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High Court of New Zealand Decisions |
IN THE HIGH COURT OF NEW ZEALAND
WELLINGTON REGISTRY
CIV 2004-485-2287
BETWEEN BAY OF PLENTY ELECTRICITY
LIMITED
Plaintiff
AND NGC NEW ZEALAND LIMITED
Defendant
Hearing: 8 July 2005
Appearances: P. Radich and S. Bacon for Plaintiff
J.E. Hodder
and N. MacFarlane for Defendant
Judgment: 1 February 2006 at 10.30am
JUDGMENT OF ASSOCIATE JUDGE ABBOTT
Solicitors:
Izard Weston, PO Box 5348, Wellington
Chapman Tripp, PO Box 993, Wellington
BAY OF PLENTY ELECTRICITY LTD V NGC
NEW ZEALAND LTD HC WN CIV 2004-485-2287 1
February 2006
[1] The plaintiff Bay of Plenty Electricity Limited ("BOPE") and the
defendant
NGC New Zealand Limited ("NGC") are parties to a long-term agreement entered
into on 10 October 1995 for NGC (as a gas
distributor and seller) to supply BOPE
(as a gas retailer) with natural gas from the Maui field. NGC has purported to
exercise a
contractual right to terminate the agreement. BOPE has issued this
proceeding seeking a declaration that the termination is invalid,
and seeking an order
for specific performance of the agreement.
[2] BOPE has applied for orders that NGC provide further discovery
of
documents which it claims are relevant but not yet discovered, and for setting aside
of NGC's claim for privilege in certain documents
that have been discovered.
[3] The application for further discovery is made pursuant to Rule 300 of the
High Court Rules which
reads:
300 Order for particular discovery against party after proceeding
commenced
(1) If at any stage of
the proceeding it appears to the Court from evidence
or from the nature or circumstances of the case or from any document
filed
in the proceeding that there are grounds for believing that a party has not
discovered 1 or more documents or
a group of documents that should have
been discovered, the Court may order that party--
(a) to file an affidavit
stating--
(i) whether the documents are or have been in the party's control; and
(ii) if they have been, but
are no longer, in the party's control, the party's
best knowledge and belief as to when the documents ceased to be in the
party's control and the person who now has control of them; and
(b) to serve the affidavit on any other party.
(2) The Court may not make an order under this rule unless satisfied that
the order is necessary at the time when the
order is made.
[4] The application to set aside NGC's claim for privilege is made pursuant to
Rule 307 of the High Court Rules
which reads:
307 Challenge to privilege or confidentiality claim
(1) If a party challenges a claim to privilege
or confidentiality made in an
affidavit of documents, the party may apply to the Court for an order setting
aside or
modifying the claim.
(2) In considering the application, the Court may require the document
under review to be
produced to the Court and inspect it for the purpose of
deciding the validity of the claim.
(3) The Court may--
(a) set aside the claim to privilege or confidentiality; or
(b) modify the claim to privilege or confidentiality;
or
( c) dismiss the application; or
(d) make any other order with respect to the document under review that
the Court thinks fit.
[5] In support of its application for discovery, BOPE says that the documents
being sought are relevant
to matters clearly put in issue by the pleadings. In
opposition NGC says that the documents are irrelevant as they do not relate
to the
real issue for determination in the proceeding, that any order would be oppressive
due to the volume of material potentially involved and its lack of probative value,
and that any orders are unnecessary
for disposal of the proceeding.
[6] The issues for determination on this aspect of the application, therefore, are:
a) Whether the documents being sought relate to a matter in question in
the proceeding; and
b)
If so, whether an order should be made at this time.
[7] In respect of its application on NGC's claim for privilege, BOPE
says that the
claim is based on litigation privilege, that litigation could not be said to be in
contemplation prior to the date
of the purported termination, and that litigation
privilege cannot apply as all documents in question pre-dated the notice of
termination.
NGC opposes this aspect of the application in respect of six of the eight
documents sought. It does so on the dual bases that the
documents do attract
litigation privilege (having been produced for the dominant purpose of prospective
litigation at a time when
it was reasonable for NGC to regard litigation as probable)
and that they also attract legal advice privilege (being confidential
communications
made for the purpose of giving and/or obtaining legal advice).
[8] NGC withdrew the claim to privilege in respect
of the other two documents
on the grounds that the documents had been included in the affidavit in error. They
relate to another
dispute between the parties and were, therefore, not relevant to
matters in issue in this proceeding.
Background
[9] NGC obtains
its gas from the Crown under an agreement known as the NGC
Gas Contract, one of three supply agreements (described as "downstream
agreements") entered into by the Crown. The Crown obtains its supply of gas under
an agreement known as the Maui Gas Contract with
the petroleum mining companies
which extract the gas from the Maui field. The agreement (NGC/BOPE) is the third
in a chain of supply
contracts.
[10] The first, the Maui Gas Contract, was entered into in 1973. Under it the seller
companies agreed to supply gas
from the Maui field to the Crown at a specified rate
and a set price. The contract was predicated upon assumptions as to the economic
capacity of the field and provides for re-determination of that capacity (referred to as
Economic Recoverable Reserves) from time
to time. It provides (Article 8.8) a
mechanism for adjusting quantities of gas deliverable in the event of a shortfall in
Economic
Recoverable Reserves relative to gas taken to date of re-determination and
forward delivery obligations.
[11] The NGC Gas Contract
was the second contract in the chain. It was entered
into in 1977 (and varied in 1990). It provided (clause 4.8 of the varied contract)
for
an alteration to the quantities to be supplied in the event of a re-determination of
Economic Recoverable Reserves under the
Maui Gas Contract.
[12] It is common ground that there was a re-determination under the Maui Gas
Contract on 5 February 2003.
Although the Maui Gas Contract provided for re-
determinations as frequently as two yearly, this re-determination of 6 February 2003
was the first. The re-determination was carried out by an independent expert
appointed in accordance with the contract, after the
parties failed to agree. The re-
determination resulted in a reduction in Economic Recoverable Reserves.
[13] A party to another
of the downstream contracts immediately issued a Court
proceeding challenging the re-determination. That proceeding was struck out
in
August 2003. An appeal brought against that decision was dismissed on 27 June
2004.
[14] As previously mentioned, the Maui
Gas Contract provided (Article 8.8) a
mechanism for adjusting delivery obligations in light of the result of the re-
determination.
However, following the re-determination there were competing views
on what effect, if any, the re-determination had on the delivery
obligations under the
Maui Gas Contract. The parties to the Maui Gas Contract and the downstream
contracts (including the NGC Gas Contract) entered into negotiations which
led to a
group of agreements (referred to as the Strawman agreements) which give effect to
the re-determination in place of Article
8.8 of the Maui Gas Contracts.
[15] It is common ground between the parties that on 31 May 2004 NGC entered
into the Strawman
agreements and that its future entitlements to gas from the Maui
field are now determined by that agreement.
[16] It is not
in dispute that NGC also has a contractual right to take quantities of
gas from the Maui field, in addition to gas supplied under
the Maui Gas Contract, on
a right of first refusal basis (referred to as ROFR gas), and that it has entered into
new gas supply contracts
with other customers since the purported termination.
[17] The agreement between NGC and BOPE was due to run for a period of
eleven years, terminating on 30 June 2006, but subject to rights of termination upon
the happening of certain events. One such event,
contained in clause 9.1.6 of NGC's
standard form conditions that were incorporated as part of the terms of the
agreement, reads:
"In cases where there is a re-determination under the Maui Gas Contract and
as a result the ability of NGC to supply
or deliver Maui Gas is reduced to
any extent then ... NGC may terminate this Agreement by notice in writing
to the
other Party".
[18] On 2 August 2004 NGC gave notice of termination of the agreement with
BOPE with effect from 31 October 2004,
claiming to do so in reliance on clause
9.1.6.
The application for discovery
[19] BOPE seeks discovery of :
a)
Documents relating to the determination of Economic Recoverable
Reserves.
b) Documents relating to
the following Strawman agreements:
i) A settlement and umbrella agreement dated 31 May 2004
between the defendant, the parties to the Maui Gas sale and
purchase agreement and the parties to the
downstream
contracts (as defined in that agreement); and
ii) An agreement dated 31 May
2004 between the defendant,
NGC Contracts Limited and the Crown providing (among
other
things) for the modification of the then existing contracts
between the Crown and the defendant and NGC Contracts
Limited; and
iii) An agreement relating to right of first refusal for Maui Gas
dated 31 May 2004 between the defendant, the seller (as
defined in the Maui Gas sale and purchase
agreement) and
Contact Energy Limited (the ROFR agreement)
c) Documents relating to the defendant's
Maui gas portfolio before and
after the determination of Economic Recoverable Reserves.
d) Any and all
gas supply agreements entered into by the defendant after
the determination of Economic Recoverable Reserves.
e) Documents relating to the exercise of its right of first refusal under the
ROFR agreement.
[20] In
determining whether NGC should have discovered these documents, the
Court has to consider whether they relate to a matter in question
in the proceeding.
The applicable principles are set out in McGechan on Procedure at HR 295.03:
Parties are only required
to discover those documents which relate to a
matter in question in the proceeding. "Relate to" is treated as "relevant to"
and relevance is tested with regard to matters in question, not to the subject-
matter of the proceeding.
....
If a document relates to a matter not in dispute, it should not be discovered:
Merchants Assn of NZ Inc v The King
(1912) 32 NZLR 537; McNab v
Wellington Publishing Co (1914) 33 NZLR 1362; Bell v Auckland
University [1969] NZLR 1029. See also Compagnie Financiere et
Commerciale du Pacifique v Peruvian Guano Co (1882) 11 QBD 55 (CA),
at p63. The words of Brett LJ are still relevant today:
It seems to me that every document relates to
matters in question in
the action which not only would be evidence upon any issue, but
also which,
it is reasonable to suppose, contains information which
may not which must either directly or indirectly enable
the party
requiring the affidavit either to advance his own case or to damage
the case of his adversary.
I have put in the words `either directly or
indirectly' because, as it seems to me, a document can properly be
said to contain information which may enable the party requiring the
affidavit either to advance his own
case or to damage the case of his
adversary if it is a document which may fairly lead him to a train of
inquiry which may have either of those two consequences."
[21] Counsel were agreed that the test is a broad one, and that
the Court must look
to the pleadings to determine what is in question in the proceeding: AMP Society v
Architectural Windows Limited
[1986] 2 NZLR 190. It is also well settled that an
order is not to be made unless the Court is satisfied that it is reasonably necessary:
NZ Rail Limited
v Port Marlborough New Zealand Limited [1993] 2 NZLR 641,
644.
[22] BOPE pleads that the termination was and is invalid because there has not
been any reduction in NGC's ability to supply
or deliver Maui Gas as a result of the
re-determination. BOPE also pleads in the alternative that if there has been a
reduction in
NGC's ability to supply or deliver Maui Gas it is not a result of the re-
determination, but rather is a result of:
a)
NGC's voluntary entry into a contract dated 31 May 2004 concerning
its future entitlements to gas from the Maui
Field (one of a group of
related agreements known as Strawman); and/or
b) NGC's entry into new gas supply
contracts with other customers.
[23] NGC admits that it has voluntarily entered into Strawman, and into new gas
supply contracts
with other customers, but says its ability to supply or deliver Maui
gas has nevertheless been reduced as a result of the re-determination
(that is,
notwithstanding these agreements).
[24] The essential dispute in the case, therefore, is whether or not as at the date
of
termination NGC's ability to supply or deliver Maui was reduced to any extent as a
result of the re-determination.
[25] BOPE
argues that the question whether or not NGC was entitled to terminate
the agreement under clause 9.1.6 in August 2004, requires the
Court to decide:
a) Whether there has been a reduction in NGC's ability to supply (as a
matter of fact),
and
b) If so, whether that is a result of the re-determination or another factor,
such as entering into
the Strawman agreements or the gas supply
contracts with other parties.
[26] BOPE argues that in deciding the
first point the Court must look factually at:
a) NGC's gas portfolio (the third category of documents sought), to
establish the quantity of Maui gas that NGC had access to (on a daily
basis and in aggregate) prior to
and after the re-determination and at
the date of the purported termination;
b) Its rights to obtain Maui
Gas under the ROFR agreement (the fifth
category) including information as to likely availability (and possible
volumes) to establish what NGC could have taken and can take in the
future (NGC has said in evidence that
it had not exercised this right up
to the date of hearing).
[27] BOPE's General Counsel, Mr Hall, in an affidavit
sworn on 4 July 2005, has
identified documents which he believes will be in NGC's control in relation to each
of the categories of
documents sought. Mr Hall represented one of the "Seller"
parties to the Maui Gas Contract throughout the re-determination in 2002/2003
and
the subsequent Strawman negotiations in 2003/2004. He refers to quarterly meetings
subsequent to the Strawman agreements, in
advance of which all parties are provided
with a deliverability forecast and an off-take forecast for the Maui field. He asserts
that documents which provide a historical record of NGC's daily and monthly
entitlement to Maui Gas, and future forecasts, are relevant
to NGC's ability to supply
gas to BOPE. He understands that NGC has daily (or at least monthly) reports
showing how much gas it is
able to access on any given day. It is also his
understanding that the forecasts provided for the quarterly meetings include
information
showing the likely availability of ROFR gas (and possible volumes).
[28] BOPE argues that in order to determine the second point,
the Court:
a) needs to understand the reason for, and process of, the re-
determination, any involvement
NGC had in it, and the effect of the
re-determination on NGC's ability to supply (the first category); and
b) should have before it evidence of the negotiation of the Strawman
agreements (the second category) to
decide the effect of the Strawman
agreements, as opposed to the effect of the re-determination, on
NGC's ability to supply; and
c) should be informed of the volume of gas which NGC has contracted
to supply to other customers
(the fourth category) since the date of
termination so as to be able to assess what would otherwise have been
available to supply to BOPE.
[29] NGC has identified three sub-categories of documents relating to re-
determination:
the process leading up to the decision to undertake a re-
determination, proceedings issued by a party to another downstream
contract
attempting to stop the re-determination, and the arbitral process which culminated in
the issuing of the re-determination.
BOPE accepts that the documents relating to the
proceedings by the other downstream party are not relevant, but claims that the other
two sub-categories are relevant to the cause of any reduction in ability to supply.
BOPE's general counsel, Mr Hall, deposes (paragraph
13 of an affidavit of 4 July
2005):
"In other words, those documents are vital to the Court's
understanding of the re-determination process and whether or not it
resulted in a reduction in NGC's ability to
supply or deliver Maui
Gas to the plaintiff or whether the consequences of re-determination
were
altogether different."
[30] BOPE argues that it will be necessary to consider the effect of the Strawman
agreements on NGC's
ability to supply in the context of the negotiation of the
agreements, and that the agreements themselves are not enough. It seeks
correspondence and documents passing between (and within) the parties to the
Strawman agreements to provide that context.
[31]
Mr Hall also asserts that any gas supply contract which NGC has entered into
with third parties since the date of the purported
termination must have a bearing on
whether NGC has suffered a reduction in its ability to supply if the aggregate of gas
supplied
under those contracts is equal to or in excess of the volume that NGC
contracted to supply to BOPE. He further asserts that such
contracts would still be
relevant even if they were not purely for supply of Maui Gas as the Maui Gas is
likely to be mixed into
the gas that NGC supplies to others.
[32] NGC resists BOPE's application on the grounds that the documents are not
relevant to
the only substantive issue raised by the pleadings, namely whether NGC
was entitled in August 2004 to terminate the agreement with
BOPE under clause
9.1.6. It contends that this is an issue of construction of the agreement, to be
determined as at date of entry
into the contract, and in the context of the chain of
contracts existing at that time. It argues that although the matters advanced
for BOPE
are raised on the pleadings, they are irrelevant to the essential dispute and
unnecessary for disposal of the proceeding.
In those circumstances, NGC argues that
it would be oppressive to order discovery in light of the substantial volume of
documents
needing to be reviewed (estimated by Ms Daniels to be in excess of 400
files) and their limited probative value.
[33] NGC argues
that, read in context, the clear purpose of 9.1.6 is to enable NGC
to avoid the risk of being in breach of contract to some or all
of its customers at some
point during the Maui field life by reason of there being less Maui Gas available than
when the relevant
supply agreement was entered into. (The clause is part of NGC's
general terms and conditions. It is used in all NGC's supply contracts,
and is not
confined to the agreement with BOPE).
[34] Counsel for NGC acknowledged that NGC was not actually deprived of Maui
Gas on a daily basis immediately following the re-determination. He submitted that
that was not, and could not sensibly have been,
the purpose of clause 9.1.6. He
submitted that, viewed in context, the clause addressed NGC's access to Maui Gas
and its ability to provide that gas to its customers (not just BOPE) in the future.
NGC's counsel submitted that the contractual context for clause 9.1.6 in the BOPE
agreement was to be found both in the Maui Gas
contract and the Natural Gas
contract (as varied in 1990), and particularly:
a) The provision for re-determination
of Economic Recoverable
Reserves in the Maui Gas contract;
b) The provision for delivery obligations
under the Maui Gas contract to
be changed in the event of a re-determination establishing a shortfall
between Economic Recoverable Reserves and delivery obligations
(Article 8.8); and
c) The linkage
in the NGC Gas contract (clause 4.8) between a re-
determination and NGC's entitlement to remaining Maui Gas
following the re-determination.
[35] NGC points to Mr Hall's acknowledgement (paragraph 9 of his affidavit) that
the
effect of the re-determination was to reduce the economically recoverable
reserves, and to uncontested evidence from NGC's in-house
Legal Counsel Ms
Daniels, in an affidavit in opposition (re)sworn on 19 May 2005, that the re-
determination halved (very approximately)
the previous estimates of remaining Maui
Gas. It argues that if its view of the construction of clause 9.1.6 is accepted this
reduction
in its entitlement over the remaining life of the field necessarily reduced its
ability to supply Maui Gas over that period.
[36]
Counsel for NGC pointed to clauses in the Strawman agreements to
demonstrate that they were based on the same "delivery commitment"
of Maui Gas
(367PJ) as the re-determined Economic Recoverable Reserves, and that NGC's
proportion of that volume remained the same.
He submitted that the Strawman
agreements did no more than give effect to the re-determination, and to the extent
that they now provide
for NGC's entitlement to Maui Gas, they are the direct result
of the re-determination.
[37] As to the alternative pleading that
any reduction in NGC's ability to supply
Maui Gas is a result of entering into Strawman or new supply contracts with other
customers,
NGC says that any cause of reduction in ability to supply other than the
re-determination is irrelevant. Counsel for NGC accepted
that NGC was only entitled
to terminate if the Court accepted its argument on construction of clause 9.1.6, that
the reduced entitlement
of access to Maui Gas over the life of the field reduced its
ability to supply measured at the date of re-determination. If not,
NGC accepts that it
was not entitled to terminate. Any reduced ability to supply BOPE as a result of
entering into Strawman or
new supply agreements was therefore irrelevant.
Do the documents relate to a matter in question in the proceeding
[38] The
proper construction of clause 9.1.6 is clearly at the heart of this dispute.
As I understand its argument, BOPE contends that the
Court is required to weigh all
the factors affecting NGC's ability to supply Maui Gas, in deciding whether that
ability has been
reduced following a re-determination. This involves taking account
of the physical quantities available, and the power to terminate
is only available if
the net effect is that NGC's ability to supply to BOPE is reduced. On the other hand,
NGC argues that on a proper
construction, the clause gives it the right to terminate if
the re-determination results in a general reduction of the gas available
to it from the
Maui Gas field.
[39] I shall address first the documents being sought to support BOPE's argument
that the proper
construction of clause 9.1.6 requires the Court to assess whether there
has been any reduction in actual physical quantities (categories
3 and 5). In my view
BOPE is entitled to disclosure of documents showing NGC's gas portfolio as at the
date of the re-determination
(6 February 2003) through to the date of the purported
termination (2 August 2004). I would expect these documents to include the
deliverability and off-take forecasts
referred to by Mr Hall, and to extend to
documents showing availability of ROFR gas through that period.
[40] I turn now to consider
the documents sought to determine whether any
reduction is a result of the re-determination, or as a result of NGC entering into
the
Strawman agreements or the gas supply contracts with other parties.
[41] The first category under this heading is documents
relating to the re-
determination. Although, as a matter of construction, the NGC view appears the
more persuasive, the BOPE view
is open on the pleadings, and under the Peruvian
Guano test BOPE is entitled to discovery of documents which will entitle it to
advance
that case. I turn now to consider each category of documents on that basis.
The first category is documents relating to re-determination.
The fact of re-
determination is not in dispute. The issue is the impact of the re-determination on
NGC's power to terminate under
clause 9.1.6. In my view, the history of the process
of re-determination, including arbitral process, is not relevant to the central
issue of
construction, whichever view is ultimately accepted.
[42] The next category are documents relating to the Strawman
agreements
(category 2). Again, the existence and terms of the agreements are not in dispute.
The issue is what is their effect.
Ms Daniels has stated that they do not reverse the
effect of the re-determination, but any lingering concern on that is likely to
be
answered by the documents themselves. Moreover, given NGC's concession that it is
only entitled to terminate if the Court accepts
its argument on construction (that its
case is confined to showing a reduced ability to supply as a result of re-
determination)
any other cause is irrelevant, as are documents which might show
that.
[43] The last point also applies to the fifth category
of documents (gas supply
agreements entered into after re-determination). To the extent that these documents
are sought to establish
whether there was a reduction in ability to supply at relevant
times, they appear to be marginally relevant at best (there is far
better evidence
available in the form of NGC's gas portfolio and the documents directly relating to
that). To the extent that the
documents are being sought as relevant to any reduction
in ability to supply, the documents cannot be relevant in light of NGC's
concession
that it was only entitled to terminate if it can show a reduction as a result of the re-
determination as distinct from
any other cause.
Should an order be made at this time
[44] NGC also resists the further discovery on the basis that it would
be
oppressive to require it given marginal relevance (at best) of the documents.
[45] I have come to the view that documents
establishing NGC's gas portfolio,
including potential availability of ROFR gas, are relevant to BOPE's argument on
construction of
clause 9.1.6. I have come to the view that documents relating to the
Strawman negotiations, and to NGC's gas supply contracts with
other customers, are
of little probative value at best. I consider that it would be oppressive to require NGC
to review what I
accept will be a very large volume of documents (and I note Ms
Daniels estimate of some 400 files). In my view, the low probative
value coupled
with the volume do not warrant this discovery.
The application re privilege
[46] BOPE seeks an order that a claim
by NGC for privilege in relation to eight
documents be set aside. At the hearing, counsel for BOPE accepted that the last two
of
these related to another proceeding and were irrelevant. The documents are all
internal communications within NGC, and are dated
between 24 November 2003 and
29 July 2004. The claim to privilege is made on the basis that Ms Daniels (NGC's
in-house Legal Counsel)
was a party to each document. Both litigation privilege and
legal advice privilege are claimed.
Legal advice privilege
[47] Legal professional privilege is accepted as being a matter
of fundamental
importance to the administration of justice:
[37] An authoritative exposition of the rationale of legal
professional
privilege is to be found in the speech of Lord Taylor of Gosforth CJ in R v
Derby Magistrates' Court ex
p B [1995] UKHL 18; [1996] 1 AC 487 with whom the rest of the
House of Lords agreed. Lord Taylor of Gosforth CJ described it in these
words at pp 507 and
508:
"The principle which runs through all these cases, and the many
other cases which were cited,
is that a man must be able to consult
his lawyer in confidence, since otherwise he might hold back half
the truth. The client must be sure that what he tells his lawyer in
confidence will never be revealed without
his consent. Legal
professional privilege is thus much more than an ordinary rule of
evidence, limited
in its application to the facts of a particular case. It
is a fundamental condition on which the administration of
justice as
a whole rests. ..
[It] is not for the sake of the applicant alone that the privilege must
be upheld. It is in the wider interests of all those hereafter who might
otherwise be deterred from
telling the whole truth to their solicitors.
B v Auckland District Law Society [2004] 1 NZLR 326, 344-5
[48] In general,
legal professional privilege protects communications made to and
from a legal adviser from disclosure in legal proceedings where
the communication
is made for the purpose of obtaining or giving legal advice.
Litigation privilege
[49] The protection afforded
by legal advice privilege extends beyond
lawyer/client communications where litigation is in progress or contemplated:
This
appeal concerns the type of legal professional privilege often called
"litigation privilege": the privilege which applies
to communications
between a legal professional adviser and a third party and between a client
and a third party, made
with a view to obtaining information to be submitted
to a legal professional adviser. It protects the process of gathering
evidence
for consideration by a lawyer acting for a party in civil or criminal litigation
or threatened with such litigation.
The Law Commission has said in its
discussion paper on Evidence Law: Privilege (1994) NZLC PP 23, that the
central feature of litigation privilege "is that it represents the fruits of effort
on the part of the litigants
in preparing for the case" (paragraph 109). The
evidence may have been gathered by the lawyer, the client or an agent for
either of them, but the work must have been carried out with the dominant
purpose of conducting or advising on actual
or reasonably anticipated
litigation: Guardian Royal Exchange Assurance of NZ Ltd v Stuart [1985] 1
NZLR 596 (CA). The privilege is thus one which is related to:
"the right of a litigant or potential litigant to seek and obtain
legal
advice on his prospects and the conduct of proceedings under the
seal of confidence [and to]
the right of such a litigant and his legal
adviser to prepare for and conduct his case without, directly or
indirectly, revealing the effect of that advice."
Dinsdale v Commissioner of Inland Revenue (1997) 11 PRNZ 324, 326 (CA)
[50] The established test for litigation privilege where the litigation was not in
progress at the time of the communication,
is whether it was "reasonably
apprehended". This is a question of fact requiring an objective assessment from the
position of the
party claiming the litigation privilege:
Reverting to the test, the reference to "reasonable" apprehension
imports an objective element, see Grant v Downs [1976] HCA 63; (1976) 135 CLR
674, 682. By analogy with other situations requiring an objective
assessment I consider the standard is that of a reasonable
person in
the position of the individual or entity entitled to claim privilege,
possessed of the same
information. A mere vague apprehension of
litigation does not suffice.
[51] It is recognised that this assessment
can be difficult where an in-house lawyer
is involved as the lawyer may also be participating in commercial decisions which
become
intertwined with purely legal functions and opinions. This was the case in
Seven Network Ltd v News Ltd [2005] FCA 142 where the Federal Court of Australia
stated:
In carrying out this task, I am cognisant of the fact that there is
no
bright line separating the role of an employed legal counsel as a
lawyer advising in-house and
his participation in commercial
decisions. In other words, it is often practically impossible to
segregate commercial activities from purely "legal" functions. The
two will often be intertwined and privilege
should not be denied
simply on the basis of some commercial involvement. In the present
case, however,
I am persuaded that Mr Philip was actively engaged
in the commercial decisions to such an extent that significant
weight
must be given to this participation. In many circumstances where in-
house counsel are employed
there will be considerable overlap
between commercial participation and legal functions and opinions.
As can be seen from the specific rulings below, I am not persuaded
that in this proceeding Mr Philip was
acting in a legal context or role
in relation to a number of documents in respect of which privilege
was claimed. Nor am I persuaded that the privilege claims were
based on an independent and impartial legal
appraisal.
[52] The House of Lords has recently considered this issue in Three Rivers
District Council v Governor and Company
of the Bank of England [2004] UKHL 48; [2005] 1 AC 610,
where Lord Scott (with the agreement of three other of the Law Lords) stated (at
623):
If a solicitor becomes
the client's `man of business', and some
solicitors do, responsible for advising the client on all matters of
business, including investment policy, finance policy and other
business matters, the advice may
lack a relevant legal context. There
is, in my opinion, no way of avoiding difficulty in deciding in
marginal cases whether the seeking of advice from or the giving of
advice by lawyers does or does not take
place in a relevant legal
context so as to attract legal advice privilege. In cases of doubt the
Judge called upon to make the decision should ask whether the
advice relates to the rights, liabilities, obligations
or remedies of the
client either under private law or public law. If it does not, then, in
my opinion,
legal advice privilege would not apply. If it does so
relate then, in my opinion, the Judge should ask himself whether
the
communication falls within the policy underlying the justification
for legal advice privilege
in our law. Is the occasion on which the
communication takes place and is the purpose for which it takes
place such as to make it reasonable to expect the privilege to apply?
The criterion must, in my opinion,
be an objective one."
[53] The Court has a discretion to inspect where there is doubt as to the
claim for privilege: Seamar
Holdings Ltd v Kupe Group Ltd [1995] 2 NZLR
274 (CA).
[ 54] BOPE points out that all six documents came into existence prior to
the date of the purported termination. The first
was in November 2003, nine
months before. It argues that at the time there was no basis for any proceeding
to be brought, and challenges
an assertion by Ms Daniels that NGC
anticipated the likelihood that BOPE would challenge the purported
termination in light of considerable
amount of other litigation between NGC
and BOPE or its parent company, and the parent company's involvement in
other litigation (six
examples were given of each). Mr Hall took issue with
the alleged propensity to litigation (he said that all six cases involving
NGC
had been initiated by NGC, suggesting a propensity the other way). Although
he agreed that a challenge to the termination could
have been anticipated, he
denied that litigation was probable and produced correspondence showing
that BOPE's initial reaction was
to refer the matter to arbitration.
[55] BOPE submitted that litigation privilege did not apply, and that the
Court should
inspect the documents to determine the applicability of legal
professional privilege.
[56] Counsel for BOPE also submitted
that authorities to the effect that the
Court should not go behind a claim to privilege made on oath by a solicitor
has been overtaken
by the terms of rule 307 (which came into force on 9
November 2004). He submitted that the dates of the documents, and Ms
Daniels'
in-house role justified inspection by the Court to assess the claim for
itself.
[57] NGC submits that there is no basis for
the Court to go behind the
claim for legal advice privilege given the unambiguous terms in which the
claim for privilege is advanced
by Ms Daniels as an Officer of the Court and
in-house lawyer for NGC. It also submits that there is no basis for
distinguishing the
legal advice she has provided as in-house lawyer from that
of an external legal adviser.
[58] NGC also submits that it has a
valid claim for litigation privilege. It
points to Ms Daniels' evidence that litigation was squarely contemplated as
soon as the
question of termination of the BOPE contract came up for
discussion within NGC as a consequence of the re-determination. It also
points to Ms Daniels affidavit evidence as to the extent of litigation between
the parties and involving BOPE's parent company as
a reasonable basis for
apprehending litigation.
Is the ground for privilege made out / is there a need for inspection?
[59]
The Court has an unfettered discretion whether or not to set aside the claim to
privilege, and in the course of exercising that
discretion, whether or not to inspect the
documents under review.
[60] The claim for privilege has been advanced by Ms Daniels,
in-house legal
adviser for NGC, in unequivocal terms. She states (paragraphs 31 and 32 of her
affidavit):
For this
reason, and given that the price of gas had increased
significantly in recent months, when NGC was considering whether
or not it could legally terminate BOPE's gas supply agreement, NGC
was aware that there was a high
probability that BOPE would
challenge the termination of the agreement. This is confirmed by the
documents
created at the time.
I was a party to all of the documents listed at paragraphs 2.1 to 2.6 of
BOPE's
notice and confirm that, at the time they were created:
litigation was reasonably contemplated by myself
and the
other parties to the communications; and
they were created for the dominant
purpose of giving and/or
obtaining legal advice.
[ 61] Whilst I consider that the Court can go behind this
assertion, I consider that
there needs to be a reasonable basis for doing so. Ms Daniels says on oath that she
was a party to each
of the documents, that they were for the dominant purpose of
giving or obtaining legal advice, and that litigation was reasonably contemplated
both by herself and the other
parties to the communications. She has given reasons
for NGC's view that there was a high probability that BOPE would challenge
the
termination. Given the importance of the contract to BOPE, it is reasonable to
assume that it would challenge the termination.
I take the history of litigation to
indicate that BOPE and its parent company do not shy away from litigation to
protect their commercial
interests (rather than the more perjorative view that it
indicates a propensity to litigation). Ms Daniels describes herself as legal
counsel. I
see no reason to anticipate that her advice would be sought on commercial ahead of
legal matters so as to give rise to
the mixed function that concerned the Federal
Court of Australia in Seven Network Ltd v News Ltd.
[62] BOPE puts forward the
dates of the documents as a basis for its challenge.
Five of the six documents are in the period after NGC entered into the Strawman
agreements and before giving the notice of termination. I have no difficulty with the
thought that legal advice would be sought at
that time, or that there was then a
reasonable apprehension that the termination being contemplated would lead to
litigation. The
first of the documents (item NGC.BOPE.001.016 in NGC's list of
documents) pre-dates the others by some six months. I have considered
whether
there is sufficient doubt about the claim to privilege to warrant inspection by the
Court. I have concluded that there is
not. Ms Daniels has deposed that NGC was
considering whether or not it could legally terminate the agreement. She does not
indicate
when that first occurred, but a memorandum nine months after the re-
determination is consistent with advice being sought on the
point at that time. This
qualifies it for legal advice privilege. She also expressly states that the probability of
a challenge to
termination was confirmed in all documents under challenge. In my
view this express reference provides the basis for litigation privilege
also but, if so, it
is merely reinforcing the privilege already applying.
Conclusion
[63] There is an order that, within 14
days of service of a sealed order, the
defendant (NGC) file an affidavit stating whether the following documents or any
document
of that class is or has been in the defendant's possession, custody or
power, and if they have been but are no longer in the defendant's
possession, custody
or power, when the defendant parted with them and what has become of them:
a) Documents relating
to the defendant's Maui Gas portfolio for the
period commencing immediately prior to 6 February 2003 and ending
on 2 August 2004, being at least the documents identified in
paragraphs [27] and [39] above; and
b) Documents relating to the exercise of the defendant's right of first
refusal under the ROFR agreement also
for the period commencing
immediately prior to 6 February 2003 and ending on 2 August 2004,
again being
at least the documents identified in paragraph [27] and
[39] above.
[64] As both parties have been successful in
part, I make no order as to costs.
_____________________________
Associate Judge D.H. Abbott
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