Vector Gas Contracts Ltd v Contact Energy Ltd [2014] NZHC 3171; [2015] 2 NZLR 670 (11 December 2014)

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IN THE MATTER	of an application pursuant to article 27 of the First Schedule of the Arbitration Act 1996 for non-party discovery
BETWEEN	VECTOR GAS CONTRACTS LIMITED First Applicant VECTOR GAS LIMITED Second Applicant SHELL (PETROLEUM MINING) COMPANY LIMITED Third Applicant TODD PETROLEUM MINING COMPANY LIMITED Fourth Applicant
AND	CONTACT ENERGY LIMITED First Respondent GENESIS ENERGY LIMITED AND OTHERS Second Respondents GREYMOUTH PETROLEUM HOLDINGS LIMITED AND OTHERS Third Respondents MIGHTY RIVER POWER LIMITED AND OTHERS Fourth Respondents OMV NEW ZEALAND LIMITED AND ANOTHER Fifth Respondents TRUSTPOWER LIMITED AND ANOTHER Sixth Respondents MITSUI E&P AUSTRALIA PTY LIMITED

VECTOR GAS CONTRACTS LIMITED v CONTACT ENERGY LIMITED [2014] NZHC 3171 [5 December

Hearing:	2 December 2014
Counsel:	B A Scott for First and Second Applicants L J Taylor QC with A P Parker for Third Applicant D J Cooper with K J Dobbs for Fourth Applicant T C Stephens with S J Fairbrother for First, Second, Third, Fifth, Ninth and Tenth Respondents L Clark for Seventh Respondent (abides) No appearance for Fourth, Sixth and Eighth Respondents
Result Judgment:	5 December 2014
Reasons _{for Judgment:}	11 December 2014

[1] The applicants are parties to the Kapuni Gas Contract.¹Pricing for each tranche of gas must be agreed. The applicants do not agree price. Where there is disagreement, a fair and reasonable price is to be set by arbitrators. Three arbitrators have been appointed.²

[2] What the applicants do agree is that it would be most helpful in setting a fair and reasonable price for their gas – i.e. a market price – to have evidence of other

²The Hon Michael McHugh QC, AC, former Judge of the High Court of Australia, Mr John

Sheahan QC of the New South Wales Bar, and Emeritus Professor Lew Evans of Wellington.

sales prices in cognate gas markets. And, for reasons explained shortly, prices for the supply of LPG.

[3] The arbitrators agree. They have approved the making of an application to this Court for judicial assistance to obtain such evidence. It takes the form of an application for non-party discovery. It is made against other participants in markets for sale of natural gas (in annual quantities of more than 20 T), and LPG (in volumes greater than 1000 tonnes, unless for export). Those participants are the respondents.

[5] Vector Gas Contracts Ltd and Vector Gas Ltd (Vector) are the buyer parties under a gas supply contract for production for the Kapuni Gas Field. The contract was entered in 1967. Shell and Todd, the other applicants, are the seller parties.⁴

[6] Kapuni gas is CO₂-rich.⁵The CO₂must be extracted by buyer. The extraction process produces by-products, including liquid CO_2,natural gasoline and LPG.

[7] Thirty years after entry into the contract a dispute arose. It concerned the supply of excess gas. That is, of the gas reserves remaining after the 25 year initial term of the contract. Seller argued, unsuccessfully, that the initial term had expired and (in the absence of agreement as to terms for further supply) the contract had come to an end. Buyer⁶argued that the broad arbitration clause in the agreement could be used to resolve future terms, and that the contract continued in effect. That

³_{Or at least most of them do not. Some abided or did not
enter an appearance.}

⁴It is conventional simply to refer to gas contract parties as “seller” and “buyer”. I follow that

⁶Then a single buyer entity: Kapuni Gas Contracts Ltd. Its interests have now been assigned to

⁷_{Shell (Petroleum Mining) Co Ltd v Kapuni Gas Contracts
Ltd (1997) 7 TCLR 463 (HC).}

As the cases have indicated, an arbitrator is capable of settling a fair and reasonable price. See the cases already cited, plus Jefferies v R C Dimock Ltd [1987] NZHC 520; [1987] 1 NZLR 419, Modick R C Ltd v Mahoney [1992] 1 NZLR 150; (1991) 1 NZ ConvC 190,909 (CA) and Didymi Corp v Atlantic Lines and Navigation Co [1988] 2 Lloyd’s Rep 108 (CA). The arbitrator may have a difficult but not impossible task. He or she would have to work through the history of the negotiations, the scheme of contract, the economics of production, and the price charged in other sectors of the industry before coming to a fair and reasonable price. Hopefully, the findings in this judgment will be of assistance to any arbitrator.

There will therefore be a declaration that, should negotiations over the terms on which excess gas is to be supplied fail, then the terms are to be arbitrated under Article XXII of the contract and in accordance with the other contract findings in this judgment.

[8] An arbitration in 1999 set the price of buyer’s last tranche of Kapuni gas. That tranche has now been consumed. Price and quantity need to be set for the next tranche. The exact quantity to be sold is in dispute. Buyer maintains it is entitled to have 39 PJ of gas over the next five years.

[9] Arbitrators have been appointed. A six week hearing is scheduled to commence on 27 April 2015. Expert briefs are due on 19 December 2014 and

[10] In 2013 some 181 PJ of natural gas were produced in New Zealand. Over 90 per cent of that came from six fields. Pohokura was responsible for 40 per cent, the depleting Maui field for 21 per cent, and Kapuni for 6 per cent.

[11] Shell and Todd are owners of the Pohokura, Maui, Kapuni, McKee and Mangahewa fields (the latter two adding a further 2 per cent). So, collectively, Shell and Todd have oversight of 69 per cent of wholesale gas sales.

[12] In sub-wholesale markets, Vector and Todd have, on the evidence before me, a combined 55 per cent market share across industrial, commercial and residential markets:

(a) Vector’s 2013 annual report discloses 70 contracts in the industrial and commercial markets. Evidence before me suggests that to have won those 70 contracts (of which nine were new in 2013), Vector would have had to have competed in over 100 tenders. Vector’s market share is 26 per cent of these markets.

[13] The applications also extend to LPG markets. Shell has a 25 per cent share of the total market production of LPG, sourced from Maui and Kapuni.⁹Due to a joint marketing arrangement with OMV, it has oversight of approximately 27 per cent of the New Zealand LPG wholesale market. Todd has a wholesale market share of 21 per cent of the LPG produced in New Zealand, from the Maui, Kapuni and Pohokura fields.

[14] What is sought is set out in schedule 1 to the application. It is as follows:

All natural gas sale and/or purchase agreements, contracts, term sheets, heads of agreements or other documents evidencing gas supply and/or purchase commitments that are:

(a) current or were entered into on or after 1 January 2011 or expired after 1 January 2012;

(c) for volumes equal to or greater than 20 TJ per annum, or which permit off take at or above that level but where the contract does not specify an annual volume.

All LPG sales agreements, contracts, term sheets, heads of agreement or other documents evidencing LPG supply commitments which are:

(a) current or were entered into on or after 1 January 2011 or expired after 1 January 2012; and

(b) for volumes equal to or greater than 1000 tonnes where the minimum term of the contract was one (1) year or more; or

[15] In an affidavit sworn in support of the applications, Mr Jim Seymour, General Manager, Gas Trading for Vector Ltd, explains the relevance of the present applications.

[16] As to natural gas, the applicants are seeking contracts for the sale and purchase of gas over and above 20 TJ per annum. Mr Seymour says the 20 TJ limit “is designed to capture sales of natural gas in both the wholesale market (broadly sales from gas mining companies and the initial purchaser) and the industrial and commercial users market, including any contracts where no volume of gas is specified.”

[17] He says that sales in the wholesale market (generally contract quantities of 1

PJ per annum or more) will be most useful as a comparable to the terms of gas to be sold to Vector under the Kapuni contract.

[18] Sales in the industrial and commercial market are needed because the New Zealand wholesale gas market is thin, and Vector believes it will not provide a sufficient number of comparable data points for the arbitrators to be confident about making findings as to the current market price for specification gas in the quantities at issue before them.

[19] The thinness of the wholesale gas market is then exacerbated by the fact that such sales in New Zealand are often made by way of “bespoke contract”, incorporating tailored terms limiting price comparability. Reference to the industrial and commercial users market, Mr Seymour says, will supply a much larger set of data for the arbitrators’ purposes. Of course in each case adjustments will need to be made to reflect an equivalent wholesale price, reflecting both quantity and term differences.

[20] Mr Seymour also says that the wholesale gas contracts tend to be long term contracts, and the prices set under them may not reflect current market pricing.

Industrial and commercial market sales are usually for shorter term periods, reflect current market pricing, and display trends in the movement of market pricing. Mr Seymour does not expect a large number of contracts to be involved given the 20 TJ threshold.

[21] LPG sales information is sought because an issue for arbitration is whether the price set for raw Kapuni gas should include a premium to reflect liquid components of that gas. Valuation of liquids in the raw gas will be necessary. The arbitral tribunal will need to know the current market price for both natural gasoline and LPG.

[22] Non-party discovery of natural gasoline is not necessary as all relevant sales involve the applicants as a party. But the applicants do not enjoy similar visibility of LPG sales. The proposed terms for provision of LPG sales information is confined to domestic contracts of 1000 tonnes or more, and export sales. Again Mr Seymour does not expect large numbers of contracts in the former category. He does not say how many export contract sales he expects to see.

(a) What are the limits on the jurisdiction to grant non-party discovery to elicit market pricing information for a private arbitration?

(b) Is the discovery material sought really relevant to the arbitration? (c) Is non-party discovery necessary?

What are the limits on the jurisdiction to grant non-party discovery to elicit market pricing information for a private arbitration?

[24] This non-party discovery application comes before the Court indirectly. It is the product of a request pursuant to article 27 of the First Schedule of the Arbitration Act 1996. It is for Court assistance in the taking of evidence. A party request for such assistance must have the approval of the arbitral tribunal. Approval has been given in this case.

[25] Article 27(2)(c) provides that the High Court shall have, for the purpose of the arbitral proceedings, the same power to make an order for discovery of documents as it has for the purpose of proceedings before the Court. It follows that article 27(2)(c) imports for present purposes High Court Rule 8.21. That is, for particular discovery against non-parties after the commencement of proceedings.

(1) This rule applies if it appears to a Judge that a person who is not a party to a proceeding may be or may have been in the control of 1 or more documents or a group of documents that the person would have had to discover if the person were a party to the proceeding.

[28] First, it will be seen that the power to make an order under r 8.21 is discretionary. In this it contrasts with r 8.5(1) – the ordinary party discovery provision – where a Judge must make an order unless formal discovery is unnecessary.

[29] Secondly, in determining an application for non-party discovery order, the Court should have regard to the test under r 8.7 for standard discovery – i.e. the adverse documents regime.¹⁰But, as Judge Osborne observed in Westpac New Zealand Ltd v Adams, the former Peruvian Guano approach may still inform a non- party discovery order in some instances.¹¹To that extent the “train of inquiry” approach, broader than the adverse documents regime, remains relevant. However excursions on the train of inquiry are not to be encouraged in the case of non-party discovery. The Australian cases I am about to discuss make that clear.

[30] Thirdly, a non-party discovery order must still be necessary. This point flows to an extent from the first two, but particularly the first. Previous decisions of this Court have observed that the former requirement in r 8.26, that an order for particular discovery be “necessary”, no longer exists under r 8.21.¹²Technically, that is correct. But it is I think a distinction without a difference, in practice. It is simply a consequence of the 2011 changes to the discovery provisions in the High Court

Rules, which made party discovery presumptive. That is not the case with non-party discovery, as the opening words of r 8.21(2) make clear. Such discovery remains discretionary. As Mr Cooper (who carried the burden of the argument for the applicants) candidly accepted, no Court will make a non-party discovery order that is unnecessary. In my view it remains implicit in r 8.21 that the non-party discovery order be necessary, so that the discretion should be exercised. That is to say, without limitation, other sources of evidence are unlikely to be sufficient because they are materially incomplete or unreliable. And that the documents sought may make a real

[31] Fourthly, there is the vexed question of confidentiality. It is clear that s 69 of the Evidence Act 2006 applies to party and non-party discovery.¹³It provides an explicit basis to impose restrictions on disclosure of confidential information, in a discovery context. But it does so only where an identifiable public, rather than private, interest in protection exists.

[32] Mr Stephens was minded to freight s 69 with special significance in this case. He suggested that the Re Dickinson decision of the Court of Appeal – which I am about to refer to – has been overtaken by s 69. I differ somewhat from Mr Stephens. It is true that s 69 in a sense broadens the scope of protection for confidential information from the previous protection given under s 35 of the Evidence Amendment Act (No 2) 1980. But the proper protection of confidential information has long been an aspect of the law of discovery. Discovery has always required the listing of relevant confidential documents, but permitted degrees of resistance to

inspection on the basis of confidentiality considerations.¹⁴The Court has long

exercised an inherent power to control inspection to ensure the protection of confidential information – particularly confidential market pricing information.¹⁵

This matter has been dealt with expressly in the High Court Rules since 2004. Since

2011 it has been provided for in rr 8.25 and 8.28(3). But it was inherent long before that.

[33] The leading New Zealand decision on non-party discovery of market price information is Re Dickinson.¹⁶Although it is concerned with the issue of subpoenas, for reasons I give later I regard it as equally applicable to non-party discovery. In October 1987 there was a calamitous sharemarket crash in New Zealand. The commercial property market crashed somewhat later, in 1989. In an attempt to bolster the market and maintain apparent rental values, landlords would offer confidential one-off or periodic incentives to tenants to enter or renew leases. A

_{common feature of long term commercial leases is a rent review provision
based on}

¹³_{InterCity Group (NZ) Ltd v Naked Bus NZ Ltd [2013]
NZHC 2261, (2013) 21 PRNZ 520 at [18].}

¹⁴_{See for example Science Research Council v Nassé
[1979] UKHL 9; [1980] AC 1028 (HL) at 1065.}

current market value. The conduct of rent reviews became difficult in the face of these confidential incentives. Valuation evidence became unreliable. The apparent rent was not the real rent. There were difficulties about what use could be made by valuer witnesses or arbitrators of incentive information they knew in confidence.

[34] In Modick R C Ltd v Mahoney, the Court of Appeal emphasised the importance of valuers and umpires being able to refer to genuine market rents.¹⁷As Cooke P noted in Re Dickinson:¹⁸

Such genuine market rentals are not always easy to discover, and when discovered they may be of great importance in assisting an umpire in carrying out his difficult task of assessment. It is a fair inference in the present cases that the rents agreed for the IBM Centre may well be of true significance for the umpire concerned with the Trust Bank Centre. Of course one infers as much without any detailed knowledge of the situation and without in any respect seeking to fetter him, but it is desirable that he should be able to get at the truth as to these allegedly comparable rentals. Plainly, details will be required such as the terms of collateral contracts offering side benefits and the like.

[35] In Dickinson the lessee, a law firm, and the lessor, AMP, were engaged in a rent review for premises in the Trust Bank Centre in Wellington. The lessee sought evidence of rents agreed for other comparable office premises in Wellington – in particular in the IBM and Majestic Centre buildings. So the lessee obtained subpoenas from the High Court under s 9 of the then Arbitration Act 1908 directed to representatives of three lessees in the IBM Centre and one lessee in the Majestic Centre. It sought details “of the rental and collateral agreements bearing on the rental” in relation to each lease. The terms of those leases were subject to confidentiality clauses. The lessors and lessees in those buildings sought to have the subpoenas set aside. Greig J refused. But he granted an interim injunction prohibiting disclosure until determination of the issue by the Court of Appeal on a more considered basis.

[36] The Court of Appeal recognised the private interests in confidentiality in the present case. It accepted that where the grounds for protecting those were

_{sufficiently strong, the claimed confidentiality should be upheld and
the subpoenas}

set aside.¹⁹That might be done under the Court’s inherent jurisdiction to protect confidential interests, or through what was then s 35 of the Evidence Amendment Act (No 2) 1980 – the forerunner to s 69 of the Evidence Act 2006.

There is a public interest in an open market unless special circumstances exist. In my view it is important to get to the truth of comparable rentals where available so that proper rent levels are fixed.

The contention for the lessor of the IBM Centre really does not withstand analysis. In effect it is an attempt, in the interests of lessors, to prevent true market rents from being ascertained.

[38] It is true that Cooke P referred to the “current economic climate” in his judgment, and associated public interest in seeing commercial premises let – and not at unrealistically high rental levels. But the other members of the Court put it far more generally. Gault J I have already quoted. McKay J said:²²

The rent review is under a clause which is apparently the standard BOMA clause in general use in Wellington. Such rent review proceedings are commonplace, and have been for many years. Their effectiveness depends very much on the availability of accurate market information relevant to the particular premises, including details of side agreements providing for rental holidays and the like without which the actual lease may give a false picture. The system of rent reviews based on assessment of market rentals has existed in this country for probably more than 100 years, and the system inevitably depends on the availability of accurate market information which can be then analysed and assessed by valuers.

[39] I do not accept, therefore, the submission made to me by Mr Stephens that Dickinson should be confined to its particular economic and historical context – i.e. the 1989 property crash and its consequences. To the extent the English judgment in

_{Council of Borough of South Tyneside v Wickes Building Supplies Ltd
might suggest}

otherwise, I respectfully disagree.²³The Court of Appeal did not limit its judgment in that way. And it must have appreciated that its impact would outlast the immediate circumstances in which the case arose.

[40] Price review and arbitration clauses have long been commonplace in long term contracts for the supply of commercial property (leases), infrastructure assets and energy resources. The usual alternative in long term contracts is indexed pricing.²⁴But indexation is not invariably applied in that context, as we shall see when we turn to look at Australian authorities. The principles stated in Dickinson apply in any economically important market where significant barriers exist to the identification of important pricing information needed by the tribunal of fact in an arbitration or other proceeding.

[41] The immediate practical consequence of Dickinson was that valuers became more open about the use of confidential information in their possession. And lessors became more willing to provide it, given the inevitable consequence of the issue of subpoenas. Accurate market information became available again for the conduct for rent review arbitrations. A further consequence was that the use of confidential incentives fell away. There was little point now in trying to conceal reality. There does not appear to have been further case law concerning subpoenas to obtain this sort of market evidence. Subpoenas generally were not needed. If they were, they were accepted in principle and their terms sometimes varied by negotiation.

[42] The applicants pointed to a number of Australian cases on point. Although they deal with subpoenas to produce documents for arbitral purposes, rather than non-party discovery, I conclude the governing principles are (or should be)

²³Council of Borough of South Tyneside v Wickes Building Supplies Ltd [2004] EWHC 2428

[43] The first of these is Alliance Petroleum Australia NL v The Australian Gas Light Company.²⁶Alliance and several other companies had entered into an agreement with AGL for the supply of gas. As with the Kapuni contract, the agreement provided for price adjustments and, absent agreement on the adjustments, arbitration. The arbitration clause did not refer specifically to a market price, but arguably that was implicit. At first instance Bollen J held there was public interest in

the conduct of the arbitration, and that anyone seeking a decision from a tribunal, body, minister, member of the executive government or local governing body “should be able to offer the fullest information to the decision-maker”.²⁷He held that adequate confidentiality arrangements (limiting access to information to counsel and the arbitrators) existed, and the issue of subpoenas in those circumstances to establish the prices paid for gas and oil by the respondent companies in South Australia were valid. That decision was upheld on appeal, by majority.²⁸

[44] The approach taken in Alliance was followed by the Supreme Court of South Australia in Santos Ltd v Pipelines Authority of South Australia.²⁹Santos was a natural gas producer. The Pipelines Authority was purchaser of natural gas from Santos. The contract provided for price adjustments, negotiation and, absent agreement, arbitration. In determining price the arbitrators were required to refer to a number of specific considerations, including changes in capital and operating costs, “the market value of gas in the South Australian market”, economic effects of gas prices upon commercial and industrial consumers, and other matters. As Debelle J said:³⁰

Although it is not expressly stated in the contract it is readily apparent from the recitation of these criteria that the arbitrators are required to determine a fair market price.

certain new gas projects. Debelle J applied a test of “apparent relevance” to the

_{arbitral issues, following the decision of the Federal Court in
Trade Practice}

²⁹_{Santos Ltd v Pipelines Authority of South Australia
[1996] SASC 5578; (1996) 66 SASR 38 (SCSA).}

Commission v Arnotts Ltd.³¹In determining the legitimacy of the subpoenas directed to BHP, Debelle J said:³²

I think it is appropriate to borrow from the principles relating to the law of discovery for the purposes determining what is sufficient to discharge the task of proving an apparent relevance. It will be sufficient if the applicant for the subpoena proves that the documents will throw some light on the issues in the arbitration. In this context it must be remembered that the court is not in a position to determine whether the documents required are in fact relevant. The court cannot be sufficiently apprised of the issues in the arbitration to determine that question. It will have to rely on what is proved by the affidavits.

In that case the collateral project documents were shown on the affidavit evidence to throw “some light on the assessment of a fair market price of gas in South Australia”. That was all the Court considered it needed to determine.³³

[46] The next Australian decision referred to was Western Power Corporation v Woodside Petroleum Development Pty Ltd, a decision of the Supreme Court of Western Australia.³⁴The fact pattern in that case was similar to those in its predecessors. Western Power was purchaser under a gas supply contract from Woodside. The contract provided for gas price adjustment, negotiation and then arbitration in the absence of agreement. The contract contained pricing principles.

Most fundamentally, that the gas supplied be competitive with alternative sources which could be used for the production of electricity and its sale. Western Power sought issue of some 48 subpoenas against participants in wholesale markets of gas and coal in Western Australia. A number of those participants opposed issue of the subpoenas. As in the other cases, a primary ground (which does not concern us here) was whether there was an arbitration clause at all, or simply an arbitration to “create a contract”.

[47] On the merits, Wheeler J noted that the application was, to some extent, too broad. Coal transactions were too remote. Associated gas extracted from crude oil

_{prior to refining was also too remote. The range of relevant contracts
within the}

³²_{Santos Ltd v Pipelines Authority of South Australia
[1996] SASC 5578; (1996) 66 SASR 38 (SCSA) at 52.}

³⁴Western Power Corporation v Woodside Petroleum Development Pty Ltd WASC ARB4/1997, 27

permitted scope of the subpoena was still broad, including gas reserves and off- specification gas. The Judge applied the same “apparent relevance” test applied in Santos. In determining whether subpoenas should be issued, the Court took into account adequacy of confidentiality arrangements as a factor. But the fact the documents were confidential and commercially sensitive did not alone mean that the

[48] That decision was appealed, unsuccessfully, in Apache North West Pty Ltd v Western Power Corporation.³⁶The Full Court applied the “apparent relevance” approach in Santos and preceding cases. The Court referred to a decision of Rogers CJ in Arhill Pty Ltd v General Terminal Co Pty Ltd.³⁷There a test of “necessity for having a document fairly to dispose of the issues at trial” was used in relation to a subpoena. The Court in Apache emphasised that, at a pre-trial stage, that test would embrace “any document which has value, in the sense of at least apparent relevance, in ‘fairly disposing of the proceedings’, even if it might not readily be seen, at the pre-inspection stage, necessarily to be admissible in evidence”.³⁸The ultimate relevance of the material was for the arbitrator. A Court assisting an arbitration in issuing subpoenas should not embark on a detailed inquiry as to admissibility.³⁹

Turning then to confidentiality, the Full Court recognised the need to balance competing interests. It followed the approach of the Supreme Court of South Australia in Alliance in concluding that “the risk to the confidentiality of the information must be tolerated in the interests of the administration of justice”.⁴⁰The appropriate way to deal with risk as between trade rivals was to mould orders that distinguished between the trade rival and its legal advisers and experts.

[49] The next Australian case is Xstrata Queensland Ltd v Santos Ltd.⁴¹Xstrata was a purchaser of gas from Santos. Its contract supply terms were similar to those in other cases: price adjustment, negotiation and, in the absence of agreement,

³⁶_{Apache North West Pty Ltd v Western Power Corporation
[1998] WASCA 127; (1998) 19 WAR 350 (SCWA).}

³⁷_{Arhill Pty Ltd v General Terminal Co Pty Ltd (1990)
23 NSWLR 545 (SCNSW) at 556.}

³⁸_{Apache North West Pty Ltd v Western Power Corporation
[1998] WASCA 127; (1998) 19 WAR 350 (SCWA) at 376.}

contained a number of factors to be considered by arbitrators in setting price. These included “prices paid by large industrial customers of natural gas in Queensland, New South Wales, Victoria and South Australia”.

[50] Xstrata applied for leave to issue 38 subpoenas against a substantial number of suppliers or industrial users of natural gas. McMurdo J applied the “apparent relevance” test, suggesting that this was explicitly less demanding than a discovery- based rule requiring direct relevance.⁴²McMurdo J applied the approach in Apache referred to in [48] above, but qualified it by saying where issues of confidentiality were engaged, relevance must be more clearly demonstrated.⁴³But a genuine concern for the confidentiality of a document did not in every case require its relevance to be demonstrated to a level of admissibility.⁴⁴

[51] McMurdo J noted that there was force in the respondent’s complaint that the parties had here created a price review mechanism, including arbitration, which could require competitors to disclose information of the very kind which they were themselves at pains to keep confidential.⁴⁵But he considered the overriding public interest lay in favour of the orderly administration of justice, including in the proper conduct of arbitration proceedings as an essential means of commercial dispute resolution. In that case the issue of confidentiality was resolved by the Court placing the terms of access within the control of the arbitrators. Subpoenaed parties would be entitled to appear before the arbitrators to argue terms of access.⁴⁶

[52] One of the respondents, Queensland Power Trading Corporation, appealed.⁴⁷

That appeal was allowed in respect of the terms of its gas supply contract. But that was because Queensland Power’s contract was for the supply of raw gas from the Moranbah gas field. That gas was sourced from coal seams, which would then be

_{processed into a comparable gas form suitable for transportation. The
Queensland}

⁴³At [55], applying National Employers Mutual General Association Ltd v Waind [1978] 1

⁴⁷Queensland Power Trading Corporation v Xstrata Queensland Ltd [2005] QCA 447.

Court of Appeal accepted it was insufficiently relevant to “give rise to a line of

enquiry about the price which should be paid for natural gas strictly defined”.⁴⁸

[53] The next relevant case is Alinta Sales Pty Ltd v Woodside Energy Ltd.⁴⁹

Alinta was purchaser of natural gas from Woodside Energy. The relevant gas contracts had similar provisions: price adjustment, negotiation and arbitration. The arbitration required the arbitrators to have regard to “the market price of other energy forms, or substitute products”, transportation costs and “the market price of alternative gas supplies”, amongst other things. Rather like the present case, the parties had conferred and identified a list of proposed subpoena recipients likely to be in possession of relevant documents. In particular, the range of other energy forms of substitute products was said to include coal, LPG, LNG, fuel oils, diesel and electricity. Some 20 classes of proposed recipients were identified. The total number of subpoenas sought is not stated, but clearly exceeded 20. After reviewing the cases (largely those I have already addressed) Beech J gave leave to issue the proposed subpoenas. Principles applied by Beech J included, consistent with those cases going before it, that ultimate relevance was a matter for the arbitrators, the necessity for a document to fairly dispose of issues of trial may not become apparent before trial, and that apparent relevance “is to be assessed by reference to the issues

in the arbitration, taking into account the competing contentions of the parties”.⁵⁰

[54] The final Australian case referred to me was AGL Wholesale Gas Ltd v Origin Energy Ltd.⁵¹The pricing provisions of the agreement between AGL and Origin were similar to those in the preceding cases. In the event of arbitration, the arbitrators were to assess their “best assessment ... of the market price for Gas at Moonba as at the price review date for similar quantities under similar terms and conditions as this agreement”. Leave was given to issue subpoenas against third party gas transactors. One of these was Queensland Gas Company Ltd, which applied to set aside the subpoena. That subpoena required it to produce documents

_{including any agreement to which it was party for the transportation of
gas by way of}

⁵¹AGL Wholesale Gas Ltd v Origin Energy Ltd [2008] QSC 201 (upheld on appeal: [2008] QCA

the proposed Queensland Hunter gas pipeline, board or management reports considering certain investments and energy projects, similar reports concerning how water production would be managed in relation to the extraction of gas from coal seam methane fields (and correspondence from government bodies relating thereto) and reports on how “ramp gas” might be managed. Queensland Gas submitted that these documents related only to pending projects Queensland Gas was not presently committed to, but was simply investigating. They could have no bearing on the calculation of market price for gas at Moonba. It did not challenge the proposition that existing confidential supply of sales agreements relevant to the market price

should be disclosed.⁵²Dutney J held that the documents concerned did not meet the

test of apparent relevance. The projects were at a preliminary stage, their obtaining approval was speculative and no commitment had been made to proceed with them.⁵³That decision was upheld on appeal.⁵⁴As Muir JA put it:⁵⁵

[56] First, Dickinson and the Australian cases all deal with subpoenas to produce documents at trial. The jurisdictional basis for the issue of subpoenas to produce documents is slightly different from r 8.21.⁵⁶But ultimately their purpose is the same. In one case the production of particular documents ahead of trial. In the other the production of particular documents at trial. The approach taken by the Court to each should be broadly consistent. True, the consequence of grant is somewhat

different: non-party discovery orders require documents to be handed over ahead of trial, rather than at trial in the course of evidence. Discovery enables greater analysis, therefore. But that does not alter the desirability of consistent analysis. What it may do is give even greater emphasis to the need for adequate

[57] Secondly, Dickinson and the Australian cases provide a reasonably consistent line of authority requiring market participants to disclose price sensitive information in the course of arbitrations to determine market pricing – even where they are not parties to that arbitration. They firmly balance the competing public interests in favour of access to relevant evidence by the arbitral tribunal tasked with setting a market price in an otherwise opaque market. Controlled disclosure for that purpose is a risk of market participation. The next three considerations consider limits on the scope of jurisdiction to make such orders.

[58] Thirdly, whether the procedure engaged is by non-party discovery order or subpoena, a discovery-based relevance test is applicable. A Court assisting arbitrators by either a non-party discovery order or subpoena is not making assessment of ultimate admissibility. Under r 8.21 its role is to determine whether the material would be discoverable by the non-party if they were in fact a party to the proceeding. The test is simply the relevant discovery test applicable to a party, based primarily on the adverse documents regime. That is, they really may assist parties to the arbitration to advance or defend their cases. Excursions on trains of inquiry

[59] Fourthly, I have concluded that necessity for the making of an order remains implicit in r 8.21. Necessity here does not require re-examination of the appropriateness of non-party discovery of sensitive market pricing information in private arbitrations generally. That argument was lost long ago, and this is not the occasion or place to revisit it. But it does require the Court to have a reasonably strong sense that non-party discovery of this kind and extent is necessary. That is, in most cases, that existing sources available to the parties are likely to be materially incomplete or unreliable. And that the documents sought may make a real difference, and are not merely marginal.

[60] Fifthly, satisfactory arrangements must be incorporated in the proposed orders to ensure that market sensitive information is not released to a commercial competitor. Such information should be confined to a responsible group of legal

_{advisers, experts (essentially for the purposes of giving evidence) the
arbitral panel}

itself and essential support persons. A Court will expect to see an articulated draft protocol and undertakings in such cases.

[61] I am satisfied the documents sought in this case meet the threshold for production. That is, they clearly meet a test of apparent relevance to the issue of setting a fair and reasonable price for Kapuni gas as at (and from) 1 July 2013.

[62] In reaching that conclusion, I recognise that similar conclusions have been reached in the Australian cases discussed earlier. No reason exists why I should now reach a different conclusion. None of the materials sought would clearly fail to meet relevance requirements.

[63] In particular, I am satisfied that differences in contract terms, contract volumes and supply periods are matters for interpretation, but not for exclusion from discovery. An advantage of non-party discovery over a subpoena is that it enables analysis ahead of hearing. It will be for expert witnesses to analyse differences. Necessarily some of the material will prove less relevant to the arbitral tribunal, but no basis for summary exclusion at this point, by this Court, exists.

[64] As the applicants’ expert, Dr Paul Carpenter observes in his affidavit, the adjustment of contract price for differences between non-price terms in comparison contracts is a normal aspect of a gas price arbitration. That adjustment exercise is a key part of the analysis undertaken by expert witnesses submitting evidence to the tribunal.

[65] The applicants’ experts diverge on the relevance of contract volumes below 1

PJ annual volume. Mr Seymour and Mr Balchin (who give evidence for Vector) maintain that it will be necessary to look at contracts in the industrial and commercial market, down to 20 TJ, because there are a limited number of contracts at the 1 PJ level. That issue will be in argument between buyer and seller in the arbitration. Dr Carpenter (who gives evidence for Shell and Todd (i.e. seller)) accepts that industrial and commercial level contracts below 1 PJ may be relevant if it turns out that the number of comparable wholesale contracts is too small for the

analysis to be reliable. But in that event he would wish to analyse a wide, and not limited, range of such contracts. I accept a sufficient basis of relevance for discovery purposes has been laid for contracts down to a 20 TJ annual volume.

[66] As to the objection by some respondents that the application seeks contracts over too broad a period of time, the application is limited to contracts current or entered into after 1 January 2011, or expiring after 1 January 2012. The last class is more arguable, but this Court is not in a position to summarily declare immaterial contracts in particular parts of this time range. But I am satisfied that a sufficient basis has been laid for their relevance.

[67] Finally, there is a justified basis for seeking production of contracts relating to the sale of LPG. It is a by-product of treatment of Kapuni gas, by buyer.⁵⁸The applicants do not need evidence of the natural gas gasoline by-product sales; they have full oversight of those. However the market value of LPG is relevant to setting a fair and reasonable price for Kapuni gas. It also represents a relevant point of difference from other gas supply contracts. The exact extent of relevance is a point in issue between the applicant parties. But all are agreed that discovery is necessary for arbitral tribunal’s purposes. And the tribunal itself seems to be of that view in its

[68] I am satisfied that non-party discovery of the documents sought in this case is necessary.

[69] The existing market information is partial. There is a public interest in the arbitrators setting a market price based on a more complete picture of the market for natural gas sales in New Zealand. For the particular reasons associated with this case, that includes sales of LPG, a by-product of Kapuni gas.

[70] Although the applicants have access to a substantial amount of market data through their substantial wholesale market position, that information is materially

incomplete. They do not comprise the relevant market, but simply a substantial section of it.

[71] The range of discovery sought in this case is not excessive. There is no basis on which this Court could conclude, summarily, that any particular part of it fails to meet the relevance threshold. Although some of it will doubtless prove less relevant upon analysis, that is a matter for the arbitral tribunal. The documents sought may make a real difference. They are not merely marginal.

[72] Schedule 2 to the present application provides for orders concerning confidentiality. It provides that the documents disclosed not be shown to any person other than “Approved Persons” provided for in the schedule (except as provided in the schedule). Approved Persons are the three law firms acting for the applicants, Chapman Tripp, Bell Gully and Minter Ellison Rudd Watts. They are also the consultants and experts acting for the applicants, namely Messrs Balchin, Houwers, Hunt and Langford, and Dr Carpenter. The applicants made oral application for expansion of that latter class to also include staff members assisting those experts in the preparation of their evidence.

[73] The schedule goes on to provide that Approved Persons may not use or refer to the documents in any way other than for the purposes of the arbitration, may retain them only for the purpose of advising or assisting the arbitration, and will discuss or disclose the information only to other Approved Persons and the arbitrators. They are required to keep secure any copies of the documents and information extracted from them, and only make such further copies as reasonably necessary for the purposes of the arbitration. They are to ensure that the documents and any copies are stored in a manner that makes clear the confidential classification of the documents and the information contained in them. At the conclusion of the arbitration they are to destroy any copies made. To the extent that any material containing information obtained from the documents is preserved, it is to be archived in a manner making clear the confidential restrictions imposed on that information.

[74] Approved Persons are required to give an undertaking as to compliance with the restrictions provided in the schedule. At the arbitration hearing counsel for the applicants are to ensure that the hearing is conducted in a manner ensuring that no non-Approved Person is present when any information contained in the documents is being presented or discussed.⁵⁹

[75] Three particular concerns were expressed by the respondents about these confidentiality provisions.

[76] The first is that the two independent expert witnesses, Messrs Hunt and Houwers are based in New Zealand and have continuing involvement in the New Zealand gas market. Both have filed affidavits addressing that concern. In them they confirm they will honour the confidentiality undertakings. The respondents expressly raise no concern as to the integrity of Messrs Hunt and Houwers and their likely compliance with the undertakings given. Mr Stephens’ point is simply that, with their continued participation in the New Zealand gas market, what they learn in confidence cannot be unlearned. This is perhaps more a concern in relation to Mr Hunt than Mr Houwers. Gas sale contract negotiations do not form a major part of Mr Houwers’ work. Since 2007 he has assisted with only one gas purchase agreement, and that was incidental to consultancy work he was undertaking at the time. Mr Hunt, a former Chief Executive of Contact Energy Ltd, is more involved in gas market consulting role in his present role as a director of Concept Consulting Group Ltd. It advises government agencies and companies in the electricity and gas sectors.

[77] Both Messrs Hunt and Houwers offered to give an additional undertaking that they would not undertake any consultancy work concerning gas price negotiations for a period of two years. However, Mr Taylor QC urged that I accept such undertaking only as a matter of last resort. It should not be seen as a precedent. To insist on it might, he said, have a chilling impact on the availability of expert witnesses. He submitted that Messrs Hunt and Houwers should be treated in the

[78] Ultimately I am satisfied no such additional undertaking is needed. There is no concern about the individual integrity of Messrs Hunt and Houwers. Their undertakings, reinforced in their affidavits, may be relied upon.

[79] The second specific objection taken is that the formal undertakings permit access to the documents and information developed from them by solicitors other than those directly involved in the arbitration. I think that objection is largely sound. The present draft undertakings simply name entire solicitors’ firms as Approved Persons. That is then arguably qualified in the definition of “Approved Persons” by limiting them to unnamed persons “acting for the applicants”. That will not do. Approved Persons should be identified individually. In the case of solicitors, those accessing the material should be members of the firms’ litigation departments only, so there is no risk of accidental misuse of commercial information. And each Approved Person should give an executed undertaking.

[80] Thirdly, objection is taken by the respondents to the risk of inadvertent disclosure and lack of safeguards in that respect. In particular, reference was made to lack of restrictions on copying, redaction of names of counter-parties and requirements as to electronic and physical security of files containing information. I uphold this objection in part. I am satisfied that provision for security of documents is adequate. The schedule need not attain the crenellated splendour of a Chinese wall protocol. Clear obligations are more important here than prescriptive processes. But there should be provision for notification in the event that access to confidential information from these documents is given wrongly to a non-Approved Person.

[81] Finally, and as discussed at the hearing, the respondents should have the opportunity to appoint counsel (one only) to represent their interests at the arbitration to the extent reasonably necessary to ensure protection of confidential information disclosed to the arbitral tribunal and Approved Persons.

[82] For the reasons given already I conclude that non-party discovery orders in the terms sought should be made, subject to the amendments set out in the next section of the judgment.

[84] The scope of discovery orders will conform to schedule 1 of the application as amended at the hearing.

[85] The confidentiality orders accompanying the discovery orders will conform to schedule 2 of the application as amended at the hearing, with the following further amendments:

(a) Approved Persons at the firms of solicitors acting for the applicants will be individually identified (other than in the case of support staff), and will be confined to members of the firms’ litigation departments.

(b) Approved Persons assisting the experts in cl 3.1(b) of schedule 2 will be individually identified (other than in the case of support staff).

(d) If access to documents is given in error to any non-Approved Person, that fact and the circumstances associated with access are to be notified immediately to all other parties to the present application, together with counsel appointed pursuant to (e) hereof.

(e) Respondents in the present application may appoint single joint counsel to represent their interests at the arbitration to the extent reasonably necessary to ensure the protection of confidential information disclosed to the arbitral tribunal and Approved Persons. The applicants are to ensure adequate rights of audience for respondents’ counsel before the tribunal.

[86] The applicants shall meet the respondents’ reasonable costs associated with providing the discovery ordered, including costs incurred in accordance with (e) above.

[87] Leave is reserved to apply further to vary these orders, to the extent necessary to carry their intent into effect.

[88] Costs in the present application are reserved. Memoranda may be filed, by the applicants by 30 January 2015, and by the respondents by 13 February 2015.

Simpson Grierson, Wellington for First, Second, Third, Fifth and Ninth Respondents

High Court of New Zealand Decisions

Vector Gas Contracts Ltd v Contact Energy Ltd [2014] NZHC 3171; [2015] 2 NZLR 670 (11 December 2014)