New Zealand Airports Association Incorporated v Commerce Commission

[2025] NZHC 2128

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE

CIV-2024-485-61 CIV-2024-485-66

CIV-2024-485-68 [2025] NZHC 2128

UNDER

Section 52Z of the Commerce Act 1986

IN THE MATTER

of an appeal against the Airport Services Input Methodologies Amendment

Determination 2023 ([2023 NZCC 34) dated
13 December 2023

BETWEEN

NEW ZEALAND AIRPORTS ASSOCIATION INCORPORATED

First Appellant

AUCKLAND INTERNATIONAL AIRPORT LIMITED

Second Appellant

WELLINGTONN INTERNATIONAL AIRPORT LIMITED
Third Appellant

CHRISTCHURCH INTERNATIONAL AIRPORT LIMITED
Fourth Appellant

AND

COMMERCE COMMISSION

First Respondent

AIR NEW ZEALAND LIMITED
Second Respondent

QANTAS AIRWAYS LIMITED
Third Respondent

BOARD OF AIRLINE

REPRESENTATIVES NEW ZEALAND INCORPORATED

Fourth Respondent

NEW ZEALAND AIRPORTS ASSOCIATION INCORPORATED v COMMERCE COMMISSION [2025] NZHC 2128 [1 August 2025]

Hearing

commenced:

Application heard:

21 July 2025

23 July 2025

Counsel:

J B M Smith KC, T D Smith, S D J Peart, E N L Peart and

A M Bensemann for Wellington International Airport Ltd and Christchurch International Airport Ltd

M N Dunning KC, K M Massey, L M Mau and Y Li for Auckland International Airport Ltd and New Zealand Airports Assoc Inc

J D Every-Palmer KC, R S May, T G Bain and S T Hartley A C Butler KC, S C Keene and L C Wright for Qantas Airways Ltd

T J A Lindsay and S J McNae for Board of Airline Representatives of New Zealand Inc

Results Judgment:

23 July 2025

Reasons Judgment:

1 August 2025

REASONS JUDGMENT OF RADICH J AND

LAY MEMBERS DR J WALKER AND PROFESSOR S KING

(Corrected figures for asset beta and pandemic uplifted range)

[1]    In an oral results decision given on 23 July 2025, we made an order that corrected figures for coding errors, made by the Commission in the course of the process that led to the aspects of the determination that are in issue in the proceeding (the Determination),1 could be referred to by the parties in their submissions.2

[2]In this decision, we give our full reasons for having made that order.

Context

[3]    The appellants3 bring appeals from the approaches taken by the Commission in estimating the ‘equity beta’ and ‘leverage’ fixed parameters of the weighted average cost of capital (WACC) component in the Determination.

1      Airport Services Input Methodologies (IM Review 2023) Amendment Determination 2023 [2023] NZCC 34.

2      New Zealand Airports Association Inc v Commerce Commission HC Wellington CIV-2024-485- 61, 23 July 2025 [Results judgment].

3      We will refer to the parties generally in this decision as the Commission, the Airports and the Airlines.

[4]    There are three primary aspects of the Determination that are in issue in the appeals. The Airports say:

(a)That, in determining the asset beta used in the WACC calculation, the Commission changed its approach to the selection of the comparator airports by applying additional filters and using a smaller number of comparator airports as a consequence.

(b)That, in estimating the equity beta used in the WACC calculation, the Commission changed its approach to the estimation window used. Rather than taking averages from the two previous five-year periods of observations, it excluded observations in a time period during which it considered equity markets were affected by the Covid-19 pandemic and then applied an adjustment to the beta calculated in the pre-Covid period (the pandemic uplift).

(c)That the coding programme – the R code – the Commission used to calculate the asset beta and the pandemic uplift contained errors which may have affected the ultimate equity beta determination.

[5]    It is said, in relation to the first and second grounds, that, in terms of the test that is to be applied by the Court in these appeals,4 input methodologies which do not make those changes, and which do not have those coding errors, will be materially better in meeting the purpose of Part 4 of the Commerce Act 1986,5 the purpose of input methodologies,6 or both.

[6]    In a 25 October 2024 memorandum, the Commission accepted the R code contained errors which affected the calculation of the asset beta, and which might in turn have had an impact on the determination of the equity beta.

[7]    In a 4 December 2024 memorandum, the Commission admitted that the coding errors affected the pandemic uplift range used in estimating the equity beta and went

4      Under s 52Z of the Commerce Act 1986.

5      Section 52A of the Commerce Act.

6      In s 52R of the Commerce Act.

on to explain how the equity beta and WACC might be affected if the figures resulting from the correction of the R code errors (the corrected figures) were applied mechanically - without the Commission exercising further judgement or undertaking reasonableness checks.

[8]    After the Airports had, on 21 March 2025, filed their substantive submissions in these appeals, the Airlines challenged references made in the submissions to figures that would have resulted had the R code errors not been made. The submissions then used the adjusted figures to calculate what, in the Airports’ submissions, the substantive asset beta should be in support of a submission that the Court should, in granting relief, refer the errors back to the Commission for adjustment on that basis.

[9]    The Airlines’ position was that references in submissions to corrected figures would be introducing material that falls outside of the closed record that must be used for appeals under s 52ZA of the Commerce Act (and discussed below).

[10]   In the decision of Radich J (sitting alone) of 16 May 2025, the Airlines’ position was upheld on an interim basis. A direction was made that references to the corrected figures were to be redacted at that stage on the basis that they could be reinstated in the event that the members of the Court, when dealing with substantive arguments at trial, decided that the corrected figures may be provided.7

[11]   When, on the afternoon of Tuesday, 22 July 2025, Mr Dunning KC began to address the Airports’ submissions on relief,8 he paused to ask that the Court now, in accordance with the terms of the 16 May decision, reconsider the introduction through submissions of the corrected figures so that (as is explained further below) the nature of the relief sought by the Airports could be addressed with an appropriate level of detail.

7      New Zealand Airports Association Inc v Commerce Commission [2025] NZHC 1205 [Interim decision] at [34] and [37].

8      Mr Smith KC, for Wellington International Airport Ltd and Christchurch International Airport Ltd, and Mr Dunning KC, for Auckland International Airport Ltd and New Zealand Airports Association Inc Ltd, delivered their submissions  in  such  a  way  as  to  minimise  repetition. Mr Smith, who gave oral submissions first, left the question of relief to be addressed in oral submissions by Mr Dunning.

[12]   Following exchanges with counsel, the hearing was adjourned until 10 am on Wednesday, 23 July to enable the parties to prepare arguments on the point.

[13]   A preliminary matter, addressed in those exchanges on 22 July, was whether, in hearing and determining the application, the Court should sit with or without its lay members. Counsel for the Airlines submitted that the matter in issue is a question of law and that Radich J should sit alone.

[14]   Under s 77(9) of the Commerce Act, the Court must sit with at least one lay member in exercising its powers of appeal under Part 4 of the Act. Section 77(14) provides (as relevant here):

(14)Notwithstanding anything in the foregoing provisions of this section, a Judge of the court sitting alone shall have jurisdiction to make any of the following orders:

…

(d) an order in any proceedings where the matter in issue is substantially a question of law only:

[15]   Section 77(14) provides jurisdiction for the Court to make an order on a matter that is substantially a question of law. It does not preclude the Court, sitting with lay members, from doing so. In the 16 May 2025 decision, it was said that the “members of the Court” could reconsider the issue during the course of the hearing. It is appropriate for the members of the Court to do so in circumstances in which the issue is embedded in the relief submissions that were in the process of being delivered. Accordingly, a direction was made following exchanges on 22 July that the full Court would hear and determine the application on 23 July.

The closed record requirement

[16]Section 52ZA(2) of the Act is in the following terms:9

52ZA Process for appeals

…

(2) 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.

9      Which we will refer to as the closed record rule.

[17]   The closed record rule ensures that the substantive issues in an appeal under Part 4 of the Act are determined only on the basis of material that was before the Commission when it made its decision. As was said in the 16 May 2025 decision, the legislative history supports a view that Parliament was concerned to avoid undue litigation and the potential “gaming” of the appeal process.10 Moreover, it supports a view that Parliament wanted to ensure that interested parties would provide full information to the Commission during its decision-making process, rather than revealing further information during an appeal.11

Positions of the parties

[18]   For the Airports it is said that there is no dispute between any of the parties as to the corrected figures. They say that the Commission and the Airports agree that the admission of the coding errors – both as to their existence and the consequences of them – is admissible on the basis that the Court is able to rely on a party’s admissions in order to make a ruling of fact and, on that basis, to enter judgment or to determine a cause of action.12

[19]   The Airports say that, put another way, it is not a matter of anyone trying to “game” the process. Rather, the Commission is conceding certain points and preventing it from making those concessions would be counterproductive. In seeking to refer to the admissions (including what the corrected figures would be) the Airports advance an aim of providing the Court with useful context to enable it to better understand the nature of the relief that could be granted.

[20]   It is, it is said, quite a different position from a party endeavouring to introduce new evidence, or a new analysis, that was not before the Commission when it made its determination.

10 Interim decision, above n 7, at [17], citing (20 March 2008) 646 NZPD 15158; Commerce Amendment Bill 2008 (201-1) (explanatory note); Commerce Amendment Bill 2008 (201-1) (select committee report) at 4–5; and Wellington International Airport Ltd v Commerce Commission HC Wellington CIV-2011-485-1031, 22 December 2011 [2011 WIAL decision] at [119] and [132(a)].

11 At [17], citing 2011 WIAL decision, above n 10, at [241] and [262(c)].

12 Provision is made for the entry of judgment on admission of facts under rr 15.15 and 15.16 of the High Court Rules 2016.

[21]   The Airports say that, in any event, the corrected numbers are not outside the closed record. When the Commission published the determination, it published also the R code used in its calculations.13 Accordingly, the coding errors could be identified and corrected from the R code information by a person with the relevant expertise.

[22]   In addition, it is said, the first coding error – the calculation of the pre-Covid asset beta – could be identified and corrected from information contained in the Commission’s final reasons paper, without the need to look at the R code itself.14 Counsel for the Commission accept that the error can be identified from the reasons paper alone, but suggest that correction of the error is not as straightforward as the Airports suggest and would require an application of the corrected R code.15

[23]   The Commission says that considerably more expertise is needed to correct the error in the calculation of the pandemic uplift range. It can now be said (given the outcome of this decision) that, without the coding errors, the output range for the pandemic uplift range would have been 0.07 to 0.15 instead of 0.02 to 0.08. That, in turn, would result in an asset beta range of 0.72 to 0.80. The Commission says that the skill required to recalculate the uplift range from the R code figures is something which would be difficult to demonstrate in court from the numbers alone. The Airports accept that calculations to correct this second error are not as straightforward as is the case for the first.

[24]   The Commission abides the decision of the Court but agrees with the Airports that the admission should be admissible, for substantially similar reasons. Where the Commission and the Airports differ is on how the admissions could be used, should they be admitted.

13 Commerce Commission Part 4 IM Review 2023 Cost of Capital Topic Paper – Asset Beta Calculations [13 December 2023] [Commission’s 2023 reasons paper].

14 In Table D2 of the Commission’s 2023 reasons paper, above n 13, at 341, the Commission set out the weekly and four-weekly asset betas. It is possible to average the weekly and four-weekly asset betas provided in table D2 of the paper to find that the pre-Covid average was not 0.63 (as was said in the determination) and was, instead, 0.65. That is so for both a simple average and a “length of time based” weighted average. The pre-Covid asset beta was to have been an average of weekly and four-weekly data; but the R code averaged only weekly, not four-weekly data.

15 Counsel for the Commission say that the figures in Table D2 are the result of intermediate  rounding, such that a calculation based on the figures in the Table alone would create a reasonable approximation of the true corrected figures, but that the true corrected figures themselves could only be calculated from a re-run of the programme with the coding error corrected.

[25]   The Commission and the Airlines are allied in saying that, while the formulae involved in correcting both coding errors give the appearance of mathematic precision, the reality is far from that. While the errors can be corrected in mathematical terms, they say, it cannot be said that the outcomes enable the equity beta, and therefore the WACC, to be adjusted through mathematical adjustments alone such that the errors could be referred back with directions to the Commission on that basis.

[26]   The Commission and Airlines say that judgement and uncertainty is a feature of the process. The pandemic uplift and beta calculations are one thing but the ultimate determination of the equity beta and the WACC is more an art than an science, involving a number of other comparators and reasonableness checks to enable the Commission to be satisfied that the outcome is appropriate. Accordingly, they say, the Court would be in error if it simply allowed the corrected figures to be mechanically applied in granting any relief.

[27]   The Airlines oppose the Airports’ application on the basis the corrected figures are a breach of the closed record principle. They are concerned that, to allow the adjusted figures to be used introduces also the methodology that underpins them which would, in turn, encourage tactical gaming in the use of admissions: any party might make use of admissions in order to get information on to the record that suits them.

[28]   The Airlines say that there could be little prejudice to the Airports in proceeding without reference to the amended numbers themselves. On the other hand, they say that the admission of the recalculated numbers would prejudice the position in their judicial review proceeding in the event that the correct numbers could enable a referral back by the Court to the Commission for correction purely on a mathematical basis.

Discussion

[29]   It is important for the Court, in considering the spectrum of potential relief available in the event that one or more grounds of appeal is made out, to understand those options with greater precision than would be the case if the adjusted numbers are not known.

[30]   In the first place, in the event that one or both of the first and second grounds of appeal are made out, and if relief is granted on them, then the specific relief on the R code errors is unlikely to be necessary. However, if neither the first nor the second ground of appeal is made out, the positions of the parties reveal a spectrum of potential relief on the R code errors:

(a)On the Airports’ case, knowing what the corrected numbers are would enable the Court to refer the determination back to the Commission and direct it to recalculate the equity beta in the light of admitted coding errors. For example, it might apply the adjusted pre-Covid asset beta of 0.65 and a pandemic uplift of 0.11 (being the mid-point of the adjusted pandemic uplift range of 0.07 to 0.15) or such other point as the Court determines.16 The numbers are needed in order to be able to understand and consider the potential for mechanistic relief of this sort.

(b)The Commission’s position is that determination of the equity beta is not purely mechanistic. The asset beta and Covid uplift numbers are but two aspects in a multifaceted process in which the Commission draws upon multiple threads to consider whether the asset beta, equity beta and resulting WAAC figures are appropriate. Adjustments in the numbers in question here may lead it to reassess the way in which it applies the broad range of considerations and datapoints in reaching a final outcome.17 Accordingly, the Commission says that too much judgement on the Commission’s part is involved for the Court to be able to refer the coding errors to the Commission for reconsideration on the basis that a mechanical application of the corrected numbers will produce an input methodology that is “materially better”.18 Accordingly, the Commission says, while the Court should not grant

16     The Airports say that the Court might, alternatively, look at the Commission’s “plausible range” of asset betas referred to in the determination of between 0.63 and 0.74 and, based upon the amended numbers, apply a pandemic uplift in the order of 0.07 to bring it within that range.

17    For example, it will consider, when looking at the asset beta, the historical and expected returns  on the New Zealand market as a whole, overseas WACC decisions for airports and New Zealand WACC estimates for airports and, having done that, it will undertake further reasonableness cross- checks.

18 In terms of s 52Z(4) of the Commerce Act.

relief, in the event that the first and second grounds of appeal do not succeed, then it is committed to a s 52X review process to address the R code errors and any other matters relating to the first two grounds once it has the benefit of the Court’s guidance on the issues of principle that arise.

(c)The Airlines’ primary position is that the whole process has miscarried and that the Commission’s determination as a whole should be set aside through the exercise of the jurisdiction the Court has in the related judicial review proceeding, which will be heard straight after the conclusion of the appeal hearing. It says that the errors are so fundamental that their impact on the judgement the Commission may ultimately exercise in determining the asset beta, the equity beta and the WAAC must be the product of reconsideration in the first instance.

[31]   As we said in our oral results judgment, having a detailed understanding of the spectrum of arguments and possible outcomes now, we are comfortable to proceed on the basis that the amended numbers may be used in argument.19 As we went on to say, we see a material distinction between, on the one hand, using corrected numbers in submissions to argue for relief and, on the other hand, the issue of whether any argument for relief based upon the corrected numbers should be accepted by the Court.20

[32]   Underpinning all of this is the Court’s view that correcting the admitted R code errors is a mathematical exercise that can in fact be undertaken from information that is presently available on the closed record.21 While it is accepted that the calculation of the pandemic uplift figures would require considerably more expertise than the calculation of the pre-Covid asset beta, nonetheless, a party with sufficient expertise could readily undertake the task. Accordingly, we do not see the closed record rule as having been breached. An admission has been made and the consequences of the admission can be fathomed without having to go beyond the documentary information

19 Results judgment, above n 2, at [2].

20 At [3].

21     But observing that whether the corrected numbers should translate mechanically into any final input methodology determination is at large.

and views that were before the Commission. Accordingly, the outcome in this decision could not encourage the tactical use of admissions in the future to get new information on to the record.

[33]   Furthermore, we do not see the outcome of this application as having an adverse effect on the judicial review proceeding. While, for the reasons given, it is useful for the Court to understand and consider the range of outcomes the parties advance, any conclusion on the question of relief in the appeal proceeding, and in the judicial review proceeding, is very much at large and the arguments the parties may put remain largely unchanged.

[34]   Accordingly, the information now before the Court is such that it is appropriate for the conclusions reached in the 16 May 2025 decision – as to the scope of the Commission’s admissions, the mathematical effect of the coding errors, and their relevance to the judicial proceeding – to be revisited.

[35]   For these reasons, the amended figures – for the adjusted pre-Covid asset beta and the calculation of the pandemic uplift – may be put before the Court in argument.

For the Court

Radich J

Solicitors:

Chapman Tripp, Wellington for Wellington International Airport Ltd and Christchurch International Airport Ltd

Russell McVeagh, Auckland for Auckland International Airport Ltd and New Zealand Airports Association

Luke Cunningham Clere, Wellington for Commerce Commission Webb Henderson, Auckland for Qantas Airways Ltd

Lindsay Francis & Mangan, Auckland for Board of Airline Representatives of New Zealand Inc