Judges uphold carbon-credit decision

New Zealand Carbon Farming sells forestry-based carbon credits. Photo / Stephen Russell

NZ Carbon Farming claimed it was owed $34m by Mighty River Power.

The Court of Appeal has dismissed an appeal by New Zealand Carbon Farming, the country's largest supplier of post-1989 bulk carbon credits, against a High Court decision in favour of Mighty River Power over a $34.7 million liability NZCF claimed to be owed.

It has also dismissed cross-appeals by MRP and ordered NZCF to pay standard legal costs for an appeal minus 10 per cent.

The original High Court case, heard by Justice Kit Toogood at Auckland, centred on a change to the methodology for working out the amount of carbon credits produced by forests under the Emissions Trading Scheme.

Justice Toogood released a decision in June dismissing NZCF's claim relating to a dispute with Mighty River Power (MRP) over a doubling of carbon credits under a 15-year contract for NZCF's Hawarden Forest in North Canterbury.

MRP opposed the claim which meant it would have to buy significantly more carbon units from the supplier than was originally forecast because the contract included a pro-rata scaling clause if the quantity of carbon sequestration produced by the forest was altered by a new methodology.

The amount of carbon credits MRP was being required to take would have increased the cost of the contract by $34.7 million but the price per unit paid was kept confidential by the courts at MRP's request.

NZCF is one of around 10 companies MRP purchases forestry-based carbon credits from to cover its annual emissions obligations.

NZCF's lawyer David Goddard QC, told the court the appeal centred on three issues - the scale-up and MRP's contingent claim, the wash-up of the units after five-yearly returns, and whether NZCF needed to provide records to MRP to verify units received were the same as the power company had agreed to buy.

A redacted version of the Court of Appeal's judgement released by Justices John Wild, Christine French, and Mark Cooper, said NZCF's argument on the increased credits it claimed to be owed "parts company with commercial common sense".

"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 ... and beyond the expected capacity of the forest," the judgment said.

The contract between the two was signed in 2012 when the industry knew the government planned to change methodology from so-called Look Up Tables, which measured carbon sinks from forests on a regional basis, to a Field Measurement Approach (FMA) which measured each particular forest.

The Court of Appeal judges said in their view, the parties didn't intend at the time of the agreement that the provision and use of the FMA tables should be regarded as a relevant trigger for a change in the accounting mechanism.

It was relevant that the initial delivery by NZCF of units and the receipt and payment of them by MRP happened without any controversy at the time and without either party stating or suggesting there was anything incorrect in the process followed, the judges said. "It was only subsequently, that NZCF raised an issue."