Transpower New Zealand Limited v Cobb Power Limited HC Auckland Cl.5/00
[2001] NZHC 470
•7 June 2001
IN THE HIGH COURT OF NEW ZEALAND
AUCKLAND REGISTRY CL.5/00
BETWEEN TRANSPOWER NEW ZEALAND LIMITED
Plaintiff
AND COBB POWER LIMITED
Defendant
Hearing: 10, 11 and 12 April 2001
21 and 22 May 2001
Counsel: J A Farmer QC, A M Callinan and J A Craig for Plaintiff
A R Galbraith QC and D J Cooper for Defendant
Judgment: 7 June 2001
RESERVED JUDGMENT OF RANDERSON J
Introduction
[1] The Cobb River power station is situated in the northwest of the South Island, not far from Stoke. It is a small hydro-electric station established in 1944 and has a capacity of 32 megawatts. Its output is fed to the national electricity grid through two transmission lines to the Stoke substation. The defendant, Cobb Power, purchased the station from Meridian Energy Ltd by an agreement settled on 25 June 1999.
[2] The plaintiff, Transpower, is the owner and operator of the national grid. Since 25 June 1999, it has charged Cobb Power for conveying electricity on the national grid and for related services. From the beginning, Cobb Power has disputed those charges. In particular, it has taken issue with the charge made for the conveying of electricity from the South Island to the North Island by the high voltage direct current link known as the HVDC. It has paid only a small part of the amounts invoiced by Transpower.
[3] Transpower has issued this proceeding for recovery of the outstanding charges for the period 25 June 1999 to 28 February 2001 which, it is agreed, amount to $1,313,646.37 (excluding interest).
[4] Transpower’s claim is based solely in contract. It alleges that in the absence of a signed agreement, it sent to Cobb Power on 23 June 1999 a document it describes as “Posted Terms and Conditions”. Clause 3.4 of the Posted Terms provided:
“3.4 Acceptance of Posted Terms:
By connecting Assets or continuing to have Assets connected to the Grid without a signed agreement, the Customer has accepted these Posted Terms.”
[5] Transpower alleges that Cobb Power accepted the Posted Terms by connecting the Cobb power station to the national grid as from 25 June 1999 and by continuing to use Transpower’s services thereafter. The Posted Terms provided for payment of the charges now claimed including charges for the HVDC link. At a rate of approximately $68,000 per month, the HVDC charges comprise much the greater proportion of Transpower’s total charges to Cobb Power.
[6] Cobb Power denies the existence of a contract, contending that its opposition to the HVDC charges as well as other terms of the proposed contract, was made known to Transpower both before and on 25 June. It says there was no agreement about fundamental terms of the proposed contract. Cobb Power accepts, however, that it is liable to Transpower to pay for the services it has received on a quantum meruit basis.
[7] Transpower contends that the assessment of charges on a quantum meruit basis is so complicated as to be non-justiciable. It also contends that it has an implied statutory power to fix and recover charges for its services. However, any claim to recover on the basis of such a statutory power was expressly disavowed. Rather, Transpower relied on this contention to support its submission that Cobb Power was not in a position to dispute the charges specified by Transpower in the Posted Terms.
[8] It follows that the sole issue for determination is whether Transpower has established a contractual relationship with Cobb Power. In the course of considering that issue, this judgment will also consider the nature of Transpower’s statutory powers, as well as the availability of quantum meruit as an alternative to contract.
The facts
[9] Transpower was established as a state owned enterprise in 1994 when its functions were separated from the Electricity Corporation of New Zealand. As the owner and operator of the national grid, Transpower is responsible for the short term security of the supply of electricity in New Zealand. Following the passage of the Electricity Industry Reform Act 1998, the assets of the Electricity Corporation of New Zealand were effectively divided amongst three new state owned enterprises (SOE’s). As from 1 April 1999, one of the new SOE’s (Meridian Energy Ltd) took over the operation of the Cobb power station.
[10] On 27 May 1999, Cobb Power’s parent company, TransAlta New Zealand Ltd, announced it had agreed to purchase the Cobb power station from Meridian with settlement due on 25 June. The formal agreement for sale and purchase dated 1 June 1999 shows that the purchase price was a sum in excess of $84 million and was conditional only upon Cobb Power obtaining approval for the purchase under the Overseas Investment Regulations 1995.
[11] Cobb Power Ltd (formerly known as TEC Cobb Ltd) is a wholly owned subsidiary of TransAlta but has no staff of its own. Its management and operation is undertaken solely by TransAlta. This judgment proceeds on the basis that any steps taken by TransAlta are effectively those of Cobb Power. Similarly, any relevant knowledge attributable to TransAlta I treat as known also to Cobb Power. TransAlta is now known as On Energy Ltd but it is convenient to refer to it by its former name.
[12] There can be no doubt that TransAlta was aware from the outset that it would be required to enter into contractual arrangements with Transpower for the purpose of connection to the national grid and for the use of Transpower’s services. An Information Memorandum was provided to all potential purchasers, including TransAlta, prior to the purchase agreement being entered into. That document included material supplied by Transpower specifying the charges which Transpower would make, including the charges for the HVDC link. The annual amounts of those charges were also stated.
[13] Transpower has two forms of contract for the supply of electricity. The first is called a Connections Contract which has a standard form subject to amendment by negotiation. Upon agreement being reached, it is executed by both parties. The second form of contract is the Posted Terms contract (sometimes called Posted Terms and Conditions). It contains the same or similar terms to the Connections Contract but is not executed by either party. It is sent by Transpower to its customer and contains the clause identified in paragraph [4] of this judgment. Ordinarily, it comes into force by the customer connecting to the grid and using the services provided by Transpower.
[14] In 1999, Mr Michael Sim was employed by Transpower as an Account Executive. He was responsible for dealing with a number of electricity generators who had power stations connected to the national grid. From late May that year, Mr Sim had dealings with representatives of TransAlta on behalf of Cobb Power with a view to concluding contractual arrangements. However, his position became somewhat delicate when he gave notice of his resignation from Transpower in mid-June and advised the company he had accepted employment at TransAlta as manager of Networks and Transmission. However, he continued to be Transpower’s primary point of contact with TransAlta until early July 1999. Since then, he has been responsible for managing TransAlta’s relationship with Transpower, including the present dispute.
[15] On 28 May 1999 (the day following TransAlta’s announcement of the purchase of the Cobb power station), Mr Sim sent an e-mail to a number of Transpower’s employees including Mr Patrick Esson who was responsible for Transpower’s Connections Contract, the form of which was then under review. Amongst other things, the e-mail referred to the various charges which would be made to Cobb Power. It was also observed that Cobb Power would be “connecting under the new Connections Contract”. However, with reference to the Posted Terms form of contract, Mr Sim sought advice from Mr Esson with the following sentence:
“Patrick,
Is it worth PT & C at this time? (pessamistic [sic] I know)”
[16] Mr Esson’s response the same day was in the following terms:
“In respect of your question regarding Posted Terms, the answer should be no. We have previously said that a new owner of a generator would not be connected without a confirmed agreement.
Having said that a formal acknowledgement that they are prepared to operate on the basis of Posted Terms might be an option. Our new Posted Terms are supposed to be the basis of a sustainable relationship, albeit less desirable than a signed agreement”
[17] It is evident that Transpower’s preferred position was a Connections Contract but the Posted Terms Contract could be considered. Of significance to the present dispute is Mr Esson’s advice to Mr Sim “that a formal acknowledgement that they are prepared to operate on the basis of Posted Terms might be an option”.
[18] Following this exchange of e-mails, Mr Sim wrote to Mr Michael Wright, Manager (General Development) for TransAlta on 31 May. The letter enclosed “contract and reference documentation necessary for the continued connection of Cobb to the Grid”. The enclosed documents comprised the Connections Contract. Mr Sim’s evidence was that the Connections Contract sent with his letter of 31 May was a new form of contract Transpower then had under development and stated that Transpower was consulting with the industry as a whole as to its terms. At that stage, none of Transpower’s customers had signed the new form of contract and it was not offered to Transpower’s customers in final form until March the following year. Mr Sim’s letter recorded that, at TransAlta’s request, the contract had been put in the name of Cobb Power. Mr Sim also stated in the letter there would be a need to discuss how the credit support terms could be satisfied and that he would contact Mr Wright “to progress these matters which need to be concluded before 25 June 1999 when you take ownership”. Mr Sim also inquired whether the time of settlement was at 0000 hours or 2400 hours on 25 June.
[19] The Connections Contract enclosed with the letter of 31 May was a document in excess of 60 pages in length together with two lengthy policy documents. One of these is described as a Connections Policy and the other as Common Quality Obligations. Clause 3.5 of the Connections Contract states that the agreement sets out the terms on which Transpower will permit the customer to be connected to the grid, the terms upon which Transpower will make the grid assets available for the conveyance of electricity, and its terms for performing the functions of systems operator. It contains commercial terms (including charges for services) as well as technical provisions. It is common ground that the Connections Contract contained generally similar terms to the Posted Terms, although they were not identical. The charges payable to Transpower (including the HVDC charges) were the same in each form of contract.
[20] After receipt of the proposed Connections Contract, it is plain that TransAlta was concerned about a number of issues, including the ability of the Cobb power station to meet Transpower’s technical requirements and the level of the HVDC charges. In evidence, Mr Wright accepted that TransAlta knew at the time of negotiating the purchase of the power station, that Transpower would seek to charge TransAlta for the HVDC link. TransAlta was also aware there had been an on-going dispute between ECNZ and Transpower over this issue. TransAlta understood that this dispute had continued with the new generation companies formed after the split of ECNZ’s assets (including Meridian). There had been concerns over a number of issues including the differential between amounts charged to Transpower’s North Island customers compared with South Island customers. Another matter of prime concern to TransAlta was that it should not be at a disadvantage over the HVDC charges in relation to its competitors in the South Island.
[21] In early June, TransAlta approached Mr France whose firm provides independent consulting services in the energy sector. He was asked to assist TransAlta in negotiating with Transpower to have the Cobb power station connected to the national grid. He met Mr Wright on 14 June 1999 to receive his instructions. He was given a copy of Transpower’s letter to TransAlta of 31 May 1999 and the enclosed copy of Transpower’s proposed Connections Contract. Mr Wright made it clear to Mr France that TransAlta had three main objectives in the negotiations with Transpower:
[a] To connect to the national grid following the settlement of the purchase on 25 June in order to allow Cobb Power to despatch electricity.
[b] He was not to agree to conditions which were more onerous than those applying to other South Island generators (with particular reference to the charges for the HVDC link).
[c] He was not to agree to technical capability requirements which Cobb Power was unable to meet.
[22] Mr Wright’s instructions to Mr France were not to reject outright any charge to the HVDC link. Rather, as Mr Wright accepted, the bottom line was that TransAlta would not pay any more than other South Island generators for the HVDC link. He excluded Contact Energy from the other South Island generators, recognising that its contract had differed historically from the others and was not capable of early remedy by Transpower.
The meeting of 18 June
[23] Mr France met Mr Sim of Transpower on 18 June to discuss the proposed Connections Contract. Mr France confirmed he was aware at the time of this discussion that Transpower was in the process of consulting with the market generally about its new form of Connections Contract which was intended to replace the previous contracts. There was discussion about Transpower’s technical compliance requirements and the ability of Cobb power to comply with them, particularly in light of the fact that the Cobb power station was one of the older ones in the South Island. There was discussion about the possibility of a waiver by Transpower of some of the technical requirements. On that issue, Mr France was advised that Transpower would have some flexibility. Mr France said he was informed by Mr Sim that Meridian and TrustPower (both South Island generators) were paying the same rate as proposed for Cobb Power but Contact Energy was paying at a lower rate.
[24] Mr Sim generally confirmed Mr France’s account of their meeting of 18 June and accepted that no consensus was reached on the matters raised, including in particular the issues of technical compliance and HVDC charges. While the technical issues were not such as to cause him to abandon the idea of having the Connections Contract in place before 25 June, he confirmed that Mr France had raised concerns about the level of HVDC charges in comparison with other South Island generators, including Contact Energy. Mr Sim’s evidence was that Mr France was aware at the time of the meeting that there was a dispute between Transpower and South Island generators over the HVDC charges.
[25] Immediately after the meeting between Messrs France and Sim on 18 June, Mr France reported verbally to Mr Wright who had been undertaking inquiries about the HVDC charges with various South island generators. As a result of Mr Wright’s inquiries, he sent an e-mail later that afternoon to Mr France in which he advised:
“Several points arising from our discussions this afternoon. I have spoken to Meridian and consider that it is not clear cut that they are paying the full HVDC charges. I have also spoken to Contract and Trustpower. Contact seems the least keen on cooperating.”
[26] The e-mail went on to refer to several other issues Contact Energy had raised with regard to the HVDC link, comments by Contact Energy about the unacceptability of “the entire technical area”, and a suggestion by Contact of “a side agreement ring fencing out the issues we do not agree with”.
[27] Mr France confirmed his verbal discussions with Mr Wright by a letter to him of the same date (18 June 1999) headed “Transpower Input Connection Contract”. With reference to the technical compliance obligations, he identified two options for TransAlta. The first was to do nothing and the second was to apply for a dispensation which he considered would probably be granted. He accepted in cross-examination that he expected the technical compliance issues could be “worked through” by one means or another. In respect of the HVDC charges, Mr France reported in the following terms:
“I specifically and in detail requested assurance from Mike Sim that the proposed HVDC rate of $25.95 was no greater than that charged other South Island Generators. He advised that it is the same rate as is being paid by all generators affected except Contact Energy. Contact is apparently still on a long-term contract and Transpower is not able to change their rate. He assured me they recognise fully the necessary (sic) to be scrupulously even-handed between competing generators. In further questioning he re-iterated that Meridian and TrustPower are paying the same rate as proposed for TransAlta at Cobb.
Assuming this is correct, it is hard to see any basis for demanding a reduction in the charge for Cobb from that which Meridian is paying. I would propose to record formally to Trans Power when responding to their draft, that if TransAlta accepts the charge it would be on the basis of this assurance which must be acknowledged as a material representation inducing Trans Alta to enter into the contract.”
[28] Despite this advice, Mr Wright stated in evidence that he understood at the time there was a dispute between Meridian and Transpower over the HVDC charges. Although he was not then sure of the precise position, he believed Meridian was either not paying the HVDC charges at all or was short paying them. Mr W A Heaps, General Manager for Sales and Marketing for Transpower, gave evidence that Meridian were indeed short paying the HVDC charges and had been since March 1999. That dispute has culminated in proceedings by Transpower against Meridian which have recently been heard by Fisher J.
[29] During the period leading up to 25 June, the firm of Bell Gully, solicitors, had also been reviewing the terms of the proposed Connections Contract on TransAlta’s behalf. On 24 June, Bell Gully sent by facsimile a number of detailed comments on the Connections Contract. In general, I accept Mr Farmer QC’s submission that while a number of concerns were raised, the tone of the letter was constructive and suggested a meeting to discuss the relevant issues. On the issue of the HVDC charges, the solicitors’ comments were:
“TransAlta has concerns about the level of the HVDC Charge acid wishes to discuss these with Transpower.”
[30] A further issue raised in the Bell Gully letter was a proposed clause under which the customer would be deemed to have waived any objection to an application for summary judgment in the event of default in payment of charges. The letter stated TransAlta wished to have that clause deleted.
Transpower’s letter of 23 June
[31] Mr Farmer accepted that up to this point, there was no agreement on the terms of the Connections Contract. That is confirmed by Mr Sim’s evidence to the same effect and by his letter of 23 June 1999 which he sent to Mr Wright in the following terms:
“Power Station - Posted Terms and Conditions for Connection
TEC Cobb Limited settles their purchase of the Cobb Power station from Meridian Energy Limited on 25 June 1999 but have yet to complete a connection contract with Transpower for connection to our grid assets.
In view of your advice that completion of these contracts is still some way off, the pragmatic solution to allow Cobb continued connection to the Grid under the new ownership is to post terms and conditions on TEC Cobb Limited.
Enclosed are the Posted Terms and Conditions for connection to Transpower’s Grid assets along with the Connection Policy and Common Quality Obligations documents that also form part of the contract for connection. These documents cover both connection and ancillary services and the associated charges.
Should you have any questions please do not hesitate to contact me.”
[32] I should mention for completeness that Mr Sutherland of Transpower sent another letter to Cobb Power on the same day enclosing Posted Terms and Conditions. But it is common around that this letter was sent in error and I need not refer to it further.
[33] The Posted Terms sent with Mr Sim’s letter of 23 June were lengthy, running to nearly 40 pages, together with the Connection Policy and the Common Quality Obligations document. The charges for Transpower’s services in the Posted Terms were the same as those in the Connections contract. It is also common ground that these charges were the same as Transpower was charging to Meridian although, as earlier noted, they were being short paid and the parties were in dispute. The Posted Terms also included a clause similar to that in the Connections Contract relating to waiver of any right to object to summary judgment proceedings.
Transpower’s letter of 24 June
[34] After receiving the previously mentioned letter from Bell Gully of 24 June commenting on the Connections Contract, Mr Sim sent a further letter to Mr Wright at 5.55 pm the same day. It stated:
“Subject: Posted Terms and Conditions for Connection - Cobb
Michael,
You will have received today Posted Terms and Conditions to enable the continued connection of Cobb Power Station to Transpower’s Grid assets following the settlement of the purchase tomorrow.
We have received this afternoon comment from your legal advisors Bell Gully on the Connections contract submitted several weeks ago for the connection of Cobb Power Station to Transpower’s Grid assets.
While Posted Terms and Conditions are in our view a valid and enforceable contract we see positive benefits to both parties in concluding the negotiations of the Connections contract and will work with TransAlta to this end.
We do request by return fax confirmation of your receipt of the Posted Terms and Conditions.
We also request your agreement that TransAlta will comply with the obligations contained in the Posted Terms and Conditions whilst we work together to conclude the Connections contract.
Should you have any questions please do not hesitate to contact me.”
[35] The effect of this letter and its potential impact on clause 3.4 of the Posted Terms is of critical importance. It is discussed below. However, at this juncture, I note Mr Sim’s acknowledgement in evidence that he did not specifically draw clause 3.4 to TransAlta’s attention and that at the time he sent the letter of 24 June, he was aware of Bell Gully’s letter and the concerns raised in it about the HVDC charges and other matters.
The settlement of the purchase and connection to the grid
[36] By clause 6.1 of the agreement for sale and purchase of the power station, settlement was to take place at 2 pm on 25 June 1999 (see also the definitions of “settlement date” and “confirmation date” in clause 1.1). Clause 6.2 provided that possession of and title to the assets would be given and taken on settlement but further provided:
“Upon Settlement, the sale, transfer, assignment and assumption of obligations shall be deemed to have effect as at the Settlement Time.”
[37] The Settlement Time is defined as meaning the moment in time immediately after 2400 hours on the day before the Settlement Date. This means that the transfer of assets was deemed to take effect from the beginning of the day of 25 June, ie, at 0000 hours that day.
[38] By clause 6.3, the vendors were obliged to deliver or make available to the purchaser, possession and control of the assets on the Settlement Date. Clause 5.1 provided that the outgoings relating to or payable or accruing in respect of the assets would be apportioned as from the Settlement Time. Those provisions meant that Cobb Power would be responsible for outgoings in connection with the power station from 0000 hours on 25 June even though it did not obtain formal possession of and title to the assets until the Settlement Time later that day.
[39] By consent, I received an affidavit from Mr P J England, the solicitor who acted for TransAlta and Cobb Power in connection with the purchase. He deposed that there was a short delay in settlement because TransAlta’s bank was unavailable to transfer the necessary funds. Settlement did not actually occur until shortly after 3.30 pm on 25 June. The vendor’s solicitors were then advised and the settlement documents were received from the vendor’s solicitors at 4.25 pm. The settlement was then complete.
[40] It has been necessary to analyse the circumstances of the settlement in some detail because Transpower contends that connection to the grid occurred by Cobb Power taking power from the national grid as from 0000 hours on 25 June and, later that day, by injecting power into the grid. In that respect, I heard evidence from Mr J W Clarke who is the Grid Operating Services Manager for Transpower. I also received by consent, an affidavit from Mr D G Wright, a Market Services Analyst employed by Transpower. Mr Clarke produced two documents completed by TransAlta on 10 June 1999 for the Cobb station and provided to Transpower on or about that date. The first of these documents is described as a “New Power Generation Company Checklist” which is required by Transpower when a generating company wishes to offer power into the national grid. Under the heading
“Pre-Requisites for Offering Generation”, it is recorded that the signing of a Transpower Connections Contract was “progressing”. TransAlta also acknowledged in the form that it was familiar with the Transpower Connection Policy and the Common Quality Obligations.
[41] The second document completed by TransAlta is headed “Power Station Generation Details”. It is designed to give Transpower advance notice of the date upon which the company is intending to commence generation. The “First generation start date and time” for the Cobb power station is recorded by TransAlta as 25 June 1999 at 1400 hours. It was indicated that power would be offered through the New Zealand Electricity Market (NZEM) as well as outside it.
[42] The NZEM involves a process by which generators offer quantities of electricity into the market at an offer price for each half hour trading period. Transpower takes these offers and feeds in information from buyers about how much electricity they wish to buy and at what price. Through a scheduling process, Transpower creates a “price stack” for future trading periods. Generation which is not offered into the NZEM, but which is subject to bilateral arrangements outside the NZEM, is also put into the price stack. A schedule for each half hour specifies how much electricity is likely to be needed to meet demand in that half hour . Based on the offers available, the schedule for each half hour also specifies which generators will be despatched as well as the quantities and order in which that will be done.
[43] Transpower operates the national grid through two control centres which monitor the real time operation of the grid and from which Transpower’s instructions are despatched to generators about how much electricity needs to be injected at any time. Between 25 June 1999 and October 1999, the means of communicating despatch instructions to Cobb Power was by confirmed telephone call from the Transpower co-ordinator to the control room at the Cobb power station. That method of despatch communication was confirmed by TransAlta in the power station generation details form.
[44] Transpower’s records show the last despatch instruction issued to Meridian was on 28 May 1999. From that date, the Cobb power station was shut down for maintenance purposes and did not re-commence generation until 25 June. Transpower’s records then show that from 0000 hours on 25 June, the Cobb power station began taking electricity from the national grid. Quite small quantities were involved, generally at the rate of 40 to 50 kilowatt hours for each half hour period from that time until approximately 2.30 pm that day. That level of power had also been drawn off during the maintenance shut down period.
[45] Mr Wright’s affidavit confirms that TransAlta made its first offer to inject power into the national grid from the Cobb station at 1212 hours on 25 June for the 1430 trading period that day. This step initiated a process which resulted in Transpower issuing a despatch instruction to the Cobb station soon afterwards. Transpower’s records show that the first despatch instructions issued by Transpower to TransAlta occurred at 1428 hours on 25 June. From that time, the Cobb power station began injecting power into the national grid and that has continued, more or less uninterrupted, to the present time.
[46] The conclusions which I draw from this part of the history are these. First, the Cobb power station remained connected to the national grid operated by Transpower from 0000 hours on 25 June 1999 and continued to take a small quantity of power from the grid from then until approximately 2.30 pm that day. This power was required for the purposes of operating the power station until it began generating electricity for injection into the national grid. The amounts being drawn were consistent with the amounts drawn off in the maintenance period prior to 25 June.
[47] Second, at around 2.28 pm that day, the power station began contributing power to the national grid which has continued on a more or less continuous basis since that time to the present.
[48] Third, the connection (or continued connection) to the grid and the commencement of operations on 25 June must have been undertaken by or on behalf of Cobb Power and with its knowledge. TransAlta had already signalled on behalf of Cobb Power that it would commence injecting power into the system at about 2 pm on 25 June, no doubt in anticipation of the settlement due on that day at that time. Despatch instructions issued by Transpower are only made in response to an offer made by its customers to supply electricity. That process was initiated by TransAlta on Cobb Power’s behalf soon after midday on 25 June. As well, the closing down of the station over several weeks prior to 25 June indicated a clear break between power generation by Meridian and by Cobb Power as purchaser.
[49] Fourth, TransAlta’s contract with Meridian made it responsible for all outgoings in connection with the station (including Transpower’s charges) from 0000 hours on 25 June. The fact that physical possession of the assets was not to be formally given and taken until the time of settlement later that day is not relevant because the activities at the power station on 25 June were clearly undertaken by or on behalf of Cobb Power and with its knowledge. The Cobb station was effectively connected to the national grid on Cobb Power’s behalf from the beginning of that day or, at the latest, by 2.28 pm that day when Cobb Power began to inject electricity into the grid.
TransAlta’s letter of 25 June
[50] On the afternoon of 25 June 1999, TransAlta responded to Transpower’s letter sent the day before. TransAlta’s letter was sent by facsimile at 1453 hours that day, shortly after the Cobb power station had begun injecting power into the grid but before the completion of settlement of the purchase from Meridian. The letter was addressed to Mr Sim and was under the hand of Mr Wright. It was in the following terms:
“COBB POWER STATION - CONNECTIONS CONTRACT
Thank you for your facsimile of 24 June, and we acknowledge receipt of the posted terms and conditions. We also see positive benefits to both parties in concluding the negotiations on the connections contract for Cobb power station. As we have said, we are also keen to work with Transpower to this end.
Until we can conclude these negotiations, we would prefer a slightly different approach to that which you have suggested. This would, we suggest, take the form of a letter agreement between us which sets out that we agree to negotiate in good faith the terms and conditions of the connections contract and which also covers the basis on which the station is operated and connected to the national grid for the intervening period. We are aware that Transpower has agreed with generators in the past the approach of signing letter agreements while the full contract is finalised.
We enclose a proposed draft of this letter, and look forward to discussing it with you as soon as possible.”
[51] The draft letter attached for signature by Transpower and TransAlta stated:
“COBB RIVER POWER STATION - CONNECTIONS CONTRACT
We refer to the draft Connections Contract for the Cobb River power station (the Contract) and to our discussions on connection and related services provided by Transpower New Zealand Limited (Transpower) in respect of the station.
As we discussed, TransAlta New Zealand Limited (TransAlta) has a number of issues and concerns regarding the draft Contract, which it would like to work through and resolve with Transpower. The form of the Contract itself and the Connection Policy and the Common Quality Obligations have been substantially revised from the previous forms with which we were familiar. We have reviewed the Contract and provided you with our comments, however we both acknowledge that it is unlikely we will be able to finalise the Contract before close of business on Friday, 25 June 1999.
TransAlta obviously has similar concerns with the “Posted Terms and Conditions for Connection” document which you provided us with yesterday.
This letter therefore records Transpower and TransAltas’ (sic) agreement in relation to the matters covered by the Contract.
We each agree to negotiate in good faith and using all reasonable endeavours to agree the terms and conditions contained in the Contract. During the period until we conclude the Contract, TransAlta agrees to operate the station in all material respects on the same basis as it is presently operated, and we each agree that connection of the station to the Transpower network during this period be on the same basis that which presently applies between Meridian Energy Limited and Transpower.
We understand the Multi-Lateral Agreement on Common Quality Standards will be finalised by 1 October 1999, and so believe it would be appropriate if both parties aimed to conclude the Contract earlier if possible, but certainly by no later than this date.”
[52] Mr Wright explained in his evidence that the “letter agreement” he proposed was intended to maintain the status quo prior to settlement of the purchase. In other words, he was proposing an interim measure pending the conclusion of negotiations over the revised form of the Connections Contract. Plainly, he contemplated this state of affairs would continue only for a few months. His proposal was that the arrangements between the parties should be the same as those which had existed prior to settlement between Transpower and Meridian. In cross-examination, he acknowledged that he was unsure about the precise nature of those arrangements. However, he said TransAlta was prepared to take the risk of proceeding without having precise knowledge of the arrangements between Transpower and Meridian. He acknowledged in answer to a question from me that his proposal would have required some sort of inquiry to establish the precise “basis” which was then “applying” between Transpower and Meridian.
Developments after 25 June
[53] There were no further developments after Mr Wright’s letter of 25 June until the following week. On 28 June Mr Wright reported to others within TransAlta that:
“The Transpower contract has not been signed. They have Posted Terms and Conditions to us which we have not fully accepted. The situation is as planned - allowing connection while leaving the HVDC fees in dispute.”
[54] Thereafter, Mr Sim arranged to meet with Mr France on 29 June. Mr Ray Lough of Transpower was also present at the meeting. Mr Sim explained Transpower’s view that the Posted Terms and Conditions were binding. Mr France said TransAlta’s position was that it had not accepted those terms. There was then discussion about TransAlta’s letter of 25 June with Mr Sim indicating that the proposal in that letter was not acceptable to Transpower. In response to a suggestion by Mr France that Meridian’s Connections Contract could be attached to the letter agreement, Mr Sim advised that Meridian were on Posted Terms. It was agreed that discussion would focus on the terms of the Connections Contract rather than continuing the debate about the interim arrangements. Mr France was advised that TransAlta’s submissions on the new Connections Contract were being considered by Transpower, along with comments from other industry participants and that Mr Esson would be providing a briefing on those in the near future. There was some brief discussion about the terms of the Connections Contract, including the debate over the HVDC charge but it was recognised that the HVDC issue would have to be addressed on an industry wide basis.
[55] Thereafter, there has been correspondence confirming the views of each side as discussed at the meeting of 29 June and the parties have remained in dispute. Cobb Power has continued to generate power and to contribute to the national grid. Cobb Power has paid only part of the charges regularly invoiced by Transpower and has not paid any part of the HVDC charges. In that respect, Cobb Power maintains that the very small quantity of power which it generates is less than 1% of the national total and that it is consumed locally in the South island. It follows, Cobb Power contends, that it does not use the HVDC link and should not have to pay for it. That is disputed by Transpower but it is unnecessary for me to make any finding on the issue. I note, however, that there is no evidence that the argument just outlined was raised by TransAlta at or around the time of the negotiations over the Cobb station. It appears to have arisen for the first time in July 1999 after Transpower’s first invoice was received. The focus earlier was on TransAlta’s wish that it should not be paying more than its competitors.
[56] Although it would have been theoretically possible for Cobb Power not to have connected to the grid and for Transpower to have disconnected the Cobb power station for non-payment of the charges, neither side suggested these were realistic options in the circumstances. First, Transpower has an acknowledged monopoly in transmission services so that Cobb Power could not operate its power station and utilise the substantial assets involved without making use of Transpower’s transmission and other services. If Cobb Power became bound by the Posted Terms, then apart from a failure by Transpower to comply with technical obligations, Cobb Power could not disconnect the power station from the grid except upon six months’ notice under clause 13.2 of the Posted Terms. Second, from Transpower’s point of view, it had the right to disconnect under clause 5.1, five business days after notice of default in payment by the customer. I accept Mr Clarke’s evidence that if this were to occur, there would be a material reduction in the system’s security. Electricity users in the Golden Bay/Nelson area could have seen voltage fluctuations and there could have been a need to reduce demand in the region.
[57] For these reasons, I find it was not realistic for Cobb Power to cease generating electricity and using the grid during the currency of the dispute or for Transpower to disconnect the station for non-payment. Both sides were entitled to expect that the dispute would ultimately be resolved by agreement or by the Court.
[58] Mr Farmer submitted that Cobb Power was aware of Transpower’s terms and conditions prior to the time of the purchase of the power station and should have opted out at that point if it was unhappy with the conditions, including Transpower’s charges. Mr Farmer placed reliance upon the Information Memorandum provided by Meridian Energy to potential purchasers. While I accept Cobb Power was aware of the proposed charges at an early date and could have chosen not to purchase the power station, the real question is whether Cobb Power became bound to accept Transpower’s charges in the circumstances outlined.
Relevant principles
[59] There is no dispute between the parties about the basic principles to be applied to determine whether a contract has been formed. It is elementary that the parties must have reached agreement about the terms of the contract. While I accept that each party intended to enter into a contract to govern the relationship between them, that is not, by itself, sufficient to establish the essential requirement for consensus ad idem without which there can be no contract.
[60] While the fact of agreement is generally analysed in terms of offer and acceptance, there may, in some situations, be a concluded contract even though the facts do not fit neatly into an offer and acceptance model. In those cases, the Courts consider the totality of the dealings between the parties to determine whether an agreement has in fact been reached: Smith v Hughes (1871) LR 6 QB 597, 607. As Cooke J (as he then put it) in Meates v Attorney-General [1983] NZLR 308, 377:
“The acid test in a case like the present is whether, viewed as a whole and objectively from the point of view of reasonable persons on both sides, the dealings show a concluded bargain.”
[61] It is also common ground that the required manifestation of agreement may be by conduct as well as by spoken or written words. The concept of acceptance by conduct is well established: Chitty on Contracts, 28th edition, (1999) paragraph 2-027. But, as this paragraph states, conduct will only amount to acceptance if it is clear that the offeree did the act with the intention (actual or apparent) of accepting the offer. Although the test is primarily an objective one, there is a limited respect in which subjective elements may be relevant. Although the absence of an actual intention by one party to contract may be overridden by the objective consideration of the totality of the dealings between the parties, where one party knows that the opposite party did not in fact intend to contract (or at least not on the terms offered), there will be no consensus and therefore no contract: Treitel, The Law of Contract, 10th edition, page 1.
[62] Where the offeror stipulates that the offer will be deemed to be accepted if the offeree conducts itself in a particular way, a contract may be constituted by the offeree taking the step identified by the offeror. So, in the present case, it is not in dispute that if Cobb Power had connected to the national grid following receipt of the Posted Terms, then in accordance with clause 3.4 of the Posted Terms, a contract would ordinarily have been constituted in the absence of contrary indications. However, the mere fact of connection to the grid would not by itself be sufficient to constitute an acceptance of the Posted Terms offered if the circumstances as a whole, viewed objectively, demonstrate that Cobb Power did not agree to the terms proposed.
[63] A similar situation arose in Airways Corporation of New Zealand Ltd v Geyserland Airways Ltd [1996] 1 NZLR 116. There, Thorp J dismissed an appeal by the Airways Corporation from a decision in the District Court dismissing the Corporation’s claim against the respondents for airport user charges. The Corporation purported to impose the charges under standard terms of contract which included a condition to the following effect:
“Every operator who receives or to whose aircraft is given any airways services shall be deemed to have accepted the provisions of the standard terms unless otherwise agreed with the Corporation.”
[64] Although the respondents had continued to use the services of the Corporation, it had consistently objected to the charges stipulated in the standard terms of contract. After reference to statements in Carlill v Carbolic Smoke Ball Co (1893) 1 QB 256, 262 to the effect that performance of conditions stipulated by the offeror may be taken as acceptance of the offer, Thorp J accepted counsel’s submission that for the Carbolic principle to apply, the performance of the position must “be such as to indicate that the person accepting and performing is ‘acting on the offer’”. Such a case was Wairoa Electric Power Board v Wairoa Borough [1937] NZLR 211. However, Thorp J was able to distinguish that case on the grounds that:
“. . . the inference to be drawn from the acceptance of supply with no objection to proposed terms of supply is entirely different from that which can be made where there has been repeated objection to those terms.” (at 126)
[65] On the facts, Thorp J agreed with the Judge in the Court below that in the circumstances, no contract had been formed notwithstanding the respondents continuing use of the services provided.
The present case
[66] Transpower’s case is essentially founded on three propositions:
[a] Transpower’s letter of 23 June 1999 to TransAlta enclosing the Posted Terms constituted an offer to supply services on the basis set out therein.
[b] By virtue of clause 3.4 of the Posted Terms, TransAlta would be deemed to have accepted the Posted Terms by connecting the Cobb power station to the national grid.
[c] TransAlta did connect the Cobb power station to the national grid at 0000 hours on 25 June and thereby accepted the offer.
[67] Mr Farmer supported those principal contentions with a number of ancillary points. First, he submitted there was no timely protest against the Posted Terms prior to acceptance of them by Cobb Power’s conduct. In other words, he submitted that Cobb Power’s letter of 25 June was too late. Second, even if the letter of 25 June 1999 from TransAlta could be considered, it did not contain any clear rejection of the Posted Terms and nor did it constitute a counter offer. Third, he submitted that Transpower’s firm policy was that it would not enter into a business relationship with Cobb Power except upon a written contract (either a signed Connections Contract or the Posted Terms) and this was known by Cobb Power. The offer was on a “take it or leave it” basis and it was not open to Cobb Power to “pick and choose” by taking the services while accepting some of Transpower’s terms but not others.
[68] The submissions of Mr Galbraith QC for Cobb Power may be summarised as follows:
“[a] TransAlta’s representatives made it clear to Transpower, both before and on 25 June, that TransAlta did not accept the terms offered either for the Connections Contract or for the Posted Terms.
[b] The fact of connecting to the national grid could not in the circumstances have manifested an intention by Cobb Power to accept the Posted Terms.
[c] Considering the totality of the dealings between the parties, viewed objectively, it had not been demonstrated by Transpower that the terms of contract had been agreed.
[d] Transpower must have been aware that Cobb Power was not intending to contract on the terms offered by Transpower.
[e] Mr Wright’s letter of 25 June constituted a counter offer on behalf of Cobb Power which was never accepted by Transpower.”
Factual conclusions
[69] I accept that both parties intended to enter into a contract for the supply of transmission services for the Cobb station. Nor is it in dispute that from an early stage. TransAlta was aware of the charges proposed by Transpower for its services, including those for the HVDC link. Transpower’s preference was to have an executed Connections Contract in the new form then proposed. However, the negotiations which took place in June 1999 did not result in any agreement and while, given time, it might have been possible to resolve some of the issues, that is beside the point. The fact is that no agreement was reached about Transpower’s technical requirements. Nor was there agreement about the HVDC charges. There can be no doubt that those two issues alone were fundamental and lay at the heart of the business relationship between the parties. There were other matters in dispute which should not be overlooked. Those matters included the summary judgment clause to which TransAlta had taken clear exception.
[70] With the settlement date for the purchase of the power station looming on 25 June, it was obvious to both parties that no agreement was going to be reached by that date about the Connections Contract which had been revised from versions previously in use. A resolution of the Connections Contract was unlikely to reached for some months, particularly given the on-going consultations with the industry as a whole. That would not necessarily have precluded agreement within a shorter time with individual customers such as TransAlta but that would clearly not happen before the settlement on 25 June.
[71] Recognising the realities of the situation, Mr Sim sent the Posted Terms on 23 June, only two days before the proposed settlement. Those terms were sent on the basis that they could form an interim agreement while discussions continued with a view to reaching agreement on the Connections Contract intended for the longer term. While TransAlta was seeking to reach an interim agreement to permit connection to the grid on settlement day, it is unrealistic to suggest, as Mr Farmer sought to do, that TransAlta was likely to take a different view as to the acceptability of the Posted Terms compared with those contained in the Connections Contract.
[72] The terms of each were broadly similar and importantly, their provisions were the same in each case on the principal matters of concern to TransAlta, ie, the technical obligations, the HVDC charges, and issues such as the summary judgment clause. The technical compliance and HVDC issues had been discussed without agreement being reached only a few days before and that was reinforced by the Bell Gully letter of 24 June, the day before settlement. It is difficult to accept that TransAlta would have changed its mind on those issues and been prepared meekly to accept Transpower’s Posted Terms which did not differ in any material respect on the main issues in dispute.
[73] However that may be, I regard Mr Sim’s letter to Mr Wright of 24 June as being of critical importance. While Mr Galbraith accepted that TransAlta must be taken to have been aware of clause 3.4 in the Posted Terms sent the day before, I accept his submission that the effect of this letter, viewed objectively, was to vary or override the effect of that clause. Whatever Mr Sim’s subjective intentions may have been, the penultimate paragraph of the letter plainly called for a response by requesting TransAlta’s agreement that it would comply with the obligations contained in the Posted Terms sent the day before. Although Mr Farmer submitted that the letter assumed binding obligations and was really concerned with whether TransAlta would meet those obligations, it must be recalled that even on Transpower’s view of the matter, the Posted Terms could not have come into effect, at the earliest, until TransAlta connected to the grid the following day.
[74] I am satisfied that Mr Sim’s letter of 24 June was seeking a formal acknowledgement from TransAlta that it accepted the Posted Terms. In that respect, Mr Sim was echoing Mr Esson’s advice in his e-mail of 28 May that “. . .a formal acknowledgement that they are prepared to operate on the basis of Posted Terms might be an option”. Although Mr Sim stated in cross-examination that he had not intended to vary Transpower’s normal policy on Posted Terms, I am satisfied that, viewed objectively, his letter of 24 June clearly signalled to TransAlta that its acceptance of the Posted Terms was required before it would be bound, notwithstanding the terms of clause 3.4. In the light of this letter, Transpower’s offer could not be regarded as a “take it or leave it” offer as submitted.
[75] Even if I am wrong in that conclusion, I find that TransAlta had made it clear both before 25 June and on that day, that it did not accept the terms offered by Transpower whether under the Connections Contract or on the Posted Terms. I have dealt with the position prior to 25 June but it is also necessary to make findings about the events of 25 June. On the finding most favourable to Transpower, the Cobb station was connected to the national grid on behalf of Cobb Power from the beginning of 25 June, ie, at 0000 hours that day. However, the power drawn off from that time was simply a continuation of the power station’s activities at similar levels to those over the prior few weeks of the maintenance period and, arguably, there was no positive step taken on behalf of Cobb Power until 1212 hours on 25 June when an offer was made to the NZEM to inject power into the grid. Even if the earlier time of 0000 hours on 25 June is accepted as the time of connection, I am satisfied that Mr Wright’s letter of 25 June was a sufficiently timely response in the circumstances.
[76] At 1453 hours, prior to settlement, Mr Wright responded in terms which clearly did not accept Transpower’s Posted Terms. Although his letter referred to TransAlta’s preference for a “slightly different” arrangement, it is plain on analysis from an objective standpoint that TransAlta was not accepting Transpower’s terms and was proposing instead a different arrangement to cover the intervening period until the parties reached agreement on the terms for the Connections Contract. Far from accepting the Posted Terms, TransAlta was proposing a “letter agreement”, the terms of which were attached in draft form to Mr Wright’s letter. The draft letter makes it clear that TransAlta had concerns about aspects of both the Connections Contract and the Posted Terms. It was proposed that the parties would agree to negotiate in good faith over the terms of the Connections Contract while in the meantime, “we each agree that connection of the station to the Transpower network during this period be on the same basis as that which presently applies between Meridian Energy Ltd and Transpower”.
[77] While it was submitted that Meridian’s terms were effectively the same as those proposed by Transpower for Cobb Power, that ignores the reality that both parties knew that Meridian was in dispute with Transpower over the HVDC charges. In fact, Meridian were short-paying Transpower’s charges as Transpower well knew. Understandably, a vaguely expressed letter agreement of the kind proposed by TransAlta was not acceptable to Transpower which it made clear at the discussions the following week when it insisted that the Posted Terms were applicable and would not accept anything less.
[78] Whether the proposals contained in TransAlta’s letter of 25 June were sufficiently certain to constitute a counter-offer is beside the point. If it was a counter-offer, it certainly was not accepted and Transpower does not rely upon it in any way. Rather, Transpower’s argument is that the letter was simply too late and had no legal effect because the contract had already come into existence as a result of the prior connection of the power station to the grid.
[79] In the absence of the other surrounding circumstances, I accept that the Posted Terms would, by virtue of clause 3.4, be deemed to have been accepted by TransAlta upon connection to the grid. However, against the background of TransAlta’s objections prior to 25 June and TransAlta’s letter on the afternoon of 25 June, I am not satisfied that the objective observer would conclude that the fact of connection to the grid (even if taken from 0000 hours on 25 June), indicated the necessary consensus ad idem. That conclusion could only be compounded by Transpower’s letter of 24 June requesting TransAlta’s agreement to the Posted Terms. Nor, in the circumstances, could Transpower have reasonably believed Cobb Power was accepting the Posted Terms.
[80] Apart from cases such as the Airways Corporation decision, similar situations commonly arise where an accord and satisfaction is alleged arising from the banking of a cheque sent in satisfaction of a creditor’s claim. Where the debtor has stipulated that the banking of the cheque will be deemed to be an acceptance of the offer, an accord and satisfaction may arise.
[81] The Court of Appeal has recently had the opportunity of considering such a case in Magnum Photo Supplies Ltd v Viko New Zealand Ltd [1999] 1 NZLR 395. There, the creditor’s solicitors mistakenly banked a cheque and issued a trust account receipt. The Court of Appeal held that the sending of the receipt did not indicate that the cheque had been banked and that no accord and satisfaction arose because the debtor’s solicitors had no notification of the banking or presentation of the cheque until that advice was received contemporaneously with advice that the offer was not accepted. As Gault noted at 399:
“Just as on any question of whether a contract is concluded, it is necessary to consider all the circumstances. There are to be borne in mind the nature of the parties and their dealings - the factual matrix. Agreement should be found in the absence of express confirmation only when the circumstances show that as the proper inference.”
[82] And further at 400:
“Contract is commonly said to involve a meeting of minds but that can be inferred from communications set in their factual matrix. It does not mean that parties are to be burdened with contracts inferred from communications they understand are not intended to give rise to legal relations. In circumstances in which one party purports to prescribe conduct on the part of the other as constituting acceptance, the mere coincidental conduct of the kind prescribed cannot attract legal consequences. At least the conduct must be linked to the offer.”
[83] Gault J went on to state at 401:
“Of course where an offeree presents the offeror’s cheque, draws the funds and appropriates them without promptly notifying any demur from the terms on which it is offered, he or she is unlikely to be heard to claim any different intention than that logically to be inferred. Even in a case such as that, however, the lapse of time would be only a factor to be assessed in determining whether agreement is to be inferred.”
[84] Here, I am satisfied that it would not be right to infer TransAlta’s agreement to the Posted Terms by the mere fact of its connecting to the national grid. That must be considered against the factual background of the recent prior history of dispute over the relevant terms, coupled with the prompt notification of non-acceptance of the Posted Terms on the very day the connection occurred.
[85] In all the circumstances, Transpower could not reasonably have concluded that, by connecting to the grid that day, TransAlta was accepting the Posted Terms. Indeed, while at an operational level, the fact that the Cobb power station was injecting power into the grid must have been known at the latest by 1428 hours on 25 May, Mr Sim did not know precisely when Cobb Power took over responsibility. He sent an e-mail on 1 July 1999 to TransAlta seeking advice as to when TransAlta had taken ownership and asking whether it was at 0000 hours on the 25th or some other time. It is reasonable to conclude that Mr Sim, and probably other members of Transpower’s management, did not become aware of the connection to the grid until after receipt of Mr Wright’s letter of 25 June advising that the Posted Terms were not accepted.
Does Transpower have power to fix and recover charges for its services?
[86] In view of my factual findings, it is not strictly necessary for me to consider this issue. However, in deference to the extensive arguments in support of an implied statutory power to fix and recover charges for its services, I will address the proposition.
[87] It was submitted that Transpower has power, by necessary implication, under the State Owned Enterprises Act 1986 (the SOE Act) to fix and recover charges for its services. It followed that the contractual terms were subject to a “statutory overlay” such that TransAlta had no right to challenge the price even in the event of a timely protest.
[88] Reference was made to Webster v Auckland Harbour Board [1983] NZLR 646 (CA) as authority for the proposition that a body with statutory powers may nevertheless have a contractual relationship with others. There could be no contest about that but Webster does not support the argument for an implied power. The Harbour Board there had express statutory power to fix charges payable for foreshore licences. In contracting with licensees, it was expected to observe certain public law responsibilities.
[89] The implied power argument was also supported by the following broad contentions:
“[a] Transpower is effectively obliged to offer transmission services because it has a natural monopoly and as a result of its statutory obligations under s 4 of the SOE Act.
[b] It is obliged to recover its revenue requirements by its statement of corporate intent (SCI): ss 5 and 14.
[c] A power should be implied on the basis of “filling the gaps” in the legislation in accordance with the principles recognised in cases such as Northern Milk Vendors Association Inc v Northern Milk Ltd [1988] 1 NZLR 530.
[d] Adequate controls on pricing exist through Government economic policies issued pursuant to s 26 of the Commerce Act 1986 by the shareholding Ministers as well as Part IV of that Act and the disclosure requirements of the Electricity Act 1992 and the Electricity (Information Disclosure) Regulations 1999.
[e] As a result of a series of cases involving Mercury Energy/Vector, the Courts have made it clear they will not take on the role of price fixers and assess under the doctrine of prime necessity or on judicial review, the reasonableness or otherwise of Transpower’s charges. It was submitted that this reasoning logically applies also to preclude the Courts embarking upon the exercise of setting a reasonable price on a quantum meruit basis.
[90] It is common ground that the statutory reforms of the 1980s were designed to eliminate previous regulatory controls and to replace them with a regime of light handed regulation. At the same time, the Commerce Act was designed to promote competition as well as enhancing efficiency and reducing prices. The SOE Act permitted the establishment of SOE’s which would continue to be owned by the Crown but would otherwise have the attributes of companies incorporated under the 1955 or 1993 Companies Acts. Section 4 of the SOE Act required SOE’s to operate as successful businesses while at the same time to exhibit a sense of social responsibility.
[91] I accept the evidence given on behalf of Transpower that the electricity industry as a whole is substantially interdependent and that, as matters currently stand, Transpower remains the ultimate decision maker on issues of common quality and security standards. Moves are afoot to adopt new governance processes and other controls under the Electricity Industry Bill, but those have not yet been put into effect. I therefore accept Transpower’s submission that in the absence of either a signed contract or Posted Terms, there may be no effective mechanism to enforce the technical obligations contained in the Connections Policy and Common Quality Obligations necessary for the continued integrity and security of the total electricity system.
[92] I also accept that Transpower’s SCI places the primary responsibility for pricing methodology on Transpower itself including guidance issued under the Government’s s 26 Statement of Economic Policy for Electricity Transmission (1994). However, as I read those documents, they carefully refrain from fixing prices on the basis contended for, or authorising or directing Transpower to do so. As well, the s 26 statement plainly contemplates a contractual relationship with Transpower’s customers.
[93] Against that background, Mr Farmer referred to the decision of Thorp J already discussed in Airways Corporation of New Zealand Ltd v Geyserland Airways, an unreported decision of Salmon J in Metrowater Ltd v Gladwin (High Court, Auckland, CP.260/99, 8 December 2000), and the series of recent cases involving Mercury Energy/Vector.
[94] Mr Farmer endeavoured to distinguish the Airways Corporation case on the facts. I accept that every case must be determined on its own facts and I have mentioned the Airways Corporation case mainly for the principles already outlined. However, Mr Farmer also submitted that Thorp J might have come to a different conclusion about the formation of a contract with the respondents, if he had not concluded that there were other means by which the Airways Corporation could recover its charges, namely, the doctrine of prime necessities and quantum meruit, both of which involve the Court determining what is a fair and reasonable price. However, I read this case as being determined essentially on the basis of normal contractual principles.
[95] There is nothing in the Metrowater Ltd case which assists Transpower in the present case. It related to the powers and duties of a Local Authority Trading Enterprise (LATE) under the provisions of the Local Government Act 1974. It does no more than confirm the undisputed proposition that a LATE, like an SOE, is entitled to charge for its services and to enter into contracts for that purpose. That is based on the simple proposition that in each case, the entities are incorporated under the relevant Companies Act and have all the rights of a limited company. Those rights include the power to contract and the power to terminate a contract in accordance with its terms: Auckland Electric Power Board v Electricity Corporation of New Zealand Ltd [1994] 1 NZLR 551, 560. That does not establish the proposition that a LATE or SOE has an implied power to fix and recover charges in a way which would interfere with their customers’ freedom to bargain or contract.
[96] Mr Farmer went on to submit that the decision of the Court of Appeal in Vector Ltd v Transpower New Zealand Ltd [1999] 3 NZLR 646 precluded the Court from determining a reasonable price either under the heading of prime necessity or under a restitutionary remedy such as quantum meruit. It was held in that case that while the common law doctrine of prime necessity was part of the law of New Zealand, it did not operate in relation to the transmission of bulk electricity by Transpower to Vector, being precluded by the Commerce Act 1986. The only method of price control was that provided by Part IV of the Commerce Act and was available only when the criteria of that part of the Act were satisfied.
[97] At 663 (paragraph [51]), Richardson P stated:
“We consider that in principle and on the authorities what may be called the common law doctrine of prime necessity came to form part of the common law of New Zealand. As noted above the doctrine embodies a principle that monopoly suppliers of essential services must charge no more than a reasonable price. The doctrine is a somewhat blunt instrument. It speaks of a bygone age where legislation had a limited role. It gives no guidance as to how the doctrine is to operate to fix prices in the complex environment of a modern economy and extensive legislative landscape. It is perhaps best viewed as a backstop common law remedy applied in the absence of other remedies and where there are no contra-indications to its use.”
[98] In paragraphs [59] to [66], the Court examined the provisions of the Commerce Act 1986 and concluded that the legislative regime precluded the operation of the common law doctrine of prime necessity in relation to the transmission of bulk electricity by Transpower. The Court observed that the provisions of Part IV of the Commerce Act precluded any role by the Court in the control of prices or price fixing. Apart from the statutory regime itself, the Court noted two other points suggesting that the Court’s role in relation to prices should be excluded.
[99] The first consideration was that the main thrust of Vector’s statement of claim was a contention that Transpower had not adhered to its obligations under the Government’s s 26 Economic Statement. The Court of Appeal considered that the statement of claim “smacks of judicial review in another guise . . .”, (at paragraph [65]) noting that judicial review is unlikely to be available unless fraud, corruption or bad faith could be established.
[100] The second factor was that any inquiry into a fair and reasonable price would need to assess allocation and subsidisation issues across the board and to look at prices and pricing applications for all Transpower’s customers. Such an exercise was better suited for determination by the Commerce Commission than by the Courts.
[101] At paragraph [67], the Court of Appeal also considered the position under the SOE legislation and observed that there were a number of factors which “point strongly against a parallel private law accountability through the Courts for prices to satisfy a fair and reasonable test”.
[102] But the Court of Appeal did not go so far as to identify a power under the SOE Act for Transpower or the Minister to fix and recover prices. Indeed, in the same passage the Court stated:
“It is also clearly arguable that a statement of corporate intent is not contemplated as being so prescriptive of prices as to exclude prime necessity and that the scheme of the statute does not allow the Minister in exercising the powers under ss 13 and 14 to go so far as to substantially fix prices.”
[103] It is important to recognise the context in which the Court of Appeal’s observations were made. It was not being asked to determine whether Transpower or the Minister had power to fix prices. It was only being asked to determine whether the statutory regime excluded the common law doctrine of prime necessity. The focus of the argument was whether the Court should control prices in those circumstances or whether it should be left to the Commerce Commission.
[104] One would have expected that if the legislature had intended Transpower to have a power to impose charges for its services, then it would have said so explicitly. In that respect, the power which the shareholding Ministers have under s 13 to give directions about the matters in s 14 are defined with some particularity and do not specifically refer to fixing and recovering charges. The broader power under s 14(2)(h) to specify matters in the SCI, requires the agreement of the Ministers and the board of the SOE. There is no suggestion of any such agreement. Indeed, the imposition of charges in the way contended for would be antithetical to the policy of light handed regulation and the statutory theme of encouraging competition in a free market. If there were to be such a power, one would expect it to be reposed in the Ministers either directly or through the ability to give a s 13 direction to the SOE. Again, there is no suggestion that any such direction has or could be given by the Ministers.
[105] As well, as Mr Galbraith pointed out, the SOE Act is one of general application to a variety of SOE’s, some of which have a natural monopoly while others operate in a competitive environment. In those circumstances, I accept his submission that it is most unlikely that a Court would be prepared to find, on the basis of Transpower’s particular situation, that SOE’s generally have a power to fix and recover prices in the way suggested.
[106] In this context, the only other authority relied upon by Mr Farmer was Federated Farmers of New Zealand (Inc.) v New Zealand Post Ltd [1990-92] 3 NZBORR 339. That case was concerned with postal services. Amongst other things, McGechan J held at 367:
“. . . New Zealand Post, with the statutory powers of a natural person, considered in the light of State Owned Enterprises Act directive to be a successful business has, by necessary implication, full powers to charge on a commercial basis for all activities.”
[107] With respect, I entirely agree with McGechan J. The power to charge would, in any event, follow from the SOE’s status as a company under the Companies Act with the powers of any like company. It is true that at 397, McGechan J referred to “the imposition of commercially necessary charges”. However, nothing in His Honour’s comments suggests that any power of recovery existed independently of contract or that the postal customer was obliged to contract on the basis stipulated by the SOE. In other words, the customer remained free to accept or reject the prices stipulated by the SOE and to decide whether it wished to enter into a contract and if so, on what terms.
[108] Although in the context of this case it is not necessary for me to express a final view. I am not persuaded that Transpower has any implied power under the SOE Act to fix and recover its charges in the way submitted. Certainly, the statutory regime under which the parties operate is not to be ignored but, essentially, this case must be determined on the basis of conventional contractual principles applied in the light of the entire matrix of factual and legal matters.
[109] If there is a need for Transpower to have further statutory powers, it is not a matter for the Courts. It is for the legislature to remedy.
Could Transpower recover on the basis of the doctrine of quantum meruit?
[110] The restitutionary remedy of quantum meruit is deeply entrenched in the law and has been established for many centuries. It is commonly applied in cases where the parties exchange offers and counter offers without reaching the necessary consensus for a concluded contract or where work is done in anticipation of a contract which does not materialise. Where services are provided in such circumstances, the law will allow recovery of a reasonable price: Halsbury’s Laws of England, volume 9(1), paragraph 1160; Treitel, The Law of Contract, 10th edition, 989; and Cheshire and Fifoot, Law of Contract, 8th New Zealand edition, 759. With respect, the proposition that the availability of a claim for a quantum merit depends upon the complexity of the task is difficult to accept. Where for example the assessment of damages is difficult, that does not relieve the Courts from the responsibility to assess them as best may be: Brenner v First Artist Management Pty Ltd [1993] 2 VR 221. No doubt the assessment of a fair figure in this case might be difficult but that should not cause the Court to shrink from the task.
[111] The only authority relied upon by Transpower to support this proposition is the Court of Appeal’s decision in Vector v Transpower. However, in that case the Court was being asked to intervene in an entirely different context. It was concerned with the fixing on a prospective basis of prices under the prime necessity doctrine as an alternative to the jurisdiction available under Part IV of the Commerce Act. The availability of that remedy was held to be impliedly excluded by the legislative regime of the Commerce Act. This may be compared with a quantum meruit assessment which involves the assessment of a fair value for services already rendered. The Court is not being asked to fix or control prices or the manner in which parties should contract.
[112] I am not persuaded that the restitutionary remedy of quantum meruit is not available in the circumstances of the case. More importantly, even if it were not available, that is not a ground for altering the conventional approach of deciding whether, in the circumstances of this case, a concluded contract was achieved. That is the single cause of action upon which Transpower relies.
Summary and result
[113] My conclusions maybe briefly summarised as follows:
[a] The parties did not agree upon the terms of contract including such important matters as the HVDC charges and the technical requirements for connection to the national grid. I reach that conclusion on the basis of an assessment of all the circumstances viewed objectively.
[b] Transpower could not in the circumstances have reasonably believed Cobb Power was accepting the Posted Terms.
[c] I am not satisfied that Transpower has any implied statutory power to fix and recover charges so as to limit its customers’ freedom to contract or to negotiate price or other terms.
[d] Nor am I persuaded that Transpower could not recover under the remedy of quantum meruit, a remedy which Cobb Power accepts is open but which Transpower disavows.
[e] If I were to reach the opposite conclusions on the issues in [c] or [d], it would not afford any basis to alter my conclusions in [a] and [b].
[114] I am aware that, coincidentally, Fisher J has just issued a judgment in the Meridian case. We have, of course, reached our conclusions independently of each other. I see no reason to permit further submissions in the light of this judgment as suggested by counsel.
[115] The defendant is entitled to judgment on the claim with costs against the plaintiff. If counsel are unable to agree on the costs, memoranda may be submitted within 30 days of the date of this judgment.
0
0
0