First Plaintiff v First Defendant

Application for declaration - whether proceeding is hypothetical or futile.

1 This is an application by the plaintiffs, Multinet Gas (DB No 1) Pty Ltd and Multinet Gas (DB No 2) Pty Ltd, which carry on business in partnership under the name "Multinet Gas Distribution Partnership" ("Multinet"), for declaratory and other relief relating to whether Alinta Asset Management Pty Ltd ("AAM") was a related party of Multinet in 2004 and 2005 within the meaning of Gas Industry Guideline No 17 Regulatory Accounting Information Requirements Issue No 1 ("Guideline") published by the Essential Services Commission ("ESC") on 13 July 2005.

2 The Guideline requires a holder of a gas distribution licence, such as Multinet, to include in its gas regulatory accounting statements information about actual costs incurred by related parties in connection with the licensee's distribution business. The ESC is of the view that the Guideline applies to Multinet's 2004 and 2005 gas regulatory accounting statements. AAM has denied that it was a related party of Multinet in 2004 and 2005 and has refused to provide information about its actual costs to Multinet in the form required by the Guideline which, in turn, has resulted in the gas regulatory accounting statements Multinet has filed with the ESC for 2004 and 2005 not complying with the Guideline.

3 The ESC has informed Multinet that non-compliance with the Guideline would be in breach of its licence. Multinet is concerned that, if the Guideline is valid and AAM is a related party of Multinet, Multinet's failure to include in its gas regulatory accounting statements the information about AAM's costs required by the Guideline may constitute a breach of its licence which may enable the ESC to revoke the licence. If Multinet's licence is revoked, it would cease to be able to carry on its distribution business.

4 For the reasons set out in this judgment, I have concluded that the related party information provisions of the Guideline that apply to the 2004 and 2005 gas regulatory accounting statements are valid, that AAM was a related party of Multinet in those years, that AAM is contractually obliged to include information about its actual costs in those statements and that Multinet is entitled to appropriate relief.

5 This proceeding was heard concurrently with another proceeding, United Energy Distribution Pty Ltd v Alinta Asset Management Pty Ltd,[1] which raised similar issues in relation to the electricity industry. At the commencement of the hearing, I made an order that the evidence in one proceeding shall also be evidence in the other proceeding to the extent relevant.

6 For convenience, I have included a glossary of terms and abbreviations at the end of this judgment.

7 In this part of the judgment, I set out a brief overview of the factual and regulatory background in order to introduce the issues in the proceeding. Relevant facts and statutory and contractual provisions are discussed in more detail in subsequent parts of the judgment.

8 The ESC is a body corporate established pursuant to s 7 of the Essential Services Commission Act 2001 (Vic) ("ESC Act") and is the regulator of the gas industry in Victoria pursuant to s 17 of the Gas Industry Act 2001 (Vic) ("GI Act"). It is the successor to the Office of the Regulator General pursuant to s 68 of the ESC Act.

9 An important function of the ESC is to issue licences to gas generators, distributors and retailers. Section 22 of the GI Act requires distributors and retailers of gas by means of a distribution pipeline in Victoria to be licensed by the ESC. The ESC may impose conditions on licences. If a licensee is in breach of a licence condition, the ESC may serve an enforcement order under s 53(2) of the ESC Act. If the licensee fails to comply with an enforcement order, the ESC may give the licensee notice of its intention to revoke the licence. The ESC may revoke the licence if the licensee does not comply with an enforcement order prior to the expiration of the period set out in the notice.[2]

10 Another important function of the ESC is to conduct reviews of each Gas Access Arrangement ("GAA") proposed by the distributors to govern the access arrangements to gas distribution networks, including the prices to be charged for such access in accordance with approved tariffs. In the periods relevant to this proceeding, the reviews were conducted in accordance with the Gas Pipelines Access (Victoria) Law ("Access Law")[3] and the National Third Party Access Code for Natural Gas Pipeline Systems ("Access Code").[4] As the "Relevant Regulator" under the Access Code, the ESC is required to take a number of factors into account in deciding whether to approve a proposed GAA including the economically efficient operation of the relevant pipeline, the public interest in having competition in markets and the interests of users of the network. The Access Code makes it clear that in relation to the determination of the reference tariffs to apply under a GAA, the licensee's costs and the allocation of costs to the relevant network service are important considerations. For example, s 8.37 of the Access Code states that a reference tariff may provide for the recovery of non-capital costs except for any costs that would not be incurred by a prudent distributor "acting efficiently, in accordance with accepted and good industry practice, and to achieve the lowest sustainable cost of delivering the Reference Service".

11 On 30 March 2007, Multinet submitted to the ESC proposed revisions to its GAA to apply for the five year period commencing 1 January 2008. The ESC conducted a Gas Access Arrangement Review ("GAAR") in relation to the GAAs of the three Victorian gas distribution networks, including the proposed revisions to Multinet's GAA. The ESC's final decision on the GAAs was made on 7 March 2008. The ESC did not approve Multinet's revisions and required it to submit an amended version by 28 March 2008 incorporating the amendments specified in the final decision. The ESC made a further final decision on 19 May 2008 approving an amended GAA for Multinet.

12 Multinet is the holder of a gas distribution licence regulated under Part 3 of the GI Act. The licence was issued on 11 December 1997 and was last varied on 18 December 2002 ("Licence"). The Licence was originally issued to Multinet Gas, which was established in July 1997 when the Victorian Government created, from the former Gas and Fuel Corporation, three independent distribution businesses with different franchise areas. Since 1999, Multinet has carried on the Multinet Gas distribution business trading as the "Multinet Gas Distribution Partnership", in accordance with the Licence. The business owns gas transmission pipelines and the distribution network located in Melbourne's inner and outer eastern and south-eastern suburbs, supplying approximately 645,000 customers situated throughout the south and east areas of Melbourne. In early 2005, it commenced a natural gas expansion program to supply natural gas to nine towns to the Yarra Ranges. Services to gas customers are provided by gas retailers, principally AGL, TRUenergy and Pulse Energy. The retailers sign contracts known as use of system agreements[5] with Multinet to gain access to Multinet's assets and thereby supply gas to their customers.

13 Clause 4(a) of the Licence states that Multinet as licensee must, among other things, comply with all guidelines which are specified by the ESC to apply to it. "Guideline" is not defined in the Licence.

14 Under cl 6(a) of the Licence, Multinet as licensee must provide to the ESC, in a manner and form and at a time decided by the ESC and notified to it, such information as the ESC may from time to time require. Under cl 6(b) of the Licence, Multinet as licensee must ensure that separate accounts are prepared for its distribution business in accordance with any applicable ESC guidelines published for that purpose.

15 AAM was incorporated on 28 April 2003. It was originally known as Alinta Network Services Pty Ltd and adopted its current name on 31 March 2006. Since 2003, it has carried on the business, among others, of managing and operating electricity and gas distribution networks pursuant to operating services agreements with the owners of those networks.

Overview of ownership structures and relationships between Multinet and AAM

16 Multinet Gas (DB No 1) Pty Ltd and Multinet Gas (DB No 2) Pty Ltd have carried on the business of gas distribution since 1999 pursuant to a written partnership agreement. Immediately prior to July 2003, Multinet was owned by Aquila Inc as to 48.23 percent and companies associated with AMP as to 51.77 percent, and the distribution business was managed by United Energy Distribution Pty Ltd ("UED"). In July 2003, Aquila Inc sold its interest in Multinet to Alinta Ltd and companies associated with AMP (see below), with the former ending up with a 20.1 percent interest, and the latter with a 79.9 percent interest, and the day to day operation of the distribution business was outsourced to AAM. UED's personnel, information and systems relating to the operation of the business were transferred to AAM. The outsourcing was effected by the operating services agreement discussed in paragraph 23 of this judgment.

17 During 2004 and 2005, both Multinet Gas (DB No 1) Pty Ltd and Multinet Gas (DB No 2) Pty Ltd were (and remain) wholly owned subsidiaries of Energy Partnership (Gas) Pty Ltd ("EPG") which in turn was (and remains) a wholly owned subsidiary of Multinet Group Holdings Pty Ltd ("MGH"). MGH was incorporated on 12 March 2003. In this judgment, I refer to the four abovementioned companies as "the Multinet Group".

18 Between July 2003 and 31 August 2007, Alinta Ltd owned 20.1 percent of the issued shares of MGH and 79.9 percent of the issued shares were owned (and continue to be owned) by two listed trusts collectively referred to as "DUET". The first trust is the Diversified Utility and Energy Trust No 1 ("DUET No 1"), the trustee of which is AMP Henderson Global Investors Ltd, now known as AMP Capital Investors Ltd ("AMPCI"). The second trust is the Diversified Utility and Energy Trust No 2 ("DUET No 2"), the trustee of which is AMP Investment Services Pty Ltd ("AMPIS").

19 On 25 October 2006, Alinta Ltd changed its name to Alinta 2000 Ltd and a new company with the name Alinta Ltd became its holding company. Between April 2003 and 31 August 2007,[6] the ultimate holding company of AAM was either the old Alinta Ltd (which changed its name to Alinta 2000 Ltd on 25 October 2006) or the new Alinta Ltd, and, accordingly, this period is sometimes referred to as the "Alinta period". The key events relevant to this proceeding took place during the Alinta period. In this judgment, all references to "Alinta" are to the company which was known as Alinta Ltd until 25 October 2006 and as Alinta 2000 Ltd from 25 October 2006 to 22 September 2008.

20 In 2004 and 2005, Multinet and AAM also had (and continue to have) links through a company called Pacific Indian Energy Services Pty Ltd ("PIES"), which is owned in equal one-third shares by Alinta Network Holdings Pty Ltd ("ANH"), MGH and United Energy Distribution Holdings Pty Ltd ("UEDH"). I refer to PIES further below.

21 On 14 July 2003, MGH, Alinta, AMPCI (in its capacity as manager of certain managed shares), AMPCI (in its capacity as trustee of DUET No 1) and AMPIS (in its capacity as trustee of DUET No 2) executed a shareholders agreement ("MGH Shareholders Agreement") for the "purpose of [recording] the parties' agreement for the control and management of the [Multinet Group]". It contains the following relevant provisions:

(a) Clause 2.1, which provides that the following matters listed in schedule 1 require a Special Majority Shareholders Resolution:

[i] the issue of further shares or any change in the share capital of [MGH] or its Subsidiaries;

[ii] the grant of any loan or advance or giving of any financial accommodation other than in the ordinary course of business;

[iii] the giving of any guarantee or indemnity or granting any security interest to secure the liabilities or obligations of any person or entity other than [MGH] in the ordinary course of business;

[iv] the sale, Transfer, lease, assignment, disposal or any other dealing with a material part of the undertaking, property or assets of [MGH] or its Subsidiaries having a value in excess of $10 million or contracting to do so other than in the ordinary course of the Business;

[v] the sale, Transfer, disposal or any other dealing with a material part of the Business;

[vi] a change in the nature of the Business or the undertaking of new activities;

[vii] the undertaking of borrowings or capital expenditure in excess of 20% of the Budget and Business Plan for that financial year;

[viii] the initiation or settlement of disputes in excess of 20% of the Budget and Business Plan for that financial year;

[ix] a change in [MGH's] dividend policy or the adoption of a new dividend policy for [MGH];

[x] the undertaking of any material investments outside the Business which are not supplemental or incidental to the Business;

[xi] the making of any amendments to the Constitution or the replacement of the Constitution with a new constitution; and

[xii] the appointment of an administrator, a receiver, a receiver and manager or a liquidator.

Clause 23.1 defines "Special Majority Shareholders Resolution" as a resolution of the shareholders which is approved by shareholders (who are not disqualified from voting on the resolution) who between them hold not less than 81 percent of the total number of shares held by all shareholders who are present and vote, and Alinta for so long as Alinta holds 10 percent or more of the shares and is not disqualified from voting on the resolution.

(b) Clause 2.4, which states that a shareholder may not vote at a meeting of shareholders on any matter (including those requiring a Special Majority Shareholders Resolution) relating to any agreement between MGH (or a subsidiary) and the shareholder (or any affiliate) other than an agreement between MGH (or a subsidiary) and an entity in which all shareholders have a direct or indirect interest.

(c) Clause 3.1, which provides that the board of MGH is responsible for the overall direction and management of MGH and its subsidiaries and the formulation of the policies to be applied in conducting the business including:

(i) any matter relating to any agreement between MGH (or a subsidiary) and a shareholder (or an affiliate) other than an agreement between MGH (or a subsidiary) and an entity in which all shareholders have a similar type of direct or indirect interest; and

(ii) any material decision in respect of the services arrangements between MGH and an operator of regulated energy assets (other than Alinta).

(d) Clause 3.2, which provides that the Budget and the Business Plan must be approved by a Special Majority Directors Resolution. The definitions of "Budget" and "Business Plan" in cl 23.1 include the budget and business plan of Multinet. A Special Majority Directors Resolution is defined in cl 23.1 to mean a resolution of directors which is approved by directors (who are not disqualified from voting on that resolution) who between them hold not less than 81 percent of the total number of votes that may be exercised by all of the directors of MGH who are present and vote. Clause 6.4 provides that if the board does not approve the Budget or Business Plan for a particular year, then, until it does so, the Budget or Business Plan will be the same as the previous year's Budget or Business Plan.

(e) Clause 4, which deals with directors of MGH. Clause 4.1 provides that the board consists of four directors nominated by shareholders and an independent chairman. Clause 4.2 provides that each shareholder other than Alinta is entitled to appoint one director for each 25 percent of the shares it holds. Clause 4.4 provides that Alinta is entitled to appoint one director for so long as it holds 10 percent or more of the shares. Clause 4.5 provides that DUET is entitled to appoint the independent chairman provided that, for so long as Alinta holds 10 percent or more of the shares, Alinta's prior approval is required for the person nominated by DUET. Clause 4.10 provides that subject to the duty to act in good faith and in the best interests of MGH as a whole, a director appointed by a shareholder may have regard to and act in the interests of their appointor.

(f) Clause 4.14, which provides that the composition of the board of Multinet must be the same as the composition of the board of MGH and the provisions of the MGH Shareholders Agreement regarding the conduct of MGH's affairs apply equally to the conduct of the affairs of Multinet.

(g) Clause 5.2, which provides that the quorum for board meetings is three directors and that where the draft Budget or Business Plan is being considered, the three directors must include a director appointed by Alinta and two directors appointed by DUET.

(h) Clause 5.6, which provides that a director may not vote on a resolution on any matter relating to any agreement between MGH (or a subsidiary) and the shareholder (or an affiliate) who appointed the director, other than an agreement between MGH (or a subsidiary) and an entity in which all shareholders have a similar type of direct or indirect interest. Clause 5.6 also provides that if the board is considering a material decision in respect of services arrangements between MGH and an operator of regulated energy assets (other than Alinta), the directors appointed by Alinta may not participate in the consideration of or vote on the resolution of the subject matter of the services agreement. The chairman is exempted from the restrictions in cl 5.6.

22 Pursuant to cl 4 of the MGH Shareholders Agreement, between 2003 and 2 March 2006, Alinta appointed its chief executive officer, Robert Browning, as a director of MGH and Multinet, and between 2 March 2006 and 31 August 2007, Alinta appointed one of its then senior executives, Ian Devenish, as a director of MGH and Multinet.[7] Mr Devenish was Mr Browning's alternate on the boards of MGH and Multinet between 10 June 2004 (MGH) or 10 May 2004 (Multinet) and 2 March 2006. Mr Shaun Reardon, a senior manager of Alinta, was Mr Devenish's alternate on the boards of MGH and Multinet between 6 October 2006 and 31 August 2007. Mr Browning was also a director of AAM between 28 April 2003 and 31 January 2007. He was one of a total of three directors of AAM in 2004 and 2005.

23 On 14 July 2003, AAM, Multinet and MGH entered into an operating services agreement for an initial period ending on 30 June 2008. The agreement specified a first renewal period of five years commencing on 1 July 2008. The agreement was amended on 16 October 2006 with effect from 10 October 2006. The amendment is discussed in paragraph 40 of this judgment. In this judgment, I refer to the operating services agreement, as amended, as "the OSA".

24 Pursuant to cl 3(b) of the OSA, Multinet delivered up operating control of its distribution network to AAM. Existing services contracts with third parties were largely assigned or novated to AAM. Under the OSA, AAM operates and manages Multinet's distribution business on behalf of Multinet. Multinet pays AAM a fixed annual fee for operating expenses ("Opex"), which is referred to in the OSA as the "Opex Fee". Under cl 12 of the OSA, the Opex Fee is payable monthly in arrears and is adjusted annually in accordance with the consumer price index and other factors. As the prices Multinet can charge are fixed by the ESC and its Opex are fixed under the OSA, Multinet has a degree of certainty about its profitability and is able to make stable distributions to its investors. Any savings in actual costs incurred by AAM in a particular year are retained by AAM for its own benefit.

25 Unlike Opex, which are borne by AAM in return for a fixed Opex Fee without disclosure of AAM's actual costs, the capital expenses ("Capex") are divided into fixed capital expenses and variable capital expenses (as defined in schedule 7) and are subject to budgets which are prepared by AAM and submitted to Multinet for Multinet's approval under cl 11 of the OSA. Multinet therefore knows the amounts AAM incurs in respect of Capex. Under cl 12 of the OSA, Multinet pays AAM an annual "Fixed Capex Fee" monthly in advance and an annual "Variable Capex Fee" monthly in arrears. The Fixed Capex Fee is adjusted annually in a similar manner to the Opex Fee. The Variable Capex Fee is calculated in accordance with a schedule of rates agreed between the parties annually. In broad terms, in 2004 and 2005 Multinet's annual expenditure on Opex approximated its annual expenditure on Capex.

26 Clause 5.1(a) of the OSA provides that Multinet appoints AAM to provide the "Services". Clause 5.2(a) provides that not less than nine months before the expiry of the "Initial Period" on 30 June 2008, Multinet and AAM will commence negotiation of the fees to apply during the "First Renewal Period", namely 1 July 2008 to 30 June 2013, having regard to a number of matters including "any reasonable changes to costs which will necessarily be incurred by [AAM] during the First Renewal Period in providing the Services including increases in costs to [AAM] and efficiencies to be achieved by [AAM] during the First Renewal Period".

27 The negotiations over the fees for the first renewal period have not yet been concluded. Pending completion of the negotiations, Multinet continues to pay the fees payable during the initial period.

28 Clause 6.1 of the OSA requires AAM to provide the "Services" to Multinet at AAM's own cost. Clause 1.1 defines "Services" to mean the services described in schedule 1 other than the "Excluded Services". Clause 1.1 defines "Excluded Services" to mean the services described in part 2 of schedule 1 and certain treasury services provided by AMPCI. Clause 6.5 states that AAM is the exclusive provider of the "Services" to Multinet.

29 Schedule 1 to the OSA lists a large number of services under the headings "1. General", "3. Regulatory Services", "4. Network Management", "5. Construction Management", "6. Network Customer Services", "7. Network Planning & Engineering Services" and "8. Network Operation, Incident Management and Supervisory Control Services".

30 Under the heading "1. General", schedule 1 states:

... [AAM] will operate and manage, or procure the operation and management of, the Distribution Network and the Business in accordance with Good Industry Practice and the Service Standards excluding those services described in paragraph 2 of this schedule and including the Services described in paragraphs 3, 4, 5, 6, 7 and 8 of this schedule. ...

31 Under the heading "2. Excluded Services", schedule 1 states:

The following services are not provided by [AAM]:

(a) approval of and final submissions to the ESC in relation to the Access Arrangement, revisions to the Access Arrangement and other requirements under the National Access Code;

(b) regulatory strategy including strategy for network pricing and tariff reassignment;

(c) determining those matters referred to in paragraphs 3(a) and 3(b) of this schedule;

...

(e) general management and operation of Multinet including the board of Multinet; and

(f) press releases/publications of Multinet.

32 Under the heading "3. Regulatory Services", schedule 1 states:

Subject to [paragraph] 2 of this schedule and consultation with Multinet:

(a) Proposing reference tariffs for the purposes of the Access Arrangement to Multinet.

(b) Drafting submissions to the ESC in relation to revisions to the Access Arrangement and other requirements under the National Access Code and other assistance reasonably required by Multinet in relation to revisions to the Access Arrangement and other requirements under the National Access Code.

(c) The recommendation to Multinet for the setting of charges for services that are not reference services under the Access Arrangement.

(d) Providing all reports to the ESC required by a Gas Law or the Access Arrangement.

33 The services specified under the heading "4. Network Management" and the sub-heading "4.1 Manage the Business, the Network and associated assets" include:

(a) Provide commercial and technical expertise in support of the management of the Business.

...

(h) Establish and maintain commercial, design, operational and maintenance policies and standards for the assets. ...

34 Other services specified in schedule 1 include: "Develop contracts and tendering processes that allow the selection of the appropriate contracting resources to meet the capital forecast requirements", "Negotiate [use of system agreements] with market participants", "Operate and maintain a Distribution Network billing system to recover all revenue recoverable under contracts and other arrangements", "Develop policy and procedures to control access and connection to the Distribution Network" and "The maintenance of asset records and record systems to satisfy business needs and regulatory requirements ... and ... [t]he maintenance of technical drawings and records".

35 Clause 1.1 defines "Gas Law" to include "Codes" and defines "Codes" to include "the Guidelines issued or approved by the ESC pursuant to the [GI Act]". The term "Guidelines", as used in the definition of "Codes", is not defined by the OSA. Clause 1.1 defines "Access Arrangement" as "Multinet's Access Arrangement dated 15 November 2002 as approved by the ESC on 2 December 2002 for the period 1 January 2003 to 31 December 2007 and ... any replacement of the Access Arrangement".

36 Clause 7.1 of the OSA requires AAM to provide operational, financial and other reports specified in cl 7 and schedule 4. Clause 7 refers to incident reports and annual reports. Clause 7.4(a) requires AAM to deliver to Multinet within 80 days after the end of each calendar year in respect of that year an annual report on its activities and performance under the OSA, including "Reports" described in schedule 4 for that year and the information required to be included by Multinet in its annual report, which information will be notified to AAM from time to time. Schedule 4 requires AAM to provide to Multinet "Regulatory Reports" (being reports Multinet is required to submit to the ESC and other regulators) in the format required by regulators at least five business days before providing the report to a regulator, monthly "Revenue Reports", monthly "Operating Reports" which discuss all major operational aspects of the business not covered in the "KPI report", monthly "KPI Reporting" showing performance against the Key Performance Indicators ("KPIs") listed in schedule 5,[8] and six monthly "IP Reporting".

37 Clause 10 of the OSA requires AAM to develop an asset management plan for the repair, management and maintenance of the distribution network and associated assets for the period 1 January 2004 to 30 June 2008 and to update it annually to, among other things, be consistent with Multinet's long-term objectives. The revised asset management plan must be submitted to Multinet for approval no later than 31 October each year. If Multinet does not approve the plan, it must give reasons and AAM must resubmit a new asset management plan which complies with Multinet's requirements. AAM must carry out the approved asset management plan at its own cost.

38 Clause 25.1 of the OSA imposes mutual confidentiality obligations on the parties. Clause 25.3 provides an exception in respect of confidential information a party is required to disclose "by any Government Agency". Clause 1.1 defines "Government Agency" as including a "Regulator" and a "Regulator" as including the ESC.

39 Clause 32.1 of the OSA prior to its amendment in 2006 contained an irrevocable power of attorney in favour of AAM which authorised AAM to "perform the Services", enter into any use of system agreement and "do anything which is necessary or desirable to deliver the Services" on behalf of Multinet. AAM was required to obtain Multinet's prior approval before incurring any liability on behalf of Multinet, other than liability in the ordinary course. Pursuant to the power of attorney, AAM executed a number of use of system agreements and other documents on behalf of Multinet in 2004 and 2005.

40 The OSA Amendment Agreement, which is dated 16 October 2006 but took effect on 10 October 2006, deleted cl 32 of the OSA and revoked the power of attorney. A new cl 32 was inserted which conferred authority on AAM to enter into such agreements for and on behalf of Multinet as the board of Multinet nominated from time to time either by standing resolution or specific resolution, other than any use of system agreement or any connection agreement. The new cl 32 also includes an acknowledgment that, in the performance of the Services, AAM is an independent contractor and not an agent or partner of Multinet. On 22 November 2006, the board of Multinet authorised AAM to enter into certain agreements so long as they are in the normal course of business and do not commit Multinet to expenditure of more than $100,000.

41 As part of its role of operating and managing Multinet's distribution business and in accordance with the services set out in schedule 1 to the OSA (see paragraph 33 of this judgment), AAM prepared operating policies for that business (either by creating new policies or revising existing policies) and submitted them to Multinet for approval. The policies are sometimes referred to as "strategies".

Multinet's senior management team and role of PIES

42 Multinet did not have any employees in 2004 and 2005. Its corporate functions have been performed by a combination of AAM personnel under the OSA and senior executives and experts sourced from a number of shareholder and other related entities rather than Multinet itself. These functions are sourced through EPG and MGH. Multinet principally carries on these functions through:

(a) PIES, which provides executive management services to Multinet and co-ordinates the provision of services by shareholders under the Multinet Management Services Agreement dated 14 July 2003 between MGH and PIES ("MMSA");

(b) AMPCI, which provides treasury/financial services to Multinet under the Financial Services Agreement dated 14 July 2003 between MGH and AMPCI ("FSA"); and

(c) EPG, which provides the general management for the Multinet Gas Distribution Partnership.

43 Under the MMSA, MGH appointed PIES as manager to provide the services set out in schedule 1 to the MMSA. Those services include the management of the contractual relationship between MGH, Multinet and AAM under the OSA, management of the contractual relationship between MGH and AMPCI under the FSA, development of the regulatory strategy for the Multinet Group, performance of company secretarial duties, preparation of statutory accounts and tax returns, preparation of the Multinet Group's business plan, review of drafts of business plans submitted under the OSA and the FSA, and management of the Multinet Group's cashflow requirements.

44 Under the FSA, MGH appointed AMPCI as adviser to provide the services set out in schedule 1 to the FSA. Those services are treasury services, transaction services in respect of capital raisings and other services as agreed from time to time.

45 PIES, Alinta, ANH, AMPCI, MGH and UEDH entered into a Shareholders Agreement dated 14 July 2003 ("PIES Shareholders Agreement"). Clause 3 provides that PIES cannot employ more than three personnel to provide management services to ANH, MGH and UEDH without approval in writing by Alinta and AMPCI unless the increase is fully provided for in the business plan of each of ANH, MGH and UEDH. Clause 4 provides that the board of PIES comprises three directors, with ANH, MGH and UEDH each having the right to appoint a director. Decisions of directors have to be unanimous. Alinta's nominee on the board of PIES for the period July 2003 to 23 March 2006 was Mr Browning and in the period 23 March 2006 to 31 August 2007, it was Mr Devenish.[9]

46 During 2004 and 2005, Multinet's senior management team comprised Hugh Gleeson, CEO, David Strang, CFO, and Shaun Glasson, engineer. They were not employees of Multinet and were provided by PIES.

47 As mentioned in paragraph 1 of this judgment, the ESC published the Guideline on 13 July 2005. The Guideline requires licensees such as Multinet to include within their gas regulatory accounting statements information as to the actual costs incurred by their "Related Parties" in relation to the licensee's distribution business. The Guideline provides a definition of "Related Party", which is set out in paragraph 73 of this judgment. The definition and other relevant provisions of the Guideline are discussed below under the heading "Scope and validity of Guideline".

Non-provision of AAM's costs information to Multinet

48 In March 2006, Multinet filed with the ESC its gas regulatory accounting statements for the year ended 31 December 2004.[10] AAM's actual costs information was not included on the basis that it was not in Multinet's possession.

49 In May 2006, Multinet filed with the ESC its gas regulatory accounting statements for the year ended 31 December 2005, again without AAM's actual costs information.

50 By letter dated 24 February 2006, Multinet asked AAM whether it was in a position to provide information about AAM's actual costs to Multinet to enable Multinet to comply with the Guideline for the years ending 31 December 2004 and 31 December 2005. By letters dated 9 and 13 March 2006, AAM refused to provide the information on the bases that AAM was not a related party of Multinet within the meaning of the Guideline and that, in any event, the information did not exist in AAM's systems for the 2004 and 2005 years. In a subsequent letter dated 11 May 2006, AAM asserted that the Guideline was invalid and that the OSA did not oblige AAM to provide the information.

51 On 25 August 2006, the ESC wrote to Multinet stating that its 2004 and 2005 gas regulatory accounting statements did not comply with the Guideline and requesting that Multinet make the necessary amendments to comply with the Guideline by 8 September 2006. The letter stated that non-compliance with the Guideline would be in breach of the Licence. Multinet replied by letter dated 8 September 2006 in which it stated that it would not be withdrawing its audited gas regulatory accounting statements and replacing them with modified statements. The letter stated that Multinet does not accept that non-compliance with the Guideline would be in breach of the Licence as Multinet does not accept the validity of the Guideline.

52 On 8 December 2006, Multinet informed AAM that unless within seven days AAM provided AAM's actual costs information, Multinet would have no alternative other than to institute legal proceedings.

53 Following a meeting between the ESC and representatives of Multinet on 13 November 2006, the ESC wrote to Multinet on 16 January 2007 stating that in the event that Multinet cannot bring itself into compliance with the Guideline, the ESC "shall consider what future action is appropriate". Multinet responded by letter dated 2 February 2007 stating that it had instructed its lawyers to commence legal proceedings to resolve the issues.

Commencement of proceeding and issues to be determined

54 On 20 February 2007, Multinet commenced this proceeding against AAM and the ESC seeking the following relief:

(a) A declaration that AAM is required under the OSA to provide to Multinet AAM's actual costs information for the calendar years 2004 and 2005.

(b) Specific performance of the obligation that AAM provide to Multinet certain reports and/or AAM's actual costs information in respect of the calendar years 2004 and 2005 within 30 days.

(c) A declaration as to whether AAM is a related party of Multinet for the years ended 31 December 2004 and 31 December 2005 for the purpose of the Guideline.

(d) All necessary orders including interim and interlocutory orders to give effect to the relief sought by Multinet including orders restraining the ESC and its agents or delegates from taking any steps or proceedings on the basis of Multinet's failure to comply with the Guideline or, alternatively, the related party costs information provisions of the Guideline.

55 Multinet's statement of claim also initially sought declarations to the effect that the Guideline is beyond power and invalid. During the hearing, Mr Bick QC, who appeared with Mr Farrands on behalf of Multinet, informed me that Multinet accepted that the Guideline is valid and no longer pressed for that relief.

56 Multinet included the ESC as a defendant to the proceeding so that it would be bound by the Court's decision as to whether or not Multinet and AAM were related parties, within the meaning and application of the Guideline, in 2004 and 2005.

57 In its defence, AAM denies that it was a related party of Multinet in 2004 and 2005 and that it has breached the OSA. It also alleges that the Guideline is invalid. It seeks a declaration that, to the extent the Guideline requires the provision of AAM's actual costs information, it is invalid and of no effect.

58 In its defence, the ESC asserts that the Guideline is valid, that AAM was a related party of Multinet in 2004 and 2005 and that Multinet is obliged to include in its gas regulatory accounting statements the actual costs information of AAM.

59 The issues requiring determination by this Court are:

(b) If the Guideline is valid, does it apply to 2004?

(c) Was AAM a related party of Multinet in 2004 and 2005?

(d) Does the OSA oblige AAM to provide its actual costs information to Multinet?

60 Evidence in chief was given by way of affidavit or witness statement. Each witness was cross-examined except for Laura Deschamps, Multinet's solicitor, who swore an affidavit exhibiting some correspondence.

61 Multinet called only one substantive witness, David Strang, who has been the company secretary and CFO of Multinet and MGH since 26 November 2003. The ESC did not call any witnesses. AAM called:

(a) Mr Devenish, a former senior executive of Alinta who served as Alinta's nominee alternate director and later nominee director on the boards of Multinet and MGH from mid 2004 to 31 August 2007.[11] He also served as Alinta's representative on MGH's audit and risk committee.

(b) Mr Reardon, a senior manager employed by Jemena Asset Management Holdings Pty Ltd ("Jemena") which, since 31 August 2007, has owned 49 percent of AAM.[12] Between October 2006 and 30 September 2007, he was responsible for the management of all commercial aspects of the services AAM provided to Multinet under the OSA. He was Mr Devenish's alternate on the boards of Multinet and MGH and on MGH's audit and risk committee between 6 October 2006 and 31 August 2007.

(c) Bill Fletcher, a financial controller employed by Jemena. Since April 2006, he has been responsible for all financial and management accounting services provided by AAM to Multinet and has filled the role of Multinet's financial controller.

(d) Sumit Garg, a business analyst employed by Jemena. Between October 2004 and April 2005, he was employed in Alinta's internal audit group, between April 2005 and October 2005, he was employed in Alinta's management accounting group and between November 2005 and October 2007, he was employed in Alinta's financial accounting group which, until Mr Fletcher's team took over responsibility, prepared monthly accounting reports for Multinet.

(e) Mark Beech, an asset manager employed by AAM. In 2004 and 2005, he headed an "asset services" team which produced annual five year asset management plans for Multinet's distribution business for Multinet's approval.

(f) Craig Savage, who performed a similar role to Mr Beech in relation to UED's electricity distribution network.

(g) Jock O'Callaghan, a partner of PricewaterhouseCoopers ("PwC"), who prepared a report to AAM on AAM's revenues, costs and margins of operating Multinet's distribution business in 2004, 2005 and 2006.

62 As many of the underlying facts, as distinct from matters of detail and interpretation, were not in dispute, the credit of witnesses is not a central consideration. It is therefore not necessary for me to discuss the evidence of each witness at length. My findings in respect of the witnesses may be summarised as follows:

(a) Mr Strang gave his oral evidence calmly and answered questions directly and honestly. He had a good recollection of relevant details and made concessions where appropriate. His evidence was very reliable and I have placed great weight on it.

(b) Mr Devenish gave truthful answers and made concessions where appropriate. However, there were gaps in his memory and he was hazy on some details. This is understandable, as he ceased employment with Alinta around the end of August 2007.

(c) Mr Reardon was an unimpressive witness whose evidence, on his own admission, was incomplete and capable of being misleading on a number of issues. He also said that he did not recall particular facts notwithstanding that they occurred recently and were within the scope of his duties. The selective and guarded manner in which Mr Reardon gave evidence made it unreliable. I have given his evidence little weight when it was favourable to AAM except where it was supported by contemporaneous records or the evidence of another witness.

(d) Mr Fletcher answered questions truthfully. However, he was not very knowledgeable on a number of issues and hence his evidence was less precise than I would have expected. For example, although he fills the role of financial controller of Multinet, he has limited knowledge of the systems used by AAM in preparing Multinet's accounts and he is not sure whether Mr Strang has access to those systems. Also, some of Mr Fletcher's oral evidence differed from his affidavit evidence. For example, although in his affidavit he stated that he reports to Jemena's CFO and liaises regularly and closely with Mr Strang, in his oral evidence he said he reports to Mr Strang. Further, although in his affidavit he stated he attended a meeting of MGH's audit and risk committee on 31 July 2006 "on behalf of Alinta", in his oral evidence he said he represented Multinet's interests at the meeting.

(e) Mr Garg answered questions truthfully and to the best of his ability.

(f) Mr Beech gave evidence in a guarded manner. He appeared to tailor some of his answers according to his perception of whether they would assist AAM's case. He also appeared reluctant to make concessions, even on straightforward issues. He was particularly reluctant to acknowledge that AAM was the operator of the Multinet gas distribution network, probably because Hollingworth J decided that it was in the case of Alinta Asset Management Pty Ltd v Essential Services Commission (No 2)[13] and AAM's appeal to the Court of Appeal against that decision had not been determined at the time he gave his evidence.[14] These matters have adversely affected the weight I have given to Mr Beech's evidence.

(g) Mr Savage gave his evidence in a direct and straightforward manner. He made concessions where appropriate. His evidence was reliable.

63 Insofar as the evidence of Mr Strang conflicted with the evidence of any AAM witness, I have tended to prefer Mr Strang's evidence.

64 Both Mr Delany SC, who appeared with Mr Weinstock on behalf of AAM, and Mr Bick relied heavily on Jones v Dunkel[15] in submitting that I should infer that the evidence of certain individuals who were available to be called but were not called as witnesses by Multinet and AAM respectively would not have assisted that party's case. Mr Bick made such a submission principally in relation to Ariel Leano (AAM's financial controller from July 2004 to November 2006), Alistair Lehman (AAM's current financial controller) and Peter Megarry (at relevant times, AAM's general manager or CEO). Mr Delany made such a submission in relation to Mr Gleeson (Multinet's CEO), Peter Lowe (the chairman of Multinet), Ross Israel, Peter Barry, Bruce Berry, Nicholas Langley and David Bartholomew (at various stages, executives of DUET and directors or alternate directors of Multinet) and Mr Glasson (a member of Multinet's senior management team). Mr Delaney also submitted that as the ESC called no evidence, the inference is that any witness called by the ESC would not have advanced the ESC's case.

65 I have not found it necessary to rely on Jones v Dunkel in relation to any person who was available to be called but was in fact not called as a witness except as set out in paragraph 238 of this judgment. The key reason for this is that most of the substantive underlying facts in this proceeding were not in dispute. A key exception is the extent to which AAM is capable of providing information about its actual costs of operating Multinet's distribution business in 2004 and 2005 in compliance with the Guideline over and above the information in the PwC report discussed in paragraphs 212 and 215 of this judgment. Save as set out in paragraph 238 of this judgment, the parties made sensible choices about who to call as witnesses in light of the nature of the case and the need to ensure that it was heard and determined expeditiously.

66 In this part of the judgment, I discuss whether the provisions of the Guideline that require inclusion of related party costs information in a licensee's gas regulatory accounting statements are valid. I also consider how those provisions, if valid, apply to the 2004 year.

67 Clause 1.1.1 of the Guideline describes the purpose of the Guideline as follows:

This Guideline sets out a mechanism for the collection of information and certain recurring substantive information requirements, to assist the Commission to fulfil its objectives and functions. The information provided to the Commission pursuant to this Guideline enable the Commission to undertake the following:

• to ensure the appropriate allocation of revenue and costs between the Gas Distribution Business and non Gas Distribution Businesses;
• to monitor costs approved for the current Gas Regulatory Period and otherwise to monitor compliance with the Access Code;
• to inform Gas Access Arrangement Reviews and to perform other functions under relevant Acts;
• improve the level(s) of transparency in the regulatory processes by the future publication of comparative performance reports; and
• generally to give effect to the objectives of the Commission as stated in the Essential Services Commission Act 2001 and the Gas Industry Act 2001.

the Guideline will become effective on the date of issue, 13 July 2005. The first Gas Regulatory Accounting Statements will be required to be submitted during 2005 for the latest Financial Accounting Year completed on or before 30 June 2005. If the applicable financial year ended on 31 December 2004, then that Licensee is required to submit Gas Regulatory Accounting Statements for the Financial Accounting Year ending on 31 December 2004.

69 Clause 2.5.1 of the Guideline states that gas regulatory accounting statements shall align with the financial accounting year reporting period for each licensee. Clause 1.2.4 states that gas regulatory accounting statements must be submitted to the ESC four months from the end of the financial accounting year for each licensee. Clause 5.3.1 repeats the timeframe set out in cl 1.2.4 and states that the first set of gas regulatory accounting statements "must be submitted during 2005, to account for the Licensee's preceding Financial Accounting Year".

Gas Regulatory Accounts and Gas Regulatory Accounting Statements must be prepared for a Gas Distribution Business by the Licensee annually for each Access Arrangement approved by the Commission. Any revenue earned, asset utilised and liability or cost incurred in carrying out the activities authorised by the Gas Distribution Licence by the Licensee and/or a Related Party of the Licensee must be reported in the Gas Regulatory Accounts and the Gas Regulatory Accounting Statements. Such revenue, cost element, asset and liability items that when combined constitute the whole of the regulatory accounting information for the Gas Distribution Business must have their origin in audited Base Accounts that include the entirety of the activities of the Gas Distribution Business and/or the audited accounts of the relevant Related Parties.

71 Clauses 5.17.1 and 5.17.2 of the Guideline state:

5.17.1 Where transactions between a Related Party and the Licensee occur for amounts greater than $1,000,000 in aggregate in the Gas Regulatory Accounting Period, these shall be reported separately in the Gas Regulatory Accounting Statements in Template 12 of Appendix 1.

Explanation

The Gas Distribution Business is defined by its activities and not by incorporation. Therefore, entities that are a Related Party of the Gas Distribution Business and provide gas distribution activities are considered part of the Gas Distribution Business for the purpose of the Gas Regulatory Accounting Statements. The Commission requires the value of goods and services originating in those Related Parties to be recorded in the Gas Regulatory Accounting Statements.

5.17.2 For the transactions reported under paragraph 5.17.1, the information that must be reported includes:

• the name of the Related Party which incurred the cost in providing the individual services to the Licensee;
• the actual incurred cost of the individual services provided by the Related Party to the Licensee;
• the individual services provided;
• a description of how the actual incurred cost was determined;
• a description of how the actual incurred cost is reflected in the Gas Regulatory Accounting Statements identifying the Asset Category or Cost Category;
• a description of the way actual incurred cost amount is reflected in the Gas Regulatory Accounting Statements including where the amount is allocated (by Asset Category and/or Cost Category); and
• a description of the allocation basis and the quantum of the allocator.

The actual incurred cost of the Related Party providing the service will be net of any profit margin or management fee.

72 The monetary limit in cl 5.17.1 of the Guideline was satisfied in the case of AAM and Multinet in both 2004 and 2005.

73 Part 6 of the Guideline contains the following relevant definitions:

Base Accounts are the Licensee's audited accounts that contain all the financial and non-financial information that cover the entirety of the activities of the Gas Distribution Business. Base Accounts may be a General Purpose Financial Statement of the Licensee or may be Statutory Accounts prepared under Corporations Act provisions.

Entity means a business unit, whether or not a legal entity.

Financial Accounting Year is specific to each Licensee and is the period of time covered in the Base Accounts.

Gas Distribution Business means the entirety of the activities undertaken by the Licensee and/or a Related Party and/or a Third Party contracted by the Licensee in carrying out the activities authorised under the Gas Distribution Licence.

Gas Regulatory Accounting Statements are financial reports revealing the performance and financial situation of the Gas Distribution Business. They show the originating Base Account amount, its translation into a Gas Distribution Business Base Amount and its disaggregation between Gas Distribution Business Segments. The pro-forma templates for the Gas Regulatory Accounting Statements are attached to this Guideline in Appendix 1.

Gas Regulatory Accounts are financial records derived from the Base Accounts of the Licensee and the audited accounts of Related Parties of the Licensee that are involved in the activities of a Gas Distribution Business.

Related Party means a related party as defined by Australian Accounting Standards.

74 Clauses 3.1.2, 3.1.3, 5.2.1 and 5.2.5 require gas regulatory accounting statements to be prepared in accordance with the templates in Appendix 1.

75 Clause 2.4.1 states that the ESC proposes to amend the Guideline from time to time in the context of, among other things, "changes in Australian Accounting/Auditing Guidelines/Standards and other relevant statutory provisions concerning 'disclosure' that affect the Licensee".

76 The source of power relied upon to make the Guideline is set out in the Guideline itself. Clause 2.1.1 of the Guideline refers to s 13 of the ESC Act, which has provided at all relevant times: "The Commission may publish statements and guidelines relating to the performance of its functions and the exercise of its powers".

77 Clause 2.1.1 of the Guideline states that the Guideline supports the Commission's objectives as stated in s 8 of the ESC Act and s 18 of the GI Act.

78 When the Guideline was published on 13 July 2005, ss 8, 10 and 11 of the ESC Act relevantly provided:

(1) In performing its functions and exercising its powers, the primary objective of the Commission is to protect the long term interests of Victorian consumers with regard to the price, quality and reliability of essential services.

(2) In seeking to achieve its primary objective, the Commission must have regard to the following facilitating objectives -

(a) to facilitate efficiency in regulated industries and the incentive for efficient long-term investment;

(b) to facilitate the financial viability of regulated industries;

(c) to ensure that the misuse of monopoly or non-transitory market power is prevented;

(d) to facilitate effective competition and promote competitive market conduct;

(e) to ensure that regulatory decision making has regard to the relevant health, safety, environmental and social legislation applying to the regulated industry;

(f) to ensure that users and consumers (including low-income or vulnerable customers) benefit from the gains from competition and efficiency;

(g) to promote consistency in regulation between States and on a national basis.

(3) Without derogating from sub-sections (1) and (2), the Commission must also perform its functions and exercise its powers in such a manner as the Commission considers best achieves any objectives specified in the relevant legislation under which a regulated industry operates.

The functions of the Commission are -

(a) to perform such functions as are conferred by [the ESC Act] and the relevant legislation under which a regulated industry operates;

...

(h) to administer [the ESC Act]; ...

(1) Subject to [the ESC Act], the Commission has power to do all things necessary or convenient to be done for or in connection with the performance of its functions and to enable it to achieve its objectives under [the ESC Act] and under relevant legislation.

(2) Without derogating from sub-section (1), the Commission also has such powers as may be conferred on the Commission by the relevant legislation under which a regulated industry operates.

79 Sections 18, 28 and 29 of the GI Act relevantly provided in July 2005:

The objectives of the Commission under [the GI Act] are -

(a) to the extent that it is efficient and practicable to do so, to promote a consistent regulatory approach between the gas industry and the electricity industry; and

(b) to promote the development of full retail competition.

...

(2) A licence is subject to such conditions as are decided by the Commission. ...

Without limiting the generality of section 28, the conditions on a licence may include provisions -

...

(b) requiring the licensee to enter into agreements on specified terms or on terms of a specified type;

(c) requiring the licensee to observe specified Orders in Council, industry codes, standards, rules and guidelines with such modifications or exemptions as may be specified by the Commission;

...

(f) requiring the licensee to maintain specified accounting records and to prepare accounts according to specified principles;

(g) specifying requirements about the ownership of real or personal property used in or in connection with the carrying on of activities under the licence;

* * * * *

(i) preventing the licensee from engaging in or undertaking specified business activities;

(j) requiring the licensee to establish and maintain separate accounts for specified business activities and to keep those activities separate from its other activities in any manner specified in the licence;

...

(m) specifying methods or principles to be applied by the licensee in determining prices or charges;

...

(o) specifying procedures for variation or revocation of the licence;

...

(q) requiring the licensee to provide, in the manner and form specified by the Commission, such information as the Commission may from time to time require;

...

(s) requiring the licensee to develop, issue and comply with customer-related standards, procedures, policies and practices (including with respect to the payment of compensation to customers).

80 Clause 2.1.2 of the Guideline also refers to cl 6 of the "Gas Distribution Licences", which is defined to include the Licence, and specifies that it is an "accounting guideline" for the purpose of that clause. Clause 6 of the Licence is described in paragraph 14 of this judgment.

81 Further, cl 2.1.3 of the Guideline specifies that, apart from some exceptions, it constitutes a "general accounting guideline" for the purpose of s 4.2(a) of the Access Code. Section 4.2 of the Access Code relevantly provides:

In complying with sections 4.1(c), (d) and (e) a Service Provider must:

(a) if the Relevant Regulator has published general accounting guidelines for Service Providers which apply to the accounts being prepared, comply with those guidelines; ...

82 Multinet is a "Service Provider" within the meaning of the Access Code, and the ESC is a "Relevant Regulator". Sections 4.1(c), (d) and (e) of the Access Code deal with ring fencing requirements.

83 Mr Delany submitted that the provisions of the Guideline requiring a related party's actual costs to be included in a licensee's gas regulatory accounting statements are not authorised by the ESC Act, the GI Act or any other instrument and are therefore invalid. Both Mr Gray, who appeared for the ESC, and Mr Bick submitted that the Guideline is valid. The grounds of invalidity relied upon by Mr Delany are discussed below under appropriate headings. In the course of argument, I raised some issues about the validity of the Guideline which Mr Gray addressed in argument and in detailed supplementary written submissions. I will refer to some of those issues under the heading "Nature and permissible scope of Guideline" below. I will only refer to the others insofar as Mr Delany relied on them. Where Mr Delany did not rely on an issue which is not discussed under the abovementioned heading, I will not discuss it specifically; it suffices for me to say that ultimately the issue has not had a bearing on the outcome of the proceeding.

84 A guideline does not normally have binding force and can be distinguished from binding principles or rules. As the ordinary meaning of the word suggests, a guideline generally provides a guide to its subject matter but is not mandatory in relation to that subject matter. However, an instrument that is described as a "guideline" can be binding if there is a discernible legislative intent that it have such an effect.[16]

85 In this case, the Guideline was published pursuant to s 13 of the ESC Act. There is nothing in s 13 itself which discloses an intention that a guideline published pursuant to that section be binding. However, it is necessary to consider the legislative regime as a whole, including the ESC Act, the GI Act, the Access Law and the Access Code. As set out in paragraph 79 of this judgment, the ESC may impose conditions on a licence under ss 28(2) and 29 of the GI Act. Compliance with conditions of a licence is mandatory in the sense that a failure to comply can result in revocation of t[17] licence.17 As appears from paragraph 79 of this judgment, s 28(2) confers a general power on the ESC to impose conditions. Section 29 lists a large number of conditions that the ESC may impose. However, s 29 expressly provides that it does not limit the generality of s 28. This means that any gaps or restrictions that appear in s 29 do not limit the ESC's general power to impose conditions under s 28(2). That said, s 29 forms an important part of the legislative regime within which the ESC's general power under s 28(2) exists, and while neither s 29 at large nor any particular condition listed in s 29 can limit or control that general power, the scope of particular conditions listed in s 29 can inform the interpretation of the ESC's general power where that power is purportedly exercised to impose a condition which is similar to a condition listed in s 29.

86 Section 29(c) of the GI Act is an important provision for present purposes. It states that the ESC may impose a condition requiring a licensee to observe specified "industry codes, standards, rules and guidelines". It is arguable that s 29(c), read together with s 31 (which states that if a licence is subject to a condition under s 29(c), the ESC may amend the relevant industry codes, standards, rules or guidelines for the purposes of their application under that licence), refers to industry guidelines rather than guidelines published by the ESC. It is not necessary for me to decide this issue because, whatever its scope, it is clear that s 29(c) evinces an intention that the conditions of a licence can be used as a mechanism to make at least some guidelines binding on a licensee. As the ESC can publish guidelines and can impose conditions on a licence, it can impose a condition requiring a licensee to comply with guidelines published by the ESC under s 13 of the ESC Act unless, reading the provisions in the context of the legislative regime as a whole, it appears that there is a contrary legislative intent. There is no such contrary legislative intent. Rather, taken as a whole, the abovementioned provisions disclose a legislative intention that guidelines published pursuant to s 13 can be binding if they are required to be complied with as a condition of a licence.

87 I also note that, given that s 29(c) cannot limit the ESC's general power to impose a condition under s 28(2) (see paragraph 85 of this judgment), if it is assumed that s 29(c) refers only to industry guidelines, that does not limit the ESC's power to impose a condition under s 28(2) requiring a licensee to comply with guidelines published by the ESC under s 13. Likewise, if it is assumed that s 29(c) requires the condition itself to specify the industry guidelines that must be complied with, that does not mean that a condition imposed under s 28(2) may not require a licensee to comply with guidelines published by the ESC generally, whether or not they are specifically identified in the condition itself. In addition, the fact that the note at the end of cl 4 of the Licence states that the conditions in cl 4 are made pursuant to s 29(c) of the GI Act does not mean that they are invalid if the correct interpretation of s 29(c) is that it is confined to industry guidelines, as the conditions would be valid und[18] s 28(2).18

88 The width of the scope to be given to the general power to impose conditions in s 28(2) also needs to be considered in light of the broader statutory context. The ESC, through the licence regime, confers on the licensee the privilege to participate in a regulated industry delivering essential services, and to charge for those services. The gas industry is regulated because of its monopoly characteristics. If the powers of regulation were read restrictively, the regime's objectives (including the prevention of the misuse of monopoly or non-transitory market power, and ensuring that users benefit from efficiency gains, in order to protect the long-term interests of Victorian consumers as to the price of those services) would not be served. Accordingly, the ESC's powers to impose conditions are to be read in a manner that enables the ESC to discharge its functions effectively and in furtherance of the objectives of the legislation.

89 For present purposes, the two provisions of the Licence that are relevant are cll 4(a) and 6, which are referred to in paragraphs 13 and 14 of this judgment. In essence, cl 4(a) requires Multinet, as licensee, to comply with all applicable guideline published by the ESC, and cl 6 requires Multinet, as licensee, to provide to the ESC, in the manner and form decided by the ESC, such information as the ESC may from time to time require. Although, unlike cl 4(a), cl 6 is not described as a "condition", they both have the character of conditions and have effect as such under cl 1 of the Licence, which states that the grant of the Licence is subject to the conditions set out in the Licence.

90 Under s 13 of the ESC Act, the ESC may publish guidelines "relating to" the performance of its functions and the exercise of its powers. In some contexts, this type of provision is confined to the publication of guidelines which set out the manner and form in which existing obligations are to be complied with and does not empower the relevant authority to publish guidelines imposing substantive obligations. However, such an interpretation is not supported by the legislative context defining the ESC's powers. Although there is no indication in the ESC Act itself as to whether s 13 is intended to authorise guidelines which impose obligations, as distinct from providing the details of how obligations arising independently of the guidelines themselves, are to be complied with, assistance can be obtained by reading the GI Act as a whole. The broad range of matters that can be included in conditions (including statutory deemed conditions) and in guidelines supporting those conditions under provisions such as ss 28, 29, 43A and 64 indicates that guidelines are not confined to setting out the "manner and form" in which existing obligations are to be complied with. These provisions impose substantive obligations in relation to particular subject matters (sometimes in the form of deemed conditions to a licence) and then empower the ESC to publish guidelines defining the scope of those obligations as well as how they are to be complied with. There is no indication that in order to be valid and binding, a guideline must set out provisions as to the manner and form for compliance with existing obligations rather than impose new substantive obligations.

91 Section 29(q) of the GI Act is particularly relevant. As noted in paragraph 85 of this judgment, the conditions listed in s 29 cannot control the ESC's general power to impose conditions under s 28(2), but they can inform the interpretation of the scope of that general power. Section 29(q) requires Multinet, as licensee, "to provide, in the manner and form specified by the [ESC], such information as the [ESC] may from time to time require". The reference to "manner and form" is subordinate to the reference to "provide ... such information as the [ESC] may ... require" and this makes it clear that the section is not confined to conditions specifying the manner and form in which existing obligations to provide information are to be complied with. An issue arises as to whether the condition itself must specify the type of information to be provided rather than simply stipulating that the licensee must provide such information as the ESC specifies from time to time. In my opinion, the section is not so limited. The section describes the type of condition that can be imposed and this is the condition that has in fact been imposed. A condition can, but is not required to, set out specific classes of information.

92 Another issue that arises in relation to s 29(q) is the meaning of the expression "information". Clearly, the section does not authorise a condition requiring the licensee to provide to the ESC information of a third party which has no connection with the licensee, as the licensee would not be able to comply with such a condition. In my opinion, as the licence imposes obligations on the licensee, the reference to "information" in s 29(q) refers to information of the licensee, that is, information the licensee is legally capable of providing. This means information in the possession, custody or power of the licensee. In this context, "power" means an enforceable right to obtain possession or control of information without the need to obtain consent from another person.[19] It is not within the scope of s 29(q) to impose a condition requiring the licensee to provide information which the licensee is not legally capable of providing. Accordingly, a guideline which sets out the information to be provided to the ESC pursuant to a condition made under s 29(q) must be confined to information the licensee is legally capable of providing, that is, information in the licensee's possession, custody or power. I discuss this matter further below in paragraphs 115 to 117 of this judgment.

93 There is nothing in the Access Law or Access Code which derogates from the conclusions in paragraphs 85 to 92 of this judgment.

94 Although the ESC is given broad powers to impose binding obligations by way of guidelines, those powers are subject to important common law limitations that apply to all delegated legislation.

95 An important common law limitation is that a guideline cannot be inconsistent with or derogate from the operation of its empowering Act (which, in this case, includes the ESC Act, the GI Act, the Access Law and the Access Code).[20] Such inconsistency can take a number of forms, which cannot always be, and for present purposes do not need to be, clearly differentiated from each other. An instrument such as a guideline may be directly inconsistent with its empowering Act, either by directly contradicting the Act (such as imposing an obligation which is mutually exclusive to an obligation imposed by the Act) or by dealing with a completely different subject matter. Such an instrument may also be inconsistent by dealing with an area where the intent of the Act is that the provisions of the Act are to form an exclusive code, or by purporting to deal with matters in a way which goes beyond the limits prescribed by the Act. Mr Delany drew on these principles in his submissions about the validity of the Guideline, as discussed below.

AAM's submission that Guideline is not "necessary or convenient"

96 Mr Delany submitted that the power to publish guidelines under s 13 of the ESC Act is limited by s 11 of that Act, which empowers the ESC to do all things "necessary or convenient" to be done for or in connection with the performance of its functions and to enable it to achieve its objectives under the legislative regime. He relied on a statement in Shanahan v Scott that a power to make regulations "necessary or expedient" for the administration of an Act or for carrying out its objects: [21]

does not enable the authority by regulations to extend the scope or general operation of the enactment but is strictly ancillary. It will authorise the provision of subsidiary means of carrying into effect what is enacted in the statute itself and will cover what is incidental to the execution of its specific provisions. But such a power will not support attempts to widen the purposes of the Act, to add new and different means of carrying them out or to depart from or vary the plan which the legislature has adopted to attain its ends.

97 Mr Delany submitted that the Guideline is neither necessary nor convenient because the ESC does not need to know any related party's costs in order to calculate the licensee's profit margin, as the licensee's costs, which are known to the ESC, would already include any costs of the related party that have been passed on to the licensee. He also submitted that, even if it is necessary to know the costs of a related party of the licensee, it is not necessary for those costs to be required through the publication of a guideline when the ESC has express statutory power to obtain such information by written notice. He submitted that the regime established by the Guideline is "so wide reaching in its scope, so onerous, unfair and inefficient" that it could not be convenient to any of the objectives of the ESC set out in s 8 of the ESC Act as in force at the time that the Guideline was published or s 18 of the GI Act. Applying the principle in Shanahan v Scott, he submitted that the provisions of the Guideline dealing with related parties' costs were not "strictly ancillary" to the legislation, with its protections for information obtained from non-licensees, but depart from or vary the legislative plan. He submitted that, as the Guideline is not necessary or convenient, it is invalid.

98 Mr Gray submitted that the legislative framework is significant. He noted that the legislation, particularly the ESC Act, confers economic regulatory functions and powers on the ESC to be exercised in the long-term interests of gas consumers and establishes a licensing regime governing gas distribution subject to a broad range of relevant conditions. He submitted that the ESC's ability to obtain accurate cost information is important in order to discharge its functions, and that this has been recognised from the outset of the electricity and gas industry reforms. He submitted that in light of the mischief which the related party actual costs provisions of the Guideline were intended to answer, the provisions have a real connection with statutory objectives and price determination. He submitted that the relevant mischief was the widespread use of corporate and contractual structures in the regulated industries by which ownership was divested from operation and the network operation function was handed over to a contracted party, in some cases without transparency as to the costs of network operation. In his submission, such structures obstructed the ability of the ESC to pursue its statutory objectives of preventing monopoly or non-transitory market power, and to ensure that users benefit from efficiency gains in order to protect the long-term interests of Victorian consumers in accordance with s 8 of the ESC Act, and the ability of the ESC to test whether the cost incurred by the owner was the lowest sustainable cost of operation in accordance with s 8.37 of the Access Code.

99 I reject Mr Delany's submissions. Section 11 of the ESC Act sets out a general power of the ESC, while s 13 confers a specific power to publish statements and guidelines. Although s 11 forms part of the context in which s 13 is to be construed, inasmuch as it is part of the Act in which s 13 appears, s 13 is not expressed to be subject to s 11. It is sufficient for the purposes of s 13 that a guideline "relates to" the ESC's performance of its functions and the exercise of its powers without the additional requirement that the guideline be "necessary or convenient" for the ESC's performance of its functions or the achievement of its objectives. The expression "relating to" is wider than "necessary or convenient". The expression "relating to" is broad, requiring only a substantial relation or connection between the subject matter of the power and that of the relevant guideline for the guideline to be within power, provided that it is not repugnant to any other related legislation.[22]

100 Even if it is accepted that a guideline published under s 13 must be necessary or convenient, the Guideline satisfies that requirement. The costs of operating the distribution system are expressly referred to in the Access Code (see paragraph 10 of this judgment) and it is self-evident that it is not only convenient but also necessary for the ESC to have the most accurate and detailed information regarding costs where this information is relevant to its functions, particularly in relation to GAARs. Furthermore, in order for the ESC to have regard to the considerations referred to in paragraph 10 of this judgment, it is necessary for the ESC to know the actual costs of operating the distribution network as well as changes in those costs over time. The Guideline ensures that the relevant information is kept by the licensee and is provided to the ESC in the form specified by it.

101 Further, if the principle in Shanahan v Scott applies, the Guideline does not infringe it. The Guideline represents a mechanism which is authorised by the relevant legislation and which has been published to carry into effect its purposes and provisions. It underpins the legislative plan in a manner that, in substance, is strictly ancillary, and does not depart from or vary that plan.

AAM's submission that Guideline circumvents legislative scheme

102 Mr Delany submitted that the Guideline circumvents the legislative scheme established by the ESC Act and the GI Act. He submitted that the ESC does not have a legislatively-conferred function empowering it to require the provision of actual costs information by a "non-regulated entity". He submitted that as Parliament did not confer on the ESC the power to obtain costs of non-licensed persons, then the ESC cannot refer that power to someone else, that is, the licensee.

103 Mr Delany noted that, for the purposes of the Guideline, a related party of a licensee need not be controlled by the licensee or be licensed itself. He submitted that, if the Guideline were valid, it would require a licensee to provide information to the ESC of a third person which: could not itself be compelled, either by the licensee or by the ESC, to disgorge the information; might successfully sue the licensee for breach of confidence if it should somehow procure and report the information; and had not agreed to disclose the information to the ESC or agreed or been otherwise obliged to collect or record the information in the form prescribed by the Guideline. Mr Delany submitted that it follows from the above considerations that the Guideline would, if valid, invade non-licensees' general law rights of privilege, confidentiality and property in their information, and would do so without Parliament having, with unmistakable clarity, conferred that power on the ESC.[23]

104 Mr Delany submitted that the clarity with which Parliament has invaded the abovementioned general law rights in the comprehensive regime in Part 4 of the ESC Act (which deals with the ESC's power to collect and use information) and Part 7 of the Access Law (which also deals with such a power), within the protective limits of the regime, implies that no such invasion is intended in the ESC's power to publish guidelines. I will refer to the regime in Part 4 of the ESC Act and Part 7 of the Access Law collectively as "the legislative information provisions".

105 Mr Gray submitted that if AAM is a related party whose relevant activities constitute the provision of services under the Licence held by Multinet, that is a sufficient nexus between the ESC's regulatory functions and a requirement to provide AAM's actual costs information. The purpose, role, underlying object, and subject matter of the Guideline all serve to ensure that the ESC has access to accurate costs information for the purposes of fulfilling its regulatory functions. A requirement to provide accurate costs information is consistent with the ESC's objectives and functions. The purposes of ensuring that the ESC has access to accurate costs information extend to related party costs information where the costs are those of performance of activities which constitute the distribution services provided under the Licence, as the efficiency and fairness of prices agreed between a licensee and a related party for the performance of those services would otherwise be opaque. Mr Gray also submitted that the necessary nexus of "relating to" must exist between the information to be provided and Multinet's business as a licensee, and not necessarily as between the information and Multinet's own accounts. He further submitted that the nexus is made out on the face of the Guideline, as it only extends to information where the costs of the related party were incurred in connection with the business of the licensee and the provision of the regulated services the licensee was licensed and obliged to conduct. In relation to AAM's characterisation of itself as a "non-regulated entity" which is therefore relevantly beyond the scope of the ESC's powers, Mr Gray submitted that the better view is that AAM was a "regulated entity" within the meaning of s 3 of the ESC Act, namely "an entity operating in a regulated industry". He submitted that even if AAM is not a "regulated entity", that would not mean that it is beyond the legitimate reach of the ESC's powers of imposing licence conditions, information-gathering and guideline-making.

106 I reject Mr Delany's submissions. For the reasons discussed in paragraph 90 of this judgment, the ESC Act and the GI Act, read together with the Access Law and the Access Code, evince a clear intention that the ESC may publish guidelines imposing substantive obligations in a broad range of matters to support the regulatory regime. The Guideline does not impose any obligation on a related party. It imposes obligations on the licensee with regard to information of the licensee, including information the licensee obtains from a related party pursuant to contractual or other rights of the licensee. As such, the Guideline is within the ESC's power.

107 Mr Gray's submission that the better view is that AAM is a "regulated entity" is correct in the gas industry context, as the Court of Appeal has held that AAM provides services by means of a distribution pipeline, which means it requires a gas distribution licence under s 22 of the GI Act.[24] However, it is not necessary for me to rely on this submission because the Guideline does not purport to regulate AAM in any way. The Guideline regulates Multinet as licensee by imposing obligations on it. The fact that, in order to comply with some of those obligations, Multinet will need to exercise its contractual rights against AAM under the OSA is neither in substance nor in form a regulation of AAM. The extent to which Multinet can compel AAM to provide information to Multinet will depend on the terms of the OSA (see the discussion under the heading "Does the OSA require AAM to provide its actual costs information to Multinet?" below). If the OSA obliges AAM to provide the information to Multinet, without making any exceptions based on confidentiality, privilege or other protections, then the provision of the information by AAM to Multinet would not infringe any such protections because they are overridden by the OSA. Accordingly, the Guideline itself does not infringe any confidentiality, privilege or other protections available to AAM in respect of its information. In other words, any impact on AAM's rights is effected not by the Guideline but by the obligations AAM has voluntarily assumed by virtue of its contract with Multinet. An example is cl 25.3 of the OSA which overrides confidentiality obligations in respect of information required to be disclosed by a regulator such as the ESC.

108 I deal with Mr Delany's submission regarding Part 4 of the ESC Act and Part 7 of the Access Law separately below.

AAM's submission that Guideline is inconsistent with ESC Act and Access Law

109 Mr Delany submitted that the Guideline is inconsistent with the legislative information provisions in Part 4 of the ESC Act and Part 7 of the Access Law. He submitted that those provisions establish a comprehensive regime for the ESC to obtain information from non-licensees while protecting any privileges, confidentiality or commercial sensitivity of such information. He submitted that the legislative information provisions cover the field and are an exclusive code for the provision of information by non-licensed persons to the ESC and there is no scope for the Guideline to validly coexist with the legislative information provisions.[25] He submitted that the Guideline effectively purports to sidestep that code by requiring such information to be provided by licensees in their gas regulatory accounting statements and is inconsistent with the legislative information provisions. He submitted that the statutory regime would be stultified if the ESC were able to obtain such information from a non-licensee without according the protections conferred by the regime, and that Parliament clearly did not intend to stultify that regime by empowering the ESC to publish guidelines. Mr Delany further submitted that the Guideline, by stultifying the statutory protective regime, would impose a greater burden on non-licensees than Parliament itself had enacted,[26] is repugnant to the comprehensive regime in the legislative information provisions, and is ousted by that regime, which covers the field of the ESC's power to obtain information from non-licensees.[27]

110 Mr Delany referred to cl 5.17.1 of the Guideline, which provides that a licensee must report transactions with a related party for amounts over $1,000,000, and noted that a person is a related party of a licensee if he or she is "significantly influenced" by the licensee. He submitted that a small contractor could plausibly be significantly influenced by a licensee without there being any corporate relationship between them, such as where the contractor supplied most or all of its services to the licensee. He also submitted that such parties could plausibly enter into a medium-term service agreement for more than $1,000,000 (for example, if the contractor were an plumber), and that in such a situation, the licensee would be required to report to the ESC financial information relating, belonging, confidential and commercially sensitive to the contractor, thereby evading the regime in the legislative information provisions and invading the contractor's general law rights, which cannot have been intended by Parliament.

111 I do not accept Mr Delany's submissions. Part 4 of the ESC Act, as in force on 13 July 2005, was expressed not to apply to information provided by a licensee in accordance with the requirements of the licence and therefore did not apply to information that Multinet is required to provide to the ESC in accordance with the Guideline.[28] To the extent that a licensee already has information that the Guideline requires it to provide, or has a legal entitlement to that information, the Guideline is not impermissibly inconsistent with Part 4 of the ESC Act. Part 4 is limited to information obtained by the ESC directly from a non-licensee and is far from an exclusive code governing the provision of information to the ESC. Mr Delany's submission that the Guideline is repugnant to common law privileges such as the privilege against self-incrimination and legal professional privilege is misconceived because, as there is nothing in the Guideline to displace the legal presumption that those privileges are not abrogated except by express words or necessary implication, information covered by those privileges is outside the scope of the Guideline. Beyond this, the fact that information obtained directly from a non-licensed person may be subject to certain confidentiality protections in respect of disclosure to the ESC which would not apply, or would not apply in the same way and to the same extent, if the same information is obtained from a licensee is simply one of the features of a regulated industry that licensees are subject to. Likewise, Part 7 of the Access Law is not an exclusive code for the compulsory information gathering powers of the ESC as that part is limited to information that may assist the ESC in the performance of any of its prescribed duties (as defined in s 41(9) of the Access Law) under the Access Law.

112 Part 4 of the ESC Act and Part 7 of the Access Law, in combination, are not an exclusive code for the compulsory information gathering powers of the ESC because they do not cover all the information needs of the ESC. This is confirmed by s 29(q) of the GI Act which empowers the ESC to require a licensee to provide to the ESC such information as the ESC may from time to time require.

113 As for Mr Delany's example of a contractor which supplies most or all of its services to a licensee, as I discuss in paragraph 175 of this judgment, economic dependence alone does not amount to significant influence. In any event, if the contractual arrangements between the contractor and the licensee require the contractor to provide costs information to the licensee, provision of that information to the ESC pursuant to the Guideline would not be repugnant to the legislative information provisions.

114 For the reasons set out above, I do not accept any of Mr Delany's submissions in relation to the validity of the Guideline.

115 There is, however, an aspect of the Guideline that requires consideration. For the purposes of the Guideline, a related party includes a third party over which the licensee has significant influence but not control. The concepts of control and significant influence are discussed later in this judgment. In the case of a related party over which the licensee has significant influence but not control, the licensee would not have a legal means of compelling the related party to provide to the licensee the information the licensee is required to include in its gas regulatory accounting statements in the absence of an existing contractual right to that information.

116 This raises the issue of whether a guideline published pursuant to s 13 of the ESC Act can impose an obligation which, according to its terms, can extend to a situation where a licensee will not be able to comply with it without the consent of a third party that is not itself subject to the control of either the ESC or the licensee.

117 For the reasons discussed in paragraph 106 of this judgment, the Guideline imposes obligations on the licensee and not on any related party. Accordingly, references in the Guideline to information to be included by the licensee in its gas regulatory accounting statements must be intended to refer to information of the licensee, that is, information in the possession, custody or power of the licensee. As the licensee cannot include in its gas regulatory accounting statements information that is not in its possession, custody or power, it could not have been the intention of the Guideline to require a licensee to do something it was not legally capable of doing. Applying the principle that, in ascertaining the true operation and effect of the Guideline, if its terms are reasonably susceptible of a broad construction which would deny it validity or of a narrow construction which would bring it within power, the narrow construction is[29]referred,29 I find that, on its proper construction, the Guideline requires the licensee to include in its gas regulatory accounting statements information relating to a related party only to the extent that such information is in the possession, custody or power of the licensee. This is consistent with Mr Gray's submission in paragraph 169 of his closing submissions. As such, the Guideline is not invalid on the basis that it exceeds the ESC's power. The impugned provisions of the Guideline are valid.

118 The question of whether information about AAM's actual costs of operating Multinet's gas distribution business in 2004 and 2005 is in the possession, custody or power of Multinet is discussed further below.

119 As I have not concluded that any of the related party costs information provisions of the Guideline that applied to the 2004 and 2005 years are invalid, it is not necessary for me to consider severance principles under the common law or s 22 of the Interpretation of Legislation Act 1984 (Vic).

Does the Guideline apply to the 2004 financial accounting year?

120 I invited the parties to make supplementary written submissions on the question of whether the Guideline applies to the 2004 financial accounting year because, although cl 2.6.2 of the Guideline (which is set out in paragraph 68 of this judgment) clearly states that the Guideline applies to that year, I was troubled by the fact that cll 1.2.4 and 5.3.1 of the Guideline require licensees to submit their gas regulatory accounting statements to the ESC within four calendar months from the end of the licensee's financial accounting year. Clause 2.5.1 of the Guideline provides that gas regulatory accounting statements shall align with the financial accounting year reporting period for each licensee. The clause permits a licensee to adopt its own financial accounting year reporting period. At all relevant times, Multinet's financial accounting year ended on 31 December of each year. Accordingly, pursuant to cll 1.2.4 and 5.3.1 of the Guideline, Multinet's gas regulatory accounting statements for the financial accounting year ended 31 December 2004 were due to be submitted to the ESC by 30 April 2005, well before the Guideline took effect on 13 July 2005.

121 However, I accept Mr Gray's submission that the words "The first set of Gas Regulatory Accounting Statements must be submitted during 2005, to account for the Licensee's preceding Financial Accounting Year" in cl 5.3.1 and similar words in cl 2.6.2 had the effect of replacing the four months' deadline for the first gas regulatory accounting statements with a new deadline of 31 December 2005.

122 No party submitted that the Guideline operated retrospectively for the 2004 financial accounting year in breach of the principle that delegated legislation cannot apply retrospectively.[30] This is because the Guideline imposed prospective obligations. The fact that the obligations relate to costs incurred in a financial accounting year that has expired does not infringe the retrospectivity principle.

123 For the above reasons, I conclude that the related party costs information provisions of the Guideline applied to Multinet's 2004 and 2005 financial accounting years.

Was AAM a related party of Multinet in 2004 and 2005?

124 As set out in paragraph 73 of this judgment, Part 6 of the Guideline provides that "Related Party" means "a related party as defined by Australian Accounting Standards". The Guideline does not define "Australian Accounting Standards".

Definition of "Related Party" - which Accounting Standard applies?

125 There are two Australian Accounting Standards that could be relevant for 2004 and 2005. Each Australian Accounting Standard ("AAS") contains a different definition of "related party". The first AAS is AASB 1017 entitled "Related Party Disclosures", which was issued in February 1997. The second AAS is AASB 124 also entitled "Related Party Disclosures", which was first issued in July 2004 and reissued in December 2005. As set out above, the Guideline was published on 13 July 2005.

126 Clause 2.1 of AASB 1017 states that it applies to financial years ending on or after 30 June 1997. Clause 9.1 contains the following relevant definitions:

capacity means ability or power, whether direct or indirect ...

control means the capacity of an entity to dominate decision-making, directly or indirectly, in relation to the financial and operating policies of another entity so as to enable that other entity to operate with it in pursuing the objectives of the controlling entity

entity means any legal, administrative, or fiduciary arrangement, organisational structure or other party (including a person) having the capacity to deploy scarce resources in order to achieve objectives

related party means, in relation to an entity:

(a) any other entity that, at any time during the financial year, has control or significant influence over the entity; or

(b) any other entity that, at any time during the financial year, is subject to control or significant influence by the entity; or

(c) any other entity that, at any time during the financial year, is controlled by the same entity that controls the entity - referred to as a situation in which entities are subject to common control; or

(d) any other entity that, at any time during the financial year, is controlled by the same entity that significantly influences the entity; or

(e) any other entity that, at any time during the financial year, is significantly influenced by the same entity that controls the entity; or

(f) any director of the entity or any of their director-related entities; or

(g) any director of any other entity identified as a related party under any of paragraphs (a) to (e), or any of their director-related entities; ...

significant influence means the capacity of an entity to affect substantially (but not control) either, or both, of the financial and operating policies of another entity

127 AASB 1017 also contains the following relevant provisions:

Significant Influence

9.1.6 A related party relationship would also be established through the existence of significant influence by one entity over another. The most common form of relationship based on significant influence would be that between an investor and its associate. The existence of the relationship and any transactions between the related parties will need to be disclosed in the financial reports of each entity in accordance with the requirements of this Standard.

9.1.7 Factors which would normally indicate whether an investor / associate relationship based on significant influence exists would be the extent of equity interest between the entities; participation in decisions on the distribution or retention of the associate's profits; and participation in other ways in policy-making decisions of the associate.

9.1.8 Economic dependence, where one entity is dependent on another entity in that it relies on the latter for a significant volume of its business, would be unlikely to constitute control, but together with other factors may give rise to significant influence.

...

9.1.10 Two entities would not be related parties only because they have directors in common. ...

128 Clause Aus1.6 of AASB 124 (as issued in December 2005) states that the Standard "applies to annual reporting periods ending on or after 31 December 2005". Clause Aus1.7 provides that AASB 124 "shall not be applied to annual reporting periods beginning before 1 January 2005". The preface to AASB 124 states that as part of the process of harmonising AASs with International Financial Reporting Standards, the Australian Accounting Standards Board issued an earlier version of AASB 124 in July 2004 to become effective for annual reporting periods beginning on or after 1 January 2005. That earlier version stated that it supersedes AASB 1017 for corporate entities. The July 2004 version of AASB 124 was replaced by the version of AASB 124 issued in December 2005. In this judgment, I will refer to the provisions of AASB 124 as issued in December 2005.

129 Clause 9 of AASB 124 contains the following relevant definitions:

Control is the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities.

Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly, including any director (whether executive or otherwise) of that entity.

Related party - a party is related to an entity if:

(a) directly, or indirectly through one or more intermediaries, the party:

(i) controls, is controlled by, or is under common control with, the entity (this includes parents, subsidiaries and fellow subsidiaries);

(ii) has an interest in the entity that gives it significant influence over the entity; or

(iii) has joint control over the entity;

(b) the party is an associate (as defined in AASB 128 Investments in Associates) of the entity;

(c) the party is a joint venture in which the entity is a venturer (see AASB 131 Interests in Joint Ventures);

(d) the party is a member of the key management personnel of the entity or its parent;

(e) the party is a close member of the family of an individual referred to in (a) or (d);

(f) the party is an entity that is controlled, jointly controlled or significantly influenced by, or for which significant voting power in such entity resides with, directly or indirectly, any individual referred to in (d) or (e); or

(g) the party is a post-employment benefit plan for the benefit of employees of the entity, or of any entity that is a related party of the entity.

Significant influence is the power to participate in the financial and operating policy decisions of an entity, but is not control over those policies. Significant influence may be gained by share ownership, statute or agreement.

130 Clause 11 of AASB 124 states that in the context of AASB 124, two entities are not necessarily related parties simply because they have a director or other member of key management personnel in common, and that a customer, supplier, franchisor, distributor or general agent with whom an entity transacts a significant volume of business is not necessarily a related party of the entity merely by virtue of the resulting economic dependence.

131 Paragraph (b) of the definition of "related party" in AASB 124 includes "an associate ... as defined in AASB 128". AASB 128, which is entitled "Investments in Associates", was issued on 15 July 2004 and applies to annual reporting periods beginning on or after 1 January 2005. Clause 2 contains the following relevant definitions:

An associate is an entity, including an unincorporated entity such as a partnership, over which the investor has significant influence and that is neither a subsidiary nor an interest in a joint venture.

Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies.

132 AASB 128 also contains the following relevant provisions:

1. If an investor holds, directly or indirectly (e.g. through subsidiaries), 20% or more of the voting power of the investee, it is presumed that the investor has significant influence, unless it can be clearly demonstrated that this is not the case. Conversely, if the investor holds, directly or indirectly (e.g. through subsidiaries), less than 20 per cent of the voting power of the investee, it is presumed that the investor does not have significant influence, unless such influence can be clearly demonstrated. A substantial or majority ownership by another investor does not necessarily preclude an investor from having significant influence.
2. The existence of significant influence by an investor is usually evidenced in one or more of the following ways:

(a) representation on the board of directors or equivalent governing body of the investee;

(b) participation in policy-making processes, including participation in decisions about dividends or other distributions;

(c) material transactions between the investor and the investee;

(d) interchange of managerial personnel; or

(e) provision of essential technical information.

133 Mr Bick and Mr Gray both submitted that AASB 1017 applied to both 2004 and 2005. Mr Delany submitted that AASB 124 applied to both 2004 and 2005.

134 Mr Bick submitted that the 2004 gas regulatory accounting statements should be prepared in accordance with the AAS applicable for that year, namely AASB 1017. He relied on the ESC's "Final Decision: Revisions to Gas Industry Guideline No. 17 - Regulatory Accounting Information Requirements" published in June 2008 (which states that the ESC's intention was that the term "Related Party" in the Guideline would be defined by reference to the AAS at the time of the Guideline - 2005 - regardless of whether the definition of that term altered in any subsequent AAS) in support of the proposition that AASB 1017 applied in 2005 also.

135 Mr Gray submitted that AASB 1017 applied to the first reporting period to which the Guideline applied, namely the 2004 calendar year, and that AASB 124 on its terms did not apply to that reporting period, as it applied to annual reporting periods ending on or after 31 December 2005. He also noted that AASB 124 expressly prohibits application to any prior annual reporting period, and therefore could not apply to the 2004 year. He submitted that it follows that the Guideline incorporated the AAS definition of "related party" which applied to the earliest financial accounting year to which the Guideline could apply, namely the definition from AASB 1017.

136 Mr Gray also submitted that cl 2.4.1 of the Guideline (which is discussed in paragraph 75 of this judgment) evinces an intention that the definition of "related party" initially incorporated in the Guideline (being, in his submission, that in AASB 1017) would remain the same unless expressly amended. In support of this submission, he referred to the fact that on 25 June 2008, the ESC published issue 2 of the Guideline which includes a specific definition of "Related Party" that reflects the definition in AASB 1017, and to the ESC's final decision referred to in paragraph 134 of this judgment. He also referred to the inclusion of the definition from AASB 1017 in successive versions of the mirror electricity accounting guideline and to the ESC's objective to promote a consistent regulatory approach between the electricity and gas industries.

137 Mr Delany submitted that, on 13 July 2005, the date that the Guideline was published and expressed to be effective, AASB 124 was applicable. He submitted that if "Related Party" in the Guideline always takes its meaning from the AAS in force when the Guideline took effect, then this must have been AASB 124 for both the 2004 and 2005 calendar years. He also submitted that, even if "Related Party" takes its meaning from the AASs as amended or replaced from time to time, it would still have taken its meaning from AASB 124 in 2004 (as in 2005) because, in issuing the Guideline in July 2005, the ESC could not reasonably have expected an entity reporting for the 2004 calendar year to report in a manner inconsistent with AASB 124, which was in force when the data would need to be collected and reported in 2005. He submitted that the requirements of AASB 1017 for people to whom it applied before 31 December 2004 are irrelevant to licensed persons who had no obligation to comply with it. He submitted that to interpret the Guideline so as to require AASB 1017 to apply for the 2004 calendar year would give the Guideline retrospective operation. He submitted that when the Guideline was published, it had been known since July 2004 that AASB 1017 was to be replaced by AASB 124.

138 In deciding which AAS applied for the year ended 31 December 2004, the choice is between the AAS in force for that year (AASB 1017) and the AAS that was in force when the Guideline took effect (AASB 124). In my opinion, the former applied.

139 It would not be permissible for the ESC in July 2005 to require a licensee to prepare gas regulatory accounting statements for the year ended 31 December 2004 on the basis of an AAS which was not in force during that year. This is because the licensee, in the course of the 2004 year, would be generating and maintaining records to enable it to prepare its accounts in accordance with the AAS in force in that year. To require compliance with an AAS which took effect after the end of the year would impose retrospective obligations, compliance with which could cause significant difficulties and might, in some respects, be impossible. There is nothing in the ESC Act or the GI Act that empowers the ESC to publish guidelines having retrospective operation.

140 The reasons I have given for applying AASB 1017 for 2004 do not apply for 2005. As at July 2005, when the Guideline took effect, it was known that AASB 124 applied for the year ending 31 December 2005, which had not yet concluded. Licensees had time to organise their businesses so as to comply with AASB 124.

141 I reject Mr Gray's submission that the reference to the AASs in the Guideline is a static reference to a particular AAS until the Guideline is amended to refer to another AAS. The Guideline does not refer to any particular AAS. It refers to the "Australian Accounting Standards", which must mean the AASs as in force from time to time. To require a licensee to continue to comply with a particular AAS for the purposes of the gas regulatory accounting statements in circumstances where the AAS has been superseded for other regulatory and reporting purposes could cause compliance difficulties. Such an interpretation should be avoided unless the wording of the Guideline clearly requires this. The objective of maintaining a consistent approach to the regulation of the gas and electricity industries, as set out in s 18 of the GI Act, cannot assist where the ESC chose to adopt a different definition of "Related Party" in the Guideline to the longstanding definition in various versions of the guideline applicable to the electricity industry. Nor does cl 2.4.1 of the Guideline evince an intention that the AAS that applied at the outset would remain the same unless expressly amended. Clause 2.4.1 is merely a statement that the Guideline will be reviewed and amended from time to time in light of various developments.

142 The Guideline does not contain a provision requiring all references to legislative instruments to be read as those instruments are in force from time to time. However, an intention that such references are to be read in this way can be inferred. Otherwise, the definitions of "Access Code" and "Corporations Act" in Part 6 of the Guideline would have to be read as references to those instruments as in force on 13 July 2005. Such a static interpretation could not have been intended as the Guideline imposes ongoing obligations. As the AASs are legislative in nature,[31] the reference to the AASs in Part 6 must be read in the same ambulatory way as references to other legislative instruments, that is, those instruments as in force from time to time.[32]

143 My conclusion that the reference to "Australian Accounting Standards" in the Guideline means the AASs in force from time to time is supported by cl 3.2.3 of the Guideline which requires gas regulatory accounting principles and policies to "conform to the Australian Accounting Standards wherever possible" and cl 3.8.2 of the Guideline which requires gas regulatory accounting statements to use the accounting principles and policies applicable to base accounts (that is, audited accounts), which in turn (under s 296 of the Corporations Act 2001 (Cth)) must comply with the AASs. It is also supported by paragraph 3.4 of the ESC's final decision paper on the Guideline dated July 2005, which states that an earlier definition of "Related Party" (which reflected the definition in AASB 1017) has been revised so that it is consistent with reporting requirements under AASs and that "[t]his should align the requirements under the Guideline with the gas distribution businesses and other reporting requirements".

144 The revised definition of "Related Party" in issue 2 of the Guideline (see paragraph 136 of this judgment) does not assist me in interpreting the definition of "Related Party" in issue 1 of the Guideline, which was the only issue of the Guideline in force at the times that are relevant to this proceeding. Likewise, the statements in paragraph 5.1 of the ESC's final decision on issue 2 of the Guideline, dated June 2008, that it was the ESC's "intention that the term 'Related Party' [in issue 1 of the Guideline was] to be defined by reference to the [AAS] that was in operation at the time the Guideline commenced (AASB 1017)" and that this would continue to apply "regardless of whether the definition of that term altered in any subsequent [AAS]" cannot alter the legal effect the Guideline had according to its terms prior to June 2008.

145 For the reasons set out in paragraphs 138 to 144 of this judgment, AASB 1017 applied to Multinet's 2004 financial accounting year and AASB 124 applied to Multinet's 2005 financial accounting year.

146 The definitions of "related party" in both AASB 1017 and AASB 124 refer to both "control" and "significant influence". It was common ground before me that neither Alinta nor AAM controlled Multinet or vice versa. It is therefore not necessary to discuss the concept of control further, except where it assists in understanding the concept of "significant influence".

147 Both AASB 1017 and AASB 124 refer to "significant influence" in the sense of possessing the ability or power to participate in policy making or to affect it substantially rather than in the sense of actually exercising that power.

148 Mr Delany submitted that the assessment of "influence" involves comparison with other shareholders in the company.[33] He noted that DUET, as the majority owner of Multinet, had significant influence and highlighted that Multinet had not called as witnesses representatives of DUET. I accept that the question of influence must be determined in light of the facts, including the ownership and other interests of other stakeholders, rather than in the abstract, and that questions of degree are involved. I also accept that DUET had significant influence and control over Multinet in the relevant period. However, the above propositions do not necessarily mean that Alinta and AAM did not have significant influence over Multinet unless the evidence showed that DUET had absolute control with no possibility of any other entity, such as Alinta or AAM, having the capacity to exert significant influence. Not only was there no such evidence, there was clear evidence that there were significant constraints on DUET's powers as majority owner of Multinet. Accordingly, the question of whether Alinta or AAM had significant influence over Multinet falls to be decided on the totality of the evidence, including DUET's majority ownership interest.

149 For the reasons that follow, I have concluded that, irrespective of whether AASB 1017 or AASB 124 applied in 2004 and 2005, AAM was a related party of Multinet in both years.

150 Paragraphs 154 to 180 of this judgment contain a general discussion of relevant matters. Paragraphs 181 to 188 apply the general discussion to AASB 1017 and paragraphs 189 to 197 apply the general discussion to AASB 124.

Board representation and participation in management and policy-making

151 Mr Bick submitted that Alinta and AAM not only had the capacity to significantly influence Multinet but actually did so. He emphasised the provisions of the MGH Shareholders Agreement, the role of Alinta's nominee on the board of MGH and Multinet and MGH's audit and risk committee, AAM's functions under the OSA, AAM's preparation of Multinet's operating and financial policies and asset management plan, and AAM's functions under the power of attorney referred to in paragraph 39 of this judgment.

152 Mr Gray's submissions echoed to a large extent Mr Bick's submissions. He also submitted that the existence of conflicts of interest and the absence of effective mechanisms to protect Multinet's interests contributed to Alinta's and AAM's ability to exert significant influence over Multinet.

153 Mr Delany submitted that Alinta and AAM did not have significant influence over Multinet, as Alinta and its nominee director could not vote on matters affecting the OSA, which was pervasive in relation to the operation of Multinet's business. In relation to Alinta's veto rights, Mr Delany pointed out that DUET also had veto rights and that, in any event, there was no evidence that Alinta had exercised its veto rights.

Alinta's and AAM's influence through decision-making organs

154 In 2004 and 2005, Alinta and AAM had influence over Multinet which extended across all its important decision-making organs and day to day operational issues affecting it.

155 A key decision-making organ of Multinet is its board of directors, which has ultimate management responsibility for the company. The board is responsible for setting the strategy and overall direction for the company's business. The budget and strategic plan of the company are fundamental tools for the management of its business. Alinta controlled one of the four votes on Multinet's board. Through its nominee director, Alinta could not only participate in decision-making at the highest level that set the overall direction and management of Multinet and the policies to be applied in running the business, but could also veto any special majority directors resolution[34] (unless the director was disqualified), including Multinet's budget and business plan. The exercise of such a veto could significantly hamper effective decision-making within Multinet. The fact that there was a dearth of documented occasions where the right of veto was exercised does not mean that there was no significant influence. The knowledge that Alinta could veto particular decisions conferred significant authority on Alinta and its nominee (see paragraphs 156, 158 and 165 of this judgment for three examples), particularly on a board which, according to the evidence, adopted a consensus approach rather than always resorting to formal votes. Further, Alinta had the power to veto the appointment of a person nominated by DUET to be the chairman of Multinet's board (through its equivalent power in relation to MGH's board). The evidence established that Alinta's nominees on the MGH and Multinet boards attended board meetings regularly (either personally or through their alternate) between 2003 and 31 August 2007 and were active members of those boards.

156 Another key decision-making organ is Multinet's shareholders. Shareholders, acting in accordance with a company's constitution, can replace the directors and make other decisions that require shareholder approval. Although Alinta did not own a majority of the shares in Multinet, under the MGH Shareholders Agreement, Alinta had veto rights in relation to the matters requiring a special majority shareholders resolution (see paragraph 21(a) of this judgment). Alinta exercised this power of veto in a practical sense in August 2004 by preventing Multinet from carrying out its proposed change to the dividend policy that had been approved by the board. This occurred by Alinta informing DUET that Alinta would not support the proposed change and causing DUET not to put the matter to a formal vote because such a vote was bound to result in the proposal being defeated.

157 The fact that Alinta and its nominee directors could not vote on any matter relating to the OSA does not affect my conclusions in paragraphs 155 and 156 of this judgment. Many strategic decisions about investments, dividends, dealings with government, regulators, customers and contractors, GAARs, capital management, matters relating to the excluded services listed in schedule 1 to the OSA, and the general management and direction of the company did not relate to the OSA in such a way as to disqualify Alinta and its nominee directors from voting on those matters.

158 PIES was also a key decision-making organ. Alinta owned one-third of PIES and appointed one of the three directors who had to act unanimously. Alinta's nominee therefore had a power of veto. Alinta's nominee was Mr Browning in the period July 2003 to 23 March 2006 and then Mr Devenish from 23 March 2006 to 31 August 2007.[35] PIES provided essential corporate services to Multinet. Alinta was able to significantly influence those services and did so. For example, in September 2005, MGH asked Alinta to approve additional finance resources for PIES but Alinta responded that it did not see a need for such additional resources and that AAM's staff could and should fill the gap, as required. Mr Devenish said that the level of resources approved by PIES was an ongoing issue for Multinet since the commencement of the OSA and that one reason Multinet put forward for additional resources was to get across the information necessary to be able to make informed decisions about its business.

159 Another key decision-making organ is the MGH audit and risk committee. This committee performs important audit and risk management functions for the Multinet Group (Multinet did not have its own separate committee). It oversees issues associated with the external audit of the MGH Group, the internal audit program and issues associated with the management of risks identified in the MGH Group. The members of the committee comprised the chairman of MGH, a representative of DUET and a representative of Alinta. Alinta's representative (initially Mr Browning and later Mr Devenish) attended meetings of the committee on a regular basis between mid 2004 and 31 August 2007 and actively participated in those meetings. Multinet also relied on AAM's risk management committee for the assessment, review and management of day to day operational risks of Multinet's distribution business subject to the oversight of MGH's audit and risk committee. The annual asset management plan acknowledges the importance of risk management and AAM's role in that process. AAM also performed the internal audit function for Multinet, subject to the oversight of MGH's audit and risk committee.

160 Under the OSA, AAM effectively performed all the functions required to be performed in order to operate Multinet's distribution network and controlled the day to day running of Multinet's distribution business. AAM touched every aspect of that business, including dealings with gas retailers, collection of revenue and payment of expenses. It was across all of the details of the business and had more information about the business than Multinet did. Multinet had three officers (who were supplied by PIES) involved in the business whereas AAM had a large number of staff involved in the business. Mr Devenish said that the OSA contained few KPIs for AAM to meet, and that he could not recall whether there were any sanctions for not meeting them. He appeared to agree that the KPIs, on their own, were a weak control mechanism for Multinet.[36]

161 The annual updated five year asset management plan for the Multinet Group was prepared by AAM in each of 2004 and 2005. That plan was an important component of the five year strategic plan for the Multinet Group which was reassessed each year. It forms the basis of the annual works program and underpins the capital and maintenance expenditure for Multinet's distribution network. It outlines the asset management programs that will ensure service levels will be met, achieve compliance with regulatory requirements, demonstrate due diligence in managing safety risks and set out financial requirements arising from network asset management programs. Although the plan had to be consistent with Multinet's long-term asset management objectives and Capex limits and was subject to Multinet's approval/endorsement following an iterative process, there was no serious dispute that AAM had significant input in relation to the contents of the plan and its priorities. It can be inferred from the evidence Mr Fletcher gave in relation to UED[37] that Multinet's asset management plan could not go forward without AAM being satisfied with it.[38] Mr Beech said that if Mr Megarry, the then CEO of AAM, had not approved the 2005 asset management plan, it probably would have been changed to satisfy his requirements.

162 Under the OSA arrangements (see paragraphs 33 and 34 of this judgment), and having regard to the transfer of information and staff referred to in paragraph 16 of this judgment, AAM effectively possessed the bulk of the information, resources and expertise needed to carry on Multinet's business. Multinet depended on AAM for the provision of this information, including financial and technical information. For example, Multinet's financial ledgers were kept on AAM's computer system. The evidence given by Mr Fletcher suggested that Mr Strang, as Multinet's CFO, did not have direct personal access to that computer system. Mr Beech gave evidence that there was no-one at Multinet or PIES who had technical expertise in gas. AAM's possession of key information and expertise affecting Multinet's business is an indication that AAM had significant influence over the running of that business.

163 AAM prepared regulatory reports on behalf of Multinet and handled regulatory matters on its behalf.

Alinta's and AAM's influence through operating and financial policies

164 Another indicator of significant influence is the fact that AAM developed and implemented Multinet's operating policies. Although Multinet provided input in the development of the policies and formally approved or endorsed them, the policies were prepared by AAM. With some exceptions, the policies were not reviewed by the MGH audit and risk committee but by AAM's risk management committee. Mr Fletcher conceded that if AAM did not put up a policy to Multinet for its acceptance, the policy would not come into existence.

165 AAM also had an integral role in relation to Multinet's risk management and financial policies. In early 2004, Multinet senior management prepared a risk management policy for consideration by the board of MGH, which formed part of certain corporate governance documents considered by the board in April 2004. The board did not ultimately proceed to adopt the recommended policy because Alinta indicated it would not vote in favour of the policy. In August 2005, PwC prepared a report for DUET which identified several gaps in financial controls in relation to the Multinet Group and other entities. In response to that report, AAM established a project team to develop accounting policies and procedures to address those gaps, for submission to Multinet for approval. AAM commenced a process for the identification and preparation of policies and procedures based on Alinta policies and procedures. However, as at 31 December 2005, little progress was made in preparing policies and procedures in a form suitable for submission to Multinet for approval.

166 Mr Strang said that Alinta and AAM prepared 90 percent of Multinet's financial policies. Mr Reardon conceded that, subject to Multinet's final approval, AAM had the capacity to significantly affect Multinet's operating policies.

Alinta's and AAM's influence where there are conflicts of interest

167 The evidence indicated a variety of opportunities for conflicts of interest to arise between the interest of Alinta and AAM in maximising AAM's profit from the OSA and the interest of Multinet to maximise the return from its distribution assets. There were instances where actual conflicts arose and where Alinta and AAM focussed on their own interest without Multinet being kept fully informed. Examples of such instances are:

(a) On 31 January 2006, while an alternate director of MGH, Mr Devenish sent an email to two staff in AAM's accounts department stating that he was reviewing MGH's accounts "to approve them as a Director" and that "it would be really helpful for me to have a phone hook-up or discussion on some aspects of the accounts to understand the impact on Alinta".

(b) On 12 November 2003, Mr Reardon sent an email to Mr Beech informing him of expenditure reductions Multinet had requested for the purposes of the draft 2004 to 2008 gas asset management plan and stated "Whilst [Multinet] doesn't mind if the reductions come from Opex or Capex, [AAM's] fee structure means that we will be targeting capex reductions".

168 Although the above examples do not specifically relate to 2004 or 2005, they illustrate the types of conflicts that could arise. Mr Strang, Mr Devenish, Mr Fletcher, Mr Beech and Mr Reardon acknowledged that there was potential for conflicts of interest. In 2006, at Mr Strang's request, a conflict of interest policy was developed by a consultant and was submitted to the 14 February 2007 meeting of the MGH audit and risk committee. A revised draft was presented to the 14 August 2007 meeting of the committee. According to the minutes of the meeting, Mr Reardon, AAM's representative as alternate for Mr Devenish, "commented that he did not consider that there were conflicts and noted that Alinta was not comfortable in endorsing the policy and the approach to management of the conflicts". However, the committee approved the policy. Mr Devenish said in evidence that he did not see the need for a conflicts policy.

169 The potential for conflicts of interest to arise and the absence of a formal conflicts policy until 14 August 2007 provided opportunities for Alinta and AAM to exert significant influence over the business of Multinet in 2004 and 2005.

170 Mr Reardon accepted that Alinta's ability to veto proposals for PIES to allocate more resources to Multinet was an example of a conflict of interest.

171 The existence of conflicts of interest, in and of itself, does not establish significant influence. However, the ability of Alinta and AAM to resolve conflicts of interest by making decisions that favoured AAM's position as operator of the network without the knowledge or approval of Multinet is consistent with Alinta and AAM being able to significantly influence Multinet and its business.

AAM's influence through the power of attorney

172 The power of attorney (see paragraph 39 of this judgment) was also significant for the whole of 2004 and 2005. While it is not unusual for one company to appoint another company its attorney to execute documents, ordinarily, the attorney keeps the appointor fully informed on a timely basis on the attorney's activities. This was not the case in relation to documents executed by AAM as attorney for Multinet. Not only did AAM not require Multinet's prior approval for the execution of documents, but copies of those documents were usually not provided to Multinet immediately after execution. Instead, a register of executed documents was provided on an irregular and infrequent basis in 2004 and 2005. Some of the documents were routine or standard. However, some of them, including the use of system agreements, were commercially significant and contained discretionary elements requiring negotiation of some of their terms. Evidence was given that Multinet's use of system agreements were sent to AAM in Perth for execution under the power of attorney, instead of being sent to Multinet "around the corner" in Melbourne for[39]xecution.39

173 I am satisfied on the evidence that one of the reasons for the 10 October 2006 amendment to cl 32 of the OSA to remove AAM's ability to sign use of system agreements under the power of attorney was because the ESC had said this ability indicated Multinet and AAM were related parties and it was hoped that the amendment would reduce the perception that the parties were related. The 2006 amendment to the OSA did not affect AAM's general management and operation of the network business (including collecting revenue and paying expenses) in accordance with the budgets and plans approved by Multinet. AAM continued to negotiate agreements on behalf of Multinet, which were now signed by Multinet itself.

174 Mr Strang gave evidence that Multinet was economically dependent on AAM. He said that during the financial years ended 30 June 2004 and 2005, operating expenditure in relation to the OSA represented approximately 68 and 77 percent respectively of Multinet's reported operating expenditure. In the same period, AAM accounted for all of Multinet's reported capital expenditure.

175 In light of the limited evidence on the material transactions between, and the mutual economic dependence of, Multinet and AAM, these matters do not assist me in determining whether Multinet and AAM each had significant influence over the other. In any event, these factors, alone, are insufficient to establish significant influence.

Alinta's and AAM's influence through interchange of managerial personnel

176 The discussion in paragraphs 159 to 166 of this judgment is consistent with Alinta and AAM being able to significantly influence Multinet through the managerial personnel they made available to operate the distribution business.

Alinta's and AAM's influence through provision of essential technical information

177 The discussion in paragraphs 159 to 166 of this judgment is consistent with Alinta and AAM being able to significantly influence Multinet through the provision of essential technical information in the operation of the distribution business.

178 The financial reports of MGH for the year to 30 June 2005 were prepared by Alinta on behalf of the Multinet Group. These financial statements were prepared on the basis that AAM was a related party of Multinet.

179 The notes to the financial statements of Alinta for the financial years ending 31 December 2003, 2004 and 2005 listed its equity investment in Multinet under the heading "Investments in associates" and accounted for that investment using the equity method of accounting.

180 While these matters are consistent with AAM and Multinet being related parties in 2004 and 2005, they do not assist me in determining whether they were related parties in those years.

Decision on whether AAM was a related party of Multinet if AASB 1017 applies

181 The only paragraphs of the definition of "related party" in AASB 1017 that are relevant are (a), (b) and (d).

182 As there was insufficient evidence that AAM was subject to the significant influence of Multinet in 2004 and 2005, I find that paragraph (b) of the definition was not satisfied.

183 In relation to paragraphs (a) and (d) of the definition, an issue arises as to whether the reference to "financial and operating policies" in the definition of "significant influence" is confined to formal written policies and formal resolutions of the board of directors and shareholders. It is implicit in Mr Delany's submissions that the reference is so confined. He relied on the absence of evidence establishing that AAM had substantially influenced the preparation of financial or operating policies for Multinet in 2004 and 2005 in support of his submission that neither AAM nor Alinta significantly influenced Multinet in those years.

184 To confine "financial and operating policies" to formal written policies and formal resolutions of the board and shareholders is unwarranted and could produce absurd results where a company operates along informal lines with a minimalist approach to formal written policies and board and shareholder resolutions. In my opinion, the reference to financial and operating policies includes, in addition to formal written policies (such as the asset management plan) and formal board and shareholder resolutions, important decisions of the company which set the framework for the operation of its business, meeting its legal and regulatory obligations and achieving its financial and other corporate objectives as distinct from day to day decisions made within that framework. This interpretation is supported by cl 3.1.3 of AASB 1017 which states that whether a related party relationship exists needs to be determined in light of the prevailing circumstances and that in considering each possible related party relationship, attention will need to be directed to the substance of the relationship and not merely its legal form.

185 Based on the interpretation in paragraph 184 of this judgment, I find:

(a) for the reasons discussed in paragraphs 154 to 173, 176 and 177 of this judgment, AAM had the capacity to affect substantially the financial and operating policies of Multinet in 2004 and 2005; and

(b) for the reasons discussed in paragraphs 154 to 159, 164 to 171, 176 and 177 of this judgment, Alinta had the capacity to affect substantially the financial and operating policies of Multinet in 2004 and 2005.

186 My conclusions in paragraph 185 of this judgment and the reasons for those conclusions would have been the same if I had interpreted the expression "financial and operating policies" as meaning formal written policies and formal resolutions of the directors and shareholders.

187 In my opinion, the fact the PIES and AMPCI provided important corporate and treasury services for Multinet (see paragraph 42 to 44 of this judgment) which included input into financial and operating policies, does not detract from the conclusions in paragraphs 185 and 186 of this judgment. At any given time, more than one person or organisation can have the capacity to substantially affect such policies.

188 It follows that if, as I have found, the definition of "related party" in AASB 1017 applied for the purposes of the Guideline for the 2004 financial accounting year, AAM was a related party of Multinet in that year. If the same definition applied for the 2005 financial accounting year, I would have found that AAM was a related party of Multinet in that year also for the purposes of the Guideline.

Decision on whether AAM was a related party of Multinet if AASB 124 applies

189 The first issue to be decided in considering the separate paragraphs in the definition of "related party" in AASB 124 is whether the undefined expression "party" is confined to AAM (and, where relevant, its key management personnel) or whether it extends to its parent, Alinta. This issue arises because the definition in AASB 124 does not refer to a parent except in sub-paragraph (a)(i) and paragraph (d). Sub-paragraph (a)(i) refers to control, which is not applicable. Can the reference to a parent in that sub-paragraph be read as applying to the other sub-paragraphs of paragraph (a) and, indeed, paragraphs (b) and (c)? In support of such an interpretation is the absence of a logical reason to confine the reference to a parent to sub-paragraph (a)(i) and paragraph (d). There is also some support from the requirement in cl 10 that in considering each possible related party relationship, attention is directed to the substance of the relationship and not merely the legal form. If sub-paragraph (a)(ii) could be read as including Alinta, the conclusion would be that AAM is a related party of Multinet because I have found that in 2004 and 2005, Alinta had an interest in Multinet (namely an equity interest of 20.1 percent) that gave it significant influence over Multinet.

190 I have decided that it is not possible to extend the reference to a parent beyond sub-paragraph (a)(i) and paragraph (d), as this would constitute a rewriting of the definition of "related party". The drafters of the Guideline were clearly aware of the distinction between a party and its parent and chose to confine the definition to a party except where specific reference was made to a parent.

191 My conclusion in paragraph 190 of this judgment does not necessarily mean that sub-paragraph (a)(ii) of the definition of "related party" does not apply. This is because a further issue arises as to whether the undefined expression "interest" is confined to an equity interest. If it is, sub-paragraph (a)(ii) does not apply because AAM did not have an equity interest in Multinet. However, consistent with the reference to "agreement" in the definition of "significant influence" in AASB 124 and the requirement in cl 10 of AASB 124 that one must look to the substance of the relationship and not merely the legal form, I am of the view that the expression "interest" in sub-paragraph (a)(ii) of the definition of "related party" extends to an interest under a contract such as the OSA. On this basis, in accordance with the discussion in paragraphs 160 to 166 and 172 of this judgment, AAM had an interest in Multinet under the OSA that gave it significant influence over Multinet in 2004 and 2005. This is because AAM operated Multinet's distribution business and, although the services performed by AAM under the OSA excluded the general management and operation of Multinet, AAM had the power to participate in the financial and operating policy decisions of Multinet in 2004 and 2005.

192 My conclusion in paragraph 191 of this judgment would be the same whether the expression "financial and operating policy decisions" is confined to formal written policies and formal directors and shareholder resolutions or extends to important decisions of Multinet which set the framework for the operation of its business, meeting its legal and regulatory obligations and achieving its financial and other corporate objectives.

193 Paragraph (f) of the definition of "related party" will apply if AAM was significantly influenced by a member of the key management personnel of Multinet or MGH in 2004 and 2005. As the definition of "key management personnel" includes a director and as Mr Browning was a director of Multinet and MGH throughout 2004 and 2005, the question becomes whether AAM was significantly influenced by Mr Browning, in the sense that he had the power to participate in the financial and operating policy decisions of AAM.

194 I have already discussed two possible meanings of "financial and operating policy decisions" in paragraph 192 of this judgment. Irrespective of which meaning is adopted, Mr Browning had the power to participate in the financial and operating policy decisions of AAM in his capacity as a director of AAM in accordance with the powers and duties conferred on directors by AAM's constitution, the Corporations Act 2001 (Cth) and the general law. The significant influence that is relevant for the purposes of paragraph (f) is the significant influence based on Mr Browning's capacity as a director of Multinet and MGH and as a member of the MGH audit and risk committee. The significant influence relates to all aspects of AAM's financial and operating policy decisions and is not confined to decisions about transactions between AAM and Multinet.

195 In one sense, it is artificial to regard Mr Browning as significantly influencing AAM in his capacity as a director of Multinet and MGH because he was a director of those companies as Alinta's nominee rather than being a director of AAM as Multinet's or MGH's nominee. Furthermore, cl 11 of AASB 124 makes it clear that the fact of common directorships is not in and of itself sufficient to constitute two companies related parties. However, as paragraphs 16 to 46 and 154 to 177 of this judgment demonstrate, the relationship between AAM and Multinet in 2004 and 2005 was multi-layered. Alinta's significant equity interest in Multinet and its dependence on Multinet's distribution business for a considerable part of AAM's income meant that Alinta had a significant interest in Multinet's business being viable and profitable and it was part of Mr Browning's role to ensure this and in managing any conflict between AAM's role as service provider under the OSA and Alinta's role as equity owner. Accordingly, when participating in decision-making as a director of AAM, Mr Browning would, consistent with the commercial interests of AAM and Alinta, have regard to the viability and profitability of Multinet's business. His doing so would be informed, to a significant extent, by his role as a director of Multinet and MGH and as a member of the MGH audit and risk committee.

196 Accordingly, I conclude that if, as I have found, the definition of "related party" in AASB 124 applied for the purposes of the Guideline for the 2005 financial accounting year, AAM was a related party of Multinet in that year by virtue of sub-paragraph (a)(ii) and paragraph (f) of the definition. If the same definition applied for the 2004 financial accounting year, I would have found that AAM was a related party of Multinet in that year also for the purposes of the Guideline by virtue of the same provisions of the definition.

197 For completeness, I find that apart from sub-paragraph (a)(ii) and paragraph (f), none of the other provisions of the definition of "related party" apply. Paragraph (b) does not apply because AAM was not an investor in Multinet in 2004 or 2005. Contrary to Mr Bick's submissions, paragraph (d) does not apply because the reference to "party" in that paragraph is a reference to an individual and not to a corporation. AAM itself was not a member of the key management personnel of Multinet.

Does the OSA require AAM to provide its actual costs information to Multinet?

198 Mr Delany submitted that there is no express obligation in the OSA requiring AAM to provide information about its actual costs to Multinet. Both Mr Bick and Mr Gray submitted that the OSA required AAM to prepare gas regulatory accounting statements that complied with the Guideline, including the related party costs information provisions of the Guideline.

199 As set out in paragraph 36 of this judgment, clause 7.1 of the OSA requires AAM to provide operational, financial and other reports specified in clause 7 and schedule 4. Amongst the reports that AAM is obliged to provide under schedule 4 are "[t]he reports required to be submitted to ... the ESC ... in the form required by [the ESC]". In addition, as set out in paragraph 32 of this judgment, the services that AAM must provide in accordance with schedule 1 include "[p]roviding all reports to the ESC required by a Gas Law or the Access Arrangement". The expression "Gas Law" is defined in cl 1.1 to include "Codes", which in turn is defined to include "the Guidelines issued or approved by the ESC pursuant to the [GI Act]". Furthermore, as set out in paragraph 38 of this judgment, cl 25.3 of the OSA provides an exception to the confidentiality of AAM's information where the ESC requires disclosure of the information.

200 The above provisions have the effect of imposing an obligation on AAM to include in Multinet's gas regulatory accounting statements such information as is required to be included by a guideline published by the ESC. I have found that the Guideline validly requires a licensee to include in its gas regulatory accounting statements information about actual costs incurred by a related party that is in the possession, custody or power of the licensee. By virtue of the provisions of the OSA referred to in paragraph 199 of this judgment, Multinet is entitled to require AAM to include the actual costs information in Multinet's gas regulatory accounting statements without first obtaining AAM's consent. It follows that the relevant information is within Multinet's power in the sense that Multinet has a legally enforceable right to compel AAM to include the information in Multinet's gas regulatory accounting statements. In turn, this means that the information is information of Multinet and, in accordance with the Guideline, it must be included in Multinet's gas regulatory accounting statements.

201 The reasoning in paragraph 200 of this judgment involves reading the Guideline and the OSA as interdependent documents. This is necessary in order to give effect to the provisions of both documents and to give efficacy to the regulatory regime. I reject Mr Delany's submission that such reasoning is circular.

202 A contract must be construed objectively by examining the surrounding circumstances which existed at the time that the contract was entered into and which were known by the parties, by looking to the language of the contract and deciding what a reasonable person in the position of the parties would consider that the parties had actually agreed upon.[40] A review of the surrounding circumstances at the time the OSA was executed on 23 July 2003 supports my conclusion that the OSA obliges AAM to include in Multinet's gas regulatory accounting statements such information as is required by a guideline published by the ESC.

203 When Multinet, MGH and AAM executed the OSA on 23 July 2003, they were aware that the distribution business was operating in a highly regulated industry dealing with essential services and that provision of information to the regulator is a key feature of the regulatory regime. They knew that the nature of the information that the regulator may require from the licensee may change from time to time, as this was a condition of Multinet's Licence. They were also aware that the regulator had the capacity to publish guidelines that required the inclusion of costs information in regulatory reports. Rather than provide for fixed information provision obligations in the OSA, the parties included flexible provisions requiring AAM to provide such information as the regulator may require and created an exception to the confidentiality obligations for this purpose.

204 In light of these surrounding circumstances, the provisions of the OSA referred to in paragraph 199 of this judgment indicate that the parties intended that AAM be under an obligation to include in the regulatory reports of Multinet that it prepared in accordance with the OSA, such information about the costs of operating the distribution business as was required by any guideline published by the ESC.

Was there a common basis of dealing that AAM's costs remain confidential?

205 Mr Delany submitted that there had been a common basis of dealing between Multinet and AAM that information about AAM's costs and profits remains confidential to AAM. He referred to a series of documents that were developed by Multinet and AAM from August 2003 which stated that AAM's costs would remain confidential. These documents contained statements that were variously described as "Principles", "Commandments" and "Protocols". The documents comprised:

(a) A document prepared by AAM on 25 August 2003 headed "[AAM and Multinet] Services Agreement Principles" which stated "[Multinet] acknowledges that the services contract is output-based and therefore [AAM] costs, profits & strategies remain confidential".

(b) A revised version of the "principles" document prepared by UED and Multinet on 28 August 2003 which stated "[Multinet] acknowledges that the [AAM] costs and profits remain confidential" and added the following preamble:

Recognising that the services contract between [AAM] and [Multinet] will always represent the legal line-in-the-sand for future variations and re-negotiations, the parties have developed the following principles to help facilitate a smooth and co-operative way forward in managing the relationship in a practical sense ...

(c) A document prepared by UED and Multinet in February 2005 headed "Operating Services Agreement: Management Manual" which stated "[Multinet] acknowledges that the [AAM] costs and profits remain confidential". However, in addition to the preamble referred to above, this document contained a preface which included the following statements:

The document includes principles developed by [Multinet] and [AAM] since the [execution of the OSA] to assist with the day to day management of the contract and are not intended to contradict the intent of the OSA. ...

This document is designed to be consistent with [the] OSA. All the obligations and requirements set out in this document are to [be] taken to be subordinate to the OSA unless specifically highlighted and agreed in this document.

The "manual" document did not specifically highlight the statement about the confidentiality of AAM's costs and profits as not being subordinate to the OSA.

(d) A revised version of the "manual" document prepared by UED and Multinet in July 2005 contained the statements quoted above and did not specifically highlight the statement about the confidentiality of AAM's costs and profits as not being subordinate to the OSA.

206 Multinet's reply and defence to AAM's counterclaim refers to cl 36.1 of the OSA, which provides that the OSA "can only be amended, supplemented, replaced or novated by another document signed by the parties", as part of its case that, as no amendment had been agreed in relation to the confidentiality of AAM's costs, the OSA continues to apply according to its terms. Mr Bick submitted that the "commandments" are irrelevant to the proper interpretation of the OSA and that there was no evidence that AAM relied on them. He also relied on concessions made by Mr Devenish that the commandments did not have the effect of amending the OSA and that the OSA prevailed over the commandments, on concessions by Mr Reardon and Mr Devenish that AAM has always regarded its costs as confidential and has not changed its position since the OSA, and on a statement by Mr Fletcher that he was not aware of any common basis of dealing that costs would not be made available to Multinet. He submitted that a common basis of dealing had not been established.

207 The communications between the parties that referred to costs information remaining confidential did not have the effect of amending or overriding the OSA. The preamble and preface referred to in paragraph 205 of this judgment make this clear. None of the communications referred to the provisions of the OSA which are discussed in paragraph 199 of this judgment and none stated that AAM could refuse to provide costs information where this was required by the ESC. Furthermore, as cl 25.3 of the OSA overrides confidentiality obligations in respect of information a party is required by the ESC to disclose, any common basis of dealing that AAM's costs information remain confidential would not affect AAM's obligations under the OSA to provide that information pursuant to a requirement of the ESC. Accordingly, if, on its true construction, the OSA requires AAM to include costs information in Multinet's gas regulatory accounting statements in accordance with the Guideline, the communications referred to in paragraph 205 of this judgment do not alter that position. There was no acknowledgment or agreement by Multinet which affected its rights against AAM under the OSA.

208 For completeness, had it been necessary for me to decide the question of estoppel, I would have concluded that Multinet did not represent to AAM that it would not require AAM to provide its costs information in response to a regulatory requirement. AAM had its own internal policy of treating information about its costs as confidential. Even if Multinet had represented that it would not require AAM to provide its costs information in response to a regulatory requirement, AAM did not detrimentally rely on such a representation. AAM relied on its own policy regarding confidentiality and did not alter its position on this issue in response to the alleged representation by Multinet.

209 Before I discuss the parties' submissions on whether the proceeding is hypothetical or futile, it is necessary to refer to the ESC's review of the GAA to apply for the period 1 January 2008 to 31 December 2012 ("2008 GAAR") and the use of a report on AAM's revenues, costs and margins for the 2004, 2005 and 2006 years prepared by PwC, on AAM's instructions, for the purposes of the 2008 GAAR.

210 As stated in paragraphs 10 and 11 of this judgment, the ESC conducts GAARs for the purpose of approving GAAs that deal with access arrangements to gas distribution networks, including the prices to be charged for that access. The ESC was required to conduct a review of Multinet's GAA to apply for the period 1 January 2008 to 31 December 2012.

211 For the purposes of obtaining information about the actual costs of operation of Multinet's distribution business for use in the 2008 GAAR, the ESC served on AAM notices dated 15 February 2007 and 10 April 2007 under s 41 of the Access Law. In response to the notices, AAM provided some information to the ESC.[41] In April 2007, AAM also engaged PwC to prepare a report on AAM's revenues, costs and margins in relation to Multinet's gas distribution network for the 2004, 2005 and 2006 calendar years.

212 Mr O'Callaghan of PwC prepared a report dated 25 June 2007. AAM submitted the report to the ESC on 26 June 2007. The report contained PwC's estimates of the fully allocated costs and margins that AAM actually experienced in providing asset management services to Multinet in 2004, 2005 and 2006. The report contained a "Confidentiality and Reliance Clause" which, among other things, stated the ESC will not rely on the accuracy of the report and must keep it confidential.

213 The ESC met with AAM and Alinta on 12 September 2007 to discuss the PwC report. At the meeting, the ESC said that, as conditions of its acceptance of the PwC report, the restrictions on the ESC's use of the report must be removed, Multinet must be given access to the report, the ESC must be satisfied that the report employs an appropriate methodology and uses reliable data, and the ESC must be able to speak with personnel from PwC, Alinta and Alinta's auditor.

214 On 4 October 2007, the ESC wrote to AAM setting out further concerns in relation to the PwC report. Nevertheless, the ESC stated that it would be willing to consider the PwC report if AAM acknowledged that the report had been provided pursuant to s 4.1 of the Access Code, all use and reliance restrictions were removed and AAM agreed to the ESC being able to disclose the contents of the report to Multinet. The ESC also stated it wished to interview representatives of PwC and AAM in order to better understand the report and that the report be subject to an audit process. AAM and Alinta agreed to the ESC's requirements.

215 In October 2007, PwC prepared a revised version of its report, which omitted the "Confidentiality and Reliance Clause" and contained an addendum which commented on an AAM spreadsheet. A copy of the revised report was provided to Multinet on 19 October 2007 on certain conditions, including that the report be kept strictly confidential by Multinet and used only for the purpose of participating in the 2008 GAAR. On 23 October 2007, AAM agreed that Multinet could use the PwC report in fee negotiations under cl 5.2 of the OSA to the extent that it was reasonable to assume that the report had been used by the ESC to underpin its findings in the 2008 GAAR. AAM provided a copy of the revised PwC report to the ESC on 29 October 2007.

216 On 19 November 2007, the ESC wrote to AAM setting out its requirements for the auditing of the PwC report and the various Alinta, AAM and PwC representatives that it wished to interview. The ESC requested AAM to endeavour to provide gas regulatory accounting statements completed in accordance with the Guideline and to identify any factors that limited AAM's ability to comply with the Guideline.

217 On 27 November 2007, the ESC interviewed Mr O'Callaghan and two other representatives of PwC in relation to the PwC report. On 26 February 2008, AAM provided to Multinet a copy of the transcript of the ESC's interview of the PwC representatives on the same conditions pursuant to which the PwC report had been provided to Multinet.

218 By email dated 8 February 2008, Alinta provided to the ESC comments on the extent to which the PwC report and the subsequent audit of the PwC report by KPMG did not comply with the Guideline. By email dated 15 February 2008, Alinta provided to the ESC income statements prepared by PwC on the basis of the information contained in the PwC report, and to the extent possible, in accordance with the Guideline for 2004, 2005 and 2006. It also submitted a management declaration. The ESC informed AAM on 19 February 2008 that it accepted the income statements and the management declaration.

219 On 29 February 2008, AAM obtained from KPMG an audit certificate in respect of the income statements. This was provided to the ESC. A copy was also provided to Multinet on the same conditions pursuant to which the PwC report had been provided to Multinet.

220 AAM used the PwC report as a basis for making submissions to the ESC on 29 October 2007 in relation to the 2008 GAAR, including the ESC's draft decision dated 28 August 2007 in relation to the 2008-2012 GAA. Multinet also had a short period within which it could use the PwC report to make submissions to the ESC on the basis set out in paragraph 215 of this judgment. It submitted a response to the ESC's draft decision on 29 October 2007.

221 The ESC's final decisions on the 2008 GAAR dated 7 March 2008 and 19 May 2008[42] make it clear that the ESC had regard to the PwC report in making its final decisions.

222 In his affidavit of 24 October 2008, Mr O'Callaghan stated that, "based on the information provided to [him] and the work [he has] undertaken", AAM does not have appropriate practices and procedures in place to enable it to provide the actual costs information for 2004 and 2005 in accordance with the requirements of the Guideline and that AAM did not, and cannot now, prepare gas regulatory accounting statements of its own for 2004 and 2005 incorporating information about its actual costs in accordance with the requirements of the Guideline. He gave two reasons for this opinion. First, AAM kept consolidated accounts for its entire business in 2004 and 2005 and did not maintain separate records for each OSA it has with the owner of each network it managed. Secondly, AAM has not allocated those costs that are shared between the Multinet network and other AAM business activities and has not established an allocation methodology in accordance with the Guideline. He expressed the opinion that should AAM undertake such an exercise, the level of assumptions required and limitations that would result from an attempt to allocate the AAM accounts to that solely relating to the Multinet network would not necessarily be verifiable nor be relevant or reliable as required by cl 3.4 of the Guideline. He also expressed the opinion that the revised PwC report contains the best information available on AAM's actual costs for 2004 and 2005 in terms of satisfying the requirements of the Guideline.

223 However, the following issues arose in the course of the hearing, in relation to the use of the PwC report as a substitute for compliance with the Guideline:

(a) The directors of AAM were responsible for determining the adequacy or otherwise of the procedures to be performed by PwC in preparing their report.[43]

(b) With some exceptions, PwC did not subject the financial or other information contained in the report to checking or verification procedures.[44]

(c) PwC did not challenge the allocation of direct costs in AAM's management accounts.[45]

(d) The reliability of the methodologies used for allocation of unallocated costs, which amounted to many millions of dollars, was questioned. These costs included both indirect costs incurred by AAM in operating the various networks (known as cost centre expenses) and Alinta Group-wide overheads (known as enterprise support function costs). In relation to cost centre expenses, a cost of sales methodology was used. In relation to enterprise support function costs, the methodology Alinta's management adopted resulted in a notional allocation to AAM and this was reflected in Alinta's statutory accounts. However, the PwC report allocated a much higher amount to AAM and, in turn, to the cost of operating the Multinet network, based on certain assumptions. In its final decision dated 7 March 2008, the ESC decided that some of the enterprise support function costs should be excluded for the purposes of the 2008 GAAR.[46]

(e) Although KPMG provided an auditor's certificate in relation to the income statement summary prepared on the basis of the PwC report, KPMG's audit opinion stated:

The [AAM/Multinet Income Statement Summary] is based on the Methodology. While some evidence is available to support the Methodology on which the Summary is based, such evidence is subjective and judgmental in nature. Given the nature of the evidence available in assessing the reasonableness of the Methodology, we are not in a position to obtain the level of assurance necessary to express a positive opinion on the Methodology. Accordingly, our statement regarding the Methodology provides a lesser level of assurance on the reasonableness of the Methodology.

The audit opinion and statement expressed in this report has been formed on the above basis.

(f) On 29 October 2008, Multinet's solicitors sought from AAM the information that was provided to Mr O'Callaghan (see paragraph 222 of this judgment). On 6 November 2008, AAM refused to provide this information on the basis that "the burden of doing so would exceed the benefit".

Statement of ESC's position regarding non-compliance with Guideline

224 During the hearing, Mr Bick made the following statement to the Court on 28 November 2008: [47]

[T]he consumers of Victoria will be having - will have had their gas tariff set by the reliance by the ESC on the PWC report for the 2006 base year in relation to Multinet. That's a very serious matter, and although the report was provided late in the GAAR process it was nevertheless accepted. And, at least in relation to Multinet, one would have expected that the Commission could offer, if it chose to, something along the lines of a statement of no present intention to take any action in respect of Multinet's licence ... So we would invite the Commission to consider whether there is any way in which these proceedings could be resolved so that the plaintiff's licences are no longer in jeopardy without the Commission being guilty of binding its statutory discretion exercise in advance.

And a statement of no present intention ... would be the highest and best level of assurance one could reasonably be - one could reasonably expect, it would nevertheless be something which would provide a sufficient degree of certainty to Alinta, Multinet and UED that these proceedings could be resolved ...

I have instructions and in essence they were standing instructions and I've just had them confirmed. I am able to make that statement on behalf of ESC in relation to the gas regulatory accounting statements in 2004. On the basis of current information there is no known intention to take action in relation to non compliance with the licensing in relation to those two sets of accounts that had been filed and had been the subject of the PWC report ...

226 It is clear from the context that Mr Gray's reference to 2004 in the above quotation also covers 2005 and that the statement "known intention" can be read as "current intention".

227 Mr Delany submitted that declaratory relief should not be granted where, as here, the person seeking relief does not have a real interest, the question is purely hypothetical, relief is claimed in relation to circumstances that have not occurred and might not ever happen or a declaration would not produce any foreseeable consequences for the parties.[49]

228 He submitted that this proceeding is hypothetical as there is no evidence that, because Multinet has not reported AAM's costs, the ESC has served or will serve Multinet with an enforcement order under s 53(2) of the ESC Act (which is referred to in paragraph 9 of this judgment) or will revoke Multinet's licence, and indeed the ESC is highly unlikely to do either. He noted that Multinet did not call evidence on this question, and that Mr Gray informed the Court during the hearing that the ESC has no present intention to take action in relation to Multinet. He referred to Mr Strang's evidence that Multinet had no intention of lodging amended audited accounts for 2004 or 2005. He submitted that if the ESC ever needed information about AAM's costs for 2004 and 2005, that was for the purposes of the 2008 GAAR which was completed on 19 May 2008. He submitted that it is a mere weak hypothesis that, because Multinet has not reported AAM's costs, the ESC will revoke its licence.

229 Mr Delany also submitted that this proceeding is futile in that a declaration would not produce any foreseeable consequences for the parties. He submitted that AAM has already reported its 2004 and 2005 costs to Multinet and to the ESC in a form as close to that required by the Guideline as it can produce. He submitted that as AAM can do no more to comply with the Guideline, it could do no more as a result of the making of a declaration that it must comply with the Guideline and therefore no such declaration should be made.

230 Although Mr Delany did not allege that this proceeding constituted an abuse of process, in relation to the Court's discretion to refuse relief, he relied on Williams v Spautz[50] and Rediffusion (Hong Kong) Ltd v Attorney General of Hong Kong[51] for the proposition that a court will not condone, particularly where it is called upon to exercise a discretion, the achievement of a purpose which is ulterior to the ostensible purpose of the litigation. He submitted that, in this case, the Court should exercise its discretion to refuse relief.

231 Mr Bick submitted that this proceeding is not hypothetical. He submitted that Multinet's failure to comply with the Licence exposed it to the risk of revocation, and that AAM's failure to provide the required information in the circumstances is unjustifiable and exposes Multinet's Licence and the business the subject of that Licence to unnecessary jeopardy. He submitted that it is not for AAM to speculate about the risk to Multinet of non-compliance. He relied on Mr Strang's evidence that if Multinet received AAM's actual costs information, it would pass it on to the ESC by way of supplement to its gas regulatory accounting statements.

232 Mr Bick also submitted that this proceeding is not futile. He submitted that the ESC has not "let Multinet off the hook" and that the PwC report considered by the ESC for the 2008 GAAR was materially adjusted by reduction of costs allocated to Multinet. He submitted that the PwC report cannot be relied upon as providing a reliable and accurate estimate of costs for the purposes of the Guideline for several reasons, including that PwC cannot be regarded as independent, that AAM has refused to provide the information used in preparation of the report, that the PwC report disclaims reliance and states that PwC had not verified or validated important information in the report, that the PwC report does not comply with the Guideline (including in relation to explaining and justifying the allocation methods used) and that the KPMG audit certificate was dependent upon the methodologies and assumptions in the PwC report.

233 Mr Gray submitted that the relief sought by Multinet would not be futile. He submitted that, provided that the Court is satisfied that there will be a clarifying and educative effect as to future compliance with the Guideline and its successor, that is sufficient utility to support the exercise of discretion to grant declaratory relief, and that such an effect would result here.

Decision that proceeding is neither hypothetical nor futile

234 I reject Mr Delany's submissions that the proceeding is hypothetical or futile. I have found that under the OSA, AAM is obliged to include in Multinet's gas regulatory accounting statements for 2004 and 2005 information of AAM's actual costs in operating the distribution network for those years. The facts that the gas regulatory accounting statements for 2004 and 2005 have already been filed without AAM's actual costs information and that Multinet does not propose to replace its audited accounts for those years do not mean that no useful purpose would be achieved by a declaration. Mr Strang said in evidence that if AAM's actual costs information is provided to Multinet, this would be provided to the ESC under seal of an audit certificate by way of supplement to the gas regulatory accounting statements Multinet has already lodged.

235 My findings that the Guideline refers to information in a licensee's "possession, custody or power" and that AAM's costs information is within Multinet's control mean that AAM is compelled by the OSA to provide its actual costs information where this is required by the ESC by virtue of the Guideline or other lawful means. As set out in paragraphs 51 and 53 of this judgment, on 25 August 2006 the ESC informed Multinet that non-compliance with the Guideline would be in breach of the Licence and on 16 January 2007, the ESC informed Multinet that the ESC would consider what future action is appropriate in relation to such non-compliance.

236 It is true that the ESC has not specifically communicated to Multinet any intention to take any steps that would place the Licence in jeopardy and that Mr Gray informed the Court on 28 November 2008 that the ESC has no current intention to do so. However, there has been no unequivocal statement by the ESC either prior to or during the hearing to the effect that Multinet did not breach the Guideline in relation to its gas regulatory accounting statements for 2004 and 2005. Further, there is no guarantee that the ESC's current intention will not change in the future.

237 I am satisfied that AAM did not, in 2004 and 2005, keep its records in such a way as to enable it to provide all the costs information required by the Guideline in the form and subject to the verification required by the Guideline. However, Mr Garg gave evidence (some of which was theoretical) that it was possible to establish new cost centres and make other modifications to AAM's accounting systems to provide a more accurate allocation of costs to Multinet. It was apparent from Mr O'Callaghan's evidence that PwC relied heavily on information provided by Alinta and AAM's management with limited verification by PwC of the accuracy of that information and its underlying assumptions. It can be inferred from this that it was possible to undertake further verification inquiries than PwC had undertaken with a view to obtaining more reliable information about AAM's actual costs. It is also apparent from Mr O'Callaghan's evidence, the PwC report itself and the KPMG audit certificate that a change to some of the assumptions and judgments made by Alinta and AAM's management about the allocation of costs could lead to different cost outcomes.

238 Based on the evidence referred to in the previous paragraph, I reject Mr Delany's proposition that AAM cannot provide any information about AAM's costs of operating Multinet's distribution business in 2004 and 2005 in compliance with the Guideline over and above the information in the PwC report. Mr O'Callaghan's evidence that the PwC report contains the best information available on AAM's costs in terms of satisfying the requirements of the Guideline must be assessed in light of the qualifications referred to in paragraph 223 of this judgment. AAM's failure to call Messrs Leano, Lehman and Megarry enables me to infer that their evidence would not have assisted AAM in establishing Mr Delany's proposition. However, the evidence given and the inferences that I am able to draw from that evidence do not enable me to make a finding as to precisely what further information could be provided, how readily that information could be obtained (with or without alterations to AAM's accounting systems), what past periods could be covered, and whether the additional information would be useful and reliable and materially improve what is in the PwC report.

239 Multinet is entitled to receive AAM's actual costs information for 2004 and 2005 in the form required by the OSA, namely the form required by the Guideline. The costs information in the PwC report was not prepared specifically for compliance with the Guideline and does not do so. AAM is obliged to take all steps open to it to provide its costs information in the form required by the Guideline. While AAM cannot do the impossible, I am not satisfied that it has, to date, taken all steps open to it to provide its costs information in the form required by the Guideline.

240 An important reason why declaratory relief is appropriate is that, at present, Multinet's use of the PwC report is subject to the restrictions discussed in paragraph 215 of this judgment. If AAM had included the costs information in Multinet's gas regulatory accounting statements for 2004 and 2005, as required by the OSA, Multinet would be able to use that information for the purposes of the OSA, including negotiations in relation to the OSA fees, without being bound by any restrictions that are not in the OSA itself.

241 The ESC's position that it has no current intention to take action in respect of the Licence as a result of Multinet's non-compliance with the Guideline (see paragraph 225 of this judgment) is obviously highly relevant to the exercise of the Court's discretion as to the relief to be granted. AAM is obliged to provide its actual costs information in accordance with the OSA where the ESC "requires" provision of this information. I am not satisfied on the evidence that the ESC currently requires any further costs information from Multinet for 2004 or 2005 over and above the PwC report. If the ESC does not require any further costs information, Multinet itself is not entitled to it because AAM's obligations depend on the existence of a requirement from the ESC for such information.

242 As for Mr Delaney's submission that Multinet had an ulterior purpose in pursuing the proceeding, he did not elaborate on what is the ulterior purpose. Insofar as he was alluding to the use of AAM's costs information for the purpose of the renegotiation of the OSA fees, Mr Strang's evidence was that Multinet did not need the costs information for that purpose because it had the PwC report.

243 I also agree with the supplementary written submission made by Mr Bick after the Court of Appeal decision in Alinta Asset Management Pty Ltd v Essential Services Commission,[52] that the approach adopted by Hollingworth J in Alinta Asset Management Pty Ltd v Essential Services Commission (No 3)[53] with which the Court of Appeal concurred[54] is apposite in this proceeding. Her Honour concluded that the declarations sought in that case clarified the legal position and status of AAM at a particular time and that it was desirable to provide an authoritative curial statement to quell the controversy between the parties and for educative purposes in the relevant industry.[55]

244 The orders sought by Multinet are set out in paragraph 54 of this judgment.

245 Mr Bick conceded that equity will not enforce that which cannot be done by decree of specific performance.[56] However, he referred to evidence that supported AAM's ability to comply with the Guideline to a greater extent than the PwC report, including AAM's ability to modify its accounting program and the creation of allocation procedures to ring fence its accounts, the cost of which will be passed on to Multinet under the OSA. He also referred to Multinet's legal obligation to have its own distributor's licence in relation to Multinet's distribution business in accordance with the decision in Alinta Asset Management Pty Ltd v Essential Services Commission (No 2)[57] and to ring fence its accounts in relation to that business. He also relied on the evidence of Mr Garg that more work can be done to allocate costs more accurately to Multinet.

246 Mr Bick submitted that the fact that Multinet must bear the cost of providing the actual costs information under the OSA is sufficient minimisation of any hardship to AAM.[58] He also submitted, in support of the making of an order for specific performance, that provision of the costs information is precisely the sort of obligation AAM should have contemplated might arise at the time when it entered the OSA.

247 Mr Delany did not submit that an order for specific performance should be refused on the ground that damages are an adequate remedy.[59] Nor did he submit that such an order, assuming it was not futile, would impose hardship on AAM.

248 Mr Bick referred to various steps AAM had taken to avoid having to provide its actual costs in accordance with the Guideline since its publication as a matter relevant to the Court's discretion to grant relief. In his submission, this included misleading this Court about the steps being taken by AAM to comply with the Court's decision in Alinta Asset Management Pty Ltd v Essential Services Commission (No 2).[60] Mr Bick submitted that AAM's conduct was motivated by a desire that Multinet not have access to costs information so that it could not use it for the purpose of the fee renegotiation under the OSA. While aspects of AAM's conduct in response to the abovementioned decision were troubling, it has not been necessary for me to take these matters into account in deciding whether to grant relief to Multinet or the form of that relief.

249 In all the circumstances, including, in particular, the discussion in paragraphs 234 to 247 of this judgment, I have concluded that it is appropriate to grant Multinet declaratory relief. In light of the ESC's position as set out in paragraph 225 of this judgment which I discuss in paragraph 241 of this judgment, I have concluded that an order for specific performance should not be made at this stage.

250 For the reasons set out in this judgment, I propose to make the following orders:

(a) a declaration that AAM was a related party of Multinet in 2004 and 2005 within the meaning of the Guideline;

(b) a declaration that AAM is obliged by the OSA to prepare gas regulatory accounting statements for Multinet's distribution business in accordance with the Guideline for Multinet's 2004 and 2005 financial accounting years if the ESC informs Multinet that the ESC requires compliance with the Guideline;

(c) orders dismissing AAM's counterclaim and reserving liberty to apply.

251 I will hear from the parties on the precise form of the orders including costs.

252 As discussed above, I do not propose to make an order for specific performance because I am not satisfied that the ESC currently requires Multinet to take any further steps to comply with the Guideline. Should that position change, Multinet may, in accordance with the liberty to apply, seek further relief.

253 The proceeding will be listed for a mention at a time to be notified to deal with the above matters.

National Third Party Access Code for Natural Gas Pipeline Systems, which appeared in schedule 2 to the SA Act and was given legislative force in Victoria by s 7 of the Gas Pipelines Access (Victoria) Act 1998 (Vic)

Gas Pipelines Access (Victoria) Law as it appeared in schedule 1 to the SA Act and was given legislative force in Victoria by s 7 of the Gas Pipelines Access (Victoria) Act 1998 (Vic)

The company known as Alinta Ltd from 8 May 2003 to 25 October 2006, Alinta 2000 Ltd from 25 October 2006 to 22 September 2008 and now known as Westnet Infrastructure Group Ltd

AMP Capital Investors Ltd, formerly AMP Henderson Global Investors Ltd

Diversified Utility and Energy Trust No 1 (the trustee of which is AMPCI)

Diversified Utility and Energy Trust No 2 (the trustee of which is AMPIS)

Essential Services Commission Act 2001 (Vic)

Financial Services Agreement between MGH and AMPCI dated 14 July 2003

Gas Industry Act 2001 (Vic)

Gas Industry Guideline No 17 Regulatory Accounting Information Requirements Issue No 1 published on 13 July 2005

Multinet's gas distribution licence issued on 11 December 1997 and last varied on 18 December 2002

Agreement between MGH, Alinta, AMPCI (in its capacity as manager of certain managed shares), AMPCI (in its capacity as trustee of DUET No 1) and AMPIS (in its capacity as trustee of DUET No 2) dated 14 July 2003

Multinet Management Services Agreement between MGH and PIES dated 14 July 2003

Multinet Gas Distribution Partnership comprising of Multinet Gas (DB No 1) Pty Ltd and Multinet Gas (DB No 2) Pty Ltd

Operating Services Agreement (see paragraph 23 of this judgment)

Agreement between PIES, Alinta, ANH, AMPCI, MGH and UEDH dated 14 July 2003

Gas Pipelines Access (South Australia) Act 1997 (SA)

Gas Access Arrangement Review conducted by the ESC in relation to Multinet's GAA to apply for the period 1 January 2008 to 31 December 2012

[1] [2009] VSC 19.

[2] See s 38 of the GI Act and cl 3 of Multinet's licence which is referred to in paragraph 12 of this judgment.

[3] The Access Law appeared in schedule 1 to the Gas Pipelines Access (South Australia) Act 1997 (SA) ("SA Act") and was given legislative force in Victoria by s 7 of the Gas Pipelines Access (Victoria) Act 1998 (Vic). The Gas Pipelines Access (Victoria) Act was repealed by the National Gas (Victoria) Act 2008 (Vic), but ss 4.1(c), (d) and (e) and 4.2(a) of the Access Code, the Guideline and any general accounting guidelines published by the ESC and in effect before 1 July 2008, when the National Gas (Victoria) Act came into operation, continue to apply until 1 January 2011: National Gas (Victoria) Act ss 17 (definitions of "relevant gas distribution system law or instrument" and "specified day"), 36 and 37. The SA Act was repealed and replaced by the National Gas (South Australia) Act 2008 (SA) on 1 July 2008.

[4] The Access Code appeared in schedule 2 to the SA Act and was given legislative force in Victoria by the Gas Pipelines Access (Victoria) Act. The Access Code was amended from time to time in accordance with the Access Law. Although s 3(1) of the Gas Pipelines Access (Victoria) Act defines "Gas Pipelines Access (Victoria) Law" as including both the Access Law and the Access Code, I will refer to them separately using the definitions I have assigned to them.

[5] These agreements are also referred to as distribution tariff agreements or DTAs.

[6] On 31 August 2007, the Alinta Group was purchased by a consortium comprising the Babcock & Brown Group and the Singapore Power International Group. The Babcock & Brown Group acquired the new Alinta Ltd (which is now known as Westnet WA Infrastructure Holdings Ltd) and Alinta 2000 Ltd (which is now known as Westnet Infrastructure Group Ltd). However, 49 percent of the issued shares in AAM were acquired by the Singapore Power International Group. From 31 August 2007, the Babcock & Brown Group has owned 51 percent of the issued shares in AAM through the new Alinta Ltd, and the Singapore Power International Group has owned 49 percent of the issued shares through Jemena Asset Management Holdings Pty Ltd. The Singapore Power International Group will fully own AAM after certain consents are obtained. Since 31 August 2007, the Babcock & Brown Group has owned 20.1 percent of MGH and thus 20.1 percent of Multinet. DUET continues to own 79.9 percent of MGH and Multinet.

[7] Mr Devenish resigned on 31 August 2007 but ASIC's records show him as holding office until 7 September 2007.

[8] The KPIs are summarised in fn 36 of this judgment.

[9] Mr Devenish resigned on 31 August 2007 but ASIC's records show him as holding office until 14 September 2007.

[10] Those statements were amended in May 2006. The amendments are not relevant to this proceeding.

[11] See paragraph 22 of this judgment.

[12] See fn 6 of this judgment.

[13] [2007] VSC 210.

[14] See now Alinta Asset Management Pty Ltd v Essential Services Commission [2008] VSCA 273, which affirmed Hollingworth J's decision.

[15] [1959] HCA 8; (1959) 101 CLR 298.

[16] Smoker v Pharmacy Restructuring Authority [1994] FCA 1487; (1994) 53 FCR 287, 289, 290, 298-301; Ford v Legal Aid Commission of Queensland [1999] 1 Qd R 267, 272. See also Norbis v Norbis [1986] HCA 17; (1986) 161 CLR 513, 519-20.

[17] See s 53 of the ESC Act, s 38(3) of the GI Act and cl 3(d) of the Licence.

[18] Lockwood v Commonwealth [1954] HCA 31; (1954) 90 CLR 177, 184; Brown v West (1990) 169 CLR 195, 203; Mercantile Mutual Life Insurance Co Ltd v Australian Securities Commission (1993) 40 FCR 409, 412, 424-5, 435-7; Johns v Australian Securities Commission [1993] HCA 56; (1993) 178 CLR 408, 426, 469; Newcrest Mining (WA) Ltd v Commonwealth [1997] HCA 38; (1997) 190 CLR 513, 618; Harris v Great Barrier Reef Marine Park Authority [1999] FCA 437; (1999) 162 ALR 651; VAW (Kurri Kurri) Pty Ltd v Scientific Committee (established under s 127 of the Threatened Species Conservation Act 1995) [2003] NSWCA 297; (2003) 58 NSWLR 631, 636-44 [18]-[58]. To the extent that they hold otherwise, I decline to follow Abbott v Shire of Heidelberg [1926] VicLawRp 29; [1926] VLR 199 and Australian Broadcasting Tribunal v Saatchi & Saatchi Compton (Vic) Pty Ltd (1985) 10 FCR 1.

[19] Lonrho Ltd v Shell Petroleum Co Ltd [1980] 1 WLR 627, 635.

[20] See, eg, Morton v Union Steamship Company of New Zealand Ltd [1951] HCA 42; (1951) 83 CLR 402.

[21] [1957] HCA 4; (1957) 96 CLR 245, 250; applied to a power to make regulations "necessary or convenient" for carrying out or giving effect to an Act in Willocks v Anderson [1971] HCA 28; (1971) 124 CLR 293, 298-9.

[22] Paull v Munday (1976) 9 ALR 245, 251, 259; AB v Registrar of Births, Deaths and Marriages [2007] FCAFC 140; (2007) 162 FCR 528, 557 [105].

[23] Coco v The Queen [1994] HCA 15; (1994) 179 CLR 427, 436-8.

[24] Alinta Asset Management Pty Ltd v Essential Services Commission [2008] VSCA 273.

[25] Morton v Union Steamship Company of New Zealand [1951] HCA 42; (1951) 83 CLR 402, 410-12; R v Commissioner of Patents; Ex parte Martin [1953] HCA 67; (1953) 89 CLR 381.

[26] Grech v Bird [1936] HCA 59; (1936) 56 CLR 228, 239-40; R v Olsen; Ex parte Vahlberg (1975) 11 SASR 156, 161, 162, 168, 169.

[27] Stevens v Perrett [1935] HCA 52; (1935) 53 CLR 449; Morton v Union Steamship Company of New Zealand Ltd [1951] HCA 42; (1951) 83 CLR 402, 410-12.

[28] See s 36 of the ESC Act as in force on 13 July 2005.

[29] South Australia v Tanner [1989] HCA 3; (1989) 166 CLR 161, 180.

[30] Maxwell v Murphy [1957] HCA 7; (1957) 96 CLR 261, 267.

[31] See Corporations Act 2001 (Cth) s 334.

[32] This conclusion is consistent with Interpretation of Legislation Act 1984 (Vic) s 31.

[33] TCN Channel Nine Pty Ltd v Australian Mutual Provident Society [1982] FCA 169; (1982) 42 ALR 496, 505.

[34] The meaning of special majority directors resolution is discussed in paragraph 21(d) of this judgment.

[35] Although Mr Devenish resigned on 31 August 2007, ASIC's records show him as holding office until 14 September 2007.

[36] The KPIs are listed in schedule 5 to the OSA. They cover occupational health and safety matters, gas priority response issues, interruptions, environmental performance and unaccounted for gas. If AAM fails to achieve a KPI over three consecutive months, it must provide to Multinet a "cure plan" for Multinet's approval and implement that cure plan within a reasonable period of time.

[37] See paragraph 5 of this judgment.

[39] At the relevant time, AAM had an office in Perth and an office in Melbourne that was close to Multinet's office.

[40] Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451, 461-2 [22].

[41] On 1 August 2007 and 10 September 2007, the ESC issued two notices under s 42(2)(b) of the Access Law notifying AAM of the ESC's decision to disclose the information to Multinet. On 10 August and 18 September 2007, AAM applied to the Appeal Panel for a review of the ESC's decisions. The Appeal Panel set aside both decisions on 17 October 2007.

[42] See paragraph 11 of this judgment.

[43] See letter dated 25 June 2007 from PwC to AAM included in the PwC report.

[44] See letter dated 25 June 2007 from PwC to AAM included in the PwC report.

[45] Pages 25-6 of the transcript of the interview of PwC personnel referred to in paragraph 217 of this judgment.

[46] ESC, Gas Access Arrangement Review 2008-2012, Final Decision - Public Version, 7 March 2008, 122-3, 127.

[49] AMP Fire and General Insurance Company Ltd v Dixon [1982] VicRp 83; [1982] VR 833, 837; Ainsworth v Criminal Justice Commission [1992] HCA 10; (1992) 175 CLR 564, 582.

[50] [1992] HCA 34; (1992) 174 CLR 509, 523.

[51] [1970] AC 1136, 1155.

[52] [2008] VSCA 273.

[53] [2007] VSC 353, [13], [28], [29].

[54] [2008] VSCA 273, [247].

[55] [2007] VSC 353, [13], [28], [29].

[56] Seawell v Webster (1859) 29 LJ Ch 27.

[57] [2007] VSC 210; aff'd Alinta Asset Management Pty Ltd v Essential Services Commission [2008] VSCA 273.

[58] Hutchinson v Payne [1975] VicRp 17; [1975] VR 175, 179.

[59] ANZ Executors and Trustees Ltd v Humes Ltd [1990] VicRp 54; [1990] VR 615, 636-9.

[60] [2007] VSC 210.