The Supreme Court released their judgment in Vodafone v Telecom on 17 November. While the case began as four appeals, post-hearing settlement condensed it to one. At issue in this appeal was whether the Commerce Commission (the “Commission”) erred in law in assessing costs for the purposes of the Telecommunications Act 2001 on the basis of Telecom’s existing network rather than on the basis of a network using mobile technology. Due to legislative change, the specific facts of this decision are not of precedental value. This case is potentially notable, however, for the comments of the Court in relation to the doctrine of error of law.
Facts
Part 3 of the Telecommunications Act 2001 provides for telecommunications service obligation (“TSO”) instruments. As of 2001 such an instrument existed between the crown and Telecom. This agreement required Telecom to provide residential telephone connections to non-viable consumers. In return, Telecom was entitled to recover “net costs” from other telecommunications service providers who use this network.
The Commission annually determined the level of net cost. Net cost is defined in s 5 of the Telecommunications Act as “the unavoidable net incremental costs to an efficient service provider of providing the service required by the TSO instrument to commercially non-viable consumers.” Vodafone argued that the Commission’s decision to calculate net cost based on Telecom’s existing network rather than considering the net cost to a network using new mobile technology constituted an error of law. In response, Telecom argued that taking into account mobile technology would deprive Telecom of a reasonable rate of return on its capital investments.
Procedural History
Winkelmann J in the High Court found for Vodafone, concluding that the Commission’s decision was contrary to the statute. The Supreme Court granted direct leave to appeal from the High Court because of related appeals.
Decision
The Court was unanimous in holding that the Commission’s determination constituted an error of law.
The technical details of the decision regarding costs are unlikely to hold any precedental value given that the recent Telecom/Chorus demerger has divested Telecom of its obligations as an infrastructure operator. The more interesting angle is the Supreme Court’s application of the error of law doctrine.
Blanchard, McGrath and Gault JJ (in a joint judgment delivered by Blanchard J) first discussed the doctrine of error of law in general terms, building on the earlier Supreme Court decision in Bryson v Three Foot Six Ltd. Their preferred approach is a two-step inquiry:
- First, whether the decision maker misinterpreted the empowering legislation; and
- Secondly, whether despite a correct understanding or interpretation of the law, the ultimate conclusion of the fact-finding body was “so insupportable — so clearly untenable — as to amount to an error of law”.
This second step was the significant part of the Bryson case and can be traced back to the House of Lords’ decision in Edwards v Bairstow.
In relation to both stages of the inquiry, Justice Blanchard was alive to the need for a degree of deference to administrative decision-makers. The need for “some caution” in the second stage of the inquiry was expressly noted, and in relation to the first stage Justice Blanchard averted to the “imprecise” nature of the term “net cost” and the fact that “different decision-makers, each acting rationally, might reach differing conclusions when applying it to the facts of a given case”.
The later phraseology is taken from the House of Lords in R v Monopolies and Mergers Commission, ex parte South Yorkshire Transport Ltd, which could be described as analogous to this case. In this latter connection, the majority referred to the Supreme Court’s own prior decision in Unison Networks Ltd v Commerce Commission. The tone of these comments by the majority was shared by the Chief Justice when she stated that “[t]here are terms in legislation which properly provide scope for judgment in application”.
The primary importance of this case, therefore, will perhaps be in its further suggestion that there should in certain circumstances be some deference in judicial review for error of law in New Zealand, not only in the reasonableness standard applicable to condemning a conclusion on the facts as “clearly untenable”, but also in an administrative decision-maker’s interpretation of the applicable statute.
Applying its two-stage analysis to the present case, the majority held that the error of law lay not in a misinterpretation of the statutory requirement but rather in an untenable application of that requirement. That is, it fell into the category set out in Bryson where the “true and only reasonable conclusion [applying the correctly interpreted law to the facts] contradicts the determination [actually reached by the decision-maker]”. Specifically, the majority held that the error lay in the Commission’s decision (i) to refuse to acknowledge new technologies and (ii) in artificially attributing new values to previously depreciated assets.
In contrast, the Chief Justice and Tipping J held (although Tipping J’s comments were somewhat non-committal) that the error of law lay in misinterpreting the statutory requirement that net cost should be the unavoidable net incremental costs to an efficient service provider.
Interestingly, the Chief Justice preferred the view that error of law is reached “whenever a body entrusted with a determination of fact has reached a conclusion that is clearly wrong or is unreasonable.” This wording, and in particular the emphasis on the fact-finding nature of the decision-maker, is surprising. What the Chief Justice may be indicating is that in her opinion, the distinction between interpretation and application, maintained in Bulk Gas, is insupportable. It would be to muddy the waters somewhat to conflate this with review of “mistake of fact” in the true sense, a separate (but also contentious) subject.
There is a potentially curious contrast between this statement and another passage in the Chief Justice’s judgment, in which she suggests that “[a]s long as the Commission asks itself the right question … the valuation methodology it adopts is left by the Act for it to choose. In such choice there may be little scope for error of law.” This is the language of Anisminic, and still allows room for the category of “asking the right question but coming to the wrong answer” that was all but done away with in Bulk Gas.
Overall, therefore, the Gordian knot of the doctrine of error of law has not been entirely cut by the Supreme Court just yet, and this case is most likely only a very minor milestone on the road to that end.
In the event, however, all five judges agreed in the result; a result that seems both instinctively correct and supported by the purpose of the (now defunct) statutory regime. If Telecom was so sluggish as not to employ the latest technology, it should not have imposed on the market the cost of its avoidable inefficiencies. Nice doctrinal distinctions in the doctrine of error of law may therefore ultimately be of little concern in practice.