Plaintiff v First Defendant

1 This is an application by the plaintiff, United Energy Distribution Pty Ltd ("UED") for declaratory and other relief relating to whether Alinta Asset Management Pty Ltd ("AAM") was a related party of UED in 2006 and 2007 within the meaning of Electricity Industry Guideline No 3 Regulatory Information Requirements Issue No 6 ("Guideline") published by the Essential Services Commission ("ESC") on 15 December 2006.

2 The Guideline requires a holder of an electricity distribution licence, such as UED, to include in its regulatory accounting statements for the 2006 and subsequent calendar years information about actual costs incurred by related parties in connection with the licensee's distribution business. AAM has denied that it was a related party of UED in 2006 and 2007 and has refused to provide information about its actual costs to UED which, in turn, has resulted in UED failing to include this information in the regulatory accounting statements it has filed with the ESC for 2006 and 2007.

3 UED is concerned that, if the Guideline is valid and AAM is a related party of UED, UED's failure to include information about AAM's costs in its regulatory accounting statements may constitute a breach of the conditions of its licence which may enable the ESC to revoke the licence. If UED'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 2006 and 2007 regulatory accounting statements are valid, that AAM was a related party of UED in those years, that AAM is contractually obliged to include information about its actual costs in those statements and that UED is entitled to appropriate relief.

5 This proceeding was heard concurrently with another proceeding, Multinet (DB No 1) Pty Ltd v Alinta Asset Management Pty Ltd,[1] which raised similar issues in relation to the gas 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 electricity industry in Victoria pursuant to s 7A of the Electricity Industry Act 2000 (Vic) ("EI 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 electricity generators, distributors and retailers. Section 16 of the EI Act requires electricity generators, distributors and retailers 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 make Electricity Price Determinations which fix prices that distributors can charge their customers. The last Electricity Price Determination was made in or shortly after December 2005 and fixed prices for the five years ending 31 December 2010. In performing this function, s 33 of the ESC Act requires the ESC to have regard to matters such as "the costs of making, producing or supplying [electricity]", "the return on assets in the [electricity industry]" and "any relevant interstate and international benchmarks for prices, costs and return on assets in comparable industries". The Victorian Electricity Supply Industry Tariff Order 2005 (Vic) ("Tariff Order"), which was made by the Governor in Council under s 15A of the EI Act, included as one of the principles to be applied by the ESC in making a price determination under s 33 of the ESC Act, a requirement that the ESC "have regard to the need to ... ensure a fair sharing of the benefits achieved through efficiency gains between customers and the Distributors".[3] Clearly, the costs incurred by a distributor in operating the distribution business, and changes in those costs, are important components in the fixing of prices charged by distributors.

11 UED is the holder of an electricity distribution licence regulated under Part 2 of the EI Act. The licence took effect on 3 October 1994 and was last varied on 14 January 2005 ("Licence"). Since approximately October 1994, UED has carried on an electricity distribution business known as "United Energy Distribution". The business transports electricity from generators to various supply points along assets (such as poles, electric lines and associated equipment) owned by UED. It services south-east Melbourne and the Mornington Peninsula with a 12,600 kilometre electricity network covering approximately 1,450 square kilometres. It supplies electricity to around 600,000 customers through the retailers AGL, TRUenergy and Pulse Energy. The retailers sign contracts known as use of system agreements with UED to gain access to UED's assets and thereby supply electricity to their customers.

12 Clause 22.1(d) of the Licence states that UED as licensee must, among other things, comply with all applicable provisions of any guideline, if the guideline itself requires UED as licensee to comply or the ESC has informed UED as licensee that compliance is required. Schedule 1 to the Licence defines "guideline" to mean "a guideline published by the [ESC]"

13 Under cl 26 of the Licence, UED as licensee must ensure that separate accounts are prepared for its distribution business. Under cl 27 of the Licence, UED as licensee must provide to the ESC, in the manner and form decided by the ESC, such information as the ESC may from time to time require.

14 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 UED and AAM

15 UED was incorporated on 11 May 1994. From 13 September 1994 to 9 October 2003, it was known as United Energy Ltd. It has carried on the business of electricity distribution since 1994. Immediately prior to July 2003, UED was owned by Aquila Inc as to 48.23 percent and companies associated with AMP as to 51.77 percent and UED itself operated the distribution business. In July 2003, Aquila Inc sold its interest in UED to Alinta Ltd and companies associated with AMP (see below) with the former ending up with a 34 percent interest and the latter with a 66 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 22 of this judgment.

16 During 2006 and 2007, UED was (and remains) a wholly owned subsidiary of Power Partnership Pty Ltd which in turn was (and remains) a wholly owned subsidiary of United Energy Distribution Holdings Pty Ltd ("UEDH"). UEDH was incorporated on 10 April 2003. In this judgment, I refer to the three abovementioned companies as "the UED Group".

17 Between July 2003 and 31 August 2007, Alinta Ltd owned 34 percent of the issued shares of UEDH and 66 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").

18 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,[4] 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.

19 In 2006 and 2007, UED 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"), Multinet Group Holdings Pty Ltd ("MGH") and UEDH. I refer to PIES further below.

20 On 14 July 2003, UEDH, Alinta, 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 ("UEDH Shareholders Agreement") for the "purpose of [recording] the parties' agreement for the control and management of the [UED 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 [UEDH] 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 [UEDH] 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 [UEDH] 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 [UEDH's] dividend policy or the adoption of a new dividend policy for [UEDH];

[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 24.1 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 UEDH (or a subsidiary) and the shareholder (or any affiliate) other than an agreement between UEDH (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 UEDH is responsible for the overall direction and management of UEDH 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 UEDH (or a subsidiary) and a shareholder (or an affiliate) other than an agreement between UEDH (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 UEDH 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 24.1 include the budget and business plan of UED. A Special Majority Directors Resolution is defined in cl 24.1 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 UEDH 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 UEDH. 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 UEDH 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 UED must be the same as the composition of the board of UEDH and the provisions of the UEDH Shareholders Agreement regarding the conduct of UEDH's affairs apply equally to the conduct of the affairs of UED.

(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 UEDH (or a subsidiary) and the shareholder (or an affiliate) who appointed the director, other than an agreement between UEDH (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 UEDH 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.

21 Pursuant to cl 4 of the UEDH Shareholders Agreement, between 2003 and 2 March 2006, Alinta appointed its chief executive officer, Robert Browning, as a director of UEDH and UED, and between 2 March 2006 and 31 August 2007, Alinta appointed one of its then senior executives, Ian Devenish, as a director of UEDH and UED.[5] Mr Devenish was Mr Browning's alternate on the boards of UEDH and UED between 10 May 2004[6] and 2 March 2006. Mr Shaun Reardon, a senior manager of Alinta, was Mr Devenish's alternate on the boards of UEDH and UED between 6 October 2006 and 31 August 2007. Mr Browning was also a director of AAM between 28 April 2003 and 21 January 2007. He was one of a total of three directors of AAM while he held office.

22 On 23 July 2003, AAM, UED and UEDH entered into an operating services agreement for an initial period ending on 30 June 2006. The agreement specified a first renewal period of five years commencing on 1 July 2006. The agreement was renewed on 1 July 2006 and was subsequently amended on 10 October 2006. The amendment is discussed in paragraph 39 of this judgment. In this judgment, I refer to the operating services agreement, as amended, as "the OSA".

23 Pursuant to cl 3(b) of the OSA, UED 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 UED's distribution business on behalf of UED. UED 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 UED can charge are fixed by the ESC and its Opex are fixed under the OSA, UED 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.

24 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 to the OSA) and are subject to budgets which are prepared by AAM and submitted to UED for UED's approval under cl 11 of the OSA. UED therefore knows the amounts AAM incurs in respect of Capex. Under cl 12 of the OSA, UED 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 2006 and 2007 UED's annual expenditure on Opex approximated its annual expenditure on Capex.

25 Clause 5.1(a) of the OSA provides that UED 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 2006, UED and AAM will commence negotiation of the fees to apply during the "First Renewal Period", namely 1 July 2006 to 30 June 2011, 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".

26 The negotiations over the fees for the First Renewal Period have not yet been concluded. One of UED's motives in seeking information about AAM's costs (in addition to protecting the Licence) is to use that information in the negotiations over the fees. One of AAM's motives in refusing to provide the information about its costs (apart from its belief that it is not a related party of UED for the purposes of the Guideline) is that it does not want UED to be able to use that information in the negotiations over the fees. Pending completion of the negotiations, UED continues to pay the fees payable during the Initial Period.

27 Clause 6.1 of the OSA requires AAM to provide the "Services" to UED 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 UED.

28 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".

29 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. ...

30 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 Distribution Price Reviews;

(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 UED including the board of UED; and

(f) press releases/publications of UED.

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

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

(a) Proposing Distribution Tariffs and Network Tariffs to UED pursuant to the Electricity Price Determination.

(b) Drafting submissions to the ESC in relation to Distribution Price Reviews and other assistance reasonably required by UED in relation to the Distribution Price Reviews.

(c) The recommendation to UED for the setting of additional charges for excluded services as defined in the Electricity Price Determination.

(d) Providing all reports to the ESC required by an Electricity Law or the Electricity Price Determination.

32 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 asset. ...

33 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".

34 Clause 1.1 of the OSA defines "Electricity Law" to include "Codes" and defines "Codes" to include "the Guidelines issued or approved by the ESC pursuant to the [EI Act]". The term "Guidelines", as used in the definition of "Codes", is not defined by the OSA. Clause 1.1 defines "Electricity Price Determination" as "the price determination made by ESC in December 2000 in relation to distribution networks in Victoria for the 5 years ending 31 December 2005 and ... any replacement of it".

35 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 UED 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 UED in its annual report, which information will be notified to AAM from time to time. Schedule 4 requires AAM to provide to UED "Regulatory Reports" (being reports UED 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,[7] and six monthly "IP Reporting".

36 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 2006 and to update it annually to, among other things, be consistent with UED's long-term objectives. The revised asset management plan must be submitted to UED for approval no later than 31 October each year. If UED does not approve the plan, it must give reasons and AAM must resubmit a new asset management plan which complies with UED's requirements. AAM must carry out the approved asset management plan at its own cost.

37 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.

38 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 UED. AAM was required to obtain UED's prior approval before incurring any liability on behalf of UED, other than liability in the ordinary course. Pursuant to the power of attorney, AAM executed a number of agreements on behalf of UED.

39 The OSA Amendment Agreement, which 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 UED as the board of UED 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 UED. On 22 November 2006, the board of UED authorised AAM to enter into certain agreements so long as they are in the normal course of business and do not commit UED to expenditure of more than $100,000.

40 As part of its role of operating and managing UED's distribution business and in accordance with the services set out in schedule 1 to the OSA (see paragraph 32 of this judgment), AAM prepared operating policies for that business (either by creating new policies or revising existing policies) and submitted them to UED for approval. The policies (which are sometimes referred to as "strategies") included the Vegetation Management Strategy Policy, the Distribution Transformer Strategy Policy, the Two Pole Substations Strategy Policy, the Maintaining Vegetation Clearance Between Private Overhead Electric Lines and Servicelines on Private Property Policy, the Maintaining Clearance Between Existing Powerlines and Vegetation in Declared Areas Policy, the Maintaining Clearance Between Existing Powerlines and Vegetation Policy, the Vegetation Management Policy, the Vegetation Management Procedure - Organisation Structure - Roles and Responsibilities Policy, the Vegetation Management Strategy Policy, and the Pole Top Structures Strategy Policy.

UED's senior management team and role of PIES

41 UED did not have any employees in 2006 and 2007. 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 UED itself. These functions are sourced through UEDH. UEDH principally carries on these functions through:

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

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

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

43 Under the FSA, UEDH 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.

44 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. 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.[8]

45 During 2006 and 2007, UED's senior management team comprised Hugh Gleeson, CEO, David Strang, CFO, Shaun Glasson, engineer and Wilson Foo, financial analyst (commenced 29 January 2007). They were not employees of UED and were provided by PIES.

46 As mentioned in paragraph 1 of this judgment, the ESC published the Guideline on 15 December 2006. The Guideline requires licensees such as UED to include within their 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 69 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 UED

47 In April 2007, UED filed with the ESC its regulatory accounting statements for the year ended 31 December 2006. AAM's actual costs information was not included on the basis that it was not available to UED.

48 By letter dated 19 December 2007, UED requested AAM to provide information about AAM's actual costs to UED to enable UED to comply with the Guideline for the year ending 31 December 2007. By letter dated 15 January 2008, AAM refused to provide the information on the basis that AAM was not a related party of UED within the meaning of the Guideline.

49 On 7 March 2008, UED informed AAM that unless within 14 days AAM agreed to the provision of AAM's actual costs information within a suitable timeframe for the orderly preparation of the regulatory accounting statements, UED would have no alternative other than to institute legal proceedings. By letter dated 12 March 2008, AAM reiterated that it is not obliged to provide the actual costs information.

50 In April 2008, UED filed with the ESC its regulatory accounting statements for the year ended 31 December 2007, again without AAM's actual costs information.

Commencement of proceeding and issues to be determined

51 On 30 May 2008, UED 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 UED AAM's actual costs information for the year ended 31 December 2006 and/or the year ended 31 December 2007.

(b) Specific performance of the obligation that AAM provide to UED certain reports and/or AAM's actual costs information in respect of the year ended 31 December 2006 and/or the year ended 31 December 2007 within 30 days.

(c) A declaration as to whether AAM is a related party of UED for the years ended 31 December 2006 and 31 December 2007 for the purpose of the Guideline.

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

52 UED 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 UED and AAM were related parties, within the meaning and application of the Guideline, in 2006 and 2007.

53 In its defence and counterclaim, AAM denies that it was a related party of UED in 2006 and 2007 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.

54 In its defence, the ESC asserts that the Guideline is valid, that AAM was a related party of UED in 2006 and 2007 and that UED is obliged to include in its regulatory accounting statements the actual costs information of AAM.

55 The issues requiring determination by this Court are:

(b) If the Guideline is valid, does it apply to 2006 and 2007?

(c) Was AAM a related party of UED in 2006 and 2007?

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

56 Evidence in chief was given by way of affidavit or witness statement. Each witness was cross-examined.

57 UED called only one witness, David Strang, who has been the company secretary and CFO of UED and UEDH 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 UED and UEDH from mid 2004 to 31 August 2007.[9] He also served as Alinta's representative on UEDH'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.[10] Between October 2006 and 30 September 2007, he was responsible for the management of all commercial aspects of the services AAM provided to UED under the OSA. He was Mr Devenish's alternate on the boards of UED and UEDH and on UEDH'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 UED and has filled the role of UED's financial controller.

(d) Sumit Garg, a business analyst employed by Jemena. 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 UED.

(e) Craig Savage, an asset manager employed by AAM. In 2006 and 2007, he headed an "asset services" team which produced annual five year asset management plans for UED's distribution business for UED's approval.

(f) Mark Beech, who performed a similar role to Mr Savage in relation to the gas distribution business of the Multinet Gas Distribution Partnership ("Multinet").

(g) Jock O'Callaghan, a partner of PricewaterhouseCoopers ("PwC"), who prepared reports to AAM on AAM's costs of operating UED's distribution business.

58 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 issues such as when PwC commenced work on preparing reports on AAM's 2006 and 2007 costs of operating UED's distribution network, whether the reports were in draft or final form and when they were received by AAM. 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 UED, he has limited knowledge of the systems used by AAM in preparing UED'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 UEDH's audit and risk committee on 31 July 2006 "on behalf of Alinta", in his oral evidence he said he represented UED's interests at the meeting.

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

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

(g) 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. These matters have adversely affected the weight I have given to Mr Beech's evidence.

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

60 Both Mr Bick QC, who appeared with Mr Farrands on behalf of UED, and Mr Delany SC, who appeared with Mr Weinstock on behalf of AAM, relied heavily on Jones v Dunkel[11] 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 AAM and UED 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 (UED's CEO), Peter Lowe (the chairman of UED), Ross Israel, Peter Barry, Bruce Berry, Nicholas Langley and David Bartholomew (at various stages, executives of DUET and directors or alternate directors of UED) and Mr Glasson (a member of UED's senior management team). Mr Delany 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.

61 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 196 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 UED's distribution business in 2006 and 2007 in compliance with the Guideline over and above the information in the reports of PwC discussed in paragraph 186 of this judgment. Save as set out in paragraph 196 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.

62 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 regulatory accounting statements are valid. I also consider how those provisions, if valid, apply to the 2006 and 2007 years.

63 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 correct allocation of revenue and costs between the Distribution Business and non-distribution businesses;
• to inform Electricity Distribution Price Determinations and to perform other functions under relevant Acts;
• to measure actual financial performance of Distribution Businesses against forecast;
• to publish information on financial performance of Distribution Businesses;
• improve the level(s) of transparency in the regulatory processes;
• to generally give effect to the objectives of the Commission as stated in the Essential Services Commission Act 2001 and the Electricity Industry Act 2000.

64 Clause 2.8.2 of the Guideline states that the Guideline has "effect for Regulatory Accounting Periods ending on or after 31 December 2006". Clause 5.4.1 provides that a "Regulatory Accounting Period shall be a calendar year unless the Commission should specify otherwise".

2.2.1 Regulatory Accounts and Regulatory Accounting Statements must be prepared for a Distribution Business by the Licensee. The Distribution Business is not defined by legal entity structures but by the activities undertaken to fulfil the obligations set out in the Distribution Licence by the Licensee and/or a Related Party of the Licensee.

2.2.2 Any revenue earned, asset utilised and liability or cost incurred in fulfilling a Distribution Licence obligation by the Licensee and/or a Related Party of the Licensee must be reported in the Regulatory Accounts and the Regulatory Accounting Statements. Whilst the Distribution Business is not defined as a legal entity, each revenue, cost element, asset and liability that when combined constitute the whole of the Distribution Business must have its origin in an audited Statutory Accounts although not necessarily all from the same set of Statutory Accounts.

66 Clauses 5.23.1 and 5.23.2 of the Guideline state:

5.23.1 Where transactions between a Related Party and the Licensee occur for amounts greater than $500,000 in aggregate in the Regulatory Accounting Period, these shall be reported in the Regulatory Accounting Statements.

Explanation

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

5.23.2 For the transactions reported under paragraph 5.23.1, the information that must be reported includes:

• The name of the Related Party which incurred the cost in providing the individual services to the Distribution Business;
• the actual incurred cost of the individual services provided by the Related Party to the Distribution Business;
• 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 Regulatory Accounting Statements identifying the Asset Category, Maintenance Cost category or Operating Cost category;
• a description of the way actual incurred cost amount is reflected in the Regulatory Accounting Statements including where the amount is allocated (by Asset Category and/or Maintenance Cost category and/or Operating 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.

67 The monetary limit in cl 5.23.1 of the Guideline was satisfied in the case of AAM and UED in both 2006 and 2007.

• report the information required under this section 5.23 which is available to it and able to be included in its Regulatory Accounting Statements; and
• as soon as practicable and, in any case by 31 December 2007, enter into such arrangements with any of its Related Parties as are necessary to ensure that the information required under this section 5.23 is available to it and able to be included in its Regulatory Accounting Statements.

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

Distribution Business means the entirety of the activities undertaken by the Licensee and/or a Related Party of the Licensee in order to fulfil the obligations incurred under the Distribution Licence.

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

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

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

Related Party means, in relation to a Licensee,

(a) any other Entity that, at any time during the reporting period, has control or significant influence over the Licensee;

(b) any other Entity that, at any time during the reporting period, is subject to control or significant influence by the Licensee;

(c) any other Entity that, at any time during the reporting period, is controlled by the same Entity that controls the Licensee - referred to as a situation in which entities are subject to common control;

(d) any other Entity that, at any time during the reporting period, is controlled by the same Entity that significantly influences the Licensee;

(e) any other Entity that, at any time during the reporting period, is significantly influenced by the same Entity that controls the Licensee; ...

Statutory Accounts means the audited set of accounts prepared in accordance with Australian Securities and Investments Commission (ASIC) requirements submitted to the ASIC by statutory entities.

70 Clause 5.2.1 requires regulatory accounting statements to be prepared in accordance with the Guideline, that is, in accordance with the templates in Appendix 1.

71 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".

72 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 10 of the EI Act.

73 When the Guideline was published on 15 December 2006, 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.

74 Sections 10, 12, 20, 21 and 26A of the EI Act relevantly provided in December 2006:

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

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

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

(1) For the purposes of Part 3 of the [ESC Act] -

* * * * *

(b) the power to regulate prescribed prices in respect of [electricity] is conferred on the Commission in respect of the following -

(i) charges for connection to, and the use of, any distribution system;

* * * * *

(iii) tariffs for the sale of electricity regulated by Order under section 13, to the extent specified in such an Order.

* * * * *

...

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

Without limiting the generality of section 20, 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 a retailer to have such agreements with one or more distribution companies as are necessary to ensure that, subject [to the EI Act], electricity is distributed or supplied to the extent necessary to enable the retailer to sell electricity to its customers;

(d) requiring a distribution company to have such agreements with retailers as are necessary to ensure that, subject to [the EI Act], electricity is distributed or supplied to the extent necessary to enable the retailers to sell electricity to their customers;

(e) requiring a distribution company -

(i) to prepare standard agreements for the purposes of paragraphs (c) and (d); and

(ii) to submit those standard agreements to the Commission for approval; and

(iii) to offer a standard agreement approved by the Commission to a retailer for the purposes of paragraphs (c) and (d);

...

(g) requiring a distribution company to comply with requirements relating to the provision of public lighting;

...

(i) requiring the licensee to supply information to VENCorp, when requested by VENCorp, to assist VENCorp to fulfil its functions in relation to the securing of supply of electricity;

(j) requiring the licensee to inform customers from time to time of the arrangements in place or proposed to be in place to allow them to elect to become a customer of another licensee;

...

(l) 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;

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

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

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

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

(q) specifying methods or principles to be applied in the conduct of activities authorised by the licence;

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

...

(t) 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;

(u) 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);

(v) requiring a transmission company to provide, in accordance with the guidelines under section 26A, access to a specified person or class of person to its land for the purpose of constructing, operating and maintaining augmentations to the electricity transmission system.

26A Guidelines about access to land

(1) The Commission -

(a) must prepare guidelines for the purpose of [section] 21(v) ...; and

(b) may amend those guidelines from time to time. ...

75 The Guideline also refers to cll 26 and 27 of the "Distribution Licences", which is defined to include the Licence. Clauses 26 and 27 of the Licence are described in paragraph 13 of this judgment.

76 Mr Delany submitted that the provisions of the Guideline requiring a related party's actual costs to be included in a licensee's regulatory accounting statements are not authorised by the ESC Act or the EI Act 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.

77 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.[12]

78 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 and the EI Act. As set out in paragraph 74 of this judgment, the ESC may impose conditions on a licence under ss 20(2) and 21 of the EI Act. Compliance with conditions of a licence is mandatory in the sense that a failure to comply can result in revocation of t[13] licence.13 As appears from paragraph 74 of this judgment, s 20(2) confers a general power on the ESC to impose conditions. Section 21 lists a large number of conditions that the ESC may impose. However, s 21 expressly provides that it does not limit the generality of s 20. This means that any gaps or restrictions that appear in s 21 do not limit the ESC's general power to impose conditions under s 20(2). That said, s 21 forms an important part of the legislative regime within which the ESC's general power under s 20(2) exists, and while neither s 21 at large nor any particular condition listed in s 21 can limit or control that general power, the scope of particular conditions listed in s 21 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 21.

79 Section 21(l) of the EI 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 21(l), read together with s 25 (which states that if a licence is subject to a condition under s 21(l), 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 21(l) 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.

80 I also note that, given that s 21(l) cannot limit the ESC's general power to impose a condition under s 20(2) (see paragraph 78 of this judgment), if it is assumed that s 21(l) refers only to industry guidelines, that does not limit the ESC's power to impose a condition under s 20(2) requiring a licensee to comply with guidelines published by the ESC under s 13. Likewise, if it is assumed that s 21(l) requires the condition itself to specify the industry guidelines that must be complied with, that does not mean that a condition imposed under s 20(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.

81 The width of the scope to be given to the general power to impose conditions in s 20(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 electricity 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.

82 For present purposes, the two provisions of the Licence that are relevant are cll 22.1(d) and 27, which are referred to in paragraphs 12 and 13 of this judgment. In essence, cl 22.1(d) requires UED, as licensee, to comply with all applicable provisions of any guideline published by the ESC, and cl 27 requires UED, 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 cll 22.1(d) and 27 are not described as "conditions", they have the character of conditions and have effect as such under cl 2.1 of the Licence, which states that the grant of the Licence is subject to the conditions set out in the Licence.

83 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 EI 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 20, 21, 23A, 26A, 36A and 44 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 substantive obligations.

84 Section 21(t) of the EI Act is particularly relevant. As noted in paragraph 78 of this judgment, the conditions listed in s 21 cannot control the ESC's general power to impose conditions under s 20(2), but they can inform the interpretation of the scope of that general power. Section 21(t) requires UED, 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.

85 Another issue that arises in relation to s 21(t) 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 21(t) 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.[14] It is not within the scope of s 21(t) 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 21(t) 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 paragraph 114 of this judgment.

86 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.

87 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 both the ESC Act and the EI Act).[15] 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"

88 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:[16]

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.

89 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 10 of the EI 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.

90 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 electricity consumers and establishes a licensing regime governing electricity 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.

91 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.[17]

92 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 s 33 of the ESC Act (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 price reviews. Furthermore, in order for the ESC to ensure a fair sharing between customers and distributors of the benefits achieved through efficiency gains as required by the Tariff Order (see 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.

93 The history of the related party provisions of the Guideline supports my conclusion. Earlier versions of the Guideline required the licensee to include in its regulatory accounting statements information about costs paid by the licensee to a related party for providing services for the distribution business. I will assume, for the purposes of this judgment, that the reference to costs was to the amount paid by the licensee to a related party rather than the actual costs incurred by the related party (see paragraph 175 of this judgment). The ESC's consultation paper dated 7 July 2006 on the proposed revisions to the then current issue number 5 of the Guideline stated that where the actual amount paid to a related party is used in a price review, increased efficiencies in the operation of the distribution business which lead to reduced costs will not be known to the ESC and cannot be used to pass on the benefit to consumers in the form of lower prices. As this results in the benefit of increased efficiency being retained by the licensee or the related party, revised related party provisions were inserted in the Guideline to require inclusion of the related party's actual costs in the licensee's regulatory accounting statements. The changes mirrored the related party provisions of Gas Industry Guideline No 17 Regulatory Accounting Information Requirements Issue No 1.

94 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

95 Mr Delany submitted that the Guideline circumvents the legislative scheme established by the ESC Act and the EI 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.

96 Mr Delany relied on the definition of "Related Party" in the Guideline, which is set out in paragraph 69 of this judgment, and noted that 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 [18] the ESC.18 He also submitted that the clarity with which Parliament has invaded such general law rights in the comprehensive regime in Part 4 of the ESC Act, within the protective limits of the regime, implies that no such invasion is intended in the ESC's power to publish guidelines.

97 Mr Gray submitted that if AAM is a related party whose relevant activities constitute the provision of services under the Licence held by UED, 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 UED's business as a licensee, and not necessarily as between the information and UED'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.

98 I reject Mr Delany's submissions. For the reasons discussed in paragraph 83 of this judgment, the ESC Act and the EI Act 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 that is available to 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.

99 It is not necessary for me to decide the correctness of Mr Gray's submission that the better view is that AAM is a "regulated entity" in the electricity industry context,[19] because the Guideline does not purport to regulate AAM in any way. The Guideline regulates UED as licensee by imposing obligations on it. The fact that, in order to comply with some of those obligations, UED 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 UED can compel AAM to provide information to UED 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 UED?" below). If the OSA obliges AAM to provide the information to UED, without making any exceptions based on confidentiality, privilege or other protections, then the provision of the information by AAM to UED 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 UED. 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.

100 I deal with Mr Delany's submission regarding Part 4 of the ESC Act separately below.

AAM's submission that Guideline is inconsistent with Part 4 of ESC Act

101 Mr Delany submitted that Part 4 of the ESC Act establishes 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 Part 4 covers the field and is 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 Part 4.[20] He submitted that the Guideline effectively purports to sidestep that code by requiring such information to be provided by licensees in their regulatory accounting statements and is inconsistent with Part 4. 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 in Part 4, 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 regime in Part 4, would impose a greater burden on non-licensees than Parliament itself had enacted,[21] is repugnant to the comprehensive regime in Part 4, and is ousted by that regime, which covers the field of the ESC's power to obtain information from non-licensees.[22]

102 Mr Delany referred to cl 5.23.1 of the Guideline, which provides that a licensee must report transactions with a related party for amounts over $500,000, and to the definition of "Related Party", which provides, among other things, 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 $500,000 (for example, if the contractor were an electrician), 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 Part 4 of the ESC Act and invading the contractor's general law rights, which cannot have been intended by Parliament.

103 I do not accept Mr Delany's submissions. Part 4 of the ESC Act, as in force on 15 December 2006, 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 UED is required to provide to the ESC in accordance with the Guideline.[23] 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. My conclusion that it is not an exclusive code is supported by s 21(t) of the EI Act which empowers the ESC to impose licence conditions requiring the licensee to provide to the ESC such information as the ESC may from time to time require. 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.

104 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 162 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 Part 4.

105 For the reasons set out above, I do not accept any of Mr Delany's submissions in relation to the validity of the Guideline. The impugned provisions of the Guideline are valid.

106 However, I need to mention briefly the second dot point of cl 5.23.5 of the Guideline (which is set out in paragraph 68 of this judgment). It requires licensees to enter into an arrangement with a related party to ensure that the related party provides the information required to be included in the licensee's regulatory accounting statements. The definition of "Related Party" in Part 6 of the Guideline 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, where such an arrangement does not exist, the licensee would not have a legal means of compelling the related party to enter into such an arrangement in the absence of an existing contractual right to require the entry into such an arrangement.

107 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. However, it is not necessary for me to decide this issue in relation to the second dot point in cl 5.23.5, as this imposes a temporal deadline of 31 December 2007 and can only apply prospectively to calendar years after 31 December 2007. The scope of cl 5.23.5 is discussed further below.

Does the Guideline apply to the 2006 and 2007 calendar years?

108 Mr Delany submitted that, even if the Guideline is valid, its requirements in relation to related party costs do not apply to the calendar years ending 31 December 2006 or 31 December 2007.

109 The Guideline was published on 15 December 2006, and expressed to replace the previous relevant guideline "with effect for Regulatory Accounting Periods ending on or after 31 December 2006", where a "Regulatory Accounting Period" is a calendar year.[24] However, cl 5.23.5 qualifies the obligation to provide information of related parties. It requires the licensee to report the information required which is available to it and able to be included in its regulatory accounting statements. It also requires the licensee, as soon as practicable and in any case by 31 December 2007, to enter into arrangements with any of its related parties as are necessary to ensure the information required is available to it and able to be included in its regulatory accounting statements.

110 Mr Delany submitted that there is a general presumption that, in the absence of a clear statement to the contrary, legislation, including delegated legislation, is not intended to operate retrospectively.[25] He submitted that there was no relevant "arrangement" in place between UED and AAM prior to 31 December 2007, and so even if the related party provisions of the Guideline are otherwise valid, they do not apply to AAM in relation to calendar years ending on or before 31 December 2007.

111 Mr Gray accepted that the Guideline does not have retrospective effect.

112 I agree. The Guideline has the following application:

(a) If in either the 2006 or 2007 calendar years the relevant information is available to UED, it must be included in UED's regulatory accounting statements for the relevant year.

(b) If in either the 2006 or 2007 calendar years the relevant information is not available to UED, it must, by no later than 31 December 2007, enter into arrangements with its related parties to ensure the relevant information is available for inclusion in UED's regulatory accounting statements. If the relevant information becomes available in time for inclusion in either the 2006 or 2007 regulatory accounting statements, it must be included. If it does not become available in time for inclusion in the regulatory accounting statements for 2006 or 2007, there is no breach of the Guideline.

(c) If by 31 December 2007, UED has not entered into such arrangements, it may not be able to include the relevant information in its regulatory accounting statements for 2008 and subsequent years. Whether this would constitute a breach of the Guideline does not arise for determination in this proceeding.

113 The above interpretation is supported by the history of the related party costs provisions of the Guideline. In its "Draft Decision" dated November 2006 preceding the insertion into the Guideline of the requirement that regulatory accounting statements include a related party's actual costs rather than simply the amount the licensee paid to the related party, the ESC said:

The Commission recognises that Licensees may have to make changes to their current arrangements with related parties in order to ensure that their agents provide the information required. In recognition of the processes distributors may have to undertake to comply with this requirement the distributors will be given time to amend their arrangements with related parties to ensure the information required can be reported in the Regulatory Accounting Statements.

Where required to be amended, arrangements with related parties need to be amended as soon as possible, but by 31 December 2007 at the latest.

A similar statement was included in the ESC's "Final Decision" dated December 2006.

114 The power to impose a condition on a licence under s 21(t) of the EI Act in relation to the provision of information to the ESC is limited to information in the possession, custody or power of the licensee (see paragraph 85 of this judgment). 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[26]referred,26 I find that, on its proper construction, the word "available" in cl 5.23.5 of the Guideline must be read in the same way. Accordingly, cl 5.23.5 requires the licensee to include the relevant information in its regulatory accounting statements if the information is within the possession, custody or power of the licensee. If the information was not within the possession, custody or power of the licensee when the Guideline took effect on 15 December 2006, cl 5.23.5 required the licensee to enter into arrangements, no later than 31 December 2007, to ensure the information came within the possession, custody or power of the licensee.

115 On its proper construction, the Guideline does not apply to the 2006 and 2007 calendar year regulatory accounting statements unless the related party's actual costs information is available to the licensee at the time the regulatory accounting statements for those years must be finalised and lodged with the ESC.

116 In UED's case, if AAM is a related party of UED, whether AAM's actual costs information was available to UED within the meaning of cl 5.23.5 when it lodged its regulatory accounting statements for 2006 and 2007 depends on whether that information was available to UED in the sense described in paragraph 114 of this judgment. This in turn depends on whether AAM is obliged to provide the information under the OSA and whether there was any common basis of dealing which negated that obligation. Before I discuss these issues, it is necessary to determine whether AAM was a related party of UED in 2006 and 2007.

117 As I have not concluded that any of the related party costs information provisions of the Guideline that applied to the 2006 and 2007 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).

Was AAM a related party of UED in 2006 and 2007?

118 The definition of "Related Party" in Part 6 of the Guideline is set out in paragraph 69 of this judgment.

119 Mr Bick relied on paragraphs (a), (b) and (d) of the definition of "Related Party". He submitted that in 2006 and 2007, AAM had significant influence over UED, UED had significant influence over AAM, and AAM was controlled by Alinta which significantly influenced UED. Central to Mr Bick's submission is the concept of "significant influence". The meaning of this concept is critical to the issue of whether AAM was a related party of UED in 2006 and 2007.

120 At common law, "control" of a company means control of a majority of votes at a general meeting on all matters that such a meeting can deal with.[27] A person with a majority of votes can determine the outcome of all such matters. It was common ground before me that neither Alinta nor AAM controlled UED 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".

121 While it is clear that "significant influence" has a broader meaning than "control",[28] and that "significant" usually means substantial or material,[29] I am not aware of any common law definition of "significant influence" in the corporate context. Unaided by authority, common sense suggests that in order to be able to significantly influence a company, one must be in a position to contribute to decision-making by that company to a substantial or material degree but falling short of being able to make decisions or determine outcomes for the company. Authority permits me to refer to any applicable Australian Accounting Standard ("AAS") to ascertain whether the AASs attribute a similar meaning to the concept of "significant influence". In Opal Group Holdings (Aust) Pty Ltd v Franklins Ltd, Barrett J, after outlining the meaning of the expression "associate" in the context of a labour hire contract, used the AASs to ascertain whether they supported his interpretation. His Honour said:[30]

I shall ... refer, by way of check, to the one external definition which might be considered to be of some relevance. I refer to the definition in the Australian Accounting Standards. If commercial people were to refer consciously or unconsciously to any established norm when choosing to use the term "associate" in a context such as the present, it is likely that they would resort to accounting standards since accounting concepts permeate so much of commerce.

122 His Honour then set out the definition of "associate" in AASB 1016 "Accounting for Investments in Associates", which refers to "significant influence", and also set out the definition of "significant influence" from AASB 1016, before concluding that AASB 1016 supported his view of the general meaning of "associate".[31]

123 In this case, it is appropriate to refer to the AASs because cl 3.8.2 of the Guideline requires regulatory accounting statements to use the accounting principles and policies applicable to statutory accounts, which in turn (under s 296 of the Corporations Act 2001 (Cth)) must comply with the AASs. This means the AASs in force from time to time for each relevant year. The AAS that applied on 15 December 2006 when the Guideline took effect and throughout the calendar years 2006 and 2007 was AASB 124. I reject Mr Bick's and Mr Gray's submissions that the Guideline should be construed by reference to AASB 1017, which contained a definition of "related party" that was similar to the definition in the Guideline, because AASB 1017 had been replaced by AASB 124 by 15 December 2006 and no longer applied to the preparation of statutory accounts. The expression "significant influence" is defined as follows in cl 9 of AASB 124, which is dated 20 December 2005 and applies to annual reporting periods ending on or after 31 December 2005:

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.

124 The expression "significant influence" is also discussed in paragraphs 6 and 7 of AASB 128 which is entitled "Investments in Associates", is dated 15 July 2004 and applies to annual reporting periods beginning on or after 1 January 2005. AASB 128 defines "Associate" as including an entity "over which the investor has significant influence" and defines "significant influence" as "the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies". Paragraphs 6 and 7 of AASB 128 state the following under the heading "Significant Influence":

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.

125 The definitions in AASB 124 and AASB 128 are consistent with the common sense definition referred to in paragraph 121 of this judgment. If one applies paragraph 6 of AASB 128, Alinta would be presumed to have significantly influenced UED in 2006 and 2007 because it then owned 34 percent of UED. However, rather than rely on this presumption, it is appropriate to consider a range of indicia of significant influence, including the criteria referred to in AASB 124 and 128, to reach a broader-based and therefore more reliable conclusion on whether UED and AAM were related parties in 2006 and 2007. Before doing so, I will discuss whether the definition of "Related Party" in Part 6 of the Guideline requires the actual exercise of significant influence as distinct from the ability to exercise significant influence.

Capacity to significantly influence or actual significant influence?

126 Mr Delany submitted that the definition of "Related Party" in the Guideline required that there be actual significant influence and that the ability to significantly influence, if not exercised, does not suffice. He submitted that in this case, UED failed to discharge its onus of establishing actual influence in 2006 and 2007. Mr Bick and Mr Gray submitted that, under the definition, the capacity to significantly influence sufficed. In the alternative, they submitted that, if actual significant influence was required, this requirement was satisfied in this case.

127 In my opinion, the ability to significantly influence suffices for the purposes of the definition of "Related Party". The definition does not expressly require actual significant influence. Such a requirement would be present, however, if it is necessary to give effect to the underlying purpose of the Guideline. The underlying purpose of the Guideline insofar as it concerns related parties is to enable the ESC to have access to information about the actual costs of operating the distribution business irrespective of outsourcing arrangements amongst related parties. It would promote that purpose to read the Guideline as applying when one entity has the capacity to significantly influence another. Conversely, that purpose potentially would be undermined if proof of actual significant influence were required.

128 A requirement of actual significant influence would make the definition of "Related Party" depend not only on the existence of evidence of actual influence (which may often not exist in a dynamic, co-operative corporate environment), but on a minute evaluation of that evidence to determine whether it disclosed significant influence. Difficult questions would arise: if there was the capacity to significantly influence throughout the year but there was evidence of actual influence in relation to only one board resolution in a total of 120 resolutions over 12 board meetings, would that mean that the influence was not significant? The Guideline looks to the nature of the relationship between two entities, and what they have the capacity to do within that relationship. An approach of looking at evidence of actual significant influences when there is a clear capacity to significantly influence would be contrary to the requirement in cl 3.3 of the Guideline to look at the substance of the matter rather than form. Such an approach would also be contrary to the definitions of "significant influence" in AASB 124 and AASB 128 which refer to the power to participate in policy decisions rather than actual participation.

129 Mr Delany submitted that the assessment of "influence" involves comparison with other shareholders in the company.[32] He noted that DUET, as the majority owner of UED, had significant influence and highlighted that UED 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 UED in the relevant period. However, the above propositions do not necessarily mean that Alinta and AAM did not have significant influence over UED 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 UED. Accordingly, the question of whether Alinta or AAM had significant influence over UED falls to be decided on the totality of the evidence, including DUET's majority ownership interest.

130 For the reasons that follow, I have found that Alinta and AAM had the capacity to significantly influence UED in 2006 and 2007.

131 If my conclusion in paragraph 127 of this judgment is wrong, and actual significant influence must be established for the purposes of the definition of "Related Party", I am satisfied, for the reasons that follow, that Alinta and AAM did significantly influence UED in 2006 and 2007.

Board representation and participation in management and policymaking

132 Mr Bick submitted that Alinta and AAM not only had the capacity to significantly influence UED but actually did so. He emphasised the provisions of the UEDH Shareholders Agreement, the role of Alinta's nominee on the board of UEDH and UED and UEDH's audit and risk committee, AAM's functions under the OSA, AAM's preparation of UED's operating and financial policies and asset management plan, and AAM's functions under the power of attorney referred to in paragraph 38 of this judgment.

133 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 UED's interests contributed to Alinta's and AAM's ability to exert significant influence over UED.

134 Mr Delany submitted that Alinta and AAM did not have significant influence over UED, as Alinta and its nominee director could not vote on matters affecting the OSA, which was pervasive in relation to the operation of UED'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 in 2006 and 2007.

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

135 In 2006 and 2007, Alinta and AAM significantly influenced UED. This influence extended across all important decision-making organs of UED, as well as day to day operational issues.

136 A key decision-making organ of UED 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 UED'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 UED and the policies to be applied in running the business, but could also veto any special majority directors resolution[33] (unless the director was disqualified), including UED's budget and business plan. The exercise of such a veto could significantly hamper effective decision-making within UED. 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, 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 UED's board (through its equivalent power in relation to UEDH's board). The evidence established that Alinta's nominees on the UEDH and UED boards attended board meetings regularly (either personally or through their alternate) between 2003 and 31 August 2007 and were active members of those boards.

137 Another key decision-making organ is UED'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 UED, its 34 percent ownership enabled it to block any special resolution. Under the UEDH Shareholders Agreement, Alinta had additional veto rights in relation to the matters requiring a special majority shareholders resolution (see paragraph 20(a) of this judgment).

138 The fact that Alinta and its nominee directors could not vote on any matter relating to the OSA does not affect any conclusions in paragraphs 136 and 137 of this judgment. Many strategic decisions about investments, dividends, dealings with government, customers and contractors, price reviews, 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.

139 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 Robert Browning in the period July 2003 to 23 March 2006 and then Ian Devenish from 23 March 2006 to 31 August 2007.[34] PIES provided essential corporate services to UED. Alinta was able to significantly influence those services and did so. For example, in September 2005, UEDH 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. The PIES board subsequently approved further resources for the 2007-2008 financial year. Mr Devenish said the level of resources approved by PIES was an ongoing issue for UED since the commencement of the OSA and that one reason UED put forward for additional resources was to get across the information necessary to be able to make informed decisions about its business.

140 Another key decision-making organ is the UEDH audit and risk committee. This committee performs important audit and risk management functions for the UED Group (UED did not have its own separate committee). It oversees issues associated with the external audit of the UED Group, the internal audit program and issues associated with the management of risks identified in the UED Group. The members of the committee comprised the chairman of UEDH, 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. UED also relied on AAM's risk management committee for the assessment, review and management of day to day operational risks of UED's distribution business subject to the oversight of UEDH's audit and risk committee. Mr Savage said that the fact that AAM managed UED's day to day risks significantly influenced UED's asset management plan. 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 UED, subject to the oversight of UEDH's audit and risk committee.

141 Under the OSA, AAM effectively performed all the functions required to be performed in order to operate UED's distribution network and controlled the day to day running of UED's distribution business. AAM touched every aspect of that business, including dealings with electricity 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 UED did. UED 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 were, on their own, a weak control mechanism for UED.[35]

142 The annual updated five year asset management plan for the UED Group was prepared by AAM in each of 2006 and 2007. That plan was an important component of the five year strategic plan for the UED Group which was reassessed each year. It forms the basis of the annual works program and underpins the capital and maintenance expenditure for UED'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 UED's long-term asset management objectives and Capex limits and was subject to UED's approval/endorsement following an iterative process which sometimes involved UED receiving advice from consultants, there was no serious dispute that AAM had significant input in relation to the contents of the plan and its priorities. Mr Fletcher said that UED's asset management plan "couldn't go forward without AAM being satisfied with it". AAM also prepared other components of the UED Group's strategic plan, including the occupational health and safety plan. Mr Fletcher accepted that it is inherent in the structure between AAM and UED and the way the Alinta Group has responsibility to manage the UED business that the Alinta Group has the capacity to influence the way UED business is done.

143 Under the OSA arrangements (see paragraphs 32 and 33 of this judgment), and having regard to the transfer of information and staff referred to in paragraph 15 of this judgment, AAM effectively possessed the bulk of the information, resources and expertise needed to carry on UED's business. UED depended on AAM for the provision of this information, including financial and technical information. For example, UED's financial ledgers were kept on AAM's computer system. The evidence given by Mr Fletcher suggested that Mr Strang, as UED's CFO, did not have direct personal access to that computer system. Mr Strang gave evidence that "AAM control almost all the records of the business" and that while UED has access to corporate information, "when it comes to the detailed asset information and detailed financial information, [UED and UEDH] rely on AAM to provide that to us". AAM's possession of key information affecting UED's business gave AAM significant influence over the running of that business.

144 AAM prepared regulatory reports on behalf of UED and handled regulatory matters on its behalf. When the ESC wrote to UED on 9 July 2007 about UED's compliance with the Guideline in relation to related party transactions in UED's 2006 regulatory accounting statements, the ESC received a response dated 27 July 2007 from Andrew Schille, an employee of Alinta, on UED letterhead. Mr Strang said that Mr Schille did not require UED's prior approval to send the reply.

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

145 Another indicator of significant influence is the fact that AAM developed and implemented UED's operating policies. Although UED 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 UEDH audit and risk committee but by AAM's risk management committee. Mr Fletcher conceded that if AAM did not put up a policy to UED for its acceptance, the policy would not come into existence.

146 AAM also had an integral role in the development of UED's financial policies. In August 2005, PwC prepared a report for DUET which identified several gaps in financial controls in relation to the UED 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 UED for approval. AAM commenced a process for the identification and preparation of policies and procedures based on Alinta policies and procedures. However, little progress was made in preparing policies and procedures in a form suitable for submission to UED for approval. In April 2006, PwC again reviewed UED's financial policies and procedures and prepared a report dated 14 July 2006 which identified remaining control gaps. This report was discussed at UEDH's audit and risk committee meeting on 31 July 2006 and at a subsequent board meeting of UEDH. Following the 2006 PwC report, an Alinta team headed by Mr Fletcher prepared key financial policies and procedures to address the control gaps identified in that report. As at February 2008, 32 policies and procedures were agreed between Mr Strang and Mr Fletcher and 27 were still under review. Some of the policies were based on Alinta policies.

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

148 The fact that PIES and AMPCI provided important corporate and treasury services for UED (see paragraphs 41 to 43 of this judgment), which included input into financial and operating policies, does not detract from the conclusions in paragraphs 145 to 147 of this judgment. At any given time, more than one person or organisation can have the capacity to significantly influence such policies.

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

149 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 UED 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 UED being kept fully informed. Examples of such instances are:

(a) On 31 January 2006, while an alternate director of UEDH, Mr Devenish sent an email to two staff in AAM's accounts department stating that he was reviewing UEDH'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 19 April 2006, Marcel Labouchardiere (Alinta's revenue modelling manager) sent an email to Mr Devenish advising him of the closure of a low tariff that new customers were taking up because, while the tariff was generating additional revenue (which Mr Strang favoured), AAM did not regard it as strategic revenue from its perspective. The email concluded: "Please note there are potential upside initiatives that we are looking into as per OSA review and I am hesitating to make David [Strang] aware of this".

(c) In an email dated 23 May 2006, an Alinta employee wrote to another Alinta employee that "it appears UE expect AAM to take the hit on the $40k of [transformer] stock that can't be located" and that another Alinta employee "is concerned that we don't let our representative on the UE board get ambushed on this issue".

150 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 UEDH 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.

151 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 UED in 2006 and most of 2007.

152 Mr Fletcher's answer to a question by Mr Farrands demonstrated the serious conflicts that can arise. Mr Fletcher was asked whether the offer that was made by AAM that costs information be provided by AAM to the ESC for the purposes of the 2010 price review on the condition that the information not be provided to UED (see paragraphs 185 to 187 of this judgment) was reasonable from his perspective as UED's financial controller rather than as an employee of Alinta. He answered that it was, without any acknowledgement that UED would be seriously disadvantaged in the review process because it could not make meaningful submissions to the ESC about the actual costs of operating its own business.

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

154 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 UED is consistent with Alinta and AAM being able to significantly influence UED and its business.

AAM's influence through the power of attorney

155 The power of attorney (see paragraph 38 of this judgment) was also significant until 10 October 2006. 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 UED. Not only did AAM not require UED's prior approval for the execution of documents, but copies of those documents were usually not provided to UED immediately after execution. Instead, a monthly register of executed documents was provided. 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. In the period prior to October 2006, aggregate revenues from the use of system agreements were in excess of $300 million per year. Evidence was given that UED's use of system agreements were sent to AAM in Perth for execution under the power of attorney, instead of being sent to UED "around the corner" in Melbourne for[36]xecution.36

156 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 UED 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 UED. AAM continued to negotiate agreements on behalf of UED, which were now signed by UED itself.

Conclusion on board representation, management and policy-making

157 The matters discussed in paragraphs 135 to 156 of this judgment point strongly to Alinta and AAM having significant influence over UED from the perspective of board representation and participation in management and policy-making. On the other hand, there was a dearth of evidence indicating that UED or UEDH had significant influence over AAM from that perspective.

158 Mr Bick submitted that there is a significant level of economic dependence between AAM and UED given the large volume of business between them. He submitted that this economic dependence is demonstrated by the following considerations:

(a) Since July 2003, UED has contracted-out to AAM the operations of the UED network business. The services pertain to the operation and management of the entire network and are extensive.

(b) The network is operated by AAM in accordance with five year strategic plans and yearly operational plans developed by AAM in consultation with UED.

(c) Between July 2003 and October 2006, AAM had an irrevocable and wide power of attorney from UED.

(d) Since October 2006, AAM has continued to operate and manage the entire UED network business and to be granted significant authority under the OSA.

(e) During the years ended 30 June 2006 and 30 June 2007, operating expenditure in relation to the OSA represented over 90 percent of UED's reported operating expenditure.

(f) The UED asset management plan for 2006 to 2010, prepared by Alinta, must be approved by AAM.

(g) The financial statements of AAM showed that AAM depended significantly on major contractual relationships with UEDH and others, where AAM received revenues for managing the assets of those companies.

159 In its accounts for the years ending 31 December 2003, 2004, 2005 and 2006, AAM included a statement regarding economic dependency on UED and other owners of energy assets. Under the heading "Economic dependency", AAM's 2006 accounts stated:

AAM depends significantly on major contractual arrangements with UEDH, MGH, AlintaGas Networks and DBNGP, where AAM receives revenue for managing the assets of these companies.

160 Mr Devenish gave evidence that AAM's business under the OSA and operator service agreements with other asset owners contributed a significant proportion of its revenue and profits. He said that UED's business was large and contributed significantly to AAM's revenue and profits. Mr Strang said that in 2006 over 50 percent of AAM's revenue came from UED.

161 Mr Strang gave evidence that UED was economically dependent on AAM. He said that during the financial years ended 30 June 2006 and 2007, operating expenditure in relation to the OSA represented over 90 percent of UED's reported operating expenditure. In the same period, AAM accounted for all of UED's reported capital expenditure apart from contributions to customer managed projects.

162 The material transactions between, and the mutual economic dependence of, UED and AAM are consistent with each having significant influence over the other. However, these factors, alone, are insufficient to establish significant influence.

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

163 The discussion in paragraphs 140 to 148 of this judgment is consistent with Alinta and AAM being able to significantly influence UED through the provision of managerial personnel in the operation of the distribution business.

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

164 The discussion in paragraphs 140 to 148 of this judgment is consistent with Alinta and AAM being able to significantly influence UED through the provision of essential technical information in the operation of the distribution business.

165 The financial reports of UEDH for the year to 30 June 2005 were prepared by Alinta on behalf of the UED Group. These financial statements were prepared on the basis that AAM was a related party of UED. Since that time, UEDH has prepared special purpose financial reports and has not reported related party transactions. In its 2006 regulatory accounting statements, UED listed AAM as a related party. The directors' accounting responsibility statement stated that "no Related Party Transactions arose during the Regulatory Accounting Period that require disclosure under section 5.23 of the Guideline". Mr Strang gave evidence that this statement reflected UED's view that, on the proper interpretation of cl 5.23.5 of the Guideline, the Guideline did not apply to the 2006 year.

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

167 These matters do not assist me in determining whether AAM and UED were related parties in 2006 and 2007.

Decision that AAM was a related party of UED in 2006 and 2007

168 In light of the matters discussed in paragraphs 135 to 164 of this judgment and applying the definition of "significant influence" in paragraph 121 of this judgment, I find that Alinta and AAM were in a position to significantly influence UED in 2006 and 2007 and did so. Accordingly, paragraphs (a) and (d) of the definition of "Related Party" in Part 6 of the Guideline were satisfied for those years. There is insufficient evidence to enable me to find that paragraph (b) of the definition was satisfied.

169 It follows that AAM was a related party of UED in 2006 and 2007 for the purposes of the Guideline.

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

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

171 As set out in paragraph 35 of this judgment, cl 7.1 of the OSA requires AAM to provide operational, financial and other reports specified in cl 7 and schedule 4. Amongst the reports that AAM is obliged to provide under schedule 4 are "the reports required to be submitted to ... the ESC ... in the form required by [the ESC]". In addition, as set out in paragraph 31 of this judgment, the services that AAM must provide in accordance with schedule 1 include "[p]roviding all reports to the ESC required by an Electricity Law". The expression "Electricity 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 [EI Act]". Furthermore, as set out in paragraph 37 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.

172 The above provisions have the effect of imposing an obligation on AAM to include in UED's 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 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 171 of this judgment, UED is entitled to require AAM to include the actual costs information in UED's regulatory accounting statements without first obtaining AAM's consent. It follows that the relevant information is within UED's power in the sense that UED has a legally enforceable right to compel AAM to include the information in UED's regulatory accounting statements. In turn, this means that the information is available to UED within the meaning of cl 5.23.5 of the Guideline and, in accordance with the Guideline, the information must be included in UED's regulatory accounting statements.

173 The reasoning in paragraph 172 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.

174 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.[37] 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 UED's regulatory accounting statements such information as is required by a guideline published by the ESC.

175 As at 23 July 2003, the ESC's predecessor, the Office of the Regulator-General, had published Electricity Industry Guideline No 3 Regulatory Accounting Information Requirements Issue No 3 on 18 April 2000. Clause 5.19.1 provided that all costs incurred by the distribution business (which was said to be defined by its activities rather than incorporation) must be reported at cost and that entities that are a "Related Party of the Distribution Business" are considered part of the distribution business. The glossary defined "Related Party" in similar terms to the current definition in the Guideline. I will assume for the purposes of this judgment that Mr Delany's submission that issue 3 of the Guideline required provision of the costs paid by UED to AAM rather than AAM's actual costs is correct.

176 Furthermore, when UED, UEDH 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 UED's Licence. They were also aware that the regulator had the capacity to publish guidelines from time to time that required the inclusion of costs information in regulatory accounting statements, that the then regulator had already published such a guideline, and that the regulator could publish a further issue of that guideline to require a greater level of detail in relation to those costs. 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.

177 In light of these surrounding circumstances, the provisions of the OSA referred to in paragraph 171 of this judgment indicate that the parties intended that AAM be under an obligation to include in the regulatory accounting statements of UED 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?

178 Mr Delany submitted that there had been a common basis of dealing between UED 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 UED 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 UED] Services Agreement Principles" which stated "[UED] acknowledges that the services contract is output-based and therefore [AAM] costs, profits and strategies remain confidential".

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

Recognising that the services contract between [AAM] and [UED] 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 "[UED] 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 [UED] 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.

179 UED'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 UED. He submitted that a common basis of dealing had not been established.

180 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 178 of this judgment make this clear. None of the communications referred to the provisions of the OSA which are discussed in paragraph 171 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 UED's regulatory accounting statements in accordance with the Guideline, the communications referred to in paragraph 178 of this judgment do not alter that position. There was no acknowledgment or agreement by UED which affected its rights against AAM under the OSA.

181 For completeness, had it been necessary for me to decide the question of estoppel, I would have concluded that UED 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 UED 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 UED.

182 Mr Delany submitted that declaratory relief should not be granted where, as here, the person seeking relief does not have a real interest, and 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.[38]

183 He submitted that this proceeding is hypothetical, as there is no evidence that, because UED has not reported AAM's costs, the ESC has served or will serve UED 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 UED's licence, and indeed there is evidence that the ESC will do neither. He noted that neither the ESC nor UED called evidence on this question. He also submitted that there is no evidence of the ESC pressing for AAM's actual costs of 2007. In relation to 2006, he referred to the ESC's letter of 19 April 2007 to UED which I discuss in paragraph 193 of this judgment. He submitted that the ESC does not need the 2007 costs for the next price review and that it is a mere weak hypothesis that because UED has not reported AAM's costs, the ESC will revoke its licence.

184 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 repeatedly offered to give the ESC as much as AAM practicably can give of the information ostensibly required of it by the Guideline and that the offer is to provide the best available information for 2006 and 2007, being the relevant PwC reports (which are discussed below) to be audited by KPMG. He further submitted that, if the Court were to make declarations, all that would follow is that UED would obtain access to AAM's actual costs information, as best as it can be ascertained, and could use that confidential and commercially sensitive information in fee renegotiations. He submitted that that outcome should not be condoned by the Court because it would confer upon UED a commercial advantage which is irrelevant to its ostensible case.

185 Mr Delany referred to a letter dated 15 October 2008 from AAM's solicitors to the solicitors for UED and the ESC setting out the following settlement offer:

We are instructed to communicate the following offer to settle the statement of claim and the counterclaim in the above proceeding.

1. Our client will, at its cost, prepare income statements detailing its costs and profits in relation to the services it provides to United Energy Distribution Pty Ltd (UED) under the Operating Services Agreement dated 23 July 2003. Those statements will be prepared by PricewaterhouseCoopers based upon information available to our client with the intent, so far as practicable, to comply with Guideline No. 3 for the years ending 31 December 2006 and 31 December 2007 (2006 and 2007 Income Statements).
2. Our client will, at its cost, obtain an audit opinion in relation to the 2006 and 2007 Income Statements again, so far as practicable, to comply with Guideline No. 3 (Audit Opinion).
3. Our client will provide the 2006 and 2007 Income Statements and the Audit Opinion directly to the Essential Services Commission (Commission) by 30 November 2008.
4. The 2006 and 2007 Income Statements and the Audit Opinion will be provided by our client to the Commission on the basis that the information contained therein is confidential and/or of a commercially sensitive nature in accordance with section 38(1) of the Essential Services Commission Act 2001 (Vic).
5. The Commission agrees to accept the 2006 and 2007 Income Statements and the Audit Opinion on that basis, and in full discharge of the requirements set out in Guideline No. 3 for the 2006 and 2007 calendar years. Such acceptance is to be on the express basis that it is without prejudice to the Commission's right to contend that strict compliance with Guideline No. 3 is required for calendar years later than 2007 and is based on the premise that the 2006 and 2007 Income Statements contain the best information available and able to be provided by our client.
6. UED acknowledges that the 2006 and 2007 Income Statements and the Audit Opinion are confidential to our client and agrees that it will not seek disclosure by any person to it of the 2006 and 2007 Income Statements and the Audit Opinion.
7. The proceedings be discontinued on the basis that each party bear its own costs of the proceedings.

This offer of settlement is open for acceptance until 4.00pm on 23 October 2008. Settlement of this matter on the above basis is subject to both parties accepting this offer within the period in which it is open for acceptance.

186 For the purposes of the offer, AAM obtained from PwC a report dated 8 October 2008 setting out calculations of AAM's costs in operating UED's distribution network in 2006 and a draft report dated 10 November 2008 setting out calculations of AAM's costs in operating the network in 2007.

187 Mr Delany also referred to the fact that during the course of the hearing on 28 November 2008, an open offer of settlement containing the first four paragraphs of the above quoted letter was made by AAM, with the date in paragraph 3 being extended to 31 March 2009. The letter itself was put in evidence on 4 December 2008, following a waiver by the parties of the joint without prejudice privilege attaching to the letter. The offer, with the revised date of 31 March 2009, remains open.

188 Mr Delany relied upon both the letter and the open offer in support of his submissions about futility and also as matters going to the Court's discretion to refuse relief.

189 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[39] and Rediffusion (Hong Kong) Ltd v Attorney General of Hong Kong[40] 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.

190 In relation to whether this proceeding is hypothetical, Mr Bick submitted that AAM's submissions about the risk of an enforcement order or revocation of UED's Licence, and about whether the ESC has any reason to seek AAM's costs in the context of the next price review, were based on mere speculation and supposition. In relation to whether this proceeding is futile, Mr Bick submitted that the Court has no means of assessing whether information provided by way of PwC reports, to be audited by KPMG, would be satisfactory, and that as the reports were not put into evidence by AAM, the Court should infer that the reports would suffer from defects that he identified in reports previously prepared by PwC in relation to AAM's costs of operating Multinet's gas distribution network and would not comply with the Guideline. He also submitted that it is clear from the ESC's statements that submission of such reports would not necessarily be accepted as compliance with the Guideline, and that Mr Reardon conceded in cross-examination that the offer made by AAM contained a number of features likely to be unacceptable to UED.

191 Mr Gray submitted that the relief sought by UED 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, that is sufficient utility to support the exercise of discretion to grant declaratory relief, and that such an effect would result here.

192 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 UED's regulatory accounting statements for 2006 and 2007 information of AAM's actual costs in operating the distribution network for 2006 and 2007. The facts that the regulatory accounting statements for 2006 and 2007 have already been filed without AAM's actual costs information and that UED 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 UED, this would be provided to the ESC under seal of an audit certificate by way of supplement to the regulatory accounting statements UED has already lodged.

193 It is true that the ESC did not communicate to UED any intention to take any steps that would place the Licence in jeopardy. This may have been due to a view by the ESC that if UED did not have physical possession of AAM's actual costs information, that information was not "available" to UED within the meaning of cl 3.25.3 of the Guideline and therefore UED was not in breach of the Guideline by not including such information in its regulatory accounting statements for 2006 and possibly 2007. This is supported by the ESC's letter of 19 April 2007 to UED which stated "for the year ended 31 December 2006 [UED] is required to comply with the information reporting requirements of section 5.23 [of the Guideline] where the information is available to it".

194 The ESC has not unequivocally stated either prior to or during the hearing that UED did not breach the Guideline in relation to its regulatory accounting statements for 2006 and 2007. Indeed, in its defence, the ESC does not admit that the regulatory accounting statements filed by UED for 2006 and 2007 comply with the Guideline. During the hearing on 28 November 2008, Mr Gray said:[41] "I don't have authority to concede or acknowledge that provision of an equivalent PwC report [for UED] ... would constitute a compliance [with UED's Licence]".

195 In addition, my findings that the term "available" in cl 3.25.3 means "possession, custody or power" and that AAM's costs information is within UED's control mean that the ESC's position is, in accordance with its letter of 19 April 2007 to UED, that UED is required to comply with the Guideline for 2006. As the ESC requires compliance with the Guideline, AAM is obliged to provide the actual costs information in accordance with the OSA and the proceeding is not hypothetical.

196 I am satisfied that AAM did not, in 2006 and 2007, 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 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 UED. Although part of Mr Garg's evidence was theoretical, on the basis of that evidence, I reject Mr Delany's proposition that AAM cannot provide any information about AAM's costs of operating UED's distribution business in 2006 and 2007 in compliance with the Guideline over and above the information in the PwC reports. The PwC report for 2006 and the draft report for 2007 were not tendered in evidence by AAM[42] and Mr O'Callaghan did not give evidence about the substantive contents of the reports. 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 would otherwise be in the PwC reports.

197 The settlement offer that AAM has made, both in writing prior to the hearing and orally during the hearing, is not an appropriate substitute for compliance with the OSA. The PwC report setting out details of AAM's actual costs information for 2006 and the draft PwC report setting out details of AAM's actual costs information for 2007 were not tendered in evidence by AAM and therefore I cannot determine the adequacy and appropriateness of those reports. In any event, UED is entitled to receive the actual costs information in the form required by the OSA, which in turn reflects the form required by the Guideline. 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.

198 It follows that, in my opinion, UED and the ESC acted reasonably in not accepting AAM's offer of settlement.

199 From UED's perspective, there was an additional reason, apart from those I have already discussed, for not accepting AAM's offer of settlement. This relates to the condition in the offer that the actual costs information be disclosed to the ESC but not to UED. The OSA requires the actual costs information to be included in UED's regulatory accounting statements which are provided to UED as well as being filed with the ESC. Accordingly, if AAM complies with its obligations under the OSA, its actual costs information will be provided to UED. This would not be the case under the offer of settlement. Mr Delany sought to justify the restriction in the offer of settlement on the basis that AAM does not want UED to have the actual costs information and be in a position to use it in negotiating the OSA fees for the renewal period 1 July 2006 to 30 June 2011 (see paragraph 26 of this judgment). I do not accept that the restriction is justified. If UED is entitled to receive AAM's actual costs information under the OSA, it is entitled to use that information for the purposes of the OSA, including negotiations in relation to the OSA fees.

200 Mr Bick submitted that UED is entitled to the costs information under cl 5.2 of the OSA for the purposes of the fee negotiations in any event. It is not necessary for me to decide this issue.

201 From the ESC's perspective, acceptance of the settlement offer would have involved an acknowledgment by it that provision of the PwC reports would constitute compliance with the Guideline, in circumstances where the ESC was of the view that the provision of those reports would not have constituted compliance with the Guideline. Requiring the ESC to give such an acknowledgment was unreasonable.

202 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,[43] that the approach adopted by Hollingworth J in Alinta Asset Management Pty Ltd v Essential Services Commission (No 3)[44] with which the Court of Appeal concurred[45] 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.[46]

203 The orders sought by UED are set out in paragraph 51 of this judgment.

204 Mr Delany submitted that if I were satisfied that the OSA obliges AAM to include its actual costs information in UED's regulatory accounting statements for 2006 and 2007, I should, in the exercise of my discretion, fashion any orders I made so as to do justice between the parties. He submitted that justice would be achieved by a declaration that AAM is to provide that which is offered in paragraphs 1 to 3 of the letter of 15 October 2008 (see paragraph 185 of this judgment) and an order that the relevant information remain confidential to the ESC and not be disclosed to UED until further order. He submitted that if the fee renegotiation is not concluded before the next price determination process, UED could, at that time, apply for access to the information. Mr Delany did not refer to any authority that conferred such a discretion on the Court.

205 I agree with Mr Bick's submission that if the ESC is entitled to require provision of AAM's actual costs information through UED by operation of the Guideline and the OSA, the information cannot be withheld from UED. Mr Delany's proposal is tantamount to requiring the Court to rewrite AAM's obligations under the OSA. This is something the Court will not do. Accordingly, I reject Mr Delany's submission about the form of order to be made.

206 Mr Bick conceded that equity will not enforce that which cannot be done by decree of specific performance.[47] However, he referred to evidence that supported AAM's ability to comply with the Guideline to a greater extent than the PwC reports, 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 UED under the OSA. He also relied on the evidence of Mr Garg that more work can be done to allocate costs more accurately to UED.

207 Mr Bick submitted that the fact that UED must bear the cost of providing the actual costs information under the OSA is sufficient minimisation of any hardship to AAM.[48] 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.

208 Mr Delany did not submit that an order for specific performance should be refused on the ground that damages are an adequate remedy.[49] Nor did he submit that such an order, assuming it was not futile, would impose hardship on AAM.

209 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. Mr Bick submitted that AAM's conduct was motivated by a desire that UED not have access to costs information so that it could not use it for the purpose of the fee renegotiation under the OSA. These issues have not influenced my decision on whether to grant relief to UED or the form of that relief.

210 In all the circumstances, including, in particular, the discussion in paragraphs 192 to 208 of this judgment, I have concluded that it is appropriate to grant UED declaratory relief. In light of the discussion in paragraphs 196 and 197 of this judgment, I will invite further submissions from the parties in relation to specific performance.

211 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 UED in 2006 and 2007 within the meaning of the Guideline;

(b) a declaration that AAM is obliged by the OSA to prepare regulatory accounting statements for UED's distribution business in accordance with the Guideline for 2006 and 2007; and

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

212 I will hear from the parties on the precise form of the orders including:

(a) whether, in addition to the proposed declarations, an order for specific performance is appropriate; and

213 If, following the further submissions of the parties, I conclude that an order for specific performance is appropriate, such an order will need to be framed so that it clearly sets out what AAM must do and does not require AAM to do anything that it is legally and practically unable to do. The parties should address this issue in their further submissions and, if possible, seek to reach agreement on the form of any order for specific performance.

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

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)

Electricity Industry Act 2000 (Vic)

Essential Services Commission Act 2001 (Vic)

Financial Services Agreement between UEDH and AMPCI dated 14 July 2003

Electricity Industry Guideline No 3 Regulatory Information Requirements Issue No 6 published on 15 December 2006

UED's electricity distribution licence issued with effect from 3 October 1994 and last varied on 14 January 2005

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

Operating Services Agreement (see paragraph 22 of this judgment)

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

Victorian Electricity Supply Industry Tariff Order 2005 (Vic)

UED, its parent Power Partnership Pty Ltd, and its parent UEDH

A shareholders agreement executed on 14 July 2003 between UEDH, Alinta, AMPCI (in its capacity as trustee of DUET No 1) and AMPIS (in its capacity as trustee of DUET No 2)

United Energy Management Services Agreement between UEDH and PIES dated 14 July 2003

[1] [2009] VSC 18.

[2] See s 29(3) of the EI Act and cl 3.4 of UED's licence which is referred to in paragraph 11 of this judgment.

[4] 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 34 percent of UEDH and thus 34 percent of UED. DUET continues to own 66 percent of UEDH and UED.

[5] Mr Devenish resigned on 31 August 2007 but ASIC's records show him as holding office until 11 September 2007.

[6] The appointment took effect on 10 June 2004 in the case of UED.

[7] The KPIs are summarised in fn 35 of this judgment.

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

[9] See paragraph 21 of this judgment.

[10] See fn 4 of this judgment.

[11] [1959] HCA 8; (1959) 101 CLR 298.

[12] 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.

[13] See s 53 of the ESC Act, s 29(3) of the EI Act and cl 3.4 of the Licence.

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

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

[16] [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.

[17] 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].

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

[19] In the gas industry context, 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 Gas Industry Act 2001 (Vic): Alinta Asset Management Pty Ltd v Essential Services Commission [2008] VSCA 273.

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

[21] 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.

[22] 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.

[23] See s 36 of the ESC Act as in force on 15 December 2006.

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

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

[27] W P Keighery Pty Ltd v Federal Commissioner of Taxation [1957] HCA 2; (1957) 100 CLR 66, 84; Mendes v Commissioner of Probate Duties (Vic) [1967] HCA 23; (1967) 122 CLR 152, 165, 169; Re the application of The News Corp Ltd (1987) 15 FCR 227, 237, 251-2. In the News Corp case, Bowen CJ stated (at 243) that a power to restrain or direct, such as a power to veto, constitutes control.

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

[29] Coombs v Bahama Palm Trading Pty Ltd (1991) ASC 56-097; (1991) Aust Contract Reports 90-002.

[30] [2001] NSWSC 718, [44], aff'd Opal Group Holdings (Aust) Pty Ltd v Franklins Ltd [2002] NSWCA 169; (2002) 54 NSWLR 565.

[31] [2001] NSWSC 718, [45]-[47].

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

[33] The meaning of special majority directors resolution is discussed in paragraph 20(d) of this judgment.

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

[35] The KPIs are listed in schedule 5 to the OSA. They cover occupational health and safety matters, interruptions, bushfire mitigation, environmental performance and distribution loss factors. If AAM fails to achieve a KPI over three consecutive months, it must provide to UED a "cure plan" for UED's approval and implement that cure plan within a reasonable period of time.

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

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

[38] 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.

[39] [1992] HCA 34; (1992) 174 CLR 509, 523.

[40] [1970] AC 1136, 1155.

[42] AAM tendered those parts of the reports comprising the cover page, the covering letter from PwC to AAM and the letter of instructions from AAM's solicitors to PwC.

[43] [2008] VSCA 273.

[44] [2007] VSC 353, [13], [28], [29].

[45] [2008] VSCA 273, [247].

[46] [2007] VSC 353, [13], [28], [29].

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

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

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