complaint. That complaint came two years after the events giving rise to it. No one else (including the MSC) had initiated a similar complaint. The sole purpose of ECNZ in lodging the complaint was to receive compensation. This was accepted by the respondents. Such compensation is a very significant sum - $4m to $5m.
[47] Even if, as a matter of law, ECNZ is not bound by the breach decision of the MSC, Mr Millard submitted that ECNZ faces the practical difficulty of persuading the very same tribunal that heard the matter over three days, heard evidence running to 392 pages of transcripts and took over six months of deliberation that it was wrong when it determined, in a final way, the obligations and liabilities of the Pricing Manager. This, in his submission, provides a good reason for ECNZ’s court proceedings to be allowed to continue.
[48] The second ground of appeal is that, leaving aside the prior involvement in the hearing leading to the decision of 19 December 2002, the MSC had a prior administrative involvement which creates a real danger that some of its conclusions (or lack of them) in its decision of 19 December 2002 arise because of that prior involvement. Key issues at the breach hearing included the methodology that the Pricing Manager should apply on any recalculation (different methodologies required different time periods). Unbeknown to ECNZ until after the decision to exclude it from the breach hearing, the issue of which methodology had, in Mr Millard’s submission, been the subject of two reports to the MSC in its administrative capacity with it implicitly accepting the more time consuming methodology. Also at issue was the impact of a Minute by the MSC of 18 March 1999 which said that, in light of an appeal by Transpower against the price recalculation decision, there should be no publication of the recalculated prices. Again ECNZ was unaware of that Minute until after the decision to exclude it from the hearing.
[49] In terms of methodology, the issue was which method should have been used for the recalculation - a “Save Case” as against a recreated pricing database. In Mr Millard’s submission, the methodology to be used was discussed between the respondents and the MSC on at least two occasions. In his submission, on both occasions there is a clear inference that, based on the presentation from the respondents made at that time, the MSC accepted the need to recreate the pricing database using Transpower. The first occasion was the meeting of 4 February 1999. The MSC clearly had before it two possible methodologies, the recreation of the data base (with Transpower’s help) or the “Save Case” data. The discussion recorded implicitly accepts the database method but with the opportunity to come back if that created problems. He submitted that the MSC turned its mind to methodology and accepted one particular method.
[50] In Mr Millard’s submission, the MSC had the opportunity of revisiting that conclusion at the meeting of 18 February 1999. Although it only dealt with the matter for five minutes, it is again clear that the MSC was told by Mr Dawson (as the persona of the first and second respondent) that the Pricing Manager was using the database methodology and the resulting timetable. The MSC went along with that and ECNZ was clearly not present at these meetings. Nor was it aware of what had transpired until 2002.
[51] Mr Millard submitted further that the first letter from ECNZ advising that its hedges could not be reopened after 12 months was in front of the MSC at its meeting of 18 February 1999 when the MSC met with Mr Dawson. This meeting was a private, non judicial discussion without ECNZ. Given that the timetable for the recalculation was then discussed, one issue that immediately arises was whether or not the ECNZ letter, or at least the gist of it, was discussed or conveyed to Mr Dawson. That is a matter on which the MSC has personal knowledge. If it did not convey the urgency of the matter, one has to ask, in Mr Millard’s submission, why not?
[52] The other issue relates to the meeting of 18 March 2002 when, without being asked, the MSC recorded that prices did not need to be published until after Transpower’s appeal was resolved. In Mr Millard’s submission, these two aspects go to the heart of ECNZ’s case, namely failure to recalculate within time and to publish the outcome. The participation of the MSC in these meetings was obviously other than in a judicial capacity. Mr Millard submitted that what was told to the MSC, how it was put and the degree of discussion, are all relevant to whether or not the Pricing Manager acted with a want of care in not using the “Save Case” methodology.
[53] The third ground of appeal is that the involvement of the respondents in having ECNZ excluded from the breach hearing provides good reason to allow the ECNZ court proceedings to continue. In Mr Millard’s submission, the MSC was encouraged to reach the decision to exclude ECNZ from the breach hearing by the Pricing Manager who contended that what was to be determined was whether it had breached the Rules of NZEM which was a contract to which ECNZ was not a party. As a result of being excluded from the breach hearing, ECNZ issued the present Court proceedings. In Mr Millard’s submission the Pricing Manager then did an about face and said ECNZ was bound by the Rules.
[54] Before the MSC decision on the breach hearing was released, the respondents applied to stay ECNZ’s court action saying it was bound to take its claim through the MSC which had part heard its complaint. It further argued that ECNZ was bound by whatever the decision of the MSC might be, subject only to its appeal rights. Although ECNZ now accepts that it remains bound by the NZEM Rules, Mr Millard submitted that the attitude of the respondents is a relevant factor in considering whether there is good reason for allowing the claim to proceed in the High Court. Having achieved its objective of excluding ECNZ from one forum, the respondents should not be allowed to complain about ECNZ seeking another forum. They should not, in Mr Millard’s submission, now be entitled to say that ECNZ is bound by the Rules and that its case should be determined by the MSC, which has already heard the key issue in ECNZ’s absence at the request of the respondents.
Respondents’ submissions
[55] Mr Gilbert submitted that there has long been a presumption in favour of requiring parties to abide by agreed dispute resolution processes. He accepted that the Court has a discretion to permit a plaintiff to pursue its claim through the Courts, rather than through the agreed process, where there are good reasons to do so but there are, in his submission, no such good reasons in this case.
[56] Mr Gilbert submitted that the MSC procedure is a rigorous one conducted by a highly qualified specialist tribunal. The members of the MSC have had the opportunity to develop substantial expertise regarding the operation of the market and the Rules, thus ensuring consistency and practicality in their decision-making. Allowing participants to bring claims in the courts in the first instance would undermine the Rules, to which the market participants agreed when joining the market. The Rules are plainly designed so that the market is a self-regulating one. The existence of a comprehensive and stand-alone dispute resolution procedure is fundamental to the perceived integrity of the NZEM. Allowing a market participant to choose an alternative forum would undermine, in Mr Gilbert’s submission, the integrity of the NZEM.
[57] In Mr Gilbert’s submission, Associate Judge Gendall and Goddard J were both right to conclude that there had been no breach of natural justice and that there was no obligation on the MSC to allow ECNZ to be heard at the breach hearing. In his submission, the ECNZ Rules dealing with investigation and prosecution of breaches do not confer any right on the complainant other than the right to be kept informed and the right to insist that a prosecution be brought if the investigator recommends not proceeding with the prosecution. In his submission, the right to have the complaint dealt with in accordance with natural justice, and specific rights to appear and to be represented, are conferred on the person who is the subject of the complaint, rather than the complainant.
[58] The electricity market is clearly a market that is of prime importance, particularly to industry and commerce in New Zealand. In the absence of agreed rules, it was likely that the market would be operating under Government regulation, as it is now. (We note that the Electricity Commission is now responsible for running the New Zealand electricity market). The NZEM Rules can therefore, in Mr Gilbert’s submission, be seen as self imposed regulation. When viewed in this context, he submitted that it is understandable that the market, in framing its Rules, decided to set up a regime whereby breaches of the Rules could lead to investigations by independent investigators, and penalties such as warnings, fines, and in extreme cases, termination of membership. This regulatory and enforcement regime enhances the credibility and integrity of the market. It provided the way in which the MSC can police the operations of those who form the market.
[59] In Mr Gilbert’s submission, the breach decision was made by the MSC in the exercise and performance of this disciplinary function. The MSC has a separate function of determining bilateral disputes between parties bound by the NZEM Rules. In this case, an alleged breach of the Rules was investigated and prosecuted by independent investigators who followed the procedure set down in the Rules. In Mr Gilbert’s submission, ECNZ overlooks that the Rules provide for more than merely the determination of private, bilateral rights and obligations between participants and service providers.
[60] Mr Gilbert submitted that central to the scheme of the market supervision rules is the role of the investigator. It is the investigator, not the complainant, that brings a breach allegation for the purposes of the MSC’s disciplinary function. The relevant provisions are found in Rules 2.4 to 2.17 of the NZEM Rules. In this case the prosecution for breach of the Rules was undertaken strictly in accordance with those Rules. ECNZ made the original complaint (although it withdrew the complaint before the hearing). The MSC appointed independent investigators to investigate the matter. The investigators determined to pursue a prosecution and duly formulated the complaint. M-co was given the right to be heard. The prosecution against it was conducted by the independent investigators and determined in accordance with the Rules and the principles of natural justice.
[61] ECNZ was kept informed in accordance with the Rules up to the time it withdrew its complaint. In addition, ECNZ withdrew its complaint prior to the hearing. Mr Gilbert submitted that thereafter the MSC was acting of its own motion, as it was entitled to do, in proceeding with the investigation and the hearing (see for example r 2.16). Further, it is worth noting too, in Mr Gilbert’s submission, that ECNZ did not appeal the decision of the MSC not to allow it to participate in the breach hearing – see Rule 3 of the NZEM Rules for the appeal procedures.
[62] In Mr Gilbert’s submission, ECNZ’s claim for compensation has not been determined. The decision itself makes no reference to ECNZ’s compensation claim and plainly does not determine the claim. In the MSC’s penalty decision of 11 June 2003 (released after Goddard J’s decision), the MSC expressly noted that, in light of the Court’s stay of the proceeding, the MSC might be called upon to determine ECNZ’s claim. It was careful to say that it was not expressing any view on the validity of ECNZ’s compensation claim. It stated that:
In its decision (D16/02) [the breach decision], the Committee did not reach any conclusion as to the exact point between 4 February and 9 November 1999, by which the recalculation of prices ought to have been completed and, as ECNZ’s claim for compensation against the Pricing Manager and the Clearing Manager is still alive and may be pursued before this Committee, the Committee refrains from expressing any view on the material before it as to just when it was that ECNZ’s hedge contracts expired and whether it has a valid claim against any of the entities it has sued as defendants under C.P.166/02.
[63] In addition, as ECNZ was not at the breach hearing, it is not bound by any aspect of the Committee’s decision. For estoppel to apply, the parties to the litigation must be the same: Shiels v Blakely [1986] 2 NZLR 262 (CA), McCarthy v McCarthy [2001] NZFLR 1073 (HC). The breach allegations were presented to the MSC hearing by the independent investigators (John Fogarty QC and Nicola Wills, Barrister) appointed by the MSC. The investigators were not the privies of ECNZ.
[64] As to the second ground of appeal, Mr Gilbert noted that Associate Judge Gendall had accepted that the MSC had had some administrative involvement in the matter but, in exercising his discretion, decided that the involvement was not a sufficient reason to allow ECNZ to depart from the agreed dispute resolution process. He also pointed out that Goddard J held that ECNZ had failed to demonstrate that the exercise of discretion by the Associate Judge was plainly wrong and accordingly dismissed ECNZ’s review application. In Mr Gilbert’s submission, Goddard J was correct in reaching this conclusion. As ECNZ accepted in its points on appeal, it is inherent in the scheme of the NZEM that the MSC would be involved in matters both administratively and judicially. The “private meetings” between the MSC and staff of the respondents were, in Mr Gilbert’s submission, part of the MSC’s routine business and do not show any special relationship between the MSC and the respondents, such that the MSC might be perceived to favour the respondents when dealing with ECNZ’s claim.
[65] The Associate Judge took into account the MSC’s administrative involvement but balanced this factor against other factors when exercising his discretion whether or not to grant a stay and allow the MSC to hear the claim. The other factors were the desirability of holding ECNZ to its contractual promise to have the claim resolved by the MSC in the agreed manner, that the MSC is the most appropriate and qualified authority and that the agreed procedure is certain, appropriate and comprehensive. He also considered that allowing the MSC to hear the dispute upholds the guiding principles of the NZEM. In Mr Gilbert’s submission it cannot be said that the Associate Judge’s exercise of discretion was plainly wrong. He took into account the relevant factors bearing on the exercise of the discretion. It is not sufficient for ECNZ to persuade a court on appeal that it might have exercised the discretion in a different way.
[66] Moving to a more detailed consideration of the administrative involvement, Mr Gilbert pointed out that the first meeting referred to was the MSC meeting on 4 February, at which the MSC first held that the criteria for a recalculation were satisfied and that prices should accordingly be recalculated. The meeting minutes record that a member of M-co’s S&C team, Cathy Woods, told the MSC that the recalculation was likely to be a time consuming task for the Pricing Manager. She estimated that it would take 3 to 4 weeks for Transpower to reconfigure the database, and a further month for the Pricing Manager to recalculate the prices. The method that she was describing there was later referred to as the “database method”. She advised the MSC that “it might be possible” to use the figures already held by the Pricing Manager (the method later referred to as the “Save-Case” method). In Mr Gilbert’s submission, the MSC gave no indication either way as to whether it favoured one or other of these methods. Instead, it simply stated that the Pricing Manager was required to carry out it obligations under the NZEM Rules (which do not specify how a recalculation is to be carried out). It also directed that the Pricing Manager report to it on the likely cost and timing of the recalculation process.
[67] At the next meeting on 18 February 1999, the Pricing Manager had not prepared the report. Mr Dawson, who was at the time the M-co manager responsible for pricing functions, attended the meeting to advise the MSC on the likely cost and timing of the price recalculation. He was present for five minutes. Mr Dawson stated that unaudited software was used to prepare the existing figures, so those figures were “relatively accurate”. He advised the Committee that the recalculation would cost about the same as it cost to produce the existing figures, and would take about three months, including a month for Transpower to reconfigure the database. Again, he was talking about what was later referred to as the “database method”. There is no record of any discussion about the possibility of two alternative methods, and no record of any approval or disapproval by the MSC.
[68] Mr Gilbert submitted that neither of those exchanges suggest that the MSC has, or might be suspected of having, pre-judged the question of which of the two methods the Pricing Manager ought to have used. Indeed, when it was asked to rule on the issue in the breach hearing, the MSC said that the Pricing Manager ought to have had in place a system that enabled it to carry out a recalculation promptly, and that such a system could have included both methods. That decision shows that the MSC was not, and is not, predisposed to the appropriateness of any method that may or may not have been explained to it in February 1999.
[69] As to the MSC’s minute of 18 March 1999, Mr Gilbert submitted that no representative of the Pricing or Clearing Manager was present at that meeting. The MSC noted that its 4 February 1999 decision (that prices were to be recalculated) had been appealed by Transpower. The MSC minuted that, while prices should be recalculated, they should not be published until the appeal has been resolved. In its decision of 19 December 2002, the MSC held that it was not appropriate to impose a penalty on the Pricing Manager as the manner in which the tenor of the Minute was conveyed could have been construed as releasing it from its obligation to publish. In Mr Gilbert’s submission, this was not a finding on the contractual obligations of the Pricing Manager which would be assessed on the ordinary civil standard of proof.
[70] In summary, on ECNZ’s bias complaint, Mr Gilbert submitted that ECNZ is trying to resile from the agreement that it made. It entered into the NZEM on the basis that there would be a Market Surveillance Committee which would have the wide range of powers and responsibilities set out in the Rules. It knew that the MSC would deal with some matters privately and informally, particularly when it was gathering information and merely keeping watch on activities in the market. It also knew that the MSC would be charged with later acting judicially, perhaps in respect of the same matters. The MSC in this case has done nothing more, in Mr Gilbert’s submission, than what the parties anticipated when they agreed to the NZEM Rules.
[71] On the third ground of appeal, Mr Gilbert pointed out that the submission that the court proceeding should be allowed to continue because the respondents supported the MSC in excluding ECNZ from the breach hearing, was not advanced in the High Court. Thus, neither the Associate Judge’s judgment, nor that of Goddard J, addresses it. In Mr Gilbert’s submission, that argument ignores the different functions of the breach hearing and the compensation claim. The breach hearing was a disciplinary matter that led to a fine. It was a matter that concerned the whole market. The compensation claim is a matter between ECNZ and the respondents only.
Discussion
[72] We make two preliminary points. The first is that this is an appeal from the exercise of a discretion. That means that ECNZ has to show that there was an error of principle in the decisions of the Associate Judge and Goddard J or that those decisions were plainly wrong.
[73] The second point is that this judgment is predicated on the basis that the compensation hearing will also deal with the question of breach and that, whether or not there was a breach, will be decided by the MSC anew after hearing from ECNZ. The respondents now accept that any compensation hearing before the MSC will include submissions on whether or not there was a breach of the Rules and that ECNZ is not bound in any way by the earlier breach decision. It is thus not necessary, for the purposes of this decision, to decide whether ECNZ should have been excluded from the earlier breach hearing. It is only necessary for us to decide if the fact that the MSC has, in ECNZ’s absence, already heard and determined the matter of breach, together with its earlier administrative involvement, provides good reason for ECNZ’s proceedings to be allowed to continue in the High Court.
[74] Moving now to the substance of the appeal, ECNZ’s first complaint is that there has been pre-determination of the breach allegations and that the MSC would not be able to bring an independent mind to ECNZ’s submissions on that subject. We do not accept that this is the case. While it is always preferable, when there have been breaches of natural justice, for the matter to be heard afresh before a differently constituted decision-maker, this is often not possible. In this case, it is accepted that it is not possible to constitute the MSC differently.
[75] Where a decision-maker is in the position of having to retake a decision, that decision-maker is obliged to bring an open mind to the decision and the submissions made by the parties, particularly those of the party which has not had a previous opportunity to put its case. There is no reason to think that the MSC members will not fulfil their duties in this regard when deciding on whether there was a breach in the course of hearing the compensation claim. The MSC comprises professional people and one is a retired judge of this Court. The MSC will also be cognisant of its differing role in the compensation hearing. In the earlier breach hearing it was acting in its regulatory capacity. In the compensation hearing it is effectively acting as an arbiter of a dispute between two commercial parties.
[76] We remark too that the reason that the observance of natural justice is so important is that hearing from all sides of the dispute can change even fixed views of the merits. It is worth setting out the comments of Megarry J in John v Rees [1970] 1 Ch 345 at 402 in this regard:
It may be that there are some who would decry the importance which the courts attach to the observance of the rules of natural justice….As everybody who has anything to do with the law well knows, the path of the law is strewn with examples of open and shut cases which, somehow, were not; of unanswerable charges which, in the event, were completely answered; of inexplicable conduct which was fully explained; of fixed and unalterable determinations, that, by discussion, suffered a change.
[77] A further factor militating against ECNZ’s court proceedings being allowed to continue is that the process provided for by the NZEM Rules does not stop with the MSC. There is a right of appeal to an independent Board. This provides an important additional safeguard.
[78] In any event, it appears that the MSC has not pre-determined the issue that ECNZ sees of as of primary relevance to the question of whether there has been a breach – the question of the methodology used by the Pricing Manager. In its decision of 19 December 2002, the MSC made no finding on the appropriate method for the recalculation. This means that there is no prior decision on this matter made at a time when the MSC was acting in its judicial capacity.
[79] The second ground of appeal is that the prior administrative involvement of the MSC provides a good reason for ECNZ’s court proceedings to be allowed to continue. It is in the nature of the NZEM and of the contract that the market participants signed up to that the MSC will have administrative involvement. The relevant prior administrative involvement was taken into account by both the Associate Judge and Goddard J when deciding on the stay. The complaint, therefore, is rather one about the weight that was given to that factor. That was a matter for the Associate Judge.
[80] We do not consider in any event that the extent of the MSC’s earlier involvement gives any cause for concern. ECNZ submitted that the MSC had earlier in its administrative capacity, either explicitly or implicitly, endorsed the use of the database method. Goddard J (see at [32] and [33] above) found that there had been no such earlier indication by the MSC as to the appropriate methodology. We accept the submissions of the respondents that this finding has not been shown to be wrong. As to the 18 March 1999 Minute relating to delaying the publication of the calculations, we accept the respondents’ submissions that the determination of the contractual obligations of the Pricing Manager is a different exercise from that of determining whether there should be a penalty for breach in a regulatory sense.
[81] Moving to the third ground of appeal, there does seem to have been a change of position on the part of the respondents, despite Mr Gilbert’s efforts to convince us to the contrary. While this is unfortunate, we do not see that this provides any justification for bypassing the dispute resolution processes that ECNZ agreed to. We note in this regard that ECNZ had appeal rights that it did not exercise in relation to its exclusion from the breach hearing.
Conclusion and result
[82] The NZEM’s dispute resolution process is comprehensive and, as indicated above, includes provision for independent investigatory and appeal processes. Where parties have agreed on a particular dispute resolution mechanism, they should normally be required to adhere to it. We accept that there is the power for the courts to hear a dispute if there is good reason to do so. In our view, where the parties are commercial parties in a specialised industry, it would usually have to be shown that the agreed mechanism was not workable in the circumstances before there was good reason to bring a dispute before the courts. For the reasons given above, ECNZ has fallen short of this standard. The decisions of Associate Judge Gendall in staying those proceedings and of Goddard J in upholding the stay have not been shown to be wrong.
[83] The appeal is dismissed. Costs of $6,000 plus usual disbursements are awarded to the respondents. We certify for two counsel.
Solicitors:
Tripe Matthews & Feist, Wellington for Appellant
Chapman Tripp, Auckland for RespondentsAPPENDIX
Extracts from NZEM Rules
Part 1 of Rules
2.1 There shall be a Market Surveillance Committee
There shall be a standing committee of NZEM, known as the Market Surveillance Committee, which shall be constituted in accordance with rule 2.2. Each Market Participant, service provider and the Market Administrator has submitted to the jurisdiction of the Committee in respect of the matters described in these rules and neither the Market Administrator or any Market Participant or service provider shall seek to enforce, other than under this rule 2 (including rights of appeal), any duty or obligation of any other person described in these rules. This rule shall not preclude any other form of enforcement rights arising independent of these rules.
2.4 Functions of the MSC
The functions of the Market Surveillance Committee shall be to:
2.4.2Monitor business conduct
Monitor the conduct of each Market Participant’s Business and the performance of each service provider;
2.4.3 Exercise disciplinary powers conferred by these rules
Exercise the powers of investigation, suspension and termination, and any other powers, conferred on the Market Surveillance Committee by these rules;
2.4.4 Recommend rule changes
Recommend to the Market Participants any rule changes which the Committee considers necessary or desirable in accordance with rule 5.5;
2.4.6 Investigate alleged misconduct or breaches of these rules
Investigate all allegations of misconduct, or suspected breaches of these rules, by Market Participants, service providers or the Market Administrator and investigate all complaints by clients or members of the public against Market Participants, service providers or the Market Administrator;
2.4.7Maintain work inspection programmes
Maintain appropriate work inspection programmes to enable the Committee to ascertain whether Market Participants, service providers or the Market Administrator are complying with these rules, the Act and any regulations made under it, as the Committee may from time to time consider appropriate.
2.5 MSC has certain powers of delegation in fulfilling its functions
In order to assist it in fulfilling its functions under these rules the Market Surveillance Committee may:
2.5.1Appoint the Market Administrator to carry out investigations
Appoint the Market Administrator, any officers or employees of the Market Administrator, the auditors of the Market Administrator or of NZEM, or such other persons as the Committee thinks fit, to act as agent or agents of the Committee in carrying out any investigation, inspection or other function. Any such agent or agents shall report in writing to the Committee on completion of such investigation;
2.5.2 Employ or seek advice from other persons
Employ, or otherwise seek advice or assistance from external investigators, auditors, accountants, lawyers and other experts, and such other persons as the Committee thinks fits,
provided that, in appointing investigators or other persons pursuant to this rule 2.5, the Committee will ensure that any appointed person does not have a conflict of interest in carrying out the investigation.
2.7 MSC may make binding rulings on the interpretation of these rules
The Market Surveillance Committee may in its discretion, upon application by the Market Administrator, a service provider or a Market Participant or a client of a market Participant, make a ruling as to the interpretation or application of these rules. Any such ruling shall be binding upon the Market Administrator, the service provider, the Market Participant, the client and all persons claiming through or under the Market Participant.
2.9 Breach reporting and investigation procedures
2.9.1Breaches to be reported
When a person believes that the Market Administrator, a Market Participant or a service provider may have breached these rules, then that person may notify the Market Surveillance Committee. Such notice will be in writing and will specify the person who is alleged to have breached the rules, the rule allegedly breached, the alleged circumstances relating to the breach and the date and time the alleged breach occurred. Nothing in this rule will override any specific obligation to report a breach imposed on any person elsewhere in these rules.
2.9.2Non-Market Participant complaint
If the person making the allegation under rule 2.9.1 is not the Market Administrator, a Market Participant or a service provider, then that person must agree in writing that it submits itself to the jurisdiction of the Committee and agrees to be bound by any decision of the Committee as if it was a Market Participant including any order the Committee may make against that person pursuant to rule 2.16.9.
2.9.3 Investigator to be appointed
The Committee will immediately appoint a person pursuant to rule 2.5 (the “investigator”) to investigate any alleged breach notified to it either pursuant to rule 2.9.1 or any other rule.
2.9.4 Investigator to approach person allegedly in breach
The investigator will notify the person alleged to have committed the breach of the allegations that have been made. Such notice will be in writing and will specify the person who made the allegations, the rule allegedly breached, the alleged circumstances relating to the alleged breach and the time the alleged breach occurred. Notwithstanding this rule and rule 2.10.1, in exceptional circumstances the Chairperson of the Market Surveillance Committee (or a Committee member nominated by the Chairperson) may order that the identity of the person making the allegations not be disclosed.
2.9.5 Person must respond to allegations
Within 10 business days of receiving a notice made under rule 2.9.4 (or such longer period as the Committee or the investigator may stipulate in writing), the recipient will give notice in writing to the investigator of its response to the allegations.
2.9.7No admission followed by full investigation
If a notice given to the investigator pursuant to rule 2.9.5 does not include an admission that the alleged breach occurred or if the investigator does not receive a notice given pursuant to rule 2.9.5 within the time frame specified in rule 2.9.5, the investigator will conduct a full investigation of the facts surrounding the allegations. During the course of this investigation, the investigator will ensure that all persons the subject of the investigation have a reasonable opportunity to review and comment on all material collected during the course of the investigation.
2.9.8 Complaint laid following completion of investigation
After the investigation has been completed to the satisfaction of the investigator:
2.9.8.1The investigator will determine whether the complaint should be formally laid against the person who allegedly committed the breach;
2.9.8.2If the investigator determines that the complaint should be laid, then the investigator will carry out the procedure set out in rule 2.9.9;
2.9.8.3If the investigator determines that no complaint should be laid, it will inform the complainant. If the complainant advises the investigator in writing within 10 business days that, notwithstanding the investigator’s determination, it requires the complaint to be laid, then the investigator will proceed with the process set out in rule 2.9.9;
2.9.8.4If the complainant does not advise the investigator in accordance with rule 2.9.8.3 that it requires the complaint to be laid, the investigator will inform the Committee and the person allegedly in breach that the matter is at an end and no complaint will be laid.
2.9.9Process for laying a complaint
A complaint will be laid in accordance with the following processes:
2.9.9.1The investigator will formulate the complaint by specifying in writing the rule or rules alleged to have been breached, the date on which the breach is alleged to have occurred and the key facts alleged to constitute the breach;
2.9.9.2The investigator will prepare a report as described in rule 2.9.10;
2.9.9.3The investigator will forward to each of the Committee, the complainant and the person allegedly in breach a copy of the complaint formulated in accordance with rule 2.9.9.2 and a copy of the report prepared in accordance with rule 2.9.10;
2.9.9.4The Committee will give to each of the complainant and the person allegedly in breach not less than 20 business days’ notice in writing of the place, date and time at which the complaint will be heard by the Committee.
2.9.10Final report prepared after complaint laid
If the complaint is laid pursuant to rules 2.9.8 and 2.9.9, the investigator will give a written report of the investigation to the Committee (a copy of which will be provided to the person allegedly in breach and the person who made the complaint). The report will specify the details of the investigation including:
2.9.10.1 the rule allegedly breached;
2.9.10.2the person who allegedly committed the breach;
2.9.10.3the date and time the breach allegedly occurred;
2.9.10.4the relevant issues raised by the person alleged to be in breach in response to the allegations of breach;
2.9.10.5the comments made by any other person in response to the relevant issues raised by the person allegedly in breach;
2.9.10.6any additional information which the investigator considers relevant to the decision of the Committee as to how the matter may be dealt with by the Committee;
2.9.10.7the investigator’s assessment of the impact of the conduct alleged to constitute the breach on the market;
2.9.10.8the investigator’s assessment of the likelihood of the alleged breach recurring;
2.9.10.9details of any similar situations previously dealt with by the Committee; and
2.9.10.10a copy of all correspondence with the investigator relating to the breach.
2.10 MSC to adopt appropriate procedure for hearing
2.10.1 Pre-hearing statements and material
Where a matter is to proceed to a hearing, the Market Surveillance Committee will, not less than 5 business days before the hearing, provide all persons involved in the hearing with a statement of the matter under consideration, and a copy of all relevant material collected during the course of the investigation of the matter up to the time such information is provided.
2.10.2Hearings will be in private and recorded verbatim
The Market Surveillance Committee will, subject to the requirements of natural justice, adopt such procedures as it sees fit for the conduct of a hearing. Hearings will be in private, unless the Market Surveillance Committee directs otherwise, and will be recorded verbatim.
2.10.3 Public hearings may be opposed
Where the Market Surveillance Committee considers that a hearing should be public it will notify the affected parties of its decision and the grounds for that decision. If a party disagrees with this decision it may make a written submission, within 5 business days of receiving the notification referred to in this rule, to the Market Surveillance Committee. The Market Surveillance Committee will consider the submission and then notify the affected parties of its decision and the grounds for that decision. A Market Participant may appeal the decision of the Market Surveillance Committee in the manner prescribed in rule 3.
2.12Rights of persons who are the subject of an MSC hearing
Subject to rule 2.10, the Market Administrator, the Market Participant or service provider shall, at any hearing of the Market Surveillance Committee, be:
2.12.1 Entitled to be represented
Entitled to be represented;
2.12.2 Given opportunity to make representation
Given a reasonable opportunity to make written or oral representations;
2.12.3 Entitled to call witnesses
Entitled to call witnesses and to cross-examine any witness called against it;
2.12.4 Entitled to plea in mitigation
Entitled to make a plea to the Market Surveillance Committee in mitigation of penalties;
2.12.5 Have any other Market Participant present
Entitled to have any other Market Participant, or one of its staff, present to give evidence. In such a case, the Market Surveillance Committee shall order the attendance of that person and that person shall attend to give evidence as required.
2.13Informal resolution process
At any time after an investigator has been appointed pursuant to rule 2.9.3 up until the day before the complaint is heard by the Market Surveillance Committee the investigator may endeavour to effect an informal resolution of the matter by agreement between the complainant, the person allegedly in breach and the investigator by such process as the investigator thinks fit.
2.13.1Remedies may form part of informal resolution
All the remedies available to the Committee pursuant to rule 2.16 (including, for the avoidance of doubt, the payment of a fine, compensation or costs) may form part of any agreed resolution of a matter.
2.13.2 Account may be taken of informal resolution
It will be a term of every agreed informal resolution that any such resolution may be taken into account by the Committee in determining a remedy or penalty in any future matter involving a party to the agreed resolution.
2.13.3 Approval and adoption by Committee
A copy of every agreed informal resolution shall be provided by the investigator to the Committee which shall either:
2.13.3.1Approve the informal resolution, whereupon the informal resolution shall be deemed to be an order of the Committee, except that there shall be no right of appeal under rule 3; or
2.13.3.2Reject the informal resolution, whereupon the complaint will be set down for a hearing in accordance with rule 2.9.9.3.
2.16 MSC may make certain orders
The Market Surveillance Committee, after considering any matter referred to it, or investigating any matter of its own volition, may:
2.16.1 Decide no action is necessary
Decide that no action should be taken;
2.16.2 Issue private warnings
Issue a private warning or reprimand;
2.16.3 Issue public warnings
Notwithstanding rule 2.14, issue a public warning or reprimand;
2.16.4 Make termination or suspension orders
Make a termination order or suspension order under rule 2.23;
2.16.5 Impose record keeping or reporting requirements
Impose additional or more stringent record keeping or reporting requirements under or in connection with any rule;
2.16.6 Propose rule changes
Propose a rule change pursuant to rule 5.5;
2.16.7 Impose fines
Impose a fine under rule 2.17;
2.16.8 Order compensation to be paid
Order that the Market Administrator, the Market Participant or service provider pay any sum by way of compensation to a third party;
2.16.9 Make orders as to costs
Make orders regarding the costs of the investigations and/or proceedings;
2.16.10 Approve or reject an informal resolution
Approve or reject an informal resolution of an alleged breach of these rules agreed pursuant to rule 2.13.3;
provided that the Market Surveillance Committee shall not take any action pursuant to rules 2.16.3, 2.16.4, 2.16.5, 2.16.7, 2.16.8 or 2.16.9 without also giving the reason or reasons for its decisions in writing.
2.19 If there is no appeal, the MSC’s decision is conclusive and binding
If no notice of appeal is lodged by the Market Participant or service provider against whom a finding has been made or a complainant under rule 3 the findings of, or any action taken by, the Market Surveillance Committee shall be deemed conclusive and binding upon the Market Participant or service provider and upon any person which alleged misconduct or breach of the rules by a Market Participant, service provider or the Market Administrator which led to the finding or action of the Committee.
3.1 The Market Administrator shall appoint an Appeal Board
Where any person gives notice in writing to the Market Administrator that it wishes to appeal against a decision of the Market Surveillance Committee under these rules in relation to that person (an “appellant”), the Market Administrator shall appoint a person or persons who is or are independent as an Appeal Board to review the decision and shall notify the appellant of the date and time when, and the place at which, the appeal will be considered.
3.2 Requirements for notices of appeal
Any notice to be given under rule 3.1 shall:
3.2.1Ten business days after decision
Be given within ten business days after the appellant receives notice of the decision against which it wishes to appeal. It is acknowledged that the Market Surveillance Committee may make a number of decisions concerning a matter. The ten business day period referred to in this rule will run from the date that a final determination on a matter is made by the Committee; and
3.2.2Accompanied by a refundable fee
Be accompanied by the sum of $1,500 or such other amount as the Market Surveillance Committee determines by way of initial contribution, in whole or in part, towards the costs of the appeal, which amount shall be refundable if:
3.2.2.1the decision appealed against is reversed; or
3.2.2.2a termination of trading rights is cancelled or reduced to a suspension, or a suspension is reduced or cancelled.
3.5 Appeal Board procedures
In considering an appeal, the proceedings of the Appeal Board shall be governed by the rules of natural justice and each party shall be given, in advance of the hearing of the appeal, copies of any documents to be produced in evidence.
3.6 Appeal Board may make such orders as it sees fit
The Appeal Board may, after hearing an appeal, confirm, revoke or vary any finding or decision, or order as to costs, made by the Market Surveillance Committee and may impose such other decision as it sees fit, or make any other further order as may in its opinion be required.
Part 2 of Rules
Section 4
4.5 Final prices will not be recalculated
Notwithstanding any error subsequently discovered in the information described in rule 4.2 or in the process carried out by the Pricing Manager in this rule 4, the Pricing Manager will not be obliged to recalculate the final price, final marginal location factor or final reserve price for any trading period except where the Market Surveillance Committee determines that the error was such as to materially financially disadvantage any Spot Market Participant. This rule 4.5 is not intended to limit any right that any Spot Market Participant may have against any service provider or other Spot Market Participant that may have caused or been responsible for such error.
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