Commerce Commission v Cathay Pacific Airways Ltd

[2012] NZHC 726

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2008-404-008357 [2012] NZHC 726

BETWEEN  COMMERCE COMMISSION Plaintiff

ANDCATHAY PACIFIC AIRWAYS LTD Defendant

Hearing:         4 April 2012

Counsel:         N Flanagan and K Wendt for Plaintiff

I Thain for Defendant

Judgment:      18 April 2012

JUDGMENT OF ASHER J

(Tailored discovery in relation to Cathay Pacific)

This judgment was delivered by me on Wednesday, 18 April 2012 at 1pm pursuant to r 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Solicitors/Counsel:

Meredith Connell, DX CP 24063, Auckland 1140. Email:  [email protected]

DLA Phillips Fox, DX CP 24027, Auckland 1140. Email:  [email protected]

COMMERCE COMMISSION V CATHAY PACIFIC AIRWAYS LTD HC AK CIV-2008-404-008357 [18 April

2012]

Introduction

[1]      In this proceeding the Commerce Commission claims that Cathay Pacific Airways Ltd, along with other airlines, fixed fuel and security surcharges at certain agreed rates.  The proceeding is at present part-heard.  There has been a stage one hearing which  determined  that  there is  a  market  in  New  Zealand  for  air  cargo services from an overseas country or region to New Zealand.  The parties are now preparing for a stage two hearing which will consider the remaining issues.  The core issue to be determined is whether the defendant airlines entered into arrangements to agree on fuel and security surcharge rates.   That hearing is set down to begin in February 2013.  It may take as long as five months.

[2]      Separate proceedings have been issued against each airline.   However, the proceedings are all to be heard together, and most issues have been determined between the Commerce Commission and the airlines acting collectively.

[3]      The parties have in recent months, in accordance with timetable directions made by consent, been preparing and providing discovery and preparing evidence. This hearing is concerned with aspects of the discovery to be provided by Cathay. The Commission seeks three very specific discovery orders against Cathay.  Cathay, which has in common with other airlines agreed most aspects of discovery with the Commission, opposes the making of the three particular orders sought.

The specific issue

[4]      The Commission seeks discovery against Cathay in relation to Singapore and the United States in the following three categories:

1.    Discovery of documents held by Cathay in Singapore relating to the global and regional agreements to impose and [the] imposition of fuel surcharges on cargo, within the period

(a)   1 November 1999 to 30 April 2000; and

(b)   1 March 2002 to 31 May 2002.

2.    Discovery of documents held by Cathay in the United States relating to the global and regional agreements to impose and [the] imposition of

fuel surcharges on cargo, within the period November 1999 to October

2000.

3.    Discovery of documents held by Cathay in Singapore relating to the global  and  regional  agreements  to  impose  and  [the]  imposition  of security surcharges on cargo.

[5]      Cathay   argues   that   this   discovery   would   be   disproportionate   and unreasonable.   At my request Cathay has put forward its own far more limited proposal as to discovery orders in relation to Singapore and the United States, which is as follows:

4.1.1Each of the emails which, in [the Commission’s] Singapore regional pleadings against Korean Air Lines, Thai Airways, Emirates, Singapore Airlines and Air New Zealand, are alleged to have been sent to [Cathay].

4.1.2Each of the further emails (which are not alleged to have been sent to [Cathay]) but are listed as the first (a) to (d) in [the Commission’s] letter dated 29 October 2010.

4.1.3Minutes of each of the meetings at which, in [the Commission’s] Singapore  regional  pleadings  against  Korean  Air  Lines,  Thai Airways, Emirates, Singapore Airlines and Air New Zealand it is alleged a representative of Cathay was present, and Minutes of the meeting alleged in paragraph 114(c) of the fourth amended statement of claim against [Cathay].

4.1.4Any  documents  by  which  anyone  from  [Cathay]  replied  to  or forwarded any of the documents in 4.1.1 to 4.1.3 above.

[6]      The issue is then, not whether there should be tailored discovery, but rather the terms of a particular aspect of a significant tailored discovery exercise.

The relevant rules

[7]      Both parties agree that the High Court Amendment Rules (No 2) 2011 should apply.  These came into force on 1 February 2012, and implement a new discovery regime.

[8]      Key reforms made by the amendments include a specific requirement on the parties to co-operate with each other at an early stage to seek to achieve a consent position as to the scope and method of discovery, the dispensing of the Peruvian

Guano1  test for discovery, and its replacement by either an adverse documents test (“standard discovery”) or tailored discovery where specific discovery categories are ordered.  All discovery must now be given electronically unless an order is made directing otherwise.

[9]      Rule 8.8 provides that tailored discovery must be ordered when the interests of justice require an order involving more or less discovery than standard discovery will  involve.    Under  r  8.9  there  is  a  presumption  of  tailored  discovery  where, amongst other things, the proceedings are on the commercial list2 or where the total of the sums in issue in the proceedings exceed $2,500,000.3

[10]     These are commercial list proceedings involving potentially very large sums indeed.   So the presumptive position is tailored discovery.   Moreover, r 8.9(a) provides that where the cost of standard discovery would be disproportionately high in comparison to the matters at issue in the proceeding, there should be tailored discovery.  There can be no doubt, for reasons that will become apparent later in this judgment, that the costs of standard discovery by the defendant airlines in this case would be quite disproportionate.   All the parties to this proceeding have acted in accordance with the spirit of the new rules, and co-operated first in agreeing on tailored discovery and then, save for the issues that must now be determined, in settling the terms of the tailored discovery.

[11]     Rule 8.12(1)(c) provides that an order for tailored discovery may set out categories (for example by subject headings and date periods) or another method of classification by which documents are to be identified.   The discovery checklist,4 which must be considered by the parties in the process of co-operation and endeavouring to agree on an appropriate discovery orders,5 provides:

3     Tailored discovery

…

1      Compagnie Financiére et Commerciale du Pacifique v Peruvian Guano Co (1883) 11 QBD 55 (CA).

2      High Court Rules, r 8.9(b).

3      Ibid, r 8.9(d).

4      Ibid, Schedule 9, Part 1.

5      Ibid, r 8.11(1).

(2)   The parties must–

(a)   endeavour to agree a proposal in relation to the discovery order that should be made, with respect to the following:

(i)    categories:   identify the categories of documents required to

be discovered by the parties, and for each category seek to limit discovery to what is reasonable and proportionate.  This may be done by, for example, specifying–

(A)    subject matter: (B)         date range:

(C)    types of documents:

(D)    key  individuals  (for  example,  those  who  are  company directors or are at a specified management level; and

…

The checklist also goes on to state that the parties must endeavour to agree the methods  and  strategies  for  locating  documents  and  discuss  whether  a  staged approach may be appropriate.

Approach

[12]     The concept of proportionality is central to tailored discovery.  It is relevant in determining whether tailored discovery is appropriate (r 8.9(a) and checklist cl 1). It is relevant in deciding if there is tailored discovery, whether the categories of tailored discovery are reasonable and proportionate (checklist cl 3(2)(a)(i)).6   And it is also a key concept in determining what is a reasonable search for documents within the scope of a discovery order (r 8.14(2)(e) and checklist cl 2(b)), and the

methods and strategies for locating documents (checklist cl 3(2)(a)(ii)).  At issue in this application is the definition of specific discovery categories, and whether the category orders sought by the Commission are reasonable and proportionate.

[13]     The starting point in such a consideration of appropriate tailored discovery orders must be an analysis of the issues.  Discovery categories will reflect the issues and will only be ordered for the discovery of documents that are relevant to those issues.  Except in exceptional circumstances, these issues will be discernible from a review of the pleadings.  Discovery orders that are essentially of a “fishing” nature

are not part of tailored discovery.  Orders will not be granted where the categories do

6      The considerations set out at cl 1(c) are also relevant in this regard.

not relate to a pleaded relevant issue, but rather a non-pleaded issue which might be pleaded should discovery reveal documents that support such a pleading.

[14]     In the Cathay proceedings the Commission in its fourth amended statement of claim has, as it has in the proceedings against all of the airlines, alleged markets for the provision of air cargo services to and from New Zealand to specified regions throughout  the  world.    The  Commission  asserts  that  Cathay provided  air  cargo services in the air cargo services market in competition with the other airlines.  The Commission alleges an overarching fuel surcharge agreement entered into by Cathay and the other airlines relating to the imposition of fuel surcharges on air cargo services around the world.  It further alleges various regional agreements to impose fuel surcharges. There is also a security surcharge agreement alleged.

[15]     The  fuel  surcharge  agreements  are  alleged  to  have  operated  between November 1999 and February 2006.  The overarching agreement is alleged to have been finally entered into by the relevant airlines between November 1999 and February 2000.  The security surcharge agreement is alleged to have been entered into in or about September to October 2001.

[16]     Cathay denies entering into the alleged agreements and also pleads various affirmative defences.  A core issue is whether price fixing agreements were made as alleged.     Therefore,  any  document  relating  to  the  alleged  surcharge  fixing agreements is relevant.

[17]     The Commission has sensibly accepted that worldwide discovery of fuel and security surcharge documents would be an unreasonable and disproportionate burden on the defendants and that a more targeted approach is necessary.  It is accepted that in  relation  to  discovery  from  defendant  airlines’ regional  offices,  only  tailored discovery in relation to a small number of defined regions where the Commission had good cause to expect that relevant material might be found would be ordered.

[18]     To determine the proportionality arguments in relation to tailored discovery of particular categories it is necessary to consider the chances of finding relevant documents in the discovery exercise and their degree of relevance.  This should then

be balanced against the cost of carrying out that discovery process.   Broader considerations such as the amount at issue, the resources of the parties, and delay to the proceedings may also be relevant, although they do not loom large in this case given the amount at issue, the considerable means of the parties, and their legal resources.  Delay is not raised as an issue.

First category

[19]     The  first  category  of  documents  sought  by  the  Commission  is  those documents  held  by  Cathay  in  Singapore  relating  to  the  global  and  regional agreements to impose, and the imposition of, fuel surcharges on cargo within the periods 1 November 1999 to 30 April 2000, and 1 March 2002 to 31 May 2002.  If discovery is ordered this will be provided on terms agreed between the parties in the discovery schedule attached to a memorandum of 23 December 2011 and associated correspondence.

[20]     Mr  Thain  accepts  the  discoverability  of  any  documents  held  by  Cathay relating to the global and regional agreements, and accepts that Cathay must provide documents from its head office and from offices in regions where it is alleged Cathay is party to a regional agreement.  However, although it is pleaded that a regional fuel surcharge agreement was reached between a number of airlines in Singapore, Cathay is not one of those airlines.   He submits that therefore the order sought cannot be related to the specific claims against Cathay.   Mr Flanagan for the Commission submits that a search of the Singapore documents may reveal relevant material, and that given the existence of a regional office in Singapore, a discovery order would be proportionate.

[21]     In a decision whether to order discovery under the particular category it is necessary to measure the likely return of relevant documents against the cost of the exercise.  If highly relevant documents may be revealed, then a greater cost can be justified.

[22]     There is no doubt that any document held by Cathay in Singapore relating to either the global and regional agreements to impose fuel surcharges on cargo or their implementation is relevant.

[23]     There is nothing to link specifically the overarching fuel surcharge agreement with Cathay’s Singapore office.  The agreement allegedly had its origins in Geneva. Cathay has its head office is in Hong Kong and it is there that those who have senior positions in the company are based.  That office is likely to be the main repository of information, certainly in relation to the alleged global agreement.   It would seem unlikely that there would be particular documents held in the Singapore office that would not be revealed by the other discovery that Cathay and other airlines must carry out.

[24]     Cathay has a regional office in Singapore as it does in many other major centres around the world.   The chances of there being a particular document in a regional office that sheds new light on the alleged global agreement is small if that office has had no pleaded role in the reaching of the agreement.

[25]     There is no part of the pleading against Cathay that relates to any event in Singapore.   In proceedings against other airlines there is an allegation that those airlines entered into a regional agreement in Singapore described as the “Singapore fuel surcharge agreement”.  However, of the 10 airlines that were allegedly parties to that agreement, Cathay is not listed.   The list of airlines is expressed to be “including”.

[26]     While the documents sought by the Commission under this head are relevant, the chances of a search of all of Cathay’s Singapore records during the relevant periods revealing documents that relate to the Singapore fuel surcharge agreement appear to be slight.

[27]     I have not been provided with any affidavit evidence as to the difficulties of the discovery exercise.   This is understandable as there have been many issues to traverse in negotiating the details of tailored discovery, and it has only been in the last few days that the parties have found themselves at an impasse on this particular point.   Given the importance of the parties keeping to the timetable, it was not practical to adjourn the hearing to enable affidavit evidence to be provided.  It will sometimes be the case that Judges deciding proportionality issues have to do so on the basis of just the pleadings, the submissions and their own experience and understanding of what is practical without detailed affidavit evidence.

[28]     The periods for which discovery is being sought are relatively short, the first being of six months and the second of three months.  However, it would be a search of records created some 12 and 10 years ago.  Some will be in hardcopy, and some in electronic form.

[29]     Mr Thain submitted that even tailored discovery for the limited period of the Singapore office would be difficult and expensive.  I accept that this would be so. The task of comprehensively recovering and reviewing hard-copy documents from so long ago would be significant.  Outside experts may have to be retained to recover the documents in electronic form.

Balancing

[30]     I weigh against the costs and difficulty of the exercise the small chance of there being any significant return of relevant documents.  As I have observed, any relevant documents relating to global or regional agreements are likely to have been reached at a fairly high level within Cathay.  It seems unlikely that documents that will not be discovered by a search of Cathay’s records in Hong Kong would nevertheless be found in Singapore.   In relation to the Singapore fuel charge agreement, the allegation is of a cartel arrangement so the other airlines specifically alleged to be party to the agreement are likely to discover all the relevant documents, including any relating to Cathay.

[31]     There are some allegations in the statement of claim against Korean Air Lines, Thai Airways, Emirates, Singapore Airlines and Air New Zealand that do relate to Singapore.  There are some emails, which I am informed were specifically referred to in the Commerce Commission’s letter of 29 October 2010, that may be relevant against Cathay.  Cathay is prepared to discover those documents.  It should also disclose any documents including replies, consequential correspondence or filenotes.  With the qualification that this further discovery beyond that offered be provided, I decline to order the category (1) discovery sought by the Commission and will order instead Cathay’s discovery categories 4.1.1 and 4.1.2.

[32]     I appreciate that there may be instances where other airlines have agreed to provide tailored discovery in relation to regional offices where there has not been a specific pleading against them alleging that they were parties to that particular regional agreement.  I am not clear to what extent this is so, but assuming that it is, this is not in itself a reason to order the same type of tailored discovery against Cathay.  In a complex tailored discovery exercise such as this there must always be a measure of give and take between parties, and sometimes the terms of a sensible compromise  between  one  set  of  parties  may  differ  on  a  specific  point  from  a different compromise reached by other parties.   There is a danger in holding one defendant to the agreements of other defendants, and I do not propose going down that route.

Second category

[33]     The Commission seeks discovery of documents held by Cathay in the United States relating to the global and regional agreements to impose fuel surcharges on cargo and the imposition of such fuel charges within the period November 1999 to October 2000.

[34]     Again there can be no doubt about the relevance of documents that fall within the category.   The issue is, as with the previous category, what return of relevant documents is likely to result from this exercise, as compared to the cost of the exercise.

[35]     It is not alleged that Cathay was party to any agreements in the United States relating  to  either  the  global  agreement,  or  a  United  States  or  North  American regional agreement.   It does not seem likely that a trawl through Cathay’s United States records would reveal a document relating to the global or regional fuel surcharge agreement not disclosed in discovery of Cathay’s head office documents, or discovery from other airlines who, it is pleaded, had specific roles in the United States agreement.

[36]   Although Cathay has already provided discovery in relation to security surcharges  for  the  United  States,  that  is  because  there  is  a  pleading  which specifically implicates Cathay in relation to security surcharges and events in the United States.   There is no such pleading in relation to the fuel surcharges and Cathay.   It can be anticipated that the cost of carrying out a discovery exercise in relation  to  the  United  States  would  be  considerable.    Cathay  has  a  number  of regional offices throughout the United States and there would have to be an investigation in relation to every office.  While the period is only some 11 months, it is for a period approximately 12 years ago.  It can be anticipated that despite the fact that the exercise has already been done in relation to security surcharges, there will be considerable further expense involved.

[37]     I conclude that it would not be proportionate for Cathay to have to provide discovery in the second category.

Third category

[38]     There are specific pleadings relating to Cathay’s involvement in activities in Singapore relating to security surcharges.   In particular at paragraph 126(c) of the fourth amended statement of claim it is alleged that a Cathay executive attended a meeting with other airline representatives on 23 January 2003.  It is alleged that as a consequence of this and other conduct, Cathay and other airlines fixed, controlled or maintained the security surcharge component of the price of air cargo services.  The period for which discovery is sought will presumably commence in 2002.

[39]     The position then in relation to this category is different from that of the other two categories.  The activity is somewhat more recent, and more importantly there is a  pleading  expressly implicating  Cathay  in  Singapore  in  actions  relating  to  the alleged agreement.

[40]     The greater chance of relevant documents being revealed by a discovery order under this heading means that discovery under this head is proportionate.  The discovery is more likely to give rise to relevant documents that would not be otherwise discovered, which I consider outweighs the likely cost of discovery.

[41]     I will therefore order discovery as sought by the Commission under this head, and not adopt the more limited proposal at 4.1.3 of Cathay’s draft.

Result

[42]     I direct that Cathay provide the following tailored discovery:

(a)      Each of the emails which, in the Commission’s Singapore regional pleadings against Korean Air Lines, Thai Airways, Emirates, Singapore Airlines and Air New Zealand, are alleged to have been sent to Cathay.

(b)Each of the further emails (which are not alleged to have been sent to Cathay) but are listed as the first (a) to (d) in the Commission’s letter dated 29 October 2010.

(c)      Any   documents   relating   to   those   emails    including   replies, consequential correspondence or filenotes.

(d)Discovery of documents held by Cathay in Singapore relating to the global and regional agreements to impose surcharges on cargo, and the imposition of such surcharges.

[43]     Both parties have had a measure of success in this application. Although it is unfortunate that they could not reach agreement on the issues, in general they have sought to co-operate and acted in accordance with the purpose and intention of the new discovery rules.  Costs will lie where they fall.

……………………………..

Asher J