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APPENDIX F

Office of the Ombudsman Practice Guidelines No 3

Current Approach of Ombudsman to Sections 9(2)(b), (ba), (i), (j) & (k) of the Official Information Act

and

Sections 7(2)(b), (c), (h), (i) & (j) of the

Local Government Official Information & Meetings Act

Including Information Relating To Tenders

1. Introduction

1.1 These guidelines are designed to help Ministers of the Crown, Departments, organisations and local authorities in considering requests for commercial information. They do not detract from the need for each case to be considered on its own merits, as measured against the relevant statutory criteria, but reflect the approach which the Ombudsmen have developed to the relevant provisions of the legislation based on their experience. The provisions of the Local Government Official Information & Meetings Act are referred to in square brackets.

1.2 Section 4 [section 4] – Purposes

Section 4(a) [s 4(a)] of the Act sets out the purposes which Parliament intended to be achieved in enacting the legislation, namely:

“To increase progressively the availability of official information to the people of New Zealand in order—
(i) To enable their more effective participation in the making and administration of laws and policies: and
(ii) To promote the accountability of Ministers of the Crown and officials,
and thereby enhance respect for the law and to promote the good government of New Zealand.”
[(a) To provide for the availability to the public of official information held by local authorities, and to promote the open and public transaction of business at meetings of local authorities, in order—
(i) to enable more effective participation by the public in the actions and decisions of local authorities; and
(ii) To promote the accountability of local authority members and officials,—
and thereby to enhance respect for the law and to promote good local government in New Zealand.”]

Section 4(c) [s 4(c)] provides, however, that a balance must be struck between the interests identified above and the need:

“To protect official information to the extent consistent with the public interest and the preservation of personal privacy.”
[“To protect official information and the deliberations of local authorities to the extent consistent with the public interest and the preservation of personal privacy.”]

1.3 Section 5 [section 5] – Principle of availability

Section 5 of both Acts reflects the underlying principle of availability of official information:

“Principle of availability—The question whether any official information is to be made available, where that question arises under this Act, shall be determined, except where this Act otherwise expressly requires, in accordance with the purposes of this Act and the principle that the information shall be made available unless there is good reason for withholding it.”

1.4 Section 9 [section 7]

Section 9(2) [s 7(2)] of the Act identifies a series of interests which Parliament recognised might need to be protected by the withholding of official information in certain circumstances. However, it also acknowledges that there is a need to balance those interests against any countervailing public interest considerations. Section 9(1) [s 7(1)] acknowledges that there will be cases where the interest in withholding specific information might be outweighed by other considerations which render it desirable, in the public interest, to make the information available.

2. The role of the decision-maker and an Ombudsman on review

2.1 The role of the decision-maker, and an Ombudsman on review, is to examine the information at issue and form an opinion as to whether or not the interests which the Act seeks to protect would be prejudiced by disclosure of that information. In the course of an Ombudsman’s investigation and review of a decision to withhold information, it is for the decision-maker to bring forward sufficient material and advance sufficient argument to support the proposition that good reason exists for withholding the information, in other words, to justify his, her or its decision with sufficient particularity to enable the Ombudsman to form an independent opinion on the complaint.

2.2 In Commissioner of Police v Ombudsman [1988] 1 NZLR 385, Cooke P said at p.391:

“If the decision-maker, be he Minister or departmental head or Ombudsman or Judge adjudicating on a claim of denial of right, is in two minds in the end, he should come down on the side of availability of information. I say this . . . because the Act itself provides guidance in the last limb of s 5.”

2.3 In the same case, Casey J said at p.411:

“. . . in conducting a review of the decision, the Ombudsmen are not engaged in an adversarial exercise. The provisions of the Ombudsmen Act apply (section 29 Official Information Act), and under sections 18 and 19 they are given wide powers of inquiry and are not confined to the material put before them by those immediately involved. In the nature of things he who alleges that good reason exists for withholding information would be expected to bring forward material to support that proposition. But the review is to be conducted and the decision and recommendations made without any presumptions other than those specified in the Act.”

2.4 Furthermore, even where the decision-maker or an Ombudsman on review forms the view that s 9(2)(a)–(k) [s 7(2)(a)–(j)] applies to the information at issue, s 9(1) [s 7(1)] requires that consideration must still be given to the question of whether, in the circumstances of the particular case, the withholding of the information is outweighed by other considerations which render it desirable, in the public interest, to make that information available.

3. Commercial Information

3.1 Both in 1982, when the Official Information legislation was first considered by Parliament, and again in 1987, when amendments to the provisions relating to commercial information were addressed in Parliament, the clear intention was not to protect all commercial information held by the central and local government as a special exempt class of information. While Parliament recognised that there is a legitimate interest in citizens, including central and local government departments and organisations, being able to conduct commercial activities without prejudice or disadvantage, it also recognised that not all information relating to commercial activities needed to be protected to avoid prejudice or disadvantage. It also recognised that, on occasion, there would be situations where notwithstanding that disclosure of particular information would result in prejudice or disadvantage to one of the commercial interests identified in the legislation, there could be factors which, in the public interest, outweighed the need to withhold that information (s 9(1)).

3.2 The increasing market orientation of the public sector has focused attention on the need to protect what the holders label “commercially sensitive information”. However, that term is misleading because it is used in neither the Official Information Act nor the Local Government Official Information Act. Neither Act provides protection for such information per se. Instead, the legislation identifies certain commercial interests which might need to be protected in the circumstances of a particular case. Those interests are:

(i) trade secrets – s9(2)(b)(i) [s7(2)(b)(i)]

(ii) the commercial position of the supplier or subject of particular information – s 9(2)(b)(ii) [s7(2)(b)(ii)]

(iii) information subject to an obligation of confidence or supplied under statutory compulsion – s 9(2)(ba) [s 7(2)(c)]

(iv) the commercial activities of central and local government – s 9(2)(i) [s 7(2)(h)]

(v) negotiations (including commercial and industrial negotiations) of the State – s 9(2)(j) [s 7(2)(i)]

(vi) avoidance of improper gain or improper advantage – s9(2)(k) [s 7(2)(j)]

3.3 When considering a request for information, disclosure of which might prejudice one of the above interests, it is the decision-maker’s role, and the Ombudsman’s role on review, to:

(a) establish whether one of those interests would be prejudiced by disclosure of the information at issue, and, if so,

(b) to determine to what extent it is necessary to withhold the information at issue to avoid that prejudice.

For example, it may not be necessary to withhold all the information; or it may be possible to provide a summary of the information without disclosing those elements which prejudice the particular interest of concern.

4. Court Cases

4.1 There are two Court cases which provide decision-makers with some judicial guidance as to the protection which the Official Information Act and the Local Government Official Information and Meetings Act afford to some commercial interests. They are Wyatt Co v Queensland Lakes District Council [1991] 2 NZLR 180 and Television New Zealand v Ombudsman [1992] 1 NZLR 106.

4.2 In the Wyatt case, Jeffries J noted at page 190, line 42:

“It cannot be denied that some of the information recommended to be released by the Chief Ombudsman will reveal matters which Wyatt wants to keep entirely secret. The Official Information Act was passed in 1982 following an exhaustive investigation into the subject in New Zealand, which also reflected the same movements elsewhere in the world. Cooke P in Commissioner of Police v Ombudsman at p 391 was prepared to regard the Act as correctly described as a constitutional one. In 1987 the [Local Government Official Information and Meetings] Act under consideration was passed extending the right of the public to know and must similarly be regarded as of constitutional significance. Governments of different political philosophies have endorsed the principle of freedom of information so as to express support for the concept that knowledge and information about the conduct of public affairs, and the application of public money, in a democratically governed country are essential to its right to be so described. The Courts must zealously support those quite sweeping legislative intentions. It is fundamental to the Act that the public are to be given worthwhile information about how the public’s money and affairs are being used and conducted, subject only to the statutory restraints and exceptions. The allegations of errors, unreasonableness and failure to take into account relevant matters are attacks on the several judgments the Chief Ombudsman had to make in the functions ordained for him by the Act. That Act requires him to exercise his judgment using experience and accumulated knowledge which are his by virtue of the office he holds. Parliament delegated to the Chief Ombudsman tasks, which at times are complex and even agonising, with no expectation that the Courts would sit on his shoulder about those judgments which are essentially balancing exercises involving competing interests. The Courts will only intervene when the Chief Ombudsman is plainly and demonstrably wrong, and not because he preferred one side against another. . . . The Chief Ombudsman in his report carefully analyses the legal obligations of [s 7(2)(c)] and compares it to the facts. He finds it applies but in effect the matters not to be disclosed under the subsection are the same as for s 7(2)(b)(ii). The Court now faces the contractual issue. It was accepted that the contract between Wyatt and the Council contained a term of confidentiality by the Council. . . . There cannot be allowed to develop in this country a kind of commercial Alsatia beyond the reach of a statute. Confidentiality is not an absolute concept admitting of no exceptions. . . . It is an implied term of any contract between individuals that the promises of their contract will be subject to statutory obligations. At all times the applicant would or should have been aware of the provisions of the Act and in particular s 7, which effectively excludes contracts on confidentiality preventing release of information.

4.3 In the TVNZ case, Heron J noted at page 121, line 12:

“The Court does not sit in judgment on the Ombudsman’s decision but can for two reasons express its view. The first is that Judges are regularly called on to examine the probabilities of consequences of disclosure in the commercial environment. The second is that the criticism here is made about the reasonableness of the decision. Referring to it as the nub of the case Mr Mathieson contended that by referring to the case by case approach the Ombudsman shut herself out from considering the likelihood of disclosure in principle carrying the level of prejudice or disadvantage necessary to involve s 9(2)(i). It is true that the final letter of the Ombudsman to TVNZ does not in its terms address that issue but it was a letter in response to arguments copied by TVNZ from their earlier letter to which the Ombudsman had replied and there addressed the point. She said, in summary, that based on information she received, a complete prohibition on disclosure was not necessary and she considered that in (sic) case the actual information should be examined.
My view is that looked at overall the Ombudsman on this critical issue has addressed and answered the argument raised. Any doubt as to this is removed when one looks at her advice to the Tobacco Institute at the conclusion of her inquiry. . . .
‘Having considered the many points raised I concluded that although the prospect of having to disclose unpublished material placed TVNZ at a potential disadvantage in its commercial activities, for the “necessity” test under s 9(2)(i) to be met in a particular case there had to be a particular reason for non-disclosure of the unpublished material, which related either to the content of the information or to the form in which it was held.’
There was a stated rejection of the non disclosure on principle argument. No unreasonableness is demonstrated by the decision the Ombudsman took on this point.”

THE WITHHOLDING PROVISIONS

5. Section 9(2)(b) [s 7(2)(b)]

5.1 This provision states:

“(2) . . . this section applies, if and only if, the withholding of the information is necessary to—
. . .
(b) Protect information where the making available of the information—
(i) Would disclose a trade secret; or
(ii) Would be likely unreasonably to prejudice the commercial position of the person who supplied or who is the subject of the information.”

5.2 A general approach to the circumstances in which s 9(2)(b)(i) [s 7(2)(b)(i)] might apply has not been developed. It has been raised in very few cases, and where it has been raised, there have been difficulties in defining the term “a trade secret”. As s 9(2)(b)(ii) [s 7 (2)(b)(ii)] was found to protect the information at issue in those cases, it was not necessary to form a final view on the definition of “a trade secret”.

5.3 Section 9(2)(b)(ii) [s 7 (2)(b)(ii)] is one of the provisions relied on most often to protect commercial interests. This section is aimed primarily at information held by central and local government which is about the commercial interests of third parties. (Section 9(2)(i) [7(2)(h)] deals with the commercial activities of the holder of the information.) Before accepting that s 9(2)(b)(ii) [s 7(2)(b)(ii)] protects information in a particular case, the Ombudsman must be satisfied that:

(a) the information relates to the commercial position of the person who supplied or who is the subject of the information; and

(b) disclosure would be likely unreasonably to prejudice that commercial position.

5.4 The Court of Appeal has interpreted the phrase “would be likely” to mean “a serious or real and substantial risk to a protected interest, a risk that might well eventuate” (Commissioner of Police v Ombudsman [1988] 1 NZLR 385.)

5.5 For example, on a general level the Ombudsmen have accepted that where disclosure of pricing information would be likely to reveal a tenderer’s pricing/market strategy in a competitive market, then such information is protected by s 9(2)(b)(ii) [s 7(2)(b)(ii)]. However, in respect of requests for total tender prices (as opposed to details of how the total price is made up) and identities of successful and unsuccessful tenderers, the Ombudsman would have to be persuaded in a particular case that such information requires protection under the official information legislation. To date the Ombudsmen have very rarely been persuaded that such information is protected.

5.6 In respect of s 9(2)(b)(ii) [s 7(2)(b)(ii)] an issue which often arises is how one assesses the likelihood and nature of prejudice to a third party’s commercial position. In the Ombudsman’s view, a simple assertion by the holder of the information that such prejudice would be likely is insufficient. Each Ombudsman considers that direct consultation with the third party or parties either by the department or organisation or local authority or by the Ombudsman is necessary. Such consultation can be either by letter or orally.

5.7 Where consultation with a third party about its interests in the information is undertaken, it is not enough for the third party simple to object to disclosure. (See Wyatt) The Ombudsman needs to know how the commercial position of the third party would be prejudiced and why that prejudice would be unreasonable.

6. Section 9(2)(ba) [ s 7(2)(c)]

6.1 This section states:

“(2) . . .this section applies, if, and only if, the withholding of the information is necessary to-
(ba) Protect information which is subject to an obligation of confidence or which any person has been or could be compelled to provide under the authority of any enactment, where the making available of the information-
(i) Would be likely to prejudice the supply of similar information, or information from the same source, and it is in the public interest that such information should continue to be supplied; or
(ii) Would be likely otherwise to damage the public interest.”

6.2 Section 9(2)(ba) [s 7(2)(c)] involves the decision-maker, and the Ombudsman on review, in a two-stage test.

6.3 Stage One

The first stage involves determining whether the information is subject to an obligation of confidence or whether it is information which any person has been or could be compelled to provide under statutory authority.

6.4 Information supplied subject to an obligation of confidence

Where the decision-maker maintains that the information at issue should be withheld because it was supplied subject to an obligation of confidence, the first step in an Ombudsman’s investigation and review of that decision is to establish that the information at issue is subject to an obligation of confidence. In making the assessment, an Ombudsman has regard to the nature of the information and the full circumstances of its supply.

6.5 Information supplied under statutory compulsion

Where information is supplied under statutory compulsion, the authority under which the information was supplied must be established. If there is a statutory power to compel the supply of similar information from the same source, future supply can be assured. However, there are circumstances where, notwithstanding the power to compel the supply of information, a department or organisation has to rely on the supplier to provide the quality of information to enable it to discharge its functions. In particular cases, therefore, a department or organisation may only be able to ensure the future supply of information of the quality it requires if the information is supplied on the basis of an understanding that it will be held in confidence.

6.6 Stage Two

Where it is determined that the information at issue was either supplied subject to an obligation of confidence or under statutory compulsion, an assessment must then be made as to whether, in the circumstances of the particular case, disclosure of that information would be likely to either:

(a) prejudice the supply of similar information or information from the same source, and
(b) it is in the public interest that such information should continue to be supplied; (s 9(2)(ba)(i) [s 7(2)(c)(i)])
or
(c) otherwise damage the public interest. (s 9(2)(ba)(ii) [s 7(2)(c)(ii)])

6.7 An example of the situation in which the Ombudsman has accepted that s 9(2)(ba) [s 7(2)(c)] applies is where the holder of the information requires the information to discharge a statutory function. Even where the department or organisation concerned may have the statutory power to compel the provision of information, it may have to rely on the timely supply of reliable information in order for it to be able to discharge its statutory responsibility effectively. In this context, the information is supplied and accepted under an obligation of confidence in order to ensure that reliable information is supplied in a timely manner. Where the Ombudsman has been satisfied that disclosure of the information would be likely to prejudice the continued supply of such timely and reliable information and therefore the department’s or organisation’s ability to discharge its public function, it has been accepted that s 9(2)(ba)(i) [s7(2)(c)(i)] applies.

6.8 Section 9(2)(ba)(ii) has been considered a relevant withholding provision, in some circumstances, in respect of information generated by the Audit Office or information generated within a department or organisation which discloses Audit Office information, on the basis that there is a strong public interest in ensuring that the integrity of the Audit Office’s statutory functions. While the Audit Office is not subject to the Official Information Act, reports of the Audit Office and/or the Controller and Auditor-General, when in the hands of organisations subject to either that Act or the LGOIMA, become subject to those Acts. Audits are conducted in an environment where information exchanged between auditor and auditee is subject to an obligation of confidence and disclosure of that information would be likely to prejudice the integrity and effectiveness of the audit process. Clearly it is in the public interest to maintain the integrity and effectiveness of that process.

6.9 The interpretation of s 7(2)(b)(ii) and s 7(2)(c)(i) of the Local Government Official Information and Meetings Act were the subject of consideration by the High Court in Wyatt (see paras 4.1 And 4.2 above). The Court supported the approach which the Chief Ombudsman had taken, namely, that the Act did not protect commercial information supplied by a third party simply on the basis of an understanding of confidentiality, but that a realistic assessment needed to be made of the nature of the particular information and the likely consequences of its disclosure.

7. Section 9(2)(i) [s 7(2)(h)]

7.1 This section concerns the commercial activities of the holder of the information. It states:

“(2) . . . this section applies, if, and only if, the withholding of the information is necessary to -
(i) Enable a Minister of the Crown or any Department or organisation holding the information to carry out, without prejudice or disadvantage, commercial activities. “

7.2 This section allows information to be withheld where necessary to enable the department, Minister, organisation or local authority to carry out, without prejudice or disadvantage, commercial activities. The approach involves -

(a) identifying the commercial activity in question;
(b) identifying the prejudice or disadvantage which might result to that activity if information were made available;
(c) establishing precisely how that prejudice or disadvantage would occur; and
(d) assessing whether disclosure of the information would be so likely to cause the prejudice or disadvantage predicted that it is necessary to withhold it.

7.3 In applying the above-mentioned general tests in the tendering situation, a starting point is to establish:

(a) the particular market activity to which the information relates,
(b) the characteristics of that market activity, eg, the number of competitors and degree of competition,
(c) the criteria on which the tender contracts are awarded and how the information at issue relates to those criteria, and
(d) the degree to which the information could be said to reveal a tenderer’s marketing/pricing strategy which a competitor would be able to use to obtain a competitive advantage.

7.4 This information then assists the assessment of:

(1) the precise nature of the prejudice or disadvantage which the department, organisation or local authority predicts would result from disclosure, and

(2) the likelihood of such a prejudice or disadvantage occurring.

8. Section 9(2)(j) [s 7(2)(i)]

8.1 This section states”

“(2) . . . this section applies, if, and only if, the withholding of the information is necessary to;
(j) Enable a Minister of the Crown or any Department or organisation holding the information to carry on, without prejudice or disadvantage, negotiations (including commercial and industrial negotiations)”.

8.2 Section 9(2)(j) [s 7(2)(i)] recognises that it is in the public interest for those subject to the Act to be able to carry on commercial or industrial negotiations without prejudice or disadvantage. It allows information to be withheld where necessary to protect that interest.

8.3 However, the section does not provide good reason to withhold all information relating to particular negotiations. It only protects information, disclosure of which would be so likely to prejudice or disadvantage the department; Minister, organisation or local authority in the negotiations that it is necessary to withhold that information. Whether such prejudice or disadvantage will occur will depend very much on the precise nature of the information and its relevance to the actual issues under negotiation or contemplated negotiation. Information relating to negotiating strategy might well be protected, but it is not sufficient simply to assert that release of the information would be unhelpful to the holder’s position.

9. Section 9(2)(k) [s 7(2)(j)]

9.1 In commenting on this provision in its Supplementary Report, the Danks Committee said:

“. . . Not all disclosure of use of official information for advantage or gain is objectionable; much information of this character is designed to assist individuals ad businesses to their advantage. It seems impossible in a succinct statement to spell out precisely the circumstances in which the exception should apply: the word ‘improper’ in general appears adequate.”

9.2 The application of s 9(2)(k) was discussed in the TVNZ case as follows (p 113 line 27):

“The Ombudsman dealt with s 9(2)(k) indicating that it was not an easy test to meet, the test being whether withholding is ‘necessary to prevent the disclosure or use of official information for improper gain or improper advantage’. She referred to the difficulty that people seeking information did not have to specify or justify the purpose for which the information was sought. In this case, the Ombudsman dealt with the argument that the background material was not relevant to the advancement of complaint under s 4(1)(d) of the Broadcasting Act. That argument seems to me to have been correctly rejected. After reviewing Mr Thompson’s argument on this point the Ombudsman said:

‘Mr Thompson says he fails to see how the background material requested by the Institute can advance the issue under this provision (s 4(1)(d)). He states, with emphasis, that it is not the balance of the background material which is relevant; rather it is the balance of the programme as presented. If that is so, however, then there can be no advantage to the Institute in obtaining the information and s 9(2)(k) cannot apply. Conversely if background material is, after all, relevant, then it is hard to see how any advantage derived from obtaining information could be described as improper’.”

9.3 This section was accepted by the Ombudsman as applicable in a case where a requester sought a copy of the Seventh Form Calculus notes used by the Correspondence School. The Ombudsman concluded that given the statutory restrictions on enrolment at the school; the school’s enrolment policy which stated, among other things, “The correspondence school is not an alternative school for those who have the option of attending a local secondary school, nor is it normally a source of alternative curriculum for those students enrolled at a secondary school”; and under s 7A(2) of the Education Amendment Act 1989 relating to fees, disclosure of the calculus notes would constitute an improper gain or advantage for the requester. This was on the grounds that the material had been compiled using the skill and judgment of the school staff and, because the requester was not enrolled at or receiving tuition from the school, provision of the information would give the requester an advantage or gain to which he was not entitled, and it would also circumvent the restrictions on enrolment and tuition.

9.4 Section 9(2)(k) was also accepted in a case where disclosure of the information at issue would have enabled beneficiaries and recipients of the Rest Home Subsidy to obtain a benefit to which they were not legally entitled. The Ombudsman formed the view that if something was illegal, it was also improper.

10. Section 9(l) [s 7(l)] – Countervailing public interest

10.1 This section states:

“(1) Where this section applies, good reasons for withholding official information exists, for the purpose of section 5 of this Act, unless, in the circumstances of the particular case, the withholding of that information is outweighed by other considerations which render it desirable, in the public interest, to make that information available.”

10.2 Accordingly, even where one of the reasons for withholding information under s 9(2) [s 7(2)] can be made out, the decision maker, and the Ombudsman on review, still needs to consider in each case whether there is any countervailing public interest in disclosure. In balancing the competing interests for and against disclosure of information, the Ombudsman has regard to the purposes of the Act as defined in s 4 and also the principle of availability enunciated in s 5. As observed at page 190, line 55 in Wyatt:

“it is fundamental to the Act that the public are to be given worthwhile information about how the public’s money and affairs are being used and conducted, subject only to the statutory restraints and exceptions.”

10.3 In the tendering situation, for example, the public interest considerations which the Ombudsmen have identified as favouring disclosure are:

(a) the public interest in public sector procedures for purchasing of goods and services to be seen to be beyond reproach, and
(b) the public interest in the New Zealand public having access to information on how government departments and organisations and local authorities spend public funds.

10.4 These considerations flow naturally from the stated purposes of the official information legislation in s 4 of the respective Acts, namely, “to promote the accountability of . . . officials”.

10.5 There have, in the past, been incidents where public sector employees have been charged and convicted of offences connected with the corruption of tendering procedures. These incidents, through rare, serve to highlight the importance of integrity in the tendering process so that such integrity is beyond doubt in the eyes of the public (including unsuccessful and prospective tenderers).

11. Conclusion

11.1 The Official Information Act and the Local Government Official Information and Meetings Act provide adequate protection for information which is held by Ministers of the Crown, Departments, organisations and local authorities and disclosure of which would prejudice or disadvantage unreasonably their commercial position or activities or those of third parties about whom they hold information. Since 1 July 1983 when the Official Information Act came into force, no evidence has been produced to an Ombudsman that information which has been disclosed either under that Act or under the Local Government Official Information and Meetings Act as a result of an investigation and review by an Ombudsman has prejudiced any of the commercial interests which the Act seeks to protect. All the legislation requires is that, when considering a request for commercial information, the holder of the information must, in each case, identify the prejudice or disadvantage, and show how that prejudice or disadvantage would occur, and why that prejudice or disadvantage would be unreasonable. The holder must then consider whether there are any countervailing public interest factors favouring disclosure. Only then can a decision be made as to whether or not good reason exists in terms of the legislation to withhold the information