THE COMMERCE COMMISSION V BAY OF PLENTY ELECTRICITY LIMITED HC WN CIV 2001 485 917

THE COMMERCE COMMISSION V BAY OF PLENTY ELECTRICITY LIMITED HC WN CIV 2001 485 917 13 February 2006IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY CIV 2001 485 917BETWEEN THE COMMERCE COMMISSION Plaintiff AND BAY OF PLENTY ELECTRICITY LIMITED Defendant Hearing: 10 February 2006 Counsel: B W F Brown QC and D Laurenson for the Plaintiff T G H Smith and C R J Hosie for the Defendant Judgment: 13 February 2006JUDGMENT OF WILD J[1] By interlocutory application filed on 2 February, the Commerce Commission applies for an order setting aside a claim made by the defendant ("BOPE") to privilege for some 20 documents listed in its (as yet unsworn) affidavit of documents. By Notice filed on 8 February, BOPE opposes the application, maintaining it is entitled to the privilege it has claimed. [2] In introducing the Commission's application, Mr Brown rightly put it in its context of this proceeding ("In law context is everything" per Lord Steyn in R (Daly) v Home Secretary [2001] 2 AC 532 at 548). [3] Briefly, the Commission alleges that BOPE has been acting anti- competitively in refusing to lease its in-situ electricity meters to competing electricity retailers in the relevant (Bay of Plenty) market. The Commission's case will be that leasing the in situ meter is the generally accepted and only effectivemeans of ensuring competition in electricity markets (large commercial customers may be an exception to this). [4] BOPE's defence is that this is not so. It alleges that other viable options have throughout been open to competitors, including purchasing "the existing meters on the customer's premises" from BOPE. I will refer to this as "the sale option". [5] The Commission filed this proceeding on 21 December 2001. Mr C B Hall joined the Todd organisation (of which BOPE is a part) as its general counsel on 14 January 2002. In an affidavit he swore on 8 February this year, Mr Hall explains, upon reviewing this case, he advised BOPE that it should send to every retailer requesting a customer switch, a letter setting out the options which BOPE maintains have always been available to retailers. He deposes:14. Cognisant of this case, I advised BOPE (via its General Manager Mr Bulley) to draft a letter to be sent in response to every switch request, setting out the availability of the principal other options (the letter does not address the Installation Option, because that option is wholly within the purview of the prospective retailer).[6] Mr Hall further deposes:17. As I have set out above, I consider that BOPE does not have an obligation to 'advertise' the options to other retailers, but chooses to do so. The primary (if not only) driver in that choice was this case, and the letters provide a chain of evidence for BOPE to illustrate the availability of alternatives to the Lease Option.[7] Although in that last paragraph Mr Hall identifies the purpose of the letter(s) as establishing "a chain of evidence" for this proceeding, Mr Smith allowed that the letter could also be viewed as "self-serving". [8] The letter (which I will refer to as "the options letter") acknowledged the other retailer's switch request. It declined to lease to the other retailer BOPE's in situ meter but offered to sell that meter to the other retailer. The letter then stated that BOPE considered that leasing was only one of several options available to the other retailer, and it set out four others. One of those was purchasing the in situ meter from BOPE i.e. the sale option. The letter referred to the attractiveness of the sale option. It concluded:I attach an analysis showing purchase vs leasing cost comparisons. As you will see, this is by far the most cost effective for you.[9] The analysis attached to the letter was as follows:Advantage of Installing Own Meters (Cost Comparison of Lease Versus Installing Own Meter) Economic Assumptions: Depreciation Rate (DV) 14.40% Corporate Tax Rate 33.00% NZ Inflation Rate 2.00% Discount Rate (Post- tax, nominal) 9.10% Configuration Lease Cost per annum Capital Cost up front PV of Lease PV of Capital Advantage of installing own meter ($NPV) Payback period 1 Domestic 56.79 155.20 374.55 123.28 251.27 2.6 2 Domestic (2) 59.79 201.00 374.66 159.66 214.89 3.4 3 Small Commercial 59.79 155.20 374.55 123.28 251.27 2.6 4 Small Commercial (2) 87.16 299.20 546.01 237.67 308.34 3.4 5 Large Commercial 187.54 685.00 1174.83 544.12 630.71 3.7 6 Dairy Farm 105.41 420.00 660.33 333.62 326.71 4.0 (No. Years of Lease Charges To Pay Back Capital Cost)[10] The documents in question are the drafts of that letter and attached analysis (I will refer to it, as described in BOPE's draft list of documents, as "the spreadsheet"), and e-mails relating to them. They can be summarised in the following way (and I draw this summary from Appendix A to Mr Hall's 8 February affidavit:Date Discovery No. From/To Description19.8.02 RM.01.026 Bulley to Hall, cc'ed to other BOPE officers Request by Bulley (General Manager of BOPE) to Hall to consider two attached draft letters (RM.01.024/025). Also request that Mr Bahirathan, Commercial Electricity Manager of BOPE, address certain technical issues in the draft letters. 29.10.02 RM.01.023 E-mail Hall to Bulley, cc- ed to other BOPE officers Hall requests comments on an attached amended letter (RM.01.022). 29.10.02 RM.01.020 E-mail Bahirathan/Bulley and Hall Attaches draft letter with technical issues addressed (RM01.019). 4.12.02 RM.01.018 E-mail Hall to Bulley, cc- ed to other BOPE officers including Mr Mitchell Attaches draft letter (RM.01.017) and advises Bulley on sending it. Also requests Mr Mitchell to prepare some information to be included in the letter. 4.12.02 RM.01.015 E-mail Mitchell/Bulley, Attaches the requested information. Thiscc-ed to Hall and other BOPE officers is the first draft of the spreadsheet. 4.12.02 RM.01.011 E-mail Deppe (BOPE's Acquisition and Development Manager)/ Mitchell cc-ed to Hall and other BOPE officers Requests an amendment to the first draft spreadsheet. 4.12.02 RM.01.009 E-mail Mitchell/Bulley, cc-ed to Hall and other BOPE officers Attaches amended spreadsheet. This is the second draft spreadsheet. 4.12.02 RM.01.005 E-mail Deppe to Hall, cc- ed to other BOPE officers Attaches further draft letter and comments on the changes made. 4.12.02 RM.01.006 E-mail Hall to Deppe, cc- ed to Bulley Comments on changes made by Deppe. 4.12.02 RM.01.002 E-mail Bulley to Hall and Deppe, cc-ed to other BOPE officers Attaches a further draft of the letter incorporating further amendments and comments on them.[11] For all those documents BOPE claimed legal advice privilege and, now, also litigation privilege. The claim made in its (unsworn) list of documents is worded:2.1 The following documents comprise confidential communications between the defendant and its legal advisers, either directly or through their respective agents, made to or by its legal advisers: (a) In their professional capacity with a view to obtaining or giving legal advice or assistance, including documents prepared with a view to being used as a communication falling into this category, although not in fact so used; and (b) which are themselves privileged or which contain a record of those communications, or which relate to information sought by the defendant's legal advisers to enable them to advise the defendant or to conduct litigation on its behalf.[12] I signalled early in argument that I could not see that litigation privilege was applied here. Litigation privilege protects documents prepared by BOPE or others for the dominant purpose of enabling Mr Hall to advise BOPE on this proceeding or to conduct or assist BOPE's solicitors and counsel in conducting BOPE's defence of the proceeding. [13] I regard the dominant purpose of the 20 documents in issue as being to ensure that the options letter accurately and adequately conveyed to competitors the other options BOPE maintains they had, in particular the sale option. Although I accept that this proceeding was the genesis of the documents, I do not accept that their purpose, let alone their dominant purpose, was to enable Mr Hall to conduct or assistin conducting this proceeding for BOPE or to advise BOPE regarding this proceeding: Guardian Royal Exchange Assurance of New Zealand Ltd v Stuart[1985] 1 NZLR 596,602/10-15 (CA); Dinsdale v Commissioner of Inland Revenue(1997) 11 PRNZ 325. [14] Accordingly, I disallow BOPE's claim to litigation privilege for the documents in question. [15] As to legal advice privilege, both parties referred to the same authorities as establishing the relevant principles: Three Rivers District Council v Governor and Company of the Bank of England (No 5) [2005] 4 All ER 948; ; Three Rivers District Council v Governor and Company of the Bank of England [2003] 3 WLR 667; Balabel v Air India [1988] 1 Ch 317; Seven Network Ltd v News Ltd [2005] FCA 142; DSE (Holdings) Pty Ltd v InterTAN Inc (2004) 135 FCR 151; M v L[1999] 1 NZLR 747; and Kupe Group Ltd v Ariadne Australia Ltd (1991) 4 PRNZ 135. [16] Mr Brown submitted, and Mr Smith for BOPE accepted, that the test for legal advice privilege is a two stage one: a) Does the advice have a "relevant legal context"? Does the advice relate to the rights, liabilities, obligations or remedies of the client under either private or public law? If not, then legal advice privilege would not apply to any communications or documents in relation to that advice. b) Objectively assessed, is it reasonable to expect the privilege to apply?If the advice does meet step one of the test then, on an objective assessment having regard to the policy underlying the justification for legal advice privilege, 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?[17] The second step – an objective assessment of the reasonableness of the client wishing "to consult the special professional knowledge and skills of a lawyer" (the words of Baroness Hale cited in the passage which follows) - must be made with the rationale for legal advice privilege firmly in mind. The rationale is elaborately detailed in the judgments in Three Rivers (No. 5). In short, it is the public interest in people being able to consult their lawyers in confidence, knowing that confidence will be respected. Otherwise they "might hold back half the truth" (Lord Taylor CJ's words in R v Derby Magistrates Court, ex parte B [1996] AC 487 at 507 cited by Lord Scott in Three Rivers (No. 5) at [29]), or not communicate with "the requisite candour (Lord Scott at [34]). [18] For an explanation of the reason for legal advice privilege, and thus what is meant by "a relevant legal context", both parties fastened upon this passage in the judgment of Baroness Hale at [62] in Three Rivers (No. 5):There will always be borderline cases in which it is difficult to decide whether there is or is not a 'legal' context. But much will depend upon whether it is one in which it is reasonable for the client to consult the special professional knowledge and skills of a lawyer, so that the lawyer will be able to give the client sound advice as to what he should do, and just as importantly what he should not do, and how to do it. We want people to obey the law, enter into valid and effective transactions, settle their affairs responsibly when they separate or divorce, make wills which will withstand the challenge of the disappointed, and present their best case before all kinds of court, tribunal and inquiry in an honest and responsible manner.[19] Mr Smith also referred to [34] in the judgment of Lord Scott. This is the paragraph in which, after referring to "the requisite candour" by clients in providing their lawyers with all the facts and information necessary for the lawyers to provide sound legal advice, he continues: the dicta to which I have referred all have in common the idea that it is necessary in our society, a society in which the restraining and controlling framework is built upon a belief in the rule of law, that communications between clients and lawyers, whereby the clients are hoping for the assistance of the lawyers' legal skills in the management of their (the clients) affairs, should be secure against the possibility of any scrutiny from others, whether the police, the executive, business competitors, inquisitive busybodies or anyone else (see also pp 532-533 (paras 15.8-15.10) of Adrian Zuckerman's Civil Procedure (2003) where the author refers to the rationale underlying legal advice privilege as 'the rule of law rationale' (see para 15.11)). I, for my part, subscribe to this idea. It justifies, in my opinion, the retention of legal advice privilege in our law, notwithstanding that as a resultcases may sometimes have to be decided in ignorance of relevant probative material.[20] I have considerable doubts as to whether legal advice privilege attaches to any of the 20 documents in issue. In my view the legal advice that would be privileged is that to which I have referred in [5] above – Mr Hall's advice to BOPE that the options letter should be sent to competing retailers requesting a customer switch. That is quintessentially advice by Mr Hall to BOPE "as to what should prudently and sensibly be done in the relevant legal context" (the words first used by Taylor LJ in Balabel v Air India at 330 and cited with approval in several of the judgments in Three Rivers (No. 5). But there is no issue as to whether that advice is privileged, since Mr Hall has already openly deposed as to what it was. [21] I do not think that the content of the options letter was within the relevant legal context, which I view as whether there were any steps BOPE should prudently take, given that the Commission had brought this proceeding against it. As well as being colourful, I accept as accurate Mr Brown's categorisation of the options letter as "a statement of commercial accessibility". In other words, the letter was but a statement by BOPE to its would-be competitors of the options BOPE maintained were available to them to compete in the relevant market. The existence (or not) and viability (or lack of it) of those options goes right to the heart of the competition law merits of this case. The same must apply to drafts of the letter. Amendment to the content or wording, even if done upon Mr Hall's advice, does not alter this. [22] In the passage cited in [18] above, Baroness Hale refers to a solicitor advising the client what should, and what should not, be done "and how to do it". As this could be viewed as one of those borderline cases to which Baroness Hale refers, I have asked myself whether it was reasonable for BOPE to consult Mr Hall about the content and wording of the options letter. I view the options letter as a straightforward business communication to would-be competitors. Its purpose was to alert those competitors in a factually accurate way to the options BOPE maintains were available to them. In relation to the sale option, the letter advised the availability and terms of that option. I do not consider that the letter required legal input. My view is that it was not reasonable for BOPE "to consult the special professional knowledge and skills of a lawyer (Mr Hall)" in relation to the content orwording of the letter. In short, the content of the letter (as opposed to the advice that such a letter should be sent) lacked a relevant legal context. Mr Hall's input into the content of this business communication was (as Lord Scott put it at [38] in his judgment in Three Rivers (No. 5)) as BOPE's "man of business" rather than its lawyer. [23] I am firmly of the view that the spreadsheet attached to the letter (set out in [9] above), and thus earlier drafts of the spreadsheet, are not protected by legal advice privilege. Mr Smith could not suggest what legal advice (however broadly that term is construed) Mr Hall could give about the spreadsheet. It had nothing to do with the law or with this proceeding. As [9] above demonstrates, the spreadsheet was a factual statement of lease and purchase costs and resulting present values and payback periods. At [37] in Three Rivers (No. 5) Lord Scott declined to draw what he considered was an artificial distinction in relation to the "presentational advice" in issue in that case. I have considered whether it is artificial to distinguish the spreadsheet and its drafts from the other documents in issue here. I think not. InThree Rivers (No. 5) the relevant legal context was the Bingham Inquiry into the Bank of England's discharge of its statutory function to supervise the Bank of Credit and Commerce International SA, which had collapsed hopelessly insolvent. There is no comparable legal context here. In my view the spreadsheet, in which BOPE detailed the sale option to competitors, lacked a relevant legal context. [24] As I have indicated, I regard this as a borderline case, save in relation to the spreadsheet and the communications directly related to it. In such situations, the cases urge a cautious approach to ordering discovery of documents for which privilege has been claimed. Lord Scott at [34] in Three Rivers (No. 5) suggests that it is better to over-extend than to under-extend the scope of legal advice privilege, "notwithstanding that as a result cases may sometimes have to be decided in ignorance of relevant probative material". Accordingly, at this point I disallow only BOPE's claim to legal advice privilege for the spreadsheet documents I have shaded in the table set out in [10] above and order BOPE to make those five documents available to the Commission for inspection.[25] If, having inspected those documents, the Commission wishes to pursue its application in respect of any or all of the remaining 15 documents, then it should so advise BOPE and the Court by memorandum. In that event I will direct BOPE to make all 20 of the documents available to me. Having looked at them, I will rule on BOPE's claim to legal advice privilege for the documents that remain in issue. [26] As matters stand, I would allow the Commission costs tempered to reflect that it has only partially succeeded with its application. However, as the issue of privilege may re-emerge, I reserve costs.Solicitors: Commerce Commission, Wellington for the Plaintiff Russell McVeagh, Wellington for the Defendant