Todd Pohokura Ltd v Shell Exploration NZ Ltd

[2009] NZCA 561

IN THE COURT OF APPEAL OF NEW ZEALAND

CA571/2009
[2009] NZCA 561

BETWEENTODD POHOKURA LTD

Appellant

ANDSHELL EXPLORATION NZ LTD

First Respondent

ANDOMV NEW ZEALAND LTD

Second Respondent

Hearing:19 November 2009

Court:Ellen France, Gendall and Harrison JJ

Counsel:A S Olney and I M G Clarke for Appellant

L J Taylor for First Respondent
T C Stephens for Second Respondent

Judgment:26 November 2009 at 2.30 pm 

JUDGMENT OF THE COURT

A            The appeal is dismissed.

BThe appellant must pay each of the respondents costs for a standard appeal on a band A basis plus usual disbursements.

____________________________________________________________________

REASONS OF THE COURT

(Given by Harrison J)

Introduction

[1]        Todd Pohokura Ltd (“Todd”)  appeals against decisions delivered by Dobson J in the High Court at Wellington on 12 August 2009 and 18 August 2009 dismissing applications for orders directing Shell Exploration NZ Ltd (“SENZ”) and OMV New Zealand Ltd (“OMV”), first, to answer interrogatories and, second, to give particular discovery.  We shall deal with the appeals in the same order, noting that the primary focus is on the first.

[2]        We record that Dobson J dismissed the applications in his capacity as Judge assigned to hear interlocutories and to preside at trial of Todd’s claim for damages and other relief.  Dobson J’s judgments determined a series of Todd’s contested interlocutories against the background of his familiarity with relevant legal and factual elements of the case.  The Judge exercised a discretionary power and to succeed Todd, as its counsel acknowledges, must show that he acted on a wrong principle, failed to take account of relevant factors or took into account irrelevant factors, or was plainly wrong.

[3]        Trial of Todd’s claim is due to commence on 15 February 2010 with an estimated duration of at least six weeks.  The parties are working to a pre-trial timetable for completing evidence.  SENZ and OMV were due to exchange written briefs for all proposed witnesses on the day following argument of this appeal.

Background

[4]        On 15 July 1999 Todd, SENZ and OMV executed a joint venture agreement to develop the Pohokura gas field.  The parties unanimously resolved in June 2004 to develop the field in accordance with a plan.  By a majority, and against Todd’s express opposition, SENZ and OMV passed a series of operating committee resolutions in early 2006 collectively known as the Offtake Regime.  Their purpose was to impose offtake and gas balancing arrangements. 

[5]        The resolutions fell into three particular parts.  First, they adopted rules governing the offtake of gas and condensate from the field, known as the Offtake Rules, requiring SENZ as operator to “assess” the “total production available” for the relevant year.  Second, they adopted protocols governing offtake nominations by the parties, known as the Nomination Protocols.  Third, they adopted work programmes and budgets for 2006.

[6]        In subsequent years SENZ as operator prepared and adopted along with OMV a series of work programmes and budgets which included “the total production available” as “assessed” at 70PJ/a of gas annually.  Todd’s position is that these programmes artificially constrained production from Pohokura.  The field has been operated at 70PJ/a since 2007.  Todd alleges that the field’s actual capacity is 87PJ/a; and that each PJ of production should generate revenue of $12m annually for distribution among the joint venturers.

[7]        The essence of Todd’s case is that SENZ and OMV have acted unlawfully in imposing a production restraint on the field.  That assertion is the source of 11 discrete causes of action, some of which appear to overlap.  Todd’s application to answer interrogatories relates primarily to two of those causes of action: one is the fifth, alleging invalidity of the Offtake Rules and Nomination Protocols; the other is the eighth, alleging breaches of ss 27, 29 and 30 Commerce Act 1986 or, in colloquial terms, anti-competitive behaviour.  The application also potentially affects the eleventh cause of action relating to the Crown Minerals Act 1991 but for these purposes it does not raise any different issues from those arising under the eighth cause of action.  (We note that the current pleading is the third amended statement of claim dated 23 October 2009.  Dobson J determined the subject applications on the second amended statement of claim dated 16 December 2008.  While there are material variations between the two, the interests of expediency require that we consider this appeal based upon the current pleading.)

[8]        Todd claims a wide range of relief including declarations, injunctions, damages and inquiries.  SENZ and OMV deny liability.

Interrogatories

(1)         Application

[9]        The genesis of Todd’s application to answer interrogatories is what its counsel, Mr Adrian Olney, referred to as a secret alignment agreement entered into between SENZ and OMV on 2 April 2004.  Its purport is said to be that the two parties agreed to align their interests on a number of critical subjects including rights and obligations to take gas, gas balancing issues and nomination procedures.  Todd alleges that in accordance with the agreement the two other parties have consulted with each other about, and voted to authorise and approve, the Offtake Rules, the Nomination Protocols and work programmes.

[10]       Todd’s original application sought answers from SENZ to 23 listed interrogatories, which were truncated and amended on the third day of the contested hearing before Dobson J.  The four now in dispute are as follows:

16.Prior to the (purported) passing of the Offtake Rules on 3 March 2006 and/or in the course of arriving at each of the TPA and TPA (Contingent) figures were there any telephone discussions, meetings and/or other communication about the setting of the TPA and TPA (Contingent) figures between SENZL and OMV?

17.If the answer to question 16 is yes:

(a)what was the date(s) of the telephone discussions, meetings or other communications?

(b)which individuals were parties to those telephone discussions, meetings or other communications?

18.If the answer to question … 16 is yes, what advice, direction, instruction, and/or other information (if any) was given about the setting of each of the TPA and TPA (Contingent) figures and/or the rate of production from the Pohokura field generally:

(a)from SENZL to OMV?

(b)from OMV to SENZL?

19.If the answer to question … 16 is yes, what arrangement(s) or agreement(s) (if any) in relation to the setting of each of the TPA and TPA (Contingent) figures and/or the rate of production from the Pohokura field generally was entered into between SENZL and OMV?

[11]       Todd’s amended application against OMV sought answers to identical questions, listed in amended form as Qs 2 to 5.  Given this replication, we will treat the SENZ interrogatories as representative of both applications. 

(2)         High Court

[12]       Dobson J dismissed Todd’s application against SENZ for these reasons:

[97]       On Mr Taylor’s calculation, the potential application of eight variables to a series of questions divided into sub-parts would require consideration and, if ordered, answer to some 464 enquiries. He contended this was clearly oppressive.

…

[101]     It is difficult to attribute “necessity” to any particular factual enquiry in absolute terms. However, I am, for present purposes, prepared to accept that there is a measure of necessity in Todd knowing certain of the facts that would be addressed in answers to the remaining interrogatories. As against that, I am concerned about the oppressive extent of work which would be required to answer them anywhere near completely. One pervasive multiplier of the extent of work required is the stipulation in interrogatory 1 that answers should separately be provided for the “total production available” and “total production available (contingent)” separately for each of the 2007 to 2010 years, as well as the “total production available” for the 2006 year. From a preliminary consideration of Todd’s Second Amended Statement of Claim (the Statement of Claim), and in particular the seventh to ninth causes of action which allege breaches of the Commerce Act, it does appear that any behaviour on behalf of Shell that might go to an anti-competitive purpose or effect will most likely have been manifested at or near the outset of the relevant period to which the broader scope of questions is directed.

[102]     Accordingly, I propose to disallow any interrogatories other than in respect of question 1(a) to (c), covering the 2006 and 2007 projections. I appreciate that this creates a risk of limiting the answers in an way that avoids Shell having to acknowledge some aspect of conduct subsequent to the period that I would allow questions to be asked about. I further acknowledge that the superficial level of my understanding of the nature of the competing cases and the commercial context in which the conduct has occurred do create a risk that I am drawing a distinction on an inadequately informed basis. However, I am well satisfied that to allow the questions over the longer, more recent periods would inevitably be oppressive. I am also satisfied that conduct on behalf of Shell that is likely to harm its own defence or assist Todd in it making out its causes of action is relatively more likely to have occurred when the pattern of their commercial conduct was being developed.

…

[104]     As to question 16, I appreciate its potential importance for Todd in relation to the allegations of breach of the Commerce Act. However, in its present, relatively open-ended form, it is undoubtedly oppressive. Any communications between Shell and OMV that were likely to have commercial significance in the decisions subsequently made are unlikely not to have been recorded. I accept that if parties appreciate they may be conducting themselves contrary to the Commerce Act, then they may deliberately not create a record that would subsequently be discoverable.  However, given the apparent nature of Shell and OMV’s organisations in New Zealand, and the formality attributed to their April 2004 Alignment Agreement, I am not satisfied that Todd can lay a foundation for there being any realistic prospect of such unrecorded communications. Obviously, recorded conversations would be discoverable. Further, the question is open-ended as to time, and as to the personnel who may have been party to such conversations. I accept Mr Taylor’s concern that there would be a real risk of inadequate answers, however conscientiously Shell made enquiries of existing and former personnel. This is not a question which I am prepared to confine on Todd’s behalf so as to render it acceptable. Accordingly, questions 16 (and 17, 18 and 19, which are consequent either upon 16 or 14 and 16) are disallowed.

[13]       The Judge disallowed the application against OMV for the same reasons.

(3)         Principles

[14]       It is appropriate to summarise briefly the nature, purpose and permissible scope of interrogatories.  An interrogatory is a question asked before trial for the purpose of eliciting an answer on oath or affirmation which is admissible in evidence at trial.  Like all questions, it must be directed towards advancing one side’s case or damaging the other’s case.  It must accordingly be relevant to an issue raised on the pleadings or a fact in dispute for determination.

[15]       An interrogatory must also, like a question in cross-examination, be precise and unequivocal, and amenable to a direct and meaningful answer from information within the knowledge of or reasonably available to the person required to answer.  It must not place unnecessary or burdensome obligations on the interrogated party, or be prolix.  And its purpose must not be to search or probe on the speculative basis that an answer may prove relevant (colloquially known as fishing).  A question which offends these elements will fall within the general category of oppressiveness.

[16]       An interrogatory is an exception to the settled manner of adducing evidence and in particular to a defendant’s right not to call evidence at trial.  Accordingly the Court must be satisfied that the interrogatory is necessary where an application to issue interrogatories is opposed: r 8.5 High Court Rules.  A material consideration is whether briefs of evidence will be given by the party to be interrogated.  Moreover, an interrogatory is not to be confused with a request for further particulars.

(4)         Conclusion

[17]       When viewed against this summary, it is apparent that the source interrogatory, Q16, and its three derivatives offend the relevant principles for a number of reasons.

[18]       First, the interrogatories are of only marginal relevance to an issue raised on either of the two nominated causes of action.  Q16 is directed towards a number of different events and timeframes.  One timeframe precedes the passage of the Offtake Rules in March 2006; the other covers the production figures actually fixed, apparently for all years in issue.  The subject matter is the fixing of the total and contingent production available figures. 

[19]       On the invalidity claim, Mr Olney submits that the questions are directed to establishing the purpose of those figures, whether it was to limit production, and whether the figures are within the power of the operating committee to determine.  However, Todd’s allegation is that the Offtake Rules and the Nomination Protocols are themselves invalid.  The vires of the rules is not to be confused with the discrete question of how the parties fixed production figures.  For example, what was said or done by the two parties before the passage of the rules is irrelevant to the validity of the resolutions themselves.  Todd pleads that the purpose or effect of the rules is to limit production from the field and that article 5.2 of the joint venture agreement does not authorise the operating committee to adopt Offtake Rules generally.  Mr Olney accepts that validity will be determined largely by reference to the enabling provisions of the joint venture agreement, the petroleum mining permit, the Crown Minerals Act and the Commerce Act.  This issue turns on construction of the relevant instruments.  Todd’s principal claim is for declaratory relief.  That remedy is available only where facts are not in dispute.

[20]       On the claim for breach of the Commerce Act or anti-competitive behaviour, Mr Olney submits that the work programmes and budgets which include the total production available figures are the implementation of contracts, arrangements or understandings between the other two parties designed to limit production.  He submits that the answers to the interrogatories may be relevant to whether the parties had an anti-competitive purpose in limiting production to 70PJ/a.  However, Todd’s case is expressly pleaded as being that the Offtake Rules, the Nomination Protocols and the work programmes and each resolution passed by the other two parties adopting the offtake documents, offend the Commerce Act; and that the purpose, effect or likely effect of the offtake documents is to substantially lessen competition in the national natural gas market.  The test for success on this cause of action is primarily objective, by reference to the documents themselves, as Todd specifically pleads.  Its case will not be advanced materially by what may or may not have occurred between the other parties, for example, during an undefined period before those instruments were enacted.

[21]       Mr Olney points to Todd’s claim for exemplary damages to justify the interrogatories.  This argument did not feature in his written synopsis and was not apparently raised before Dobson J.  Mr Olney says that evidence about the parties’ subjective states of mind in the period preceding passage of the resolution may justify that relief.  However, even if Todd discharged the high threshold necessary to establish its case for exemplary damages, the relevance of the questions and answers to that issue, which of itself will be secondary, is marginal.

[22]       Second, the questions themselves are objectionable.  For example, Q16 is open-ended and rolls up multiple subjects into one omnibus question.  It is unlimited as to time, place and circumstances.  It is not amenable to one answer, but at best would require multiple layers or stages. 

[23]       A question about whether “prior to” the passage of the rules certain events occurred fails to identify a reasonable time span (Mr Olney postulated a four year period).  It would place an unfair burden on the other parties at this late stage of preparation for trial to expect them to make what would necessarily be extensive inquiries covering an indeterminate period and unlimited number of individuals in an attempt to answer the numerous elements of Q16.  It is not the Court’s function to limit or reshape an objectionable interrogatory into an acceptable form.  Q16 is plainly oppressive, as Dobson J found.

[24]       The derivatives from Q16 – Q17, Q18 and Q19 – suffer from the same defects.  Furthermore, Q18 and Q19 seek answers on agreements about setting the rate of production “from the Pohokura field generally”.  That imprecision excludes the prospect of a satisfactory answer.

[25]       Third, the interrogatories are of a fishing nature.  Mr Olney gave examples of what the answers “may reveal”.  That rationale is speculative, confirming that Todd is hoping for a disclosure or disclosures favourable to its case.

[26]       Fourth, the interrogatories were not necessary when the order was made.  The parties were then subject to timetable directions for exchanging evidence within the ensuing three months.  Mr Taylor advises that SENZ’s evidence, which, as noted, was to be exchanged on the day following the appeal hearing, will address its position on the setting and approval of production levels and its motivations (to the extent that they are relevant). 

[27]       We record that in their written synopses, counsel for SENZ and OMV submitted that Todd’s appeal was filed out of time.  That submission was not pursued in oral argument.  However, if leave was required, we grant it.

Discovery

[28]       Todd separately appeals against Dobson J’s refusal to order particular discovery of printouts and presentations of scenarios or estimates of pricing which were produced using an economic model referred to in a SENZ email dated 12 April 2005 and which result from different supply and demand projections or scenarios.  It is material to note Mr Taylor’s advice that the Judge did order SENZ to discover an electronic copy of the economic model which has since been satisfied. 

[29]       Mr Olney submits that the particular documents would “likely provide insights” into SENZ’s view of the gas market at particular times, its consideration of the effects on market prices and volumes under different production scenarios for Pohokura, and “therefore its possible motivations” for acting as it did in implementing the Offtake Regime (in particular the 70PJ/a production constraint), whether SENZ’s part in the Offtake Regime had an anti-competitive purpose, and whether the Offtake Regime had or likely had an anti-competitive effect.

[30]       Mr Olney subjected Dobson J’s finding that the economic model documents were not relevant to careful analysis.  He sought to identify inconsistencies in the Judge’s reasoning on reliance.  However, we are not satisfied that Dobson J erred.  The Judge found that Todd had not established an evidential foundation for “grounds for believing” that SENZ had failed to discover a relevant document: r 8.24.  The Judge balanced the extent of work required of SENZ to search for and provide disclosure of the documents, where the parties were relatively close to trial, against the importance claimed by Todd for any evidence of SENZ’s proposed levels of production at Pohokura other than 70PJ/a.  Mr Olney has not persuaded us, on the limited factual material available on appeal, that Dobson J wrongly exercised his discretion to refuse particular discovery. 

Result

[31]       Todd’s appeal against parts of the decisions delivered by Dobson J in the High Court at Wellington 12 August 2009 and 18 August 2009 is dismissed.

[32]       SENZ and OMV, having succeeded, are each entitled to costs for a standard appeal on a band A basis plus usual disbursements.

Solicitors:

Russell McVeagh, Wellington, for Appellant

Minter Ellison Rudd Watts, Wellington, for First Respondent

Simpson Grierson, Wellington, for Second Respondent