Vector Gas Contracts Ltd v Contact Energy Ltd
| Jurisdiction | New Zealand |
| Judge | KÓS |
| Judgment Date | 11 December 2014 |
| Neutral Citation | [2014] NZHC 3171 |
| Docket Number | CIV-2014-485-10564 |
| Court | High Court |
| Date | 11 December 2014 |
In the matter of an application pursuant to article 27 of the First Schedule of the Arbitration Act 1996 for non-party discovery
CIV-2014-485-10564
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
Application for non-party discovery under r8.21 High Court Rules (order for particular discovery against non-party after proceeding commenced) — the applicants were parties to the Kapuni Gas Contract — arbitrators had been appointed concerning a disagreement over pricing — applicants wanted to have evidence from the respondents of sales prices in cognate gas markets — the arbitrators agreed to the making of an application to the High Court to obtain the evidence — whether there were limits on the jurisdiction to grant non-party discovery to elicit market pricing information for a private arbitration — whether the discovery material sought was relevant and necessary to the arbitration — whether adequate confidentiality protection had been proposed — whether non-party discovery orders should be made.
B A Scott for First and Second Applicants
L J Taylor QC with A P Parker for Third Applicant
D J Cooper with K J Dobbs for Fourth Applicant
T C Stephens with S J Fairbrother for First, Second, Third, Fifth, Ninth and Tenth Respondents
L Clark for Seventh Respondent (abides)
No appearance for Fourth, Sixth and Eighth Respondents
REASONS FOR JUDGMENT OF THE HON JUSTICE KÓS
(Non-party discovery)
The applicants are parties to the Kapuni Gas Contract. 1 Pricing for each tranche of gas must be agreed. The applicants do not agree price. Where there is disagreement, a fair and reasonable price is to be set by arbitrators. Three arbitrators have been appointed. 2
What the applicants do agree is that it would be most helpful in setting a fair and reasonable price for their gas — i.e. a market price — to have evidence of other
The arbitrators agree. They have approved the making of an application to this Court for judicial assistance to obtain such evidence. It takes the form of an application for non-party discovery. It is made against other participants in markets for sale of natural gas (in annual quantities of more than 20 T), and LPG (in volumes greater than 1000 tonnes, unless for export). Those participants are the respondents.
The respondents do not agree. 3
Vector Gas Contracts Ltd and Vector Gas Ltd (Vector) are the buyer parties under a gas supply contract for production for the Kapuni Gas Field. The contract was entered in 1967. Shell and Todd, the other applicants, are the seller parties. 4
Kapuni gas is CO 2-rich. 5 The CO 2 must be extracted by buyer. The extraction process produces by-products, including liquid CO 2, natural gasoline and LPG.
Thirty years after entry into the contract a dispute arose. It concerned the supply of excess gas. That is, of the gas reserves remaining after the 25 year initial term of the contract. Seller argued, unsuccessfully, that the initial term had expired and (in the absence of agreement as to terms for further supply) the contract had come to an end. Buyer 6 argued that the broad arbitration clause in the agreement could be used to resolve future terms, and that the contract continued in effect. That submission was upheld. 7 Barker J said: 8
As the cases have indicated, an arbitrator is capable of settling a fair and reasonable price. See the cases already cited, plus Jefferies v R C Dimock Ltd [1987] 1 NZLR 419, Modick R C Ltd v Mahoney [1992] 1 NZLR 150; (1991) 1 NZ ConvC 190,909 (CA) and Didymi Corp v Atlantic Lines and Navigation Co [1988] 2 Lloyd's Rep 108 (CA). The arbitrator may have a difficult but not impossible task. He or she would have to work through the history of the negotiations, the scheme of contract, the economics of production, and the price charged in other sectors of the industry before coming to a fair and reasonable price. Hopefully, the findings in this judgment will be of assistance to any arbitrator.
…
There will therefore be a declaration that, should negotiations over the terms on which excess gas is to be supplied fail, then the terms are to be arbitrated under Article XXII of the contract and in accordance with the other contract findings in this judgment.
An arbitration in 1999 set the price of buyer's last tranche of Kapuni gas. That tranche has now been consumed. Price and quantity need to be set for the next tranche. The exact quantity to be sold is in dispute. Buyer maintains it is entitled to have 39 PJ of gas over the next five years.
Arbitrators have been appointed. A six week hearing is scheduled to commence on 27 April 2015. Expert briefs are due on 19 December 2014 and 20 March 2015 from buyer and seller respectively.
In 2013 some 181 PJ of natural gas were produced in New Zealand. Over 90 per cent of that came from six fields. Pohokura was responsible for 40 per cent, the depleting Maui field for 21 per cent, and Kapuni for 6 per cent.
Shell and Todd are owners of the Pohokura, Maui, Kapuni, McKee and Mangahewa fields (the latter two adding a further 2 per cent). So, collectively, Shell and Todd have oversight of 69 per cent of wholesale gas sales.
In sub-wholesale markets, Vector and Todd have, on the evidence before me, a combined 55 per cent market share across industrial, commercial and residential markets:
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(a) Vector's 2013 annual report discloses 70 contracts in the industrial and commercial markets. Evidence before me suggests that to have won those 70 contracts (of which nine were new in 2013), Vector would have had to have competed in over 100 tenders. Vector's market share is 26 per cent of these markets.
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(b) Todd's share of these markets is 29 per cent. It is a private company. It does not make public disclosures like Vector.
The applications also extend to LPG markets. Shell has a 25 per cent share of the total market production of LPG, sourced from Maui and Kapuni. 9 Due to a joint marketing arrangement with OMV, it has oversight of approximately 27 per cent of the New Zealand LPG wholesale market. Todd has a wholesale market share of 21 per cent of the LPG produced in New Zealand, from the Maui, Kapuni and Pohokura fields.
What is sought is set out in schedule 1 to the application. It is as follows:
All natural gas sale and/or purchase agreements, contracts, term sheets, heads of agreements or other documents evidencing gas supply and/or purchase commitments that are:
(a) current or were entered into on or after 1 January 2011 or expired after 1 January 2012;
(b) for a term of one (1) or more years; and
(c) for volumes equal to or greater than 20 TJ per annum, or which permit off take at or above that level but where the contract does not specify an annual volume.
All LPG sales agreements, contracts, term sheets, heads of agreement or other documents evidencing LPG supply commitments which are:
(a) current or were entered into on or after 1 January 2011 or expired after 1 January 2012; and
(b) for volumes equal to or greater than 1000 tonnes where the minimum term of the contract was one (1) year or more; or
(c) for any volume exported from New Zealand.
In an affidavit sworn in support of the applications, Mr Jim Seymour, General Manager, Gas Trading for Vector Ltd, explains the relevance of the present applications.
As to natural gas, the applicants are seeking contracts for the sale and purchase of gas over and above 20 TJ per annum. Mr Seymour says the 20 TJ limit “is designed to capture sales of natural gas in both the wholesale market (broadly sales from gas mining companies and the initial purchaser) and the industrial and commercial users market, including any contracts where no volume of gas is specified.”
He says that sales in the wholesale market (generally contract quantities of 1 PJ per annum or more) will be most useful as a comparable to the terms of gas to be sold to Vector under the Kapuni contract.
Sales in the industrial and commercial market are needed because the New Zealand wholesale gas market is thin, and Vector believes it will not provide a sufficient number of comparable data points for the arbitrators to be confident about making findings as to the current market price for specification gas in the quantities at issue before them.
The thinness of the wholesale gas market is then exacerbated by the fact that such sales in New Zealand are often made by way of “bespoke contract”, incorporating tailored terms limiting price comparability. Reference to the industrial and commercial users market, Mr Seymour says, will supply a much larger set of data for the arbitrators' purposes. Of course in each case adjustments will need to be made to reflect an equivalent wholesale price, reflecting both quantity and term differences.
Mr Seymour also says that the wholesale gas contracts tend to be long term contracts, and the prices set under them may not reflect...
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