Todd Petroleum Mining Company Limited v Vector Gas Trading Limited
[2017] NZHC 1129
•29 May 2017
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
CIV 2014-485-11563 [2017] NZHC 1129
BETWEEN TODD PETROLEUM MINING
COMPANY LIMITED First Plaintiff
AND
SHELL (PETROLEUM MINING) COMPANY LIMITED
Second Plaintiff
AND
VECTOR GAS TRADING LMITED Defendant
Hearing: 22 May 2017 Counsel:
M Colson and K Dobbs for first plaintiff
O Meech and A van Ammers for second plaintiff
D Goddard QC and A Kraack for defendantJudgment:
29 May 2017
JUDGMENT OF DOBSON J [tailored discovery]
[1] This judgment determines an interlocutory application by the defendant (Vector) for 11 contested categories of documents sought where the parties are agreed that discovery is to be provided on a tailored basis.
Background to the litigation
[2] The first and second plaintiffs (Todd and Shell respectively), together referred to as the Kapuni Mining Companies (KMCs), are the vendors of gas from the Kapuni field in Taranaki. The output of that field was sold pursuant to a 1967 contract to Natural Gas Corporation, which was at that time a Crown corporation.
Vector has subsequently taken over the position of the buyer under the 1967 contract.
TODD PETROLEUM MINING COMPANY LIMITED v SHELL (PETROLEUM MINING) COMPANY LIMITED [2017] NZHC 1129 [29 May 2017]
[3] In early 1997, a High Court judgment upheld the KMCs’ complaint that the contractual commitment to sell all the gas from the Kapuni field to the buyer was in breach of s 27 of the Commerce Act 1986.1 That statute came into force after the contract, but applied retrospectively to its provisions. The judgment required the output of the Kapuni field to be split equally, one half to the KMCs and the other half to the buyer. The judgment also required the buyer to make available its Kapuni Gas treatment plant to enable the KMCs to process, at reasonable prices, any Kapuni gas not purchased by the buyer under the original contract (Order 27). In addition, the
Court enforced an undertaking from the KMCs that, subject to being given access to the treatment plant, they would not compete with the buyer in selling Kapuni gas to electricity generators or petrochemical companies.
[4] In late 1997 the parties agreed that the original contract, as varied by the High Court orders, would also apply to additional quantities of gas from Kapuni being approximately a further 495 petajoules which is referred to as “Current Tranche Gas”.
[5] The High Court judgment contemplated a process of negotiation, mediation and if necessary arbitration to settle the fee that the buyer (now Vector) could charge the sellers for processing their gas at the Kapuni gas processing plant.
[6] In late 1998 and early 1999, arbitral hearings were convened before Sir Ian Barker on the price to be paid for the gas by the buyer for the Current Tranche Gas and on the processing fee to be paid by the sellers.2 The arbitrator set the price for Current Tranche Gas, and also set the processing fee, which was to be adjusted for changes in the Producer Price Index (PPI) every two years.
[7] The parties have taken Kapuni gas in unequal measure and Vector exhausted its one half share of the Current Tranche Gas in mid-2013. In contrast, the KMCs
predict that they will exhaust their share of the Current Tranche Gas in 2019 or 2020.
1 Shell (Petroleum Mining) Co Ltd v Kapuni Gas Contracts Ltd (1997) 7 TCLR 463 (HC).
2 Price for Treatment of Kapuni Gas (Shell (Petroleum Mining) Co Ltd v Natural Gas Co of New Zealand Ltd) (interim award) Sir Ian Barker QC, 27 January 1999; and Price for Treatment of Kapuni Gas (Shell (Petroleum Mining) Co Ltd v Natural Gas Co New Zealand (Ltd) (Final Award) Sir Ian Barker QC, 14 April 1999. Prior to retiring, Barker J had delivered the 1997 judgment.
[8] In 2015, the parties embarked on a further arbitration to set the terms for the supply of an additional tranche of gas (Next Tranche Gas). The parties adopted different views as to whether the condition imposed by Order 27 of the 1997 judgment (ie requiring Vector to process the KMCs’ Kapuni gas) would continue to apply to Next Tranche Gas after the KMCs took their full share of Current Tranche Gas. To clarify the contractual position, the KMCs commenced the present proceedings seeking a declaration that Order 27 obliged Vector to process the KMCs’ share of Kapuni gas for so long as the KMCs required that to occur, subject to there being processing capacity physically available at the Kapuni gas treatment plant. They will argue that Order 27 cross refers to Order 21 from the 1997 judgment, and that Order stipulates that it is to apply “until such time as the field becomes uneconomic”.
[9] Vector admits that there is a dispute over the continued application of Order
27. It has counterclaimed for an order discharging Order 27 on the grounds that there has been a material change in the circumstances for the marketing of gas and that there is now substantial competition in the wholesale and retail segments of the gas market in New Zealand. Vector’s arguments will include the proposition that, if considered now, jurisdiction would not exist to impose such a condition because Vector’s position under the contract does not substantially lessen competition.
[10] Alternatively, if the Court holds that Order 27 will continue to apply to Next Tranche Gas, Vector will argue that the Court should modify Order 27 so as to require a reasonable price to be set for the processing of Next Tranche Gas. Alternatively, Vector seeks other declarations that would enable the setting of a “reasonable price” to reflect current circumstances, and a declaration that nothing in Order 27 prevents Vector from making commercial decisions concerning the operational closure in whole or in part of the Kapuni gas treatment plant.
Jurisdictional challenge
[11] Before engaging on the merits of the discovery application, the KMCs took the jurisdictional point that Vector could not bring itself within the extremely narrow circumstances in which the Court has jurisdiction to discharge a final order made in
previous proceedings. Once finally determined, the Court is functus officio and the principal of finality rests on the public interest in there being an end to litigation.
[12] In Vodafone New Zealand Ltd v Telecom New Zealand Ltd, the Court was prepared to discharge, by consent, earlier orders that had been made.3 Mr Colson will argue that that case is distinguishable because the orders previously made had been rendered redundant by a change in the relevant statutory regime and all the parties affected by the previous order recognised that it no longer had utility.
[13] The difficulty is that unless the challenge to jurisdiction is determined prior to trial (there has been no initiative to pursue such a course), it is no more than a clearly arguable challenge to the jurisdiction of the Court to grant the relief Vector seeks in its counterclaim. Mr Colson submitted that the doubt over the Court’s jurisdiction to entertain the counterclaim should apply to make even higher the threshold that Vector was required to make out on relevance and proportionality of the documents, before Vector is entitled to an order in the terms that had been sought.
[14] However, I do not accept that the usual considerations that apply when a tailored discovery application is contested can accommodate the contingency that the Court may ultimately decide it has no jurisdiction to determine the claim to which the discovery relates. Relevance and proportionality are not to be assessed differently because a cause of action pursuant to which the discovery is sought may ultimately be dismissed for want of jurisdiction. I therefore deal with the contested discovery on the basis that the Court will be hearing the evidence on Vector’s counterclaims, even if it ultimately decides against Vector on the jurisdictional point.
The pleadings
[15] The pleadings reflect divergent views about the state of the New Zealand gas market. An important issue on Vector’s counterclaims will be the extent to which it can make out material changes in the nature of the market between the conditions prevailing in 1997 when the High Court found the original contract to be
anticompetitive in respects that breached the Commerce Act 1986, and the allegedly competitive environment in which the contract presently operates.
[16] The KMCs were somewhat distracted from an analysis of the nature of this issue by uncertainty as to the timing involved in Vector’s counterclaim. That has been pleaded in terms that “there is now” a single gas market, and substantial competition in the wholesale and retail segments of that market.4 Mr Colson perceived a distinction between the terms of that pleading, and the economic analysis foreshadowed in the affidavits completed in support of Vector’s present application.
That evidence suggests an analysis of evolving change, with the extent of differences expressed in prospective terms as to what can be expected in the future. The point in time at which the extent of difference from the market position in 1997 is to be measured could have a bearing on the scope of documents that are sufficiently relevant to justify a particular discovery order.
[17] Mr Goddard accepted that the terms of the pleading could be improved. Vector’s case will be to the effect that the state of the market cannot be assessed as a “freeze frame” at any particular date, that it will seek to discharge the onus of establishing that the substantial extent of change in the nature of the market has already occurred, and that the extent of those changes can be expected to continue in the foreseeable future. I have assessed the competing arguments on relevance in that light.
Scope of potential evidence on the issue
[18] Both sides have retained experts on the evolving state of the New Zealand gas market (or markets), and they have provided extensive affidavits on the present application. The KMCs have retained David Hunt, who is a Wellington based consultant and a director of Concept Consulting Group Limited. He has extensive experience in the New Zealand energy industry, having earlier held positions at Treasury and as economic adviser to the Minister of Finance and then a number of senior roles with Contact Energy Limited including a period as its chief executive between 2005 and 2006. Having scoped the task of comparing the state of
competition for Kapuni gas in 1997 with the present position, Mr Hunt opines that an expert’s requisite analyses can adequately be completed on publicly available information. He cites the extent of public reporting obligations on those participating in the gas industry and the availability of data and information to conduct analyses of both supply and demand sides of the market.
[19] Mr Hunt further opined that if an analysis took into account commercially sensitive and otherwise undisclosed detail from the participants in the present proceedings, then the outcome would risk being unbalanced or misleading unless comparable commercially sensitive records were available from the other participants in the gas market.
[20] Vector has retained Dr Gustavo Bamberger, who is an executive vice president with Compass Lexecon, an economic consulting firm based in Chicago, Illinois. Dr Bamberger has longstanding familiarity with the New Zealand gas market, having assisted one of the experts in the original Kapuni litigation in 1997 and having also testified in litigation between Todd and Shell interests as participants
in the Pohokura gas field.5 He has also provided evidence in other litigation and
before the Commerce Commission on other competition issues.
[21] Dr Bamberger disagrees with Mr Hunt’s views that publicly available information is sufficient for economists to opine on relevant changes in the state of New Zealand gas market. Dr Bamberger raises the prospect of unreliability in publicly available information and comments on each of the categories of tailored discovery sought by Vector. He perceives them to be appropriate to inform a thoroughly and well-founded opinion on the state of the gas market.
[22] Both sides adduced further evidence on this topic, and on the scale of likely discovery tasks. Affidavits (including in reply in some cases) were filed for the KMCs by Anthony Bissell, a senior commercial manager at Todd Energy, and David McGuire, who is the head of legal for the Shell group in New Zealand. They
questioned the utility both in general and in particular of some of what was sought.
5 Todd Pohokura Ltd v Shell Exploration NZ Ltd HC Wellington CIV 2006-485-1600, 13 July
For Vector, Brenda Talacek who is their group manager – gas trading completed two affidavits that traced the background to the dispute, the extent of negotiations that had occurred over tailored discovery categories and a summary of the importance attributed by Vector to the disputed categories that are now being pursued. She briefly explained Vector’s commercial position including the point that the 1999 processing fee is uneconomic for Vector.
Tailored discovery
[23] The regime for tailored discovery obliges the parties to confer reasonably on the categories of documents to be discovered. It appears that in this case the parties have committed effort to that task and what I am dealing with is a series of additional categories that Vector claims should be discovered, but the KMCs resist. The assessment involves first, the relevance of categories of documents sought and secondly, the weighing of proportionality in requiring the work involved to provide the documents within a certain category, as against the relative importance and the
scale of such documents to the contested issues in the proceeding.6
[24] Here, the KMCs resisted the additional categories on both grounds. They challenged the relevance of documents such as internal analyses of the state of the market for Kapuni gas (and gas from their other interests), relative success in marketing gas, projections of future conduct and reports on various aspects of the KMCs interest in the Kapuni field and their other hydrocarbon interests. They argued that such documents would not add sufficiently to the extensive information publicly available about the state of the market so as to justify a claim of the requisite level of relevance to the issues in dispute.
[25] On proportionality, the KMCs argued that extensive work would be involved which was not justifiable in the circumstances of this case. An aspect of this concern is the highly sensitive commercial information likely to be contained in documents in the categories that are sought. Despite Vector acknowledging that it would comply with tight constraints on circulation of documents in the categories it sought,
there is a legitimate concern about the KMCs being exposed to any risk of
6 High Court Rules 2016, sch 9, cl 1-3; and Commerce Commission v Cathay Pacific Airways Ltd
unauthorised disclosure when the commercially sensitive documents could, on their arguments, only add marginally to the quality of the evidence that Vector could bring on the disputed issues.
[26] The reform of the discovery rules that led to the abandonment of the former Peruvian Guano approach was materially influenced by concerns at the disproportionate scale of complying with the former breadth of the discovery obligation.7 There were examples where the cost of complete discovery outweighed the value of the dispute. The touchstone for the new requirement to assess proportionality is therefore the desirability of keeping the scope and cost of the discovery exercise in proportion to the matters at stake. In some situations, disproportionality will override relevance.8
[27] At least in that sense, proportionality is not as compelling a consideration in this litigation as is often the case in other proceedings. Although the level of production at Kapuni is predicted to drop materially, it still represents the exploitation of a significant national resource. Currently, total production is about
6 per cent of the total New Zealand production. The issue is therefore the KMCs’ access to a processing facility that is critical to marketing 3 per cent of New Zealand’s gas production. In financial terms, it is a very significant undertaking for all the parties. Previous stages of the extensive arbitral proceedings between the parties certainly appear to have been extremely thoroughly contested. The last arbitral panel appointed comprised a retired Judge of the High Court of Australia, an Australian QC and an emeritus professor of Economics. It is therefore difficult for the KMCs to argue about a disproportionate extent of cost, or disruption of executive resources, to comply with additional discovery obligations.
[28] Building on the analysis in the KMCs’ affidavits, Mr Colson’s submission was that if there had been as substantial a change in the gas market as Vector pleads, then it would be obvious “by looking out the window” and it was unnecessary to
“dredge all the detail in the filing cabinets”. That proposition has some superficial
7 Compagnie Financiére du Pacifique v Peruvian Guano Co (1882) 11 QB 55 (CA).
8 Northland Environmental Protection Society Inc v Chief Executive of Ministry of Primary
Industries [2016] NZHC 406 at [24].
attraction, but it does not meet the reality of the detailed analyses that I am satisfied all parties wish to advance and defend at the substantive hearing.
[29] It is not feasible to make a fine judgment between the competing positions of Mr Hunt and Dr Bamberger on the need for a competent economic analysis of the state of the market to include access to documents held by the KMCs in the categories sought by Vector. Mr Hunt makes a credible case for his approach that an adequate and reliable analysis could be completed in a form that would be helpful to the Court on the basis of publicly available information. However, it is difficult to resist Dr Bamberger’s approach that an analysis more thoroughly informed by matters such as the evolving strategies of each of the participants and projections for their own future conduct and that of competitors, does make for more thorough expert opinions. I am also mindful of the utility of such evidence for cross examination purposes.
[30] In a majority of the categories, Vector sought documents created since 1
January 2012. An aspect of the KMCs’ opposition was that if, over their opposition, the requisite relevance and proportionality criteria were made out, then discovery going as far back as January 2012 could not in any event be justified. Mr Goddard sought to justify discovery of documents going back that far on the ground that the nature of the relevant market would have been evolving (and continues to evolve) so that the experts’ analyses required a reasonable period in which to mark changes in behaviour. He argued that a period of five years was no more than appropriate.
[31] I am not persuaded that sufficient relevance could be made out in respect of any of the categories for as far back as the beginning of 2012. Informed in part by a reconsideration of the analysis in my Pohokura judgment,9 I consider that a period of approximately three years prior to the provision of discovery of such categories would be adequate. Beyond that period, the balance of reduced relevance and disproportionality of the effort in providing discovery would count against making
an order. I accordingly direct that to the extent orders are to be made, the discovery
will be confined to documents created after 1 July 2014.
9 See for example the analysis in Todd Pohokura Ltd, above n 5, at [394] -[408]. Similar reliance on internal documents generated (in that case) by Todd is evident from the Court of Appeal’s judgment: Todd Pohokura Ltd v Shell Exploration NZ Ltd [2015] NZCA 71 at [221]-[238].
The categories
Categories 26, 27, 33 and 34
[32] In argument, Mr Goddard grouped categories 26, 27, 33 and 34 on the basis that they all seek information about the state of competition at the wholesale level of the New Zealand gas market. Categories 26 and 27 seek high level reports, studies, business plans, forecasts, analyses and reviews that discussed the nature of competition in relation to wholesale gas transactions, the fields from which gas could be sourced, assessments of competitors, reports on relative success in capturing or retaining key customers as well as reasons for the loss of customers. They also seek forecasts of sales and gas prices and the role of Kapuni in the future market. These categories also seek records of the level of gas produced and the production that was able to be produced from any field in New Zealand in which Shell or Todd have an interest. Categories 33 and 34 seek discovery of all natural gas sale and purchase agreements including documents preparatory to the completion of agreements and internal assessments leading to approval of such contracts.
[33] I am satisfied that documents within these categories will be relevant to the analysis of the nature of the market. I also accept Mr Goddard’s point that such documents will also likely be relevant for cross examination purposes, in testing the KMCs’ presentation in evidence of their current perception of the state of the market.
[34] Subject to the refinement of the terms of these categories that I discuss below, and the reduction in the length of the period for which such documents are produced, I accept that the case is made out for tailored discovery of them.
Category 29
[35] Category 29 seeks documents that evidence or discuss the use of any field in which the KMCs have an interest as a “swing” field. I understand that to be a term of art to describe the ability of gas producers with interests in a number of fields to elect for a variety of strategic reasons to draw gas from one of their fields rather than another depending on a range of considerations. Mr Hunt acknowledged that swing fields can be highly significant to an overall portfolio as they offer valuable
flexibility.10 However, Mr Hunt questioned the relevance of the KMCs’ use of
Kapuni as a swing field to an analysis of the state of the market.
[36] I am satisfied that this topic is one of sufficient relevance and category 29 is therefore justified.
Categories 28, 30 and 31
[37] Categories 28, 30 and 31 seek documents prepared by the KMCs including forecasts, analyses and reviews bearing on the volume of gas both produced and able to be produced from all the fields in which they have interests together with strategies for production across the portfolio of fields. Similar categories are sought from associated parties of the KMCs and documents assessing the prospects of further developments of contingent resources at Kapuni and any other field in which the KMCs have an interest.
[38] I accept Vector’s claim as to the relevance of such documents because of the bearing they have on the evolving state of competition in the gas market in New Zealand. However, in one respect Vector has broadened the definition more than I consider justified.
[39] Category 30 seeks Shell’s annual reviews of petroleum resources (ARPRs) and Todd’s annual reviews of resources (ARRs), plus “similar documents”. The KMCs have already provided Vector with a substantial volume of information about the reserves at Kapuni including the ARPRs for the 2014 to 2016 years. I understand those documents to represent the thorough summation of the operator’s annual assessments on this topic so Vector cannot attribute relevance to the layer of preparatory materials or peripheral workings that might be caught by “similar documents”. In addition to confining the period to those prepared after 1 July 2014, I will also confine category 30 to remove the reference to “similar documents”.
Category 32
[40] Category 32 seeks documents considering the substitutability of other energy sources. In opposing such discovery Mr Hunt makes the point that there has been and will continue to be circumstances in which other energy sources are substitutable for gas as marketed in New Zealand. In the absence of a particular change in the nature or extent of substitutability, it has been a relatively constant consideration and arguably therefore cannot assume any significant relevance to the analysis on the state of competition in the New Zealand gas market.
[41] Mr Goddard argued for the relevance of this category because of its potential to affect the state of competition. He also pointed to an alleged inconsistency between Mr Hunt and Mr Bissell.11
[42] However, in my assessment, the materially greater level of relevance of the private views of the parties on the other categories claimed when compared with the publicly available analyses on those topics cannot be made out for category 32. Although it is difficult to make a definitive judgment, my sense is that confidential commentaries on substitutability by the KMCs would have materially less impact on an economic analysis of changes in the overall market for gas in New Zealand. The substitutability of other energy sources is also likely to be an influence on the New Zealand gas market (to whatever extent it might be established) that is relatively more beyond the control of the KMCs than the influence they may be able to exert on other factors relevant to the state of the gas market as dominant players in the production of gas. I am therefore not persuaded that requisite relevance is made out for category 32.
Categories 35 and 36
[43] Categories 35 and 36 seek documents that relate to Liquids, that is, LPG and natural gasoline. Category 35 includes LPG sales agreements and documents recording supply arrangements lasting for one year or more, and for volumes equal to or exceeding 1000 tonnes within New Zealand or for any volume exported
overseas. Category 36 includes Kapuni natural gasoline sales agreements or, in their absence, any tier 1, 2 or 3 documents recording terms of agreements to sell.
[44] Mr Goddard submitted that the documents are necessary to prove the unreasonableness of the 1999 processing fee in the event that the Court refuses to quash Order 27, but is inclined to modify it in relation to Next Tranche Gas. Market values were relevant to the value of the 1999 processing fee, and Vector seeks to challenge the reasonableness of that processing fee in relation to updated market values. Mr Colson submitted that current market values are irrelevant. The issue is whether the processing fee will be unreasonable when the KMCs have exhausted their share of the Current Tranche Gas. According to the KMCs, if the processing fee is unreasonable with respect to today’s market value, it does not follow that it will be unreasonable in 2019/2020.
[45] Mr Goddard contended that the most relevant measure is what Vector actually obtains for Liquids at the first point of sale, and if the KMCs accept that position, Vector will not seek discovery of categories 35 and 36. Mr Colson considered that a wider assessment is required, because the price Vector receives is likely to be an internal transfer price agreed between it and its wholly owned subsidiary, OnGas Limited, and thus not a true reflection of the value of the Liquids to Vector. Mr Colson pointed out that the categories nearly agreed by the parties would capture the value OnGas Limited derives from those Liquids, and therefore discovery for categories 35 and 36 is not required.
[46] I am satisfied that the documents within these categories are relevant to an analysis of whether the processing fee is unreasonable with respect to updated market values, and that information from OnGas Limited alone would not be adequate. No doubt that analysis will use the current market values to better inform projections about future market values. When limited to the period from 1 July 2014 onwards, discovery of these categories is justified.
Qualification on the scope of the categories as proposed
[47] Counsel have sensibly categorised different tiers of documents depending on the level at which they had been prepared, or were to be considered within each
organisation. For example tier 1 comprises board papers or papers circulated to, prepared or authored by, or considered at the executive level of the relevant entities. Tier 2 comprises reports or papers prepared or authorised by individuals occupying senior management positions. The definitions for categories 26, 27, 28, 31 and 32 all started by stipulating tier 1 and 2 documents, but then potentially expanded that by stating “and any high level reports/documents”. Mr Colson was concerned that the use of “and” potentially broadened the category beyond tier 1 and 2 documents so long as additional documents came within the rest of the respective definitions.
[48] I accept that these definitions are unsatisfactory. Mr Goddard suggested that the definitions be amended to remove the “and” and instead make the descriptions following the reference to tier 1 and 2 documents a qualifier in brackets. So for example in category 26, the relevant text should be replaced with “(including any high level reports/documents)”. From Vector’s perspective, Mr Goddard would want that accompanied by an expansion of the definition proposed for tier 2 documents. His suggestion would expand that tier from documents authored by individuals occupying senior management positions to include documents that were addressed to that level in each organisation.
[49] Given the intention of the parties reflected in the previously agreed definition of tiers 1 and 2, and Mr Colson’s concern about the extent of potential expansion of the categories, I direct that the definition for these categories is to have the “and” removed and replaced with “(including …)”, but with no consequential expansion of the definition of tier 2.
[50] For clarity, this change in category 26, for example, would result in it being defined:
Tier 1 and 2 documents (including any high level reports, studies, business plans, forecasts, analyses or reviews) from [1 July 2014], which discuss …
Incomplete disclosure
[51] I have had regard to the KMCs’ concern that if they are required to provide discovery of many of the contested categories of documents, then the economic analyses will be undertaken on a less than fully informed and potentially lopsided set
of information. The confidential views of the KMCs may not be fairly representative of the approach to the nature of the gas market or markets, as adopted by the rest of the operators in the market.
[52] For Vector, Mr Goddard downplayed the potential relevance of the market conduct by others and submitted that the court would be better off with the categories of further discovery sought than without, if necessary having to accept that the picture was less than complete.
[53] I was referred to a chart in the 2015 calendar year edition of “Energy in New Zealand” produced by the Ministry of Business Innovation and Employment. 12 The chart provides a summary of the natural gas industry for 2015, identifying each of the fields and the percentage of production from each, the producers with interests in those fields and then the participants in the downstream levels of the market as wholesalers, transmitters of gas, distributors and retailers. On the basis of that chart the KMCs had interests in fields producing some 76.4 per cent of the net production of New Zealand gas fields in 2015. Of the 23.6 per cent of production in which they
are not involved, the largest components are the consortium operating the Kupe field (13 per cent) and Greymouth Petroleum’s combined output of some 9.8 per cent from its fields at Ngatoro, Kowhai, Turangi and Onaero.
[54] I am not in a position to determine the relative significance of the absence of comparable private information from those other operators to the quality of the evidence otherwise available. I am not persuaded the risks of incomplete information are sufficient to deprive the categories that I have recognised of the requisite level of relevance.
[55] Mr Colson alluded to the prospect that, if the categories sought by Vector were to be ordered, then the KMCs’ response may be to apply for non-party discovery against the remaining participants in the gas market. I place no reliance on that prospect. Assessing relevance on the basis of the risk the KMCs have identified
of incomplete data, it does seem that the evaluation of all the information that will be
12 Brenda Talacek affidavit, Exhibit H at 443.
available can take into account the prospect of different matters arising from the confidential views of the operators whose documents are not before the Court.
The non-parties
[56] Vector sought discovery of the categories of document identified not only from the plaintiffs, but also from a range of their associated companies. That list, so far as Todd is concerned, comprises the Todd Corporation, Todd Energy Limited, Todd Pohokura Limited and Nova Energy Limited.
[57] So far as Shell is concerned the list comprises Shell Todd Oil Services Limited, Shell Investments NZ Limited, Shell Exploration NZ Limited, Shell New Zealand (2011) Limited, Energy Petroleum Holdings Limited, Energy Petroleum Taranaki Limited, Taranaki Offshore Petroleum Company of New Zealand Limited and Maui Development Limited.
[58] For its part, Shell accepted that whatever discovery was ordered as a result of the argument, compliance with it would be provided by the named Shell plaintiff company and the named associated companies.
[59] Todd’s position was that it would similarly comply, but invited the terms of the orders to specify that its list of associated companies were also to provide discovery of their own documents within the relevant categories.
[60] I intend my orders to apply so as to extend the discovery obligations to each of the named companies.
[61] Vector was content for the scope of the obligation to be defined in this way. However Mr Goddard reserved Vector’s position to argue, should it subsequently become an issue, that discovery of the requisite categories of documents from the associated companies did not require a non-party discovery order because (on his argument) the documents held by all of the associated companies are within the control of the named plaintiff companies. The point need not be addressed at this stage.
Confidentiality
[62] Vector’s application was on terms that it accepted the need for a relatively tight regime that would restrict access to any documents for which commercial sensitivity or confidentiality was claimed, to named counsel and relevant experts. Mr Colson expressed some reservations about the adequacy of the proposed regime.
[63] I am conscious that many of the documents likely to fall within the categories that I have ordered discovery of will be extremely commercially sensitive. Disclosure to decision makers within Vector, or to any others interested in the gas market could have extremely serious adverse impacts on the business of the discovering party.
[64] Mr Goddard proposed that counsel liaise further about the optimum terms for a workable confidentiality regime and I anticipate that the parties will file a further memorandum (or if issues remain to be resolved, separate memoranda if necessary) as soon as the matter can sensibly be addressed.
[65] Vector should know that obtaining access to such documents under such arrangements imposes a very serious responsibility on those given access to the information. It would hopefully never need to be argued, but there would presumptively be a claim on what might well be a strict liability basis for open-ended losses that could be proven to have flowed from unauthorised disclosure.
[66] I look forward to approving adequate arrangements for confidentiality. The orders I am making in this judgment are conditional on that point being resolved.
Time period for discovery
[67] The parties disagreed as to the length of time the KMCs ought to be afforded for discovery. Vector initially requested discovery within 21 days from the date of the order, but submitted it is willing to extend that to four weeks. The KMCs contended six weeks is necessary due to the need to access documents through convoluted channels. Vector raised concerns that this would leave it with insufficient
time to inspect the documents and prepare evidence in accordance with the Court timetable.
[68] In light of the prospect of substantial numbers of documents and the need to source them from multiple entities, I am satisfied that a reasonable time period for discovery is six weeks (30 working days). I am mindful of the need for ample time to analyse the documents once discovery is complete. I have done what I can to expedite this decision so that the two additional weeks ought not to detrimentally affect Vector’s preparation for trial.
Use of arbitral materials
[69] Mr Goddard advised that the parties had agreed that they should all have leave to refer to materials comprised in affidavits from the post 2010 arbitration. From an abundance of caution, the parties asked that I regularise that arrangement by making an order under s 14C(c) of the Arbitration Act 1996. I accordingly make an order that material in the affidavits filed in that arbitration may be used for the purposes of the current proceeding pursuant to this order under that section of the Arbitration Act.
Costs
[70] Although Vector has achieved a substantial part of the tailored discovery its application sought, I am satisfied that the KMCs were justified in the measured grounds of opposition they maintained. They were entitled to argue their challenge to the relevance of documents within the categories requested and that stance may become relevant to costs in the substantive proceeding, if their claims of lack of relevance are borne out.
[71] In the meantime, however, there is to be no order as to costs on Vector’s
application. Costs are to lie where they fall.
Summary
[72] Vector’s application for particular discovery is granted in part, in respect of all the categories in issue except 32. In all cases where documents were sought from
1 January 2012, the more recent date of 1 July 2014 is to be substituted. In the definition of documents in categories 26, 27, 28 and 31, the word “and” is to be removed in the first line and the description of documents immediately following is to be placed in parenthesis starting with the word “including” to clarify that they are illustrative of the documents covered by the category. Discovery under category 30 is to be limited to ARPRs and ARRs created since 1 July 2014, and excluding the “similar documents” sought in the remainder of that category.
[73] Discovery is to be completed within 30 working days by the named plaintiffs and by each of their named associated companies from whom discovery was sought as non-parties.
[74] An order in these terms is contingent on the parties settling terms of confidentiality for access to the discovered documents. There is to be no order as to costs on Vector’s application. I have made a further order, by consent, pursuant to s 14C of the Arbitration Act 1996 as detailed in para [69] above.
Dobson J
Solicitors:
Bell Gully for first plaintiff
Minter Ellison Rudd Watts for second plaintiff
Chapman Tripp for defendant
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