BAY OF PLENTY ELECTRICITY LTD V NGC NEW ZEALAND LTD HC WN CIV 2004-485-2287

BAY OF PLENTY ELECTRICITY LTD V NGC NEW ZEALAND LTD HC WN CIV 2004-485-2287 1 February 2006IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY CIV 2004-485-2287BETWEEN BAY OF PLENTY ELECTRICITY LIMITED Plaintiff AND NGC NEW ZEALAND LIMITED Defendant Hearing: 8 July 2005 Appearances: P. Radich and S. Bacon for Plaintiff J.E. Hodder and N. MacFarlane for Defendant Judgment: 1 February 2006 at 10.30amJUDGMENT OF ASSOCIATE JUDGE ABBOTTSolicitors: Izard Weston, PO Box 5348, Wellington Chapman Tripp, PO Box 993, Wellington[1] The plaintiff Bay of Plenty Electricity Limited ("BOPE") and the defendant NGC New Zealand Limited ("NGC") are parties to a long-term agreement entered into on 10 October 1995 for NGC (as a gas distributor and seller) to supply BOPE (as a gas retailer) with natural gas from the Maui field. NGC has purported to exercise a contractual right to terminate the agreement. BOPE has issued this proceeding seeking a declaration that the termination is invalid, and seeking an order for specific performance of the agreement. [2] BOPE has applied for orders that NGC provide further discovery of documents which it claims are relevant but not yet discovered, and for setting aside of NGC's claim for privilege in certain documents that have been discovered. [3] The application for further discovery is made pursuant to Rule 300 of the High Court Rules which reads:300 Order for particular discovery against party after proceeding commenced(1) If at any stage of the proceeding it appears to the Court from evidence or from the nature or circumstances of the case or from any document filed in the proceeding that there are grounds for believing that a party has not discovered 1 or more documents or a group of documents that should have been discovered, the Court may order that party— (a) to file an affidavit stating— (i) whether the documents are or have been in the party's control; and (ii) if they have been, but are no longer, in the party's control, the party's best knowledge and belief as to when the documents ceased to be in the party's control and the person who now has control of them; and (b) to serve the affidavit on any other party. (2) The Court may not make an order under this rule unless satisfied that the order is necessary at the time when the order is made.[4] The application to set aside NGC's claim for privilege is made pursuant to Rule 307 of the High Court Rules which reads:307 Challenge to privilege or confidentiality claim(1) If a party challenges a claim to privilege or confidentiality made in an affidavit of documents, the party may apply to the Court for an order setting aside or modifying the claim.(2) In considering the application, the Court may require the document under review to be produced to the Court and inspect it for the purpose of deciding the validity of the claim. (3) The Court may— (a) set aside the claim to privilege or confidentiality; or (b) modify the claim to privilege or confidentiality; or (c) dismiss the application; or (d) make any other order with respect to the document under review that the Court thinks fit.[5] In support of its application for discovery, BOPE says that the documents being sought are relevant to matters clearly put in issue by the pleadings. In opposition NGC says that the documents are irrelevant as they do not relate to the real issue for determination in the proceeding, that any order would be oppressive due to the volume of material potentially involved and its lack of probative value, and that any orders are unnecessary for disposal of the proceeding. [6] The issues for determination on this aspect of the application, therefore, are: a) Whether the documents being sought relate to a matter in question in the proceeding; and b) If so, whether an order should be made at this time. [7] In respect of its application on NGC's claim for privilege, BOPE says that the claim is based on litigation privilege, that litigation could not be said to be in contemplation prior to the date of the purported termination, and that litigation privilege cannot apply as all documents in question pre-dated the notice of termination. NGC opposes this aspect of the application in respect of six of the eight documents sought. It does so on the dual bases that the documents do attract litigation privilege (having been produced for the dominant purpose of prospective litigation at a time when it was reasonable for NGC to regard litigation as probable) and that they also attract legal advice privilege (being confidential communications made for the purpose of giving and/or obtaining legal advice).[8] NGC withdrew the claim to privilege in respect of the other two documents on the grounds that the documents had been included in the affidavit in error. They relate to another dispute between the parties and were, therefore, not relevant to matters in issue in this proceeding.Background[9] NGC obtains its gas from the Crown under an agreement known as the NGC Gas Contract, one of three supply agreements (described as "downstream agreements") entered into by the Crown. The Crown obtains its supply of gas under an agreement known as the Maui Gas Contract with the petroleum mining companies which extract the gas from the Maui field. The agreement (NGC/BOPE) is the third in a chain of supply contracts. [10] The first, the Maui Gas Contract, was entered into in 1973. Under it the seller companies agreed to supply gas from the Maui field to the Crown at a specified rate and a set price. The contract was predicated upon assumptions as to the economic capacity of the field and provides for re-determination of that capacity (referred to as Economic Recoverable Reserves) from time to time. It provides (Article 8.8) a mechanism for adjusting quantities of gas deliverable in the event of a shortfall in Economic Recoverable Reserves relative to gas taken to date of re-determination and forward delivery obligations. [11] The NGC Gas Contract was the second contract in the chain. It was entered into in 1977 (and varied in 1990). It provided (clause 4.8 of the varied contract) for an alteration to the quantities to be supplied in the event of a re-determination of Economic Recoverable Reserves under the Maui Gas Contract. [12] It is common ground that there was a re-determination under the Maui Gas Contract on 5 February 2003. Although the Maui Gas Contract provided for re- determinations as frequently as two yearly, this re-determination of 6 February 2003 was the first. The re-determination was carried out by an independent expert appointed in accordance with the contract, after the parties failed to agree. The re- determination resulted in a reduction in Economic Recoverable Reserves.[13] A party to another of the downstream contracts immediately issued a Court proceeding challenging the re-determination. That proceeding was struck out in August 2003. An appeal brought against that decision was dismissed on 27 June 2004. [14] As previously mentioned, the Maui Gas Contract provided (Article 8.8) a mechanism for adjusting delivery obligations in light of the result of the re- determination. However, following the re-determination there were competing views on what effect, if any, the re-determination had on the delivery obligations under the Maui Gas Contract. The parties to the Maui Gas Contract and the downstream contracts (including the NGC Gas Contract) entered into negotiations which led to a group of agreements (referred to as the Strawman agreements) which give effect to the re-determination in place of Article 8.8 of the Maui Gas Contracts. [15] It is common ground between the parties that on 31 May 2004 NGC entered into the Strawman agreements and that its future entitlements to gas from the Maui field are now determined by that agreement. [16] It is not in dispute that NGC also has a contractual right to take quantities of gas from the Maui field, in addition to gas supplied under the Maui Gas Contract, on a right of first refusal basis (referred to as ROFR gas), and that it has entered into new gas supply contracts with other customers since the purported termination. [17] The agreement between NGC and BOPE was due to run for a period of eleven years, terminating on 30 June 2006, but subject to rights of termination upon the happening of certain events. One such event, contained in clause 9.1.6 of NGC's standard form conditions that were incorporated as part of the terms of the agreement, reads:"In cases where there is a re-determination under the Maui Gas Contract and as a result the ability of NGC to supply or deliver Maui Gas is reduced to any extent then NGC may terminate this Agreement by notice in writing to the other Party".[18] On 2 August 2004 NGC gave notice of termination of the agreement with BOPE with effect from 31 October 2004, claiming to do so in reliance on clause 9.1.6.The application for discovery[19] BOPE seeks discovery of : a) Documents relating to the determination of Economic Recoverable Reserves. b) Documents relating to the following Strawman agreements: i) A settlement and umbrella agreement dated 31 May 2004 between the defendant, the parties to the Maui Gas sale and purchase agreement and the parties to the downstream contracts (as defined in that agreement); and ii) An agreement dated 31 May 2004 between the defendant, NGC Contracts Limited and the Crown providing (among other things) for the modification of the then existing contracts between the Crown and the defendant and NGC Contracts Limited; and iii) An agreement relating to right of first refusal for Maui Gas dated 31 May 2004 between the defendant, the seller (as defined in the Maui Gas sale and purchase agreement) and Contact Energy Limited (the ROFR agreement) c) Documents relating to the defendant's Maui gas portfolio before and after the determination of Economic Recoverable Reserves. d) Any and all gas supply agreements entered into by the defendant after the determination of Economic Recoverable Reserves.e) Documents relating to the exercise of its right of first refusal under the ROFR agreement. [20] In determining whether NGC should have discovered these documents, the Court has to consider whether they relate to a matter in question in the proceeding. The applicable principles are set out in McGechan on Procedure at HR 295.03:Parties are only required to discover those documents which relate to a matter in question in the proceeding. "Relate to" is treated as "relevant to" and relevance is tested with regard to matters in question, not to the subject- matter of the proceeding. . If a document relates to a matter not in dispute, it should not be discovered:Merchants Assn of NZ Inc v The King (1912) 32 NZLR 537; McNab v Wellington Publishing Co (1914) 33 NZLR 1362; Bell v Auckland University [1969] NZLR 1029. See also Compagnie Financiere et Commerciale du Pacifique v Peruvian Guano Co (1882) 11 QBD 55 (CA), at p63. The words of Brett LJ are still relevant today: It seems to me that every document relates to matters in question in the action which not only would be evidence upon any issue, but also which, it is reasonable to suppose, contains information which may – not which must – either directly or indirectly enable the party requiring the affidavit either to advance his own case or to damage the case of his adversary. I have put in the words 'either directly or indirectly' because, as it seems to me, a document can properly be said to contain information which may enable the party requiring the affidavit either to advance his own case or to damage the case of his adversary if it is a document which may fairly lead him to a train of inquiry which may have either of those two consequences."[21] Counsel were agreed that the test is a broad one, and that the Court must look to the pleadings to determine what is in question in the proceeding: AMP Society v Architectural Windows Limited [1986] 2 NZLR 190. It is also well settled that an order is not to be made unless the Court is satisfied that it is reasonably necessary:NZ Rail Limited v Port Marlborough New Zealand Limited [1993] 2 NZLR 641, 644.[22] BOPE pleads that the termination was and is invalid because there has not been any reduction in NGC's ability to supply or deliver Maui Gas as a result of the re-determination. BOPE also pleads in the alternative that if there has been a reduction in NGC's ability to supply or deliver Maui Gas it is not a result of the re- determination, but rather is a result of: a) NGC's voluntary entry into a contract dated 31 May 2004 concerning its future entitlements to gas from the Maui Field (one of a group of related agreements known as Strawman); and/or b) NGC's entry into new gas supply contracts with other customers. [23] NGC admits that it has voluntarily entered into Strawman, and into new gas supply contracts with other customers, but says its ability to supply or deliver Maui gas has nevertheless been reduced as a result of the re-determination (that is, notwithstanding these agreements). [24] The essential dispute in the case, therefore, is whether or not as at the date of termination NGC's ability to supply or deliver Maui was reduced to any extent as a result of the re-determination. [25] BOPE argues that the question whether or not NGC was entitled to terminate the agreement under clause 9.1.6 in August 2004, requires the Court to decide: a) Whether there has been a reduction in NGC's ability to supply (as a matter of fact), and b) If so, whether that is a result of the re-determination or another factor, such as entering into the Strawman agreements or the gas supply contracts with other parties.[26] BOPE argues that in deciding the first point the Court must look factually at: a) NGC's gas portfolio (the third category of documents sought), to establish the quantity of Maui gas that NGC had access to (on a daily basis and in aggregate) prior to and after the re-determination and at the date of the purported termination; b) Its rights to obtain Maui Gas under the ROFR agreement (the fifth category) including information as to likely availability (and possible volumes) to establish what NGC could have taken and can take in the future (NGC has said in evidence that it had not exercised this right up to the date of hearing). [27] BOPE's General Counsel, Mr Hall, in an affidavit sworn on 4 July 2005, has identified documents which he believes will be in NGC's control in relation to each of the categories of documents sought. Mr Hall represented one of the "Seller" parties to the Maui Gas Contract throughout the re-determination in 2002/2003 and the subsequent Strawman negotiations in 2003/2004. He refers to quarterly meetings subsequent to the Strawman agreements, in advance of which all parties are provided with a deliverability forecast and an off-take forecast for the Maui field. He asserts that documents which provide a historical record of NGC's daily and monthly entitlement to Maui Gas, and future forecasts, are relevant to NGC's ability to supply gas to BOPE. He understands that NGC has daily (or at least monthly) reports showing how much gas it is able to access on any given day. It is also his understanding that the forecasts provided for the quarterly meetings include information showing the likely availability of ROFR gas (and possible volumes). [28] BOPE argues that in order to determine the second point, the Court: a) needs to understand the reason for, and process of, the re- determination, any involvement NGC had in it, and the effect of the re-determination on NGC's ability to supply (the first category); andb) should have before it evidence of the negotiation of the Strawman agreements (the second category) to decide the effect of the Strawman agreements, as opposed to the effect of the re-determination, on NGC's ability to supply; and c) should be informed of the volume of gas which NGC has contracted to supply to other customers (the fourth category) since the date of termination so as to be able to assess what would otherwise have been available to supply to BOPE. [29] NGC has identified three sub-categories of documents relating to re- determination: the process leading up to the decision to undertake a re- determination, proceedings issued by a party to another downstream contract attempting to stop the re-determination, and the arbitral process which culminated in the issuing of the re-determination. BOPE accepts that the documents relating to the proceedings by the other downstream party are not relevant, but claims that the other two sub-categories are relevant to the cause of any reduction in ability to supply. BOPE's general counsel, Mr Hall, deposes (paragraph 13 of an affidavit of 4 July 2005):"In other words, those documents are vital to the Court's understanding of the re-determination process and whether or not it resulted in a reduction in NGC's ability to supply or deliver Maui Gas to the plaintiff or whether the consequences of re-determination were altogether different."[30] BOPE argues that it will be necessary to consider the effect of the Strawman agreements on NGC's ability to supply in the context of the negotiation of the agreements, and that the agreements themselves are not enough. It seeks correspondence and documents passing between (and within) the parties to the Strawman agreements to provide that context. [31] Mr Hall also asserts that any gas supply contract which NGC has entered into with third parties since the date of the purported termination must have a bearing on whether NGC has suffered a reduction in its ability to supply if the aggregate of gas supplied under those contracts is equal to or in excess of the volume that NGCcontracted to supply to BOPE. He further asserts that such contracts would still be relevant even if they were not purely for supply of Maui Gas as the Maui Gas is likely to be mixed into the gas that NGC supplies to others. [32] NGC resists BOPE's application on the grounds that the documents are not relevant to the only substantive issue raised by the pleadings, namely whether NGC was entitled in August 2004 to terminate the agreement with BOPE under clause 9.1.6. It contends that this is an issue of construction of the agreement, to be determined as at date of entry into the contract, and in the context of the chain of contracts existing at that time. It argues that although the matters advanced for BOPE are raised on the pleadings, they are irrelevant to the essential dispute and unnecessary for disposal of the proceeding. In those circumstances, NGC argues that it would be oppressive to order discovery in light of the substantial volume of documents needing to be reviewed (estimated by Ms Daniels to be in excess of 400 files) and their limited probative value. [33] NGC argues that, read in context, the clear purpose of 9.1.6 is to enable NGC to avoid the risk of being in breach of contract to some or all of its customers at some point during the Maui field life by reason of there being less Maui Gas available than when the relevant supply agreement was entered into. (The clause is part of NGC's general terms and conditions. It is used in all NGC's supply contracts, and is not confined to the agreement with BOPE). [34] Counsel for NGC acknowledged that NGC was not actually deprived of Maui Gas on a daily basis immediately following the re-determination. He submitted that that was not, and could not sensibly have been, the purpose of clause 9.1.6. He submitted that, viewed in context, the clause addressed NGC's access to Maui Gas and its ability to provide that gas to its customers (not just BOPE) in the future. NGC's counsel submitted that the contractual context for clause 9.1.6 in the BOPE agreement was to be found both in the Maui Gas contract and the Natural Gas contract (as varied in 1990), and particularly: a) The provision for re-determination of Economic Recoverable Reserves in the Maui Gas contract;b) The provision for delivery obligations under the Maui Gas contract to be changed in the event of a re-determination establishing a shortfall between Economic Recoverable Reserves and delivery obligations (Article 8.8); and c) The linkage in the NGC Gas contract (clause 4.8) between a re- determination and NGC's entitlement to remaining Maui Gas following the re-determination. [35] NGC points to Mr Hall's acknowledgement (paragraph 9 of his affidavit) that the effect of the re-determination was to reduce the economically recoverable reserves, and to uncontested evidence from NGC's in-house Legal Counsel Ms Daniels, in an affidavit in opposition (re)sworn on 19 May 2005, that the re- determination halved (very approximately) the previous estimates of remaining Maui Gas. It argues that if its view of the construction of clause 9.1.6 is accepted this reduction in its entitlement over the remaining life of the field necessarily reduced its ability to supply Maui Gas over that period. [36] Counsel for NGC pointed to clauses in the Strawman agreements to demonstrate that they were based on the same "delivery commitment" of Maui Gas (367PJ) as the re-determined Economic Recoverable Reserves, and that NGC's proportion of that volume remained the same. He submitted that the Strawman agreements did no more than give effect to the re-determination, and to the extent that they now provide for NGC's entitlement to Maui Gas, they are the direct result of the re-determination. [37] As to the alternative pleading that any reduction in NGC's ability to supply Maui Gas is a result of entering into Strawman or new supply contracts with other customers, NGC says that any cause of reduction in ability to supply other than the re-determination is irrelevant. Counsel for NGC accepted that NGC was only entitled to terminate if the Court accepted its argument on construction of clause 9.1.6, that the reduced entitlement of access to Maui Gas over the life of the field reduced its ability to supply measured at the date of re-determination. If not, NGC accepts that itwas not entitled to terminate. Any reduced ability to supply BOPE as a result of entering into Strawman or new supply agreements was therefore irrelevant.Do the documents relate to a matter in question in the proceeding[38] The proper construction of clause 9.1.6 is clearly at the heart of this dispute. As I understand its argument, BOPE contends that the Court is required to weigh all the factors affecting NGC's ability to supply Maui Gas, in deciding whether that ability has been reduced following a re-determination. This involves taking account of the physical quantities available, and the power to terminate is only available if the net effect is that NGC's ability to supply to BOPE is reduced. On the other hand, NGC argues that on a proper construction, the clause gives it the right to terminate if the re-determination results in a general reduction of the gas available to it from the Maui Gas field. [39] I shall address first the documents being sought to support BOPE's argument that the proper construction of clause 9.1.6 requires the Court to assess whether there has been any reduction in actual physical quantities (categories 3 and 5). In my view BOPE is entitled to disclosure of documents showing NGC's gas portfolio as at the date of the re-determination (6 February 2003) through to the date of the purported termination (2 August 2004). I would expect these documents to include the deliverability and off-take forecasts referred to by Mr Hall, and to extend to documents showing availability of ROFR gas through that period. [40] I turn now to consider the documents sought to determine whether any reduction is a result of the re-determination, or as a result of NGC entering into the Strawman agreements or the gas supply contracts with other parties. [41] The first category under this heading is documents relating to the re- determination. Although, as a matter of construction, the NGC view appears the more persuasive, the BOPE view is open on the pleadings, and under the Peruvian Guano test BOPE is entitled to discovery of documents which will entitle it to advance that case. I turn now to consider each category of documents on that basis. The first category is documents relating to re-determination. The fact of re-determination is not in dispute. The issue is the impact of the re-determination on NGC's power to terminate under clause 9.1.6. In my view, the history of the process of re-determination, including arbitral process, is not relevant to the central issue of construction, whichever view is ultimately accepted. [42] The next category are documents relating to the Strawman agreements (category 2). Again, the existence and terms of the agreements are not in dispute. The issue is what is their effect. Ms Daniels has stated that they do not reverse the effect of the re-determination, but any lingering concern on that is likely to be answered by the documents themselves. Moreover, given NGC's concession that it is only entitled to terminate if the Court accepts its argument on construction (that its case is confined to showing a reduced ability to supply as a result of re- determination) any other cause is irrelevant, as are documents which might show that. [43] The last point also applies to the fifth category of documents (gas supply agreements entered into after re-determination). To the extent that these documents are sought to establish whether there was a reduction in ability to supply at relevant times, they appear to be marginally relevant at best (there is far better evidence available in the form of NGC's gas portfolio and the documents directly relating to that). To the extent that the documents are being sought as relevant to any reduction in ability to supply, the documents cannot be relevant in light of NGC's concession that it was only entitled to terminate if it can show a reduction as a result of the re- determination as distinct from any other cause.Should an order be made at this time[44] NGC also resists the further discovery on the basis that it would be oppressive to require it given marginal relevance (at best) of the documents. [45] I have come to the view that documents establishing NGC's gas portfolio, including potential availability of ROFR gas, are relevant to BOPE's argument on construction of clause 9.1.6. I have come to the view that documents relating to the Strawman negotiations, and to NGC's gas supply contracts with other customers, areof little probative value at best. I consider that it would be oppressive to require NGC to review what I accept will be a very large volume of documents (and I note Ms Daniels estimate of some 400 files). In my view, the low probative value coupled with the volume do not warrant this discovery.The application re privilege[46] BOPE seeks an order that a claim by NGC for privilege in relation to eight documents be set aside. At the hearing, counsel for BOPE accepted that the last two of these related to another proceeding and were irrelevant. The documents are all internal communications within NGC, and are dated between 24 November 2003 and 29 July 2004. The claim to privilege is made on the basis that Ms Daniels (NGC's in-house Legal Counsel) was a party to each document. Both litigation privilege and legal advice privilege are claimed.Legal advice privilege[47] Legal professional privilege is accepted as being a matter of fundamental importance to the administration of justice:[37] An authoritative exposition of the rationale of legal professional privilege is to be found in the speech of Lord Taylor of Gosforth CJ in R v Derby Magistrates' Court ex p B [1996] 1 AC 487 with whom the rest of the House of Lords agreed. Lord Taylor of Gosforth CJ described it in these words at pp 507 and 508: "The principle which runs through all these cases, and the many other cases which were cited, is that a man must be able to consult his lawyer in confidence, since otherwise he might hold back half the truth. The client must be sure that what he tells his lawyer in confidence will never be revealed without his consent. Legal professional privilege is thus much more than an ordinary rule of evidence, limited in its application to the facts of a particular case. It is a fundamental condition on which the administration of justice as a whole rests. .. [It] is not for the sake of the applicant alone that the privilege must be upheld. It is in the wider interests of all those hereafter who might otherwise be deterred from telling the whole truth to their solicitors.B v Auckland District Law Society [2004] 1 NZLR 326, 344-5[48] In general, legal professional privilege protects communications made to and from a legal adviser from disclosure in legal proceedings where the communication is made for the purpose of obtaining or giving legal advice.Litigation privilege[49] The protection afforded by legal advice privilege extends beyond lawyer/client communications where litigation is in progress or contemplated:This appeal concerns the type of legal professional privilege often called "litigation privilege": the privilege which applies to communications between a legal professional adviser and a third party and between a client and a third party, made with a view to obtaining information to be submitted to a legal professional adviser. It protects the process of gathering evidence for consideration by a lawyer acting for a party in civil or criminal litigation or threatened with such litigation. The Law Commission has said in its discussion paper on Evidence Law: Privilege (1994) NZLC PP 23, that the central feature of litigation privilege "is that it represents the fruits of effort on the part of the litigants in preparing for the case" (paragraph 109). The evidence may have been gathered by the lawyer, the client or an agent for either of them, but the work must have been carried out with the dominant purpose of conducting or advising on actual or reasonably anticipated litigation: Guardian Royal Exchange Assurance of NZ Ltd v Stuart [1985] 1 NZLR 596 (CA). The privilege is thus one which is related to: "the right of a litigant or potential litigant to seek and obtain legal advice on his prospects and the conduct of proceedings under the seal of confidence [and to] the right of such a litigant and his legal adviser to prepare for and conduct his case without, directly or indirectly, revealing the effect of that advice."Dinsdale v Commissioner of Inland Revenue (1997) 11 PRNZ 324, 326 (CA) [50] The established test for litigation privilege where the litigation was not in progress at the time of the communication, is whether it was "reasonably apprehended". This is a question of fact requiring an objective assessment from the position of the party claiming the litigation privilege:Reverting to the test, the reference to "reasonable" apprehension imports an objective element, see Grant v Downs (1976) 135 CLR 674, 682. By analogy with other situations requiring an objective assessment I consider the standard is that of a reasonable person in the position of the individual or entity entitled to claim privilege, possessed of the same information. A mere vague apprehension of litigation does not suffice.[51] It is recognised that this assessment can be difficult where an in-house lawyer is involved as the lawyer may also be participating in commercial decisions which become intertwined with purely legal functions and opinions. This was the case inSeven Network Ltd v News Ltd [2005] FCA 142 where the Federal Court of Australia stated:In carrying out this task, I am cognisant of the fact that there is no bright line separating the role of an employed legal counsel as a lawyer advising in-house and his participation in commercial decisions. In other words, it is often practically impossible to segregate commercial activities from purely "legal" functions. The two will often be intertwined and privilege should not be denied simply on the basis of some commercial involvement. In the present case, however, I am persuaded that Mr Philip was actively engaged in the commercial decisions to such an extent that significant weight must be given to this participation. In many circumstances where in- house counsel are employed there will be considerable overlap between commercial participation and legal functions and opinions. As can be seen from the specific rulings below, I am not persuaded that in this proceeding Mr Philip was acting in a legal context or role in relation to a number of documents in respect of which privilege was claimed. Nor am I persuaded that the privilege claims were based on an independent and impartial legal appraisal.[52] The House of Lords has recently considered this issue in Three Rivers District Council v Governor and Company of the Bank of England [2005] 1 AC 610, where Lord Scott (with the agreement of three other of the Law Lords) stated (at 623):If a solicitor becomes the client's 'man of business', and some solicitors do, responsible for advising the client on all matters of business, including investment policy, finance policy and other business matters, the advice may lack a relevant legal context. There is, in my opinion, no way of avoiding difficulty in deciding in marginal cases whether the seeking of advice from or the giving of advice by lawyers does or does not take place in a relevant legal context so as to attract legal advice privilege. In cases of doubt the Judge called upon to make the decision should ask whether the advice relates to the rights, liabilities, obligations or remedies of the client either under private law or public law. If it does not, then, in my opinion, legal advice privilege would not apply. If it does so relate then, in my opinion, the Judge should ask himself whether the communication falls within the policy underlying the justification for legal advice privilege in our law. Is the occasion on which the communication takes place and is the purpose for which it takes place such as to make it reasonable to expect the privilege to apply? The criterion must, in my opinion, be an objective one."[53] The Court has a discretion to inspect where there is doubt as to the claim for privilege: Seamar Holdings Ltd v Kupe Group Ltd [1995] 2 NZLR 274 (CA). [54] BOPE points out that all six documents came into existence prior to the date of the purported termination. The first was in November 2003, nine months before. It argues that at the time there was no basis for any proceeding to be brought, and challenges an assertion by Ms Daniels that NGC anticipated the likelihood that BOPE would challenge the purported termination in light of considerable amount of other litigation between NGC and BOPE or its parent company, and the parent company's involvement in other litigation (six examples were given of each). Mr Hall took issue with the alleged propensity to litigation (he said that all six cases involving NGC had been initiated by NGC, suggesting a propensity the other way). Although he agreed that a challenge to the termination could have been anticipated, he denied that litigation was probable and produced correspondence showing that BOPE's initial reaction was to refer the matter to arbitration. [55] BOPE submitted that litigation privilege did not apply, and that the Court should inspect the documents to determine the applicability of legal professional privilege. [56] Counsel for BOPE also submitted that authorities to the effect that the Court should not go behind a claim to privilege made on oath by a solicitor has been overtaken by the terms of rule 307 (which came into force on 9 November 2004). He submitted that the dates of the documents, and Ms Daniels' in-house role justified inspection by the Court to assess the claim for itself. [57] NGC submits that there is no basis for the Court to go behind the claim for legal advice privilege given the unambiguous terms in which the claim for privilege is advanced by Ms Daniels as an Officer of the Court and in-house lawyer for NGC. It also submits that there is no basis for distinguishing the legal advice she has provided as in-house lawyer from that of an external legal adviser.[58] NGC also submits that it has a valid claim for litigation privilege. It points to Ms Daniels' evidence that litigation was squarely contemplated as soon as the question of termination of the BOPE contract came up for discussion within NGC as a consequence of the re-determination. It also points to Ms Daniels affidavit evidence as to the extent of litigation between the parties and involving BOPE's parent company as a reasonable basis for apprehending litigation.Is the ground for privilege made out / is there a need for inspection?[59] The Court has an unfettered discretion whether or not to set aside the claim to privilege, and in the course of exercising that discretion, whether or not to inspect the documents under review. [60] The claim for privilege has been advanced by Ms Daniels, in-house legal adviser for NGC, in unequivocal terms. She states (paragraphs 31 and 32 of her affidavit):For this reason, and given that the price of gas had increased significantly in recent months, when NGC was considering whether or not it could legally terminate BOPE's gas supply agreement, NGC was aware that there was a high probability that BOPE would challenge the termination of the agreement. This is confirmed by the documents created at the time. I was a party to all of the documents listed at paragraphs 2.1 to 2.6 of BOPE's notice and confirm that, at the time they were created: litigation was reasonably contemplated by myself and the other parties to the communications; and they were created for the dominant purpose of giving and/or obtaining legal advice.[61] Whilst I consider that the Court can go behind this assertion, I consider that there needs to be a reasonable basis for doing so. Ms Daniels says on oath that she was a party to each of the documents, that they were for the dominant purpose of giving or obtaining legal advice, and that litigation was reasonably contemplated both by herself and the other parties to the communications. She has given reasonsfor NGC's view that there was a high probability that BOPE would challenge the termination. Given the importance of the contract to BOPE, it is reasonable to assume that it would challenge the termination. I take the history of litigation to indicate that BOPE and its parent company do not shy away from litigation to protect their commercial interests (rather than the more perjorative view that it indicates a propensity to litigation). Ms Daniels describes herself as legal counsel. I see no reason to anticipate that her advice would be sought on commercial ahead of legal matters so as to give rise to the mixed function that concerned the Federal Court of Australia in Seven Network Ltd v News Ltd. [62] BOPE puts forward the dates of the documents as a basis for its challenge. Five of the six documents are in the period after NGC entered into the Strawman agreements and before giving the notice of termination. I have no difficulty with the thought that legal advice would be sought at that time, or that there was then a reasonable apprehension that the termination being contemplated would lead to litigation. The first of the documents (item NGC.BOPE.001.016 in NGC's list of documents) pre-dates the others by some six months. I have considered whether there is sufficient doubt about the claim to privilege to warrant inspection by the Court. I have concluded that there is not. Ms Daniels has deposed that NGC was considering whether or not it could legally terminate the agreement. She does not indicate when that first occurred, but a memorandum nine months after the re- determination is consistent with advice being sought on the point at that time. This qualifies it for legal advice privilege. She also expressly states that the probability of a challenge to termination was confirmed in all documents under challenge. In my view this express reference provides the basis for litigation privilege also but, if so, it is merely reinforcing the privilege already applying.Conclusion[63] There is an order that, within 14 days of service of a sealed order, the defendant (NGC) file an affidavit stating whether the following documents or any document of that class is or has been in the defendant's possession, custody orpower, and if they have been but are no longer in the defendant's possession, custody or power, when the defendant parted with them and what has become of them: a) Documents relating to the defendant's Maui Gas portfolio for the period commencing immediately prior to 6 February 2003 and ending on 2 August 2004, being at least the documents identified in paragraphs [27] and [39] above; and b) Documents relating to the exercise of the defendant's right of first refusal under the ROFR agreement also for the period commencing immediately prior to 6 February 2003 and ending on 2 August 2004, again being at least the documents identified in paragraph [27] and [39] above. [64] As both parties have been successful in part, I make no order as to costs. _____________________________Associate Judge D.H. Abbott