AOTEAROA INTERNATIONAL LTD V PAPER RECLAIM LTD HC AK CIV 2001-404-1799

AOTEAROA INTERNATIONAL LTD V PAPER RECLAIM LTD HC AK CIV 2001-404-1799 2 April 2008IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY CIV 2001-404-1799BETWEEN AOTEAROA INTERNATIONAL LIMTIED Plaintiff AND PAPER RECLAIM LIMITED Defendant Hearing: 2 April 2008 Appearances: A Grant for plaintiff respondent G J Judd QC & A G Rowe for defendant applicant Judgment: 2 April 2008ORAL JUDGMENT OF WINKELMANN JSolicitors: Morrison Kent, Auckland Wells & Co, Auckland Counsel: A F Grant, Auckland G J Judd QC, Auckland[1] The plaintiff, Paper Reclaim Limited and the defendant, Aotearoa International Ltd were parties to an arrangement for the export of waste paper. The relationship continued in some form or another from the 1980s until early 2001, when Paper Reclaim sent a letter to Aotearoa purporting to bring the relationship to an end. The nature of their arrangement and the legal effect of that letter has been the subject of an earlier hearing: the liability hearing. A separate quantum hearing was to follow if Aotearoa succeeded. In the High Court, Nicholson J held that there was a contract between Paper Reclaim and Aotearoa and that Paper Reclaim was obliged to give reasonable notice to Aotearoa before it could disengage itself from the arrangement. On appeal to the Court of Appeal and Supreme Court the basic finding of Nicholson J that there was a contract terminable on reasonable notice was upheld, but the period of required notice was reduced from 8 years to 12 months. The proceeding was then remitted back to the High Court for the quantum hearing. The issue of quantum now has a hearing date in June 2008. [2] To date Aotearoa's discovery in relation to this aspect of quantum has been limited to its annual financial statements and commercial invoices relating to export shipments of waste paper, steel and plastic. In February 2008, Paper Reclaim filed an application for particular discovery of documents it claims are relevant to the quantum phase. Discovery is sought of the following documents relating to export transactions of waste paper by Aotearoa between 2 February 2001 and 2 February 2002:(i) Bill of lading; (ii) Master shipment sheet; (iii) Packing list; (iv) All communications (including letters, facsimile transmissions and email messages) relating to the export transactions which refer inter alia to: price and quantities to be shipped, time(s) of shipment(s), terms of trade (including any credit given), description of goods to be sold, commissions payable, claims; (v) Any other documents relating to the plaintiff's expenses in relation to the export transactions, including but not limited to: i. freight invoices;ii. commission credit notes; iii. buying contract or order; iv. the selling contract or order; v. inspection fees; vi. insurance; vii. on-carriage fees; viii. destination terminal handling cost (DTHC) fees; ix. purchase invoices; x. internal freight invoices.[3] Paper Reclaim contends that the orders sought are necessary so that Paper Reclaim can verify the elements of the summary of the plaintiff's claim for damages dated 24 January 2008 as to: (1) Item 2 - in which Aotearoa claims the estimated increase in price that it would have achieved it if had been responsible for exporting the paper during a notional 12 month notice period. (2) Item 4 – the deduction made in respect of Aotearoa's entitlement to payment in respect of 50/50 deals. The deductions made for Aotearoa's cost savings by not having to perform the contract. [4] It is also said that the documents will assist in the general determination of: (a) the amount that Aotearoa saved by not having to carry out its obligations under the contract; (b) whether there are any transactions other than those identified by Aotearoa which were 50/50 deals; (c) the FOB price of the goods sold in sales that would have been 50/50 deals;(d) whether the prices claimed to be achieved by Aotearoa are the true prices and how those compare with sales made by Paper Reclaim; (e) the extent to which Aotearoa mitigated its loss and whether acting reasonably, Aotearoa should have taken further steps in mitigation. [5] The application is opposed on two grounds. Firstly, that the documents are not relevant and secondly, that they contain commercially sensitive information, which if disclosed to Paper Reclaim, would harm the interests of Aotearoa. Aotearoa's position is that if discovery is to be ordered, then extensive confidentiality orders are necessary in respect of the documentation. [6] Notwithstanding its opposition to the application, Aotearoa has advised Paper Reclaim that it will allow Paper Reclaim's accounting expert and legal advisers to inspect the documents if they enter into confidentiality agreements in which they undertake not to inform Paper Reclaim of any information which would identify: (a) the customers to whom waste paper was exported from New Zealand; (b) any prospective customers who were approached to export waste paper from New Zealand; (c) any contact references of customers and prospective customers; (d) the shipping rates for the shipments of waste paper exported from New Zealand for use in overseas paper mills; (e) the identity of shipping companies who exported the waste paper from New Zealand; (f) the freight rates at which paper was exported; (g) communications between Aotearoa and the shipping companies;(h) the ports of discharge of consignments of paper exported from New Zealand as in some cases that might tend to identify the customer; (i) communications with potential customers that might identify what they were willing to pay for waste paper or what others were willing to pay. [7] In broad terms Aotearoa is concerned that if there is disclosure of the identity of the customers or potential customers that will harm its commercial interests. Mr Paul Cash, a director of Aotearoa, has filed an affidavit in which he says as follows:The identity of customers are sensitive. If Paper Reclaim sees that Aotearoa was getting an appreciably higher price for a commodity than Paper Reclaim was able to get, it may wish to sell product in future to that customer. Aotearoa dealt with quite a number of new customers during the relevant year of whom I think Paper Reclaim would have no knowledge. If it learns the identity of the customers they will be able to approach them and see if they can sell product to them and thereby harm Aotearoa's interests. It is quite apparent from the comparisons which I have been able to make during the relevant year that Paper Reclaim was selling at lower prices than Aotearoa and if Paper Reclaim sells competing product at a lower price to those customers, Aotearoa will be harmed as it will not be able to obtain a higher price.[8] The other broad aspect of confidentiality claimed is in relation to the freight costs of shipping goods to export markets. Mr Cash says that the information in relation to freight prices for the period 2001-2002, remains commercially sensitive. He says:The export of waste paper is a highly competitive business and details from 2001 of freight rates are highly confidential. Shipping customers do not want customers ever to disclose the rate which they have struck since they always try to get the most favourable rate and if rival exporters discover that a shipping company has been giving a more favourable rate to a competitor, it can create considerable difficulty for the shipping company. In the present case if Paper Reclaim sees that Aotearoa was given a more favourable shipping rate than it (Paper Reclaim) was getting at the relevant time this may result in Paper Reclaim complaining to the shipping company and Aotearoa ending up with adverse rates in the future.[9] Paper Reclaim does not accept that any of the documents claimed are properly to be categorised as commercially sensitive or confidential in the sense that their disclosure will cause prejudice to the interests of Aotearoa. However, it isprepared to agree to limited confidentiality orders to facilitate the prompt provision of discovery of the requested documents. It is also prepared to forego the preparation by Aotearoa of a list of documents, and is content that discovery be provided simply by way of inspection.Relevance[10] I am satisfied that access to the categories of documents the subject of the discovery application is necessary to allow verification of items in the 24 January 2008 "Summary of the Plaintiff's claim for Damages" which particularises the damages claimed by Aotearoa. If access is not allowed there are no means by which Paper Reclaim can effectively test and potentially challenge the validity of these calculations set out in the summary, including checking the accuracy of the calculations, and the integrity of the information that lies behind the calculations. Mr Cash says in his affidavit that various categories of documents will not assist Paper Reclaim and that the invoices provide the necessary information. For example, in relation to bills of lading he says:Paper Reclaim has sought discovery of each Bill of lading for the exports of waste paper from New Zealand. Aotearoa opposes this application on the following grounds: (a) Bills of lading are not relevant for the assessment of loss. They identify the shipping company which shipped the product (details of which are confidential), the consignee (details of which are confidential), the vessel on which the goods were shipped (which is not confidential), the container numbers and seal numbers which are not confidential), the numbers of containers (which are not confidential), and the weight of each container (which is not confidential). In short, they merely show that product was shipped from New Zealand to the offshore consignee. The invoices relating to each transaction (which have been discovered) provide the following: (i) The number of containers of product. (ii) The identity of the product. (iii) The ship on which the product was shipped and its voyage number. (iv) The weight of the shipment. (v) The customer's order number (if any).(vi) The letter of credit number. (vii) A date and the terms of sale. (viii) The total value of the shipment.[11] Access to all categories of the documents identified by Paper Reclaim is required if Paper Reclaim is to undertake the audit type exercise in respect of Aotearoa's quantum calculation that it seeks to. Paper Reclaim is entitled to undertake the exercise it proposes. Since removing categories of documents would limit the efficacy of that exercise, Paper Reclaim is entitled to access to all of the categories of documents requested.Claims of confidentiality[12] The approach of the courts to claims of confidentiality is as set out in the Court of Appeal decision Port Nelson Ltd v Commerce Commission (1994) 7 PRNZ 344. In that case the Court of Appeal discussed the general importance of discovery to the litigation process. It said:The ability of each party to a proceeding to inspect the documents of the other, except for documents which are privileged, is important in enabling the proceeding to be brought to a just conclusion. It avoids parties being taken by surprise. It enables legal advisers to better assess the likely outcome of trial, and to concentrate on what will ultimately prove to be the real issues. In this way it can save cost. Sometimes, however, relevant documents which are not privileged may be commercially sensitive.[13] The Court then went on to discuss the circumstances in which claims to commercial sensitivity will be upheld. It said that an order for non-disclosure can only be made when the court considers it necessary and it must be at least apparent either from the document itself or some other evidence that disclosure would be likely to prejudice the party in some significant way. The Court also considered that the claim to commercial sensitivity should be considered on a document by document basis. [14] In this case the claim to commercial sensitivity and confidentiality is a very broad one. No particular documents are identified by Aotearoa. In effect, Aotearoa says that commercially sensitive material in the documents is so extensive that PaperReclaim's access to all of the documents must be severely limited. Aotearoa seeks orders that only Paper Reclaim's legal team and accounting expert should be able to undertake inspection. [15] Mr Bland for the defendant responds in part to that claim in his affidavit in relation to the issue of freight rates. In essence, he says that the plaintiff cannot credibly claim that freight rates in 2001 are confidential or commercially sensitive now. Freight rates of six years ago have no relevance to freight rates applicable now, and since 2001 there have been changes in the shipping industry in New Zealand with alteration of the identity and position of the major shipping companies in the industry. In addition, prior to 2 February 2001 Paper Reclaim was aware of the freight rates that applied to export of its product and those applying to 50/50 deals. Although it may not have been aware of the particular rates that Aotearoa obtained in the period after the purported cancellation (from 2 February 2001 to 2 February 2002), something truly "startling" would have had to have occurred in that period which completely changed the freight rates from those already known to Paper Reclaim. [16] When assessing the plaintiff's claim that these documents are commercially sensitive it is obviously highly material that the documents are now at least six years old. At a common sense level it is unlikely that commercial sensitivity will persist in documents for such a period of time. Freight rates, the identity of providers within markets and personnel within those providers all change. It is difficult to see how such aged information would empower the defendant in its dealings with a shipping company. I also consider the following as relevant to the claim of commercial sensitivity: (a) The shipping companies did not seek confidentiality undertakings from Aotearoa when offering the freight rates. (b) Parties obtain rights of inspection in litigation on the basis that they will make use of them only for the purpose of the litigation. Were Paper Reclaim to attempt to make any use of the information it gained through the discovery process in its negotiations with shippingcompanies, then that would be a contempt of court: Church of Scientology of California v Department of Health and Social Security[1979] 3 All ER 97, 116. In short, Paper Reclaim cannot use the information for the purpose Aotearoa fears. (c) Proof of aspects of Aotearoa's quantum claim may very well require proof of the freight rates. Even if Aotearoa does not produce evidence in relation to the freight rates, Paper Reclaim should be able to cross-examine in relation to them. Unless orders were made so that the hearing was conducted in a way that preserved confidentiality, the information would become public at that point. Considerations of open justice would weigh against the making of such orders. [17] In relation to claimed commercially sensitivity in respect of the customers, Paper Reclaim was content if access to documents was granted on the basis that the names of the customers and potential customers and identifying particulars be edited from the documents. Towards the end of the hearing (and during the course of my delivering this judgment), Mr Grant raised a concern that if the directors of the defendant are to be able to inspect documents at the offices of Aotearoa, the extent of the redaction required will be such that it will take a considerable amount of time and a commitment of resources which Aotearoa can ill afford. He had anticipated that if the directors of Paper Reclaim were to obtain access to documents with the identity of the customer removed, then that would be on a request basis. This would mean that the principal inspection on site would be undertaken by the legal advisor and the expert witness retained for Paper Reclaim. [18] I find that Aotearoa has not made out its claim to commercial sensitivity in respect of the customer and prospective customer details. Again the claim is a blanket one, affecting all documents, and all clients. It is improbable that all client and prospective client information remains commercially sensitive information six years on. That is so particularly in the situation where until a short time before the relevant period, the parties were in a very close business relationship and it could confidently be expected there would have been a great deal of knowledge held byPaper Reclaim as to the identity of the customers, both in the principal business between the parties and in the 50/50 deals. [19] In light of this finding Paper Reclaim should be entitled to inspect Aotearoa's documents. Inspection by counsel and experts can be a poor substitute for inspection by the party who likely has a greater familiarity and understanding of the content within which the documents fall to be considered. [20] Therefore if Aotearoa wishes to accept Paper Reclaim's concession that the names of customers can be edited it is not unduly onerous to require the plaintiff to undertake that task. It may well be that the extent of the exercise will cause Aotearoa to focus on how many customers' names from 2001 and 2002 remain truly commercially sensitive. [21] Therefore I make the following orders: (1) Within 28 days of the making of this order Aotearoa is to provide discovery of the following documents relating to the export transactions of waste paper by the plaintiff, incurred between 2 February 2001 and 2 February 2002, as set out in schedules (1) and (2) to the application of 8 February 2008:(i) Bill of lading; (ii) Master shipment sheet; (iii) Packing list; (iv) All communications (including letters, facsimile transmissions and email messages) relating to the export transactions which refer inter alia to: price and quantities to be shipped, time(s) of shipment(s), terms of trade (including any credit given), description of goods to be sold, commissions payable, claims; (v) Any other documents relating to the plaintiff's expenses in relation to the export transactions, including but not limited to: i. freight invoices; ii. commission credit notes; iii. buying contract or order;iv. the selling contract or order; v. inspection fees; vi. insurance; vii. on-carriage fees; viii. destination terminal handling cost (DTHC) fees; ix. purchase invoices; x. internal freight invoices.(ii) Discovery is to be provided by way of the documents being made available for inspection. A verified list of documents is not required. The inspection is to be provided on usual terms as to access to the documents, but on the basis of Paper Reclaim's concession that Aotearoa is entitled to remove from the documents inspected by Paper Reclaim the following: (a) the identity of customers and any particular which tends to identify those customers, including contact references and port of discharge for consignments of paper; (b) the identify of potential customer suppliers and other parties who may have been approached to see if they wanted to buy or sell paper, and any particular which tends to identify those potential customers, suppliers or other parties. [22] Mr Grant has indicated that there may be a difficulty for his client in removing these names from the documents to enable a client to provide inspection within that time frame. This difficulty arises from the fact that the director and senior manager are absent from New Zealand until mid April 2008. Although I am satisfied that the size of the exercise that Aotearoa must undertake arises from the unnecessarily broad scope of the confidentiality orders that they have sought to meet Aotearoa's difficulties, I reserve leave to it to apply for an extension of the timetable orders should compliance with the timetable prove impossible. There may, of course, be flow on consequences for other timetable orders and also potentially, cost issues, given my finding that the documents are relevant.[23] Mr Judd for the applicant seeks costs on a 2B basis on this application. Mr Grant opposed the making of the costs order on the basis that the plaintiff has been prepared to provide discovery of the documents from first approach, but simply on the basis that the giving of confidentiality undertakings. I consider that the application by Paper Reclaim was properly brought and persisted with in the face of Aotearoa's claim for confidentiality. Paper Reclaim has been successful in the application. Accordingly, costs on a 2B basis are awarded. [24] At the end of the hearing Mr Grant raised that the implication of the existing discovery is that Paper Reclaim's evidence at least will not be able to be completed in time and exchanged prior to the settlement conference. He therefore asked that the settlement conference be vacated. Mr Judd has sought time to take instructions and will file memoranda in relation to that matter. Winkelmann J