Talley's Group Limited v Biomex Trustees Limited
[2022] NZHC 860
•28 April 2022
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2019-404-773
[2022] NZHC 860
BETWEEN TALLEY’S GROUP LIMITED
Plaintiff
AND
BIOMEX TRUSTEES LIMITED
First Defendant
MACLAB (NZ) LIMITED
Second Defendant
JW BROADBENT NOMINEES PTY LIMITED
Third Defendant
McFARLANE MARKETING (AUST) PTY LIMITED
Fourth Defendant
cont/…
Hearing: 2 February 2022 Counsel:
ZG Kennedy and OJ Skilton for the Applicant/Defendants SP Pope and BN White for the non-party, Sanford Limited
Judgment:
28 April 2022
JUDGMENT OF ASSOCIATE JUDGE SUSSOCK
This judgment was delivered by me on 28 April 2022 at 4pm pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Solicitors / Counsel: MinterEllisonRuddWatts, Auckland Russell McVeagh, Auckland
Z Kennedy, Mills Lane, Auckland
TALLEY’S GROUP LTD v BIOMEX TRUSTEES LTD [2022] NZHC 860 [28 April 2022]
MACLAB AUSTRALIA PTY LIMITED
Fifth Defendant
JAMES MEREDYTH BROADBENT
Sixth Defendant
ANDREW CHRISTOPHER BROADBENT
Seventh Defendant
WILLIAM RAMSDEN BROADBENT
Eighth Defendant
Introduction
[1] Talley’s Group Ltd (Talleys) has brought proceedings against a number of parties including Biomex Trustees Ltd and MacLab (NZ) Ltd (together MacLab), the applicants in this case. The proceedings relate to the rights and obligations of the parties under 2014 and 2017 agreements for the procurement and supply of mussels.
[2] MacLab has filed a counterclaim alleging that Talleys breached the 2014 and 2017 agreements by overcharging MacLab for the supply of mussels from early 2014 to late 2018. MacLab submits that the agreements provided that Talleys would, generally:
(a)charge MacLab the actual procurement price paid by Talleys for all mussels supplied to it based on market price; and
(b)pay Talleys’ suppliers for mussels at the prevailing net greenweight market price between independent growers and processors at the time of harvest.
[3] Talleys denies that any overcharging occurred. A key issue in the dispute is therefore whether the actual procurement price that Talleys paid its suppliers was consistent with the prevailing net greenweight market price between independent growers and processors at the time of harvest.
[4] MacLab now applies for orders for non-party discovery from Sanford Limited (Sanford) pursuant to r 8.21 of the High Court Rules 2016.
[5] The categories of documents sought from Sanford are set out in Schedule One to the amended application dated 19 October 2021 (“Application”) and are in summary:
(a)all pricing schedules between 1 January 2013 and 31 December 2018, between Sanford (as processor) and growers related to the procurement of green-lipped mussels (with spot checks by Sanford and confirmation that the schedules contain sufficiently detailed information to determine the price charged) (Category A);
(b)all invoices between 1 January 2013 and 31 December 2018 between Sanford (as grower) and processors, related to the supply of green- lipped mussels (Category B);
(c)Sanford’s bespoke agreements and a representative sample of Sanford’s standard form agreements and share-farming agreements relating to the procurement and supply of green-lipped mussels between Sanford and processors, and Sanford and growers, between 1 January 2013 and 31 December 2018 (Category C); and
(d)all documents that record the price between processors and growers for the procurement and supply of green-lipped mussels between 1 January 2013 and 31 December 2018, except in relation to Sanford as grower or processor (Category D).
[6]MacLab’s application is made on the basis that:
(a)Sanford has documents in its control and possession that are relevant to MacLab’s counterclaim against Talleys;
(b)Non-party discovery is necessary because the documents are not available to the parties in the proceeding and non-party discovery is proportionate in the context of the proceeding; and
(c)The documents sought are historical and therefore are unlikely to contain commercially sensitive information. MacLab has also proposed appropriate arrangements to ensure that sensitive and confidential documents are not released beyond the parties’ legal counsel and experts.
[7] Sanford is a grower and processor of green lip mussels. Talleys and MacLab are both competitors of Sanford in what Sanford submits is a highly competitive market. Talleys directly competes with Sanford in relation to the purchase of mussels and as a processor and grower. MacLab competes with Sanford in relation to the purchase of mussels.
[8] Sanford submits that the mussel industry is small and the stock of mussels for supply is limited. Sanford’s relationships with its growers are critical to its operations and success and as such are closely held.
[9] Sanford says that its approach to MacLab’s Application has been constructive in an attempt to resolve matters without a hearing. Sanford’s opposition is now limited to two aspects, a ‘carve-out’ from the proposed confidentiality protocol as set out in Schedule 2 of the Application (Confidentiality Protocol) and the provision of documents in Category D.
Issues
[10]The issues are:
(a)Does the proposed Confidentiality Protocol adequately protect Sanford if it contains the carve-out?
(b)Should Sanford be ordered to discover documents in Category D?
To answer question (b) above the following three questions need to be considered:
(i)Would the documents sought be discoverable if Sanford were a party?
(ii)Is the discovery from the non-party necessary?
(iii)Does the application provide for adequate protection to ensure market sensitive information is not released to a competitor?
Does the proposed Confidentiality Protocol adequately protect Sanford if it contains the carve-out?
Legal Principles
[11] In Vector Gas, Kós J (as his Honour then was) observed that “[t]he Court has long exercised an inherent power to control inspection to ensure the protection of confidential market pricing information”.1
[12] Furthermore, r 8.21(2)(c) provides that where a person is ordered to provide non-party discovery and the documents are in their control, they are to make those documents available for inspection “in accordance with rule 8.27”.
[13] Rule 8.27 is subject to r 8.28 which relates to privilege and confidentiality of documents for inspection. Rule 8.28(3) provides that “[a] party may limit inspection of confidential documents to the persons specified in the affidavit of documents, subject to the restrictions proposed in the affidavit.”
[14] If these restrictions are unacceptable to the inspecting parties, the inspecting parties may challenge the claim to confidentiality or the restrictions imposed pursuant to r 8.25.
[15] In Payment Express Ltd v Paymark Ltd Gault J adopted a two-stage approach to a challenge to confidentiality.2 The first question to consider is the threshold question of whether the document is confidential and the second, whether the balancing exercise in relation to respective prejudices weighs more heavily in favour of upholding the confidentiality restrictions or open disclosure.
[16] Here, there is not yet a challenge to the confidentiality claimed. I approach the challenge to the terms of the confidentiality protocol proposed by Talleys as if it were a challenge to confidentiality restrictions as the balancing exercise provides a useful guide. This exercise is necessarily being done, however, in the abstract rather than in respect of particular documents.
1 Vector Gas Contracts Ltd v Contact Energy Ltd [2014] NZHC 3171, [2015] 2 NZLR 670 at [32].
2 Payment Express Ltd v Paymark Ltd [2019] NZHC 2027 at [14] and [15].
Consideration of Proposed Carve Out
[17] The Confidentiality Protocol proposed by MacLab contains the following carve-out:
In circumstances where Confidential Information is used by Approved Persons (e.g. in formulae or calculations related to market price) in such a way that the Confidential Information is aggregated, anonymised or otherwise is not readily discernible (e.g. the output or result of the formulae or calculations) it is not Confidential Information.
[18] Sanford’s position is that if the ‘carve-out’ were removed from the Confidentiality Protocol, Sanford would consent to providing discovery of the documents listed at categories “A” (pricing schedules), “B” (invoices) and “C” (agreements) of the application. These categories provide access to the direct evidence of Sanford’s pricing that the applicants say is necessary for the proceeding.
[19] MacLab submits that the categories of documents sought relate to historical pricing information between 1 January 2013 and 31 December 2018 and so are unlikely to contain commercially sensitive information.
[20] MacLab relies on my earlier decision on Talleys’ challenge to confidentiality restrictions claimed by MacLab where I observed that documents from 2018 and earlier were not as commercially sensitive as the same documents for later periods.3 In that decision, I directed that the 2017 and 2018 management accounts and trial balances were to be disclosed on an open basis because the balancing exercise fell in favour of open disclosure to allow Talleys to fully instruct counsel and its experts. A key factor to this balancing exercise was that the financial position of the MacLab unit trust, in the period following the expiry of the initial term of the contract between Talleys and MacLab, was critical to the relief claimed by the plaintiff.
[21] The context of every claim to confidentiality needs to be carefully considered. In this non-party application, MacLab is seeking pricing information from a competitor to assist in its counterclaim against another party.
3 Talley’s Group Ltd v Biomex Trustees Ltd [2021] NZHC 2922 at [62] and [70].
[22] As counsel for Sanford submits, the confidential documents sought relate to and contain information as to Sanford’s pricing, the terms of Sanford’s confidential agreements with its customers and Sanford’s internal documentation and processes relating to pricing. None of this information is publicly available.
[23] Sanford acknowledges that the commercial sensitivity of confidential information can sometimes reduce over time. However, in this case Sanford submits that despite the documents and information sought being for the 2013 to 2018 period they remain highly confidential.
[24] Sanford submits that many of the documents and information sought cannot be properly characterised as historic. The documents include agreements between Sanford and processors and growers, many of which remain in place and detail Sanford’s current commercial relationships with its customers.
[25] Furthermore, some of the agreements contain confidentiality clauses that restrict disclosure unless agreed by the other party or required by law.
[26] In addition, Sanford submits that in the small market in which Sanford and its competitors operate, the commercial relationships contained in these agreements are highly confidential and protected.
[27] The pricing information sought is in respect of a six-year period. When viewed cumulatively, Sanford submits the extent of the information sought will allow Talleys and MacLab to decipher the trends in pricing and says that it would not be difficult to use that information to reveal Sanford’s pricing strategies more generally, including approximating Sanford’s current pricing.
[28] An affidavit was filed on behalf of Sanford by Mr Adrian Grey who is the business and product development manager for Sanford. He outlined how the information in the documents sought could be used by Talleys and MacLab:
(a)to predict Sanford’s future pricing behaviour and commercial strategies;
(b)to adjust their own pricing strategy to gain a competitive advantage in light of inferences drawn from Sanford’s pricing data;
(c)as competitors, to undercut Sanford and obtain a greater market share at Sanford’s expense; and
(d)to use the terms of Sanford’s agreements to allow the parties to negotiate with those customers on “better” terms and/or undermine Sanford’s relationships with its customers.
[29] Mr Grey considers that the parties to the proceeding, as Sanford’s competitors, would have a commercial incentive to examine the evidence closely to identify Sanford’s confidential information, such as pricing and terms of its commercial agreements (including calculating if necessary to extract).
[30] Counsel for Sanford submits that it is surprising that MacLab is asserting that Sanford’s pricing and strategic information over this period is no longer confidential when in the earlier discovery decision in this proceeding, MacLab itself recognised the “immense benefit” (as Mr Broadbent for MacLab put it) of the commercial advantage it would gain if it were to obtain this information from a competitor.4
[31] The documents in issue in that application were not confined to pricing information but I accept similar comments could be made in respect of the information sought from Sanford.
[32]MacLab submits that any opposition to the carve-out is unfounded because:
(a)the Confidentiality Protocol restricts the disclosure of Sanford’s confidential information to MacLab’s legal advisers and experts, and the documents can only be used for the purpose of the substantive proceeding; and
(b)information falling within the carve-out would not be identifiable or capable of reverse engineering.
4 Talley’s Group Ltd v Biomex Trustees Ltd, above n 3, at [49(c)].
[33] Sanford submits, however, that the effect of the carve-out is that Sanford’s confidential information will no longer be confidential if it is used in calculations or “anonymised”. If confidential information is aggregated through formulae, calculation or otherwise, the parties to the proceeding, knowing their own pricing information, may be able to conduct a simple calculation to decipher Sanford’s pricing. Sanford submits that Talleys and MacLab would have a commercial incentive to do so as set out in Mr Grey’s affidavit. Furthermore, Sanford says that if the only other pricing information is sourced from the parties to the proceeding, Sanford’s confidential information would be readily identifiable, even if technically anonymised.
[34] Sanford further submits that the reference in the carve-out to information that “otherwise is not readily discernible” is vague, lacks specificity, and sets the threshold too low to protect Sanford’s confidential information and commercial interests.
[35] Sanford points to the context of the application as being important. In Sanford’s submission, MacLab has agreed terms with Talleys that have made the market price relevant to their contractual obligations. Through their own conduct, MacLab has created a situation which calls a competitor into Court and requires it to disclose its commercially sensitive pricing information. Sanford says that the Court should take a careful and cautious approach to the terms on which MacLab should have access to that competitive information as a result.
Conclusion on carve-out
[36] In my view, the inclusion of the carve-out does not adequately protect Sanford’s confidential information in the circumstances of this market. The Confidentiality Protocol only allows confidential documents and confidential information to be disclosed to “Approved Persons” as defined at paragraph 4 of the protocol. Those “Approved Persons” are MacLab and Talleys’ counsel, solicitors and experts, each individually named. It will be those people who are determining whether the confidential information is readily discernible or not. None however are direct participants in the industry. If the information is disclosed on the basis that it is anonymised there appears to be a considerable risk that those who work for Talleys or
MacLab will be able to identify Sanford’s confidential information from the anonymised material, although solicitors and experts may not be able to do so. This will only become clear following disclosure on the “anonymised” basis. By then, however, it will be too late as the confidential material will have been disclosed.
[37] If it is necessary to aggregate the information for the purposes of the proceeding, then a specific application can be made so that any necessary aggregation can be properly considered rather than attempting to rule whether the confidential information will be readily discernible in the abstract.
[38] Counsel for MacLab suggested that the word “readily” could be removed from the carve-out, considering that this might meet Sanford’s concerns. Sanford considered that it would still be problematic and would not provide sufficient protection. I agree.
[39] I make directions below to amend the confidentiality protocol to remove the carve-out in paragraph 2.
Should Sanford be ordered to discover documents in Category D?
[40] Sanford accepts that an order for non-party discovery should be made in respect of Categories A to C as long as the ‘carve out’ is deleted from the Confidentiality Protocol. I have reached the view above that the carve-out ought to be deleted and so only Category D needs to be considered.
[41] Category D includes documents in Sanford’s control that record prices between processors and growers for the procurement and supply of green-lipped mussels other than Sanford’s own prices.
[42]Sanford submits that Category D:
(a)is unclear, ill-defined and too broad to meet the test for proportionality, even if Sanford were a party to the proceedings;
(b)does not meet the necessity test required for discovery against a non- party; and
(c)constitutes an excursion on the train of enquiry by MacLab into the documents of Sanford, its competitor and a non-party.
[43] Sanford submits that the Court only needs to find that Category D fails on one of the grounds discussed below for MacLab’s application to be unsuccessful in relation to Category D.
Legal principles
[44] An order for non-party discovery is made under r 8.21 of the High Court Rules and is discretionary.
[45] In Vector Gas Contracts Ltd v Contact Energy Ltd the High Court outlined the test for making an order for non-party discovery of commercially sensitive information by a competitor:5
(a)the application must only seek documents that would be discoverable by the non-party if it were a party to the proceeding;6
(b)the discovery sought must be necessary;7 and
(c)the application must provide for adequate protection to ensure market sensitive information is not released to a competitor.8
[46]I consider each of these elements below.
Would the documents sought be discoverable if Sanford were a party?
[47] If Sanford were a party to the proceeding, documents would be discoverable if they meet the relevance and proportionality tests.
[48]The test for relevance is informed by the pleadings.
5 Vector Gas Contracts Ltd v Contact Energy Ltd, above n 1, at [28].
6 At [58].
7 At [30] and [59].
8 At [31] and [60].
[49] MacLab’s counterclaim alleges that Talleys did not charge the market price. The documents sought in Category D relate to the price charged by other participants in the market. Category D therefore appears to meet the relevance test.
[50] The discovery must also be proportionate. As was held in Westpac New Zealand Ltd v Adams:9
In considering a non-party discovery order, the Court may have regard to the tests under r 8.7 for standard discovery (the adverse documents regime) and for tailored discovery under r 8.8 (where the “interests of justice” require the tailoring of discovery).
Assessing proportionality requires consideration of:10
(a)the likelihood of finding relevant documents;
(b)the degree of relevance — if documents are of little or marginal relevance, then the discovery may be disproportionate;11 and
(c)balancing that against the cost or other logistical implications of carrying out the discovery process.
[52]MacLab submits that:
(a)searches for Category D documents can be completed in parallel with searches for the other categories; and
(b)the application provides for consultation with MacLab which should mitigate any proportionality issues.
[53] MacLab further records that MacLab has agreed to meet Sanford’s reasonable costs of complying with the orders.
9 Westpac New Zealand Ltd v Adams [2013] NZHC 3113 at [27(d)].
10 Minister of Education v James Hardie NZ Ltd [2019] NZHC 245 at [50], citing Commerce Commission v Cathay Pacific Airways Ltd [2012] NZHC 726 at [18]. See also clause 1 of Part 1 of Schedule 9 of the High Court Rules.
11 Dotcom v Attorney-General [2014] NZHC 1343 at [35].
[54] Sanford submits that locating the documents falling within Categories A to C (which comprise Sanford’s own agreements and pricing schedules) is an entirely different endeavour to locating documents in Category D that may reference other market participants’ pricing.
[55] Sanford explains in the evidence filed on its behalf that it does not have a centralised filing system and does not have a single obvious source of documents to search. Its systems are not set up to allow documents to be located through automatic searches and in many cases a manual review of electronic files would be required to ensure compliance with any order made. Sanford submits that the time, logistical difficulty and cost associated with identifying and locating documents captured by Category D, in conjunction with the limited value of such documents (as discussed in more detail below), is such that Category D documents do not meet the test for proportionality. Sanford says this is particularly the case in circumstances where the documents sought could be reliably obtained by other means including an application for discovery from non-parties to which any pricing information relates.
[56] Sanford further submits that the consultation provision at paragraph 1(b) of the application does not remedy the proportionality issue as it relates only to where the searches result in a disproportionate number of documents, not where the categories of documents sought are disproportionate.
[57] In addition, Sanford submits that further consultation with MacLab may not result in an amended category or the removal of Category D and so Sanford would remain at risk of non-compliance with any non-party discovery orders made when it has no clarity as to what documents it would be required to discover. Counsel for Sanford refer to the discussion in Minister of Education v James Hardie New Zealand where this Court noted that adopting an iterative approach to discovery can give rise to “considerable uncertainty” and lead to unnecessary cost and delay.12 This is submitted to be particularly undesirable in the context of non-party discovery.
12 Minister of Education v James Hardie New Zealand, above n 10, at [51].
[58] Sandford further submits that Category D amounts to an excursion on a train of enquiry against a non-party.
[59] The former Peruvian Guano test for discovery, involving discovering documents that are or may be relevant to issues in the proceeding or may lead to a train of enquiry, may still inform a discovery order in some instances.13 In Vector Gas, Kós J emphasised that excursions on the train of enquiry are not to be encouraged in non-party discovery applications.14
[60] The classic definition of a “fishing expedition” is from AMP Society v Architectural Windows Ltd:15
… an applicant is fishing when he seeks to obtain information or documents by interrogatories or discovery in order to discover a cause of action different from that pleaded or in order to discover circumstances which may or may not support a baseless or speculative cause of action.
[61] The documents that MacLab is seeking to obtain are documents relevant to its current counterclaim. The documents sought in Category D cannot therefore be described as a ‘fishing expedition’ in the classic sense. However, it is not known whether Sanford has documents in Category D, or at least the extent or usefulness of those documents, so it may be described as a ‘fishing expedition’ in that regard. In my view this is a further factor in support of Sanford’s opposition.
[62] Although potentially relevant, I do not consider that discovery of documents in Category D meets the proportionality test. The main reason for this is that the difficulties in defining and locating Category D documents outweigh the likely evidential value of the documents in the proceeding.
13 Westpac New Zealand Ltd v Adams, above n 9, at [27(e)], citing Compagnie Financière et Commerciale du Pacifique v Peruvian Guano Co (1882) 11 QBD 55 (CA).
14 Vector Gas Contracts Ltd v Contact Energy Ltd, above n 1, at [29] and [58].
15 AMP Society v Architectural Windows Ltd [1986] 2 NZLR 190 (HC) at 196.
Is the discovery from the non-party necessary?
[63] The Court is required to have “a reasonably strong sense” that non-party discovery of both the kind and extent sought is necessary.16 The necessity test requires:
(a)other sources of evidence to be unlikely to be sufficient because they are materially incomplete or unreliable;17 and
(b)the documents sought to make a real difference and not be merely marginal.18
[64] Where a document could realistically be obtained in some other fashion, it may be inappropriate to impose the burden to discover that document.19
[65] The documents sought in Category D relate to the pricing information of other market participants. Sanford submits that there are other more reliable and appropriate sources of that information. For example, non-party discovery could be sought from other suppliers and growers of green-lipped mussels. Sanford submits that obtaining discovery from other suppliers and growers would be:
(a)more efficient;
(b)produce documents of greater relevance and reliability; and
(c)avoid putting Sanford, a non-party to this proceeding, to the expense of conducting a ‘fishing expedition’.
[66] MacLab submits that the documents sought in Category D are likely to make a real, and not merely marginal, difference to determining the market price of green- lipped mussels during the relevant period and therefore are likely to assist in determining whether Talley’s overcharged MacLab in the context of MacLab’s counterclaim.
16 Vector Gas Contracts Ltd v Contact Energy Ltd, above n 1, at [59].
17 At [30] and [59].
18 At [59].
19 Clear Communications Ltd v Telecom Corporation New Zealand Ltd HC Wellington M119/93, 30 March 1993 at 8.
[67] Sanford disagrees that the documents will make more than a marginal difference. Sanford says that, as MacLab acknowledges, Sanford and Talleys together comprise a large portion of the market of green-lipped mussels. In circumstances where Sanford is not opposed to providing its own pricing information (subject to the carve-out being removed), Sanford submits discovery of Categories A, B and C will be more than adequate to provide a robust assessment of the relevant market price.
[68] Furthermore, Sanford submits that as the documents sought in Category D do not relate to Sanford’s own pricing but the pricing of its competitors, there will be questions as to the information’s completeness, accuracy and probative value. These factors are relevant to the assessment of the documents’ necessity in the context of the non-party discovery application.
Conclusion on necessity
[69] In my view, if the documents in Category D are required to establish market price, it is a much more straightforward exercise to seek non-party discovery against the parties for which the pricing details are sought, rather than seek Category D documents from Sanford.
[70] Because the discovery is being sought from Sanford, Category D is required to be very broadly defined in an effort to ensure that all pricing information is obtained. If the documents are instead sought directly from remaining market participants, then Categories A, B and C can be sought from those parties, a much simpler process.
[71] In terms of necessity, I do not consider that MacLab has established that it is necessary to obtain Category D documents from Sanford.
Does the application provide for adequate protection to ensure market sensitive information is not released to a competitor?
[72] The carve-out is to be removed from the Confidentiality Protocol and so the information will be protected to a certain extent. However where the pricing information being sought is information as to another market participant’s pricing, rather than the non-party’s pricing itself, the information is likely to be contained in
strategic and other documents which are likely to be more commercially sensitive than simple pricing documents. There is a need therefore to be cautious.
Conclusion on Category D
[73] Requiring Sanford to discover documents falling within Category D raises questions of proportionality and fishing in circumstances where the category is not clearly defined. Nor is it necessary for a non-party discovery order to be made against Sanford in respect of the Category D documents for those documents to be obtained. Discovering documents within Category D would require considerable work from Sanford and the results are likely to yield anecdotal and unreliable evidence in relation to pricing by parties other than Sanford. Furthermore, the commercial sensitivity of the documents in this category is likely to be higher than for simple pricing information.
[74] In the circumstances I do not consider it is appropriate to make a non-party discovery order in respect of Category D.
Result
[75]I order:
(a)Sanford is to provide non-party discovery of the documents falling within Categories A, B and C of Schedule 1 of the amended application by the first and second defendants dated 19 October 2021; and
(b)The confidentiality protocol set out in Schedule 2 to that application is to apply with the carve-out in the final sentence of paragraph 2 removed.
Costs
[76] In accordance with r 8.22, the reasonable costs of compliance with the order for non-party discovery are to be paid by the first and second defendants.
[77] Costs on the application itself are reserved although my preliminary view is that Sanford as the party succeeding is entitled to costs. I ask the parties to confer and only if costs are unable to be agreed, revert back to the Court by way of memoranda, on behalf of the non-party within 20 working days of this judgment and on behalf of the first and second defendants within a further 10 working days.
Associate Judge Sussock
2
0
1