Summary
A group of airlines challenged a Commerce Commission decision on monopoly regulation on the basis of mathematical errors. While the court recognised the decision was unlawful, it refused the airlines’ request to quash the decision, which was subject to a concurrent appeal.
Background
Part 4 of the Commerce Act 1986 (“Act”) institutes regulation on specified natural monopolies (including airports) that is overseen by the Commerce Commission. Regulations can include requirements to disclose financial information, as well as price controls and quality standards. The purpose of Part 4 is to promote workably competitive market outcomes (similar to how the market would operate if there was no monopoly), including incentivising suppliers to innovate and invest, and limiting excessive profits.
In making information disclosure and price-quality regulation, the Commission make and use instruments called input methodologies(“IMs”). Suppliers must use the IMs to implement their regulatory obligations. . The Commission is required to review IMs every 5 years, and to undertake extensive public consultation when doing so.
The cost of capital IM is a proxy for the reasonable rate of profit observed in workably competitive markets. One component of the cost of capital is the equity beta, a measure of market risk. Because the equity beta cannot be determined empirically, the Commission determines the appropriate beta as an exercise of judgement. This exercise of judgement is informed by the past returns of comparable firms, and mathematical modelling (among other things).
In the Commission’s 2023 IM review, it changed certain parameters for assessing the equity beta and arrived at a final figure (“IM Changes”). To do so, they relied on modelling that was later found to contain mathematical errors (“R-Code Errors”).
In early 2024, a number of airports (“Airports”) appealed the IM Changes under s 52Z of the Act. The Commission and several airlines (“Airlines”) were respondents in the appeal. The appeal related primarily to the changes made to the parameters of the equity beta, but also relied on the R-Code Errors.
As the appeal progressed, disagreement arose as to whether the Part 4 appeal process was capable of correcting the R-Code errors if the other grounds of appeal were unsuccessful. In response to this disagreement, the Commission agreed to undertake a second IM review to correct the R-Code Errors if the court did not do so on appeal.
However, this commitment was not satisfactory to the Airlines, who filed separate judicial review proceedings seeking for the IM Changes to be quashed (an option not available to the court in the appeal).
The Airport appeals were heard in July 2025.The court is yet to issue a decision.
The case
The Airlines challenged the IM Changes on the basis that the R-Code Errors rendered the IM Changes unlawful. They sought an order for the IM Changes to be quashed.
Mistake of fact
The Airlines’ primary ground of challenge was that the R-Code Errors were a mistake of fact that had materially influenced the IM Changes, thereby rendering those changes unlawful.
The court recognised that mistake of fact was a stand alone ground of judicial review in New Zealand law, something that had previously been unsettled. The ground rested on the need to ensure procedural fairness – where an incontrovertible factual mistake influenced a decision, an affected party could not be said to have had “a fair crack of the whip” (E v Secretary of State for the Home Department [2004], as cited in the judgment).
The requirements for establishing mistake of fact are high. The mistake has to be both uncontentious and objectively verifiable, must not have been caused by the applicant, and must have materially influenced the outcome. It could not apply to the evaluative exercise the decision-maker undertook in reaching the decision.
The R-Code Errors satisfied all elements of the test. The Commission had admitted the errors, which related to an objective mathematical formula devised by the Commission. While the IM Changes were an evaluative decision for the Commission’s judgement, the R-Code Errors had clearly influenced the final outcome.
Accordingly, the court held that the IM Changes were unlawful on the first ground.
Other grounds of review
The court rejected the Airlines’ overlapping challenges based on errors of law and unreasonableness. The Commission’s primary error was a mistake of fact influencing its ultimate decision. These two grounds, which went to the decision itself, sat uncomfortably with that analysis.
Should the court quash the IM Changes?
While the IM Changes were held unlawful, this did not mean that the IM Changes needed to be quashed, as sought by the Airlines. The court had to determine whether it was appropriate to grant this relief given that the R-Code Errors were in issue in the concurrent Airport appeal.
The Airlines emphasised that the concurrent appeal should not limit the constitutionally important right to judicial review. The court’s obligation to uphold the rule of law, they argued, required that restrictions on judicial review should only be recognised where there was clear Parliamentary intent.
While recognising the importance of judicial review, the court rejected this approach. The correct approach was to instead assess whether appeal was available, adequate, and a more appropriate forum for determining the dispute in particular circumstances. If it was, the rule of law was upheld through the statutory appeals process, and there was no constitutional issue in withholding relief in concurrent judicial review proceedings.
The court had already determined, in a previous decision, that the Airport appeal was an available and adequate forum to determine the consequences of the R-Code Errors. If the appeals were granted, the court was empowered to amend the IM or refer it back to the Commission. If they were not, the Commission’s commitment for a second IM review to address the errors would apply.
Further, the Airport appeal was clearly the appropriate forum for determining the consequences of the R-Code Errors. Parliament, in enacting the Part 4 appeals process, had intended to strike a careful balance between accountability and commercial certainty, and to limit tactical use of judicial review. While judicial review might be more appropriate in some cases under Part 4 (such as procedural irregularities or apparent bias), it was implicit in Part 4 that judicial review should not be used where it could interfere in the appeals process.
The court therefore declined the relief sought by the Airlines.
Result
While the court upheld the first ground of review, it refused to exercise its discretion to grant the relief sought. The consequences of the R-Code Errors will be dealt with in the Airport appeal or, failing that, in the Commission’s promised IM review.
The decision provides important clarification of the availability of judicial review where there is a parallel statutory appeal process. While judicial review remains theoretically available, applicants will struggle to obtain relief if the relevant subject-matter overlaps with a concurrent appeal process. In general, the decision makes it harder for applicants to use judicial review tactically or for procedural advantage in the context of an appeal.
For further information on this or similiar cases please contact Dirctor Brigitte Morten
