Final Court of Appeal decision on the Default Distributor Agreement
Appeal Court final decision, March 2019
On 13 March 2019, the Court of Appeal released its second decision on the Authority’s right to introduce a Default Distributor Agreement (DDA). The decision allows us to proceed with a DDA proposal (as indicated by the first decision issued in November 2018).
The DDA is designed to promote competition and efficiency in the electricity industry by achieving more standardisation of contracts for distribution services.
The Court of Appeal’s decision re-confirmed the Authority has power to regulate distributors’ contracts. This includes powers to prescribe a particular contractual structure; for example, the DDA template. We can also prescribe specific terms to be located within that structure and some types of mandatory contractual terms; for example, prescribing core terms in the DDA. The ability to prescribe terms helps the Authority achieve more standardisation of distributor agreements.
The Court has said the Authority can prohibit some terms in distributor agreements. This will depend on an analysis of legitimacy in each particular case. However, two clauses from the 2016 DDA proposal that would ban distributors from including other terms in contracts would be unlawful. We are currently analysing the prohibition of specific terms and conditions in the DDA template.
The Court stated we can regulate quality issues that fall outside the purposes of the Commerce Act 1986. The limitation is that we may not regulate or mandate quality standards as that term is used in Part 4 of the Commerce Act. The Court of Appeal did not define what these quality standards are. We have already addressed this concern with a ‘recorded terms’ approach; that is, identifying terms that may fall within the scope of other regulatory agencies.
In January, we released the draft DDA material (as at August 2018) for information only. We will continue developing the DDA proposal in line with our statutory objective and expect to put out a consultation paper in mid 2019.