Godfrey Hirst NZ Limited v Commerce Commission
[2015] NZHC 3061
•4 December 2015
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2015-404-002719 [2015] NZHC 3061
UNDER the Commerce Act 1986 BETWEEN
GODFREY HIRST NZ LIMITED Appellant
AND
COMMERCE COMMISSION First Respondent
CAVALIER WOOL HOLDINGS LIMITED
Second Respondent
NEW ZEALAND WOOL SERVICES INTERNATIONAL LIMITED
Third Respondent
Hearing: 3 December 2015 Appearances:
J C L Dixon and S D J Peart for Appellant
N F Flanagan for First Respondent
D J Cooper and J Q Wilson for Second and Third RespondentsJudgment:
4 December 2015
JUDGMENT OF GILBERT J
This judgment is delivered by me on 4 December 2015 at 11 am pursuant to r 11.5 of the High Court Rules.
..................................................... Registrar / Deputy Registrar
GODFREY HIRST NZ LTD v COMMERCE COMMISSION & ORS [2015] NZHC 3061 [4 December 2015]
Introduction
[1] Godfrey Hirst applies for a stay of a determination of the Commerce Commission dated 12 November 2015 granting authorisation to Cavalier Wool Holdings Ltd (CWH) to acquire control over the wool scouring business and assets of New Zealand Wool Services International Limited (NZWSI).
[2] CWH and NZWSI are the only New Zealand based providers of wool scouring services. If the acquisition proceeds, the number of scouring firms in New Zealand will reduce from two to one creating a domestic monopoly for such services. The acquisition would have the effect of substantially lessening competition in this market and accordingly is prohibited by s 47 of the Act unless authorised by the Commission under s 67.
[3] Godfrey Hirst is affected because, as a manufacturer of woollen carpets in New Zealand, it is a purchaser of scoured wool. It opposed CWH’s application before the Commission, arguing that any benefits that may accrue from the acquisition are outweighed by the likely detriments.
[4] Godfrey Hirst has appealed against the Commission’s determination that the acquisition will result, or will be likely to result, in such a benefit to the public that it should be permitted. It claims that the Commission made material errors in reaching its decision and accordingly the authorisation should not have been granted. CWH and NZWSI also contend that the Commission’s determination contains material errors but submits that these resulted in the public benefit of the acquisition being significantly understated, not overstated as Godfrey Hirst argues.
[5] Godfrey Hirst’s appeal right will be rendered nugatory if a stay is not granted. This is because CWH and NZWSI have confirmed that, if the Commission’s authorisation is not stayed, they intend to complete the acquisition immediately. The acquisition would then be immune from attack under ss 27 or 47 of the Act by virtue of s 69 which provides:
69 Effective of clearance or authorisation
Nothing in section 27 or section 47 of this Act applies to the acquisition of assets of a business or shares if the assets or shares are acquired in accordance with a clearance or an authorisation and while the clearance or authorisation is in force.
[6] CWH and NZWSI do not dispute this analysis. However, they contend that, in practical terms, they cannot complete the acquisition until the authorisation is effective. Therefore, if a stay is granted, the benefits of the acquisition will be deferred and cost savings will be foregone for as long as the stay remains in force. While opposing any stay, they argue that if a stay is granted, they should be protected from these losses through an undertaking as to damages from Godfrey Hirst.
Legal principles
[7] Section 95(1) of the Act provides:
95 Provisions pending the determination of appeal
(1) Where an appeal is brought under any provision of this Part of this Act against any determination of the Commission, the determination to which the appeal relates shall remain in full force pending the determination of the appeal, unless the Court orders to the contrary.
[8] The leading case on s 95 is the Court of Appeal’s decision in Telecom Corporation of New Zealand Ltd v Clear Communications Ltd.1 That case concerned an appeal by Telecom against a stay ordered by the High Court pending disposal of appeals by Clear and BellSouth against the Commission’s determination granting Telecom clearance under s 66 of the Act to acquire Sky Network Television Ltd. The following factors identified by the Court of Appeal are relevant in this
case:
(a) Whether the appeal will be rendered nugatory unless a stay is granted. (b) The strength of the appeal.
1 Telecom Corporation of New Zealand Ltd v Clear Communications Ltd [1995] 6 TCLR 682 (CA).
(c) The right of the acquirer to the immediate benefit of the authorisation. (d) The likely loss or damage to the acquirer if a stay is granted.
[9] The Court of Appeal considered that a stay should not automatically follow from a finding that an appeal will be rendered nugatory. However, it considered that this was a “very powerful” consideration. McGechan J, who delivered the judgment of the Court, stated:2
A statutory right of appeal should not be rendered nugatory unless there are sufficient considerations warranting that course in the overall interests of justice. There must be sufficient good reason before a potential injustice of that character can be countenanced.
[10] The Court of Appeal observed that it will often be difficult, and even undesirable, to attempt to assess the strength of the appellant’s case in the context of an application for a stay when an appeal has only just been filed.3 However, a stay should not be granted unless the appellant has at least an arguable case.4
Should a stay be granted?
Will Godfrey Hirst’s appeal rights be rendered nugatory?
[11] It is common ground that Godfrey Hirst’s appeal rights will be rendered nugatory unless a stay is granted. This is a significant factor weighing in favour of a stay. Statutory appeal rights should be facilitated, not denied. It would generally be contrary to the interests of justice to deny parties their statutory appeal rights.
Does Godfrey Hirst have an arguable case?
[12] Mr Cooper responsibly concedes, for the purposes of the stay application, that the Court should proceed on the basis that Godfrey Hirst has an arguable case on appeal. That was a proper concession. It is apparent from the evidence that the benefits and detriments likely to result from the proposed acquisition are difficult to
quantify and are open to debate. As noted, all parties contend that the Commission
2 At 686.
3 At 687, 688.
4 At 687.
made material errors in its assessment. Whether or not that is so cannot be determined until the appeal is heard but this illustrates that the issues are not without difficulty.
The right to the benefit of the authorisation
[13] I take into account that, in the normal course, CWH and NZWSI would be entitled to the immediate benefit of the authorisation. That is what s 95 says. However, as the Court of Appeal observed in Telecom v Clear, that consideration “does not much advance matters” because “it simply begs the question as to when such a right should be put aside”.5 Those who seek clearances or authorisations for acquisitions know that they come subject to appeal rights, as noted by Miller J in Godfrey Hirst NZ Limited.6
Likely loss to CWH and NZWSI if stay is granted
[14] Unlike the position in Telecom v Clear and Godfrey Hirst, there is no suggestion in this case that the acquisition will fail altogether if a stay is granted. However, CWH and NZWSI contend that they will suffer irrecoverable loss if the acquisition is deferred by reason of a stay. James Drake, the financial controller of CWH, has calculated the benefits of the acquisition over a 12 month period through synergy cost savings. He maintains that significant savings will be foregone each
month the acquisition is delayed and that these will be irrecoverable.7 Mr Cooper
submits that these losses are readily quantifiable and the Court can have confidence that they are reliable because they are largely confirmed by the Commission’s findings following its investigation and analysis.
[15] Godfrey Hirst responds that the Court should exercise caution before placing weight on the claimed loss of these benefits. It claims that these losses are significantly overstated and will be contested in the appeal. Further, Mr Dixon points out that while the benefits of the acquisition will be deferred, so too will the
detriments and this is an offsetting factor that should be considered. These
5 At 686.
6 Godfrey Hirst NZ Limited HC WN CIV-2011-485-1257 8 July 2011 at [15].
7 The figures are confidential.
detriments affect the whole market, not just Godfrey Hirst. I accept that these are relevant considerations.
Balancing exercise
[16] I am satisfied on the evidence that CWH and NZWSI have established that they will suffer some irrecoverable losses through foregone synergy savings if a stay is granted. However, I do not consider that this is sufficient to tip the balance in favour of declining a stay in the circumstances of this case. Godfrey Hirst has a legitimate interest in pursuing its appeal. Its case is at least arguable. However, its appeal will be rendered nugatory unless a stay is granted. I take into account that the stay is likely to have effect for only a short period because all parties have committed to progress the appeal with due speed and diligence and the Court will accommodate their request to allocate the earliest available fixture date.
Should an undertaking as to damages be required?
[17] The Court of Appeal confirmed in Telecom v Clear that the Court has jurisdiction to require an undertaking as to damages as a condition of granting a stay. However, the Court considered that undertakings as to damages should not ordinarily be required:8
We consider the discretion to impose conditions as to undertakings should only be imposed in unusual circumstances. Appeal is a statutory right. Undertakings as to damages should in no sense be regarded as routine. Their availability could perhaps be decisive in a case where prospects of success could be assessed as marginal, and risk of damage from stay was very clear and quantifiable.
[18] Counsel did not refer me to any authority where an undertaking as to damages had been required as a condition of a stay. I note that Miller J declined to require an undertaking in Godfrey Hirst despite CWH’s contention at that time that a stay would “kill the transaction”.9 Miller J took into account that although Godfrey Hirst was pursuing its appeal in its own interest, it was also serving the
public interest in competition. I respectfully agree with that observation.
8 n 1 at 690.
9 n 5 at [19].
[19] The acquisition proposed in this case is prohibited by ss 27 and 47 of the Act because it will substantially lessen competition. It may nevertheless be authorised if the benefit to the public is such that it should proceed. It is in the public interest that those seeking authorisation for such transactions should have their claims of public benefit tested, including, where appropriate, through the appeal process. It would be contrary to the public interest and would not serve the interests of justice if those legitimately contesting such claims and having reasonable prospects of success on appeal were dissuaded from doing so by the need to provide an undertaking as to damages.
[20] I do not consider that Godfrey Hirst should be required to provide an undertaking as to damages as the price for being able to exercise its statutory appeal right in this case. To do so would mean that Godfrey Hirst could be obliged to underwrite all of the benefits that might accrue to CWH and NZWSI from the acquisition during the period of the stay while shielding the market as a whole from all of the detriments that would otherwise flow from it. As Mr Dixon says, Godfrey Hirst would have to determine whether to give such an undertaking without having detailed knowledge of the potential financial implications because of the confidentiality restrictions that have been imposed.
[21] This case does not fall within the unusual category of cases identified by the Court of Appeal in Telecom v Clear where undertakings as to damages might be appropriate. Godfrey Hirst’s appeal cannot be described as having only “marginal” prospects of success. The fact that CWH and NZWSI are likely to suffer loss if the acquisition is delayed by reason of a stay does not make this case unusual. That will commonly be the situation when an acquisition is authorised under s 67(3)(b) on the basis that the likely benefits of it have been assessed as outweighing the likely detriments.
[22] For these reasons, I decline to require an undertaking as to damages as a condition of the stay.
Result
[23] The Commission’s determination dated 12 November 2015 authorising the
acquisition is stayed pending resolution of Godfrey Hirst’s appeal.
[24] Costs are reserved.
M A Gilbert J
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