Non-party discovery and the implications of the Vector Gas decision

General overview of discovery

Discovery is a significant part of the litigation process in which the parties disclose relevant information to each other prior to the commencement of the trial.  Although parties are often unwilling to provide information that will be useful for the other side, their discovery obligations will usually compel them to disclose it, as there are limited categories of documents that are exempt from being disclosed.  Part of our role as lawyers is to ensure that these discovery obligations are clearly understood by our clients.

In a High Court proceeding, discovery obligations are imposed on the parties to a dispute by way of a discovery order issued by a Judge under the High Court Rules (“HCR”).  Under a standard discovery order, obligations will include making a reasonable search for documents, taking early steps to preserve relevant documents and co-operating with other parties to ensure the burden and cost of discovery is proportionate to the issues at stake.  It is important to ensure that the discovery order is complied with satisfactorily, as failure to meet the obligations may result in documents being ruled inadmissible or parties being held in contempt of court.

When non-party discovery is typically required

Although the discovery obligations are intended to apply only to the parties to a proceeding, sometimes a party will struggle to articulate their claim or defend their position without having access to documents which are held by somebody who is not a party to the proceeding.

Non-party discovery is a useful tool for obtaining relevant information from somebody that is not a party to the dispute.  Although non-party discovery represents an intrusion on the privacy of the non-party, who is just a bystander to the proceeding, it is an intrusion that is necessary in order to enable litigants to present their case effectively.  The costs for the non-party of producing the information are typically met by the party effecting the order.

It is common in overseas jurisdictions for non-party discovery to occur by way of subpoena, however in New Zealand non-party discovery can also be provided for by an order for discovery both before proceedings are commenced or after proceedings are commenced.  The test under HCR 8.21 is whether the material would be discoverable if the non-party was in fact a party to the proceeding.  In other words, would the information be considered relevant and therefore discoverable if it were held by a party to proceedings?

Case summary

It is often upsetting to be the recipient of a non-party discovery order, particularly when the non-party is forced to disclose information that is particularly valuable or private.

Vector Gas and Ors v Contact Energy Limited and Ors [2014] NZHC 3171 was a case where a non-party discovery order was made that related specifically to sensitive information about market prices in the energy generation industry.

The applicants were all parties to the Kapuni Gas Contract (the “Contract”) and the respondents were other participants in the gas market in New Zealand.  The Contract provided for price adjustments and the applicants, being unable to agree on a price, appointed arbitrators to set a fair and reasonable price instead.  An application was made pursuant to the Arbitration Act 1996, which imported the test under HCR 8.21, to have the respondents reveal the prices which they had set in analogous contracts (the “Information”). Unsurprisingly, the respondents opposed this application.

Re Dickinson [1992] 2 NZLR 43 was the leading New Zealand case on non-party discovery which saw the Court unanimously decide in favour of disclosure, despite the information being sensitive.  In applying this reasoning to an order under HCR 8.21, Justice Kos emphasised that Re Dickinson was intended to create principles of general application and as such could not be confined to its own context.

Justice Kos also read into NCR 8.21 an implied qualification that the disclosure must be necessary.  In other words, available sources must be incomplete or unreliable and the documents sought must make a real difference as opposed to a marginal one.

The “apparent relevance” test from Santos Ltd v Pipelines Authority of South Australia (1996) 66 SASR 38 (SCSA) was then applied to the Information.  The premise of this test is that when considering an application for non-party discovery, the Judge will often not be in a position to determine the ultimate question of relevance and can only assess the apparent relevance of the documents sought through reference to the issues in the dispute and by taking into account the competing contentions of the parties.

Finally, adequate confidentiality measures must be put in place before an order will be made.  Justice Kos considered that as long as each individual permitted to view the Information was recorded as an approved person and compelled to sign a confidentiality undertaking that restricted discussions about, or dealings with, the Information, this would be adequate protection.

Justice Kos concluded that each of the tests for non-party discovery was satisfied and that an order should be made.  Any remaining confidentiality risks must be tolerated in the interests of justice.

Practical tips for people that are not a party to proceedings

This case demonstrates that the apparent relevance test adopted in New Zealand applies equally to information sought by way of an order under HCR 8.21 as it does to information sought by way of subpoena, even when the court’s role is only to assist in an arbitration. 

From a more global perspective, the New Zealand courts have demonstrated a consistent approach in making sensitive, yet necessary, information held by a non-party discoverable, provided the information is protected by adequate confidentiality protocols and the burden it would impose on the non-party is not unreasonable.

Non-parties should remain vigilant of the wide scope of an order made under HCR 8.21 and avoid contesting an order simply as a knee-jerk response.  Conversely, this case highlights that non-party discovery is an avenue of discovery that litigants should consider to ensure that they have all relevant information before putting forward their case at trial.  Both litigants and non-parties should bear in mind that the information sought must be necessary and that the costs of discovery must be proportionate to the issues at stake.

If you would like further information please contact Daniel Shore on 07 958 7477.