NZ appeal court rules for Mighty River Power in carbon allowance suit

Published 04:18 on December 21, 2015  /  Last updated at 04:18 on December 21, 2015  /  Asia Pacific, New Zealand  /  No Comments

The New Zealand Court of Appeal has upheld a High Court ruling denying a NZ$34.7 million claim by forest-owners New Zealand Carbon Farming against electricity generator Mighty River Power.

The New Zealand Court of Appeal has upheld a High Court ruling denying a NZ$34.7 million claim by forest-owners New Zealand Carbon Farming against electricity generator Mighty River Power.

The decision, announced Friday, means Mighty River will not have to double the amount of NZUs it bought from NZCF under a 15-year deal in 2012, worth nearly NZ$35 million.

“We consider it cannot have been the common intention of the parties to contract on a basis that would almost double the numbers of Units set out in [the contract] and well beyond the expected capacity of the forest,” the court said in its ruling.

The purchase contract specified a minimum amount of NZUs to ve delivered each year, but no maximum amount. A clause stipulated that Mighty River would have to accept a greater annual delivery of NZUs if the methodology used by the government to estimated carbon storage in forests changed over the duration of the contract period, which runs to 2026.

Such a change occurred in 2013, when sellers of post-1989 forest NZUs went from using a so-called ‘Look-up table’ to a government-development Field Measurement Approach (FMA).

Annual issuance of allowances increased substantially under the latter methodology, but according to the court this should not make Mighty River liable because both parties were aware of the new approach being developed and made fairly accurate issuance estimates based on it during contract negotiations.

“On both sides, the parties had endeavoured to estimate the likely yield of Units from the forest under the FMA by the time the Agreement was executed. They also knew from the very first delivery under the Agreement, the FMA tables would be used,” said the court ruling.

“In these circumstances, it seems most unlikely that the parties would have contracted on the basis full implementation of the FMA accounting mechanism in early 2013 would be treated as a relevant amendment … especially when they knew there would be a significant increase in the numbers of Units available under the FMA compared with the default look-up approach.”

The court documents did not reveal how many NZUs Mighty River bought or how much it paid for each.

The secondary NZU market price on Jan. 12, 2012, the day the contract was signed, was NZ$7. Thirteen months later, NZUs had plummeted to record lows of below NZ$1.50, but have since recovered and closed Monday at NZ$9.50.

By Stian Reklev – stian@carbon-pulse.com

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