Chapter 5: Protecting commercial interests


So what should be done to ameliorate the present dissatisfaction? We have explained earlier in this report that we think, in general, improved guidance in applying the Act will make a difference. Such guidance is particularly important in this area. There are already a number of Ombudsmen case notes on the “commercial” grounds, and some of the Ombudsmen’s recent expositions of principle are in relation to those grounds: tenders and local authority events funding are among them. Given the commonly recurring nature of some fact situations, we believe it should be possible to construct principled guidance, supported by examples from the Ombudsmen’s case notes.

Statutory amendment

The question is whether the area would benefit from statutory amendment as well. We shall deal with three possible sorts of amendment.

A special status for third party information

Some submitters believed that third party information, or at least some types of it, should be exempt from the Act altogether: in other words that such information should be carved out of the Act. If that is to be done there would need to be a very good reason for it, because it is contrary to the philosophy of the OIA, and its case-by-case approach, to exempt entire categories of information.

The strongest form of such a suggestion was that any material in which a third party has intellectual property should be exempt, with perhaps a very few narrowly defined exceptions to cover extreme situations such as illegal conduct. But that would not be workable. Intellectual property can exist in any sort of written material – even letters. As one submitter said:

Intellectual property rights could be claimed (rightly or wrongly) in respect of many communications with government departments by the drafters of those communications. For that reason alone, the public interest test should apply.

It would not make sense if one side of a trail of correspondence was able to be disclosed and not the other.

A modified version of the view that third party information should occupy a special position is that there should be a conclusive withholding ground to protect it. However, we must emphasise that at present various types of third party information are often not required to be disclosed. Usually they will be protected effectively by the confidentiality or commercial grounds. That is perhaps not well enough understood.

Yet public money, and the proper operation of government agencies, is at issue in these cases. There can be circumstances where the public interest might require disclosure regardless of contract, commercial interest or intellectual property rights. The situations will be relatively unusual, but allowance needs to be made for them. They might include cases where the subject matter of the information was illegal; or where it revealed a danger to public safety; or where there has been an unjustifiable expenditure of public money. It is well established that even a confidentiality contract does not conclusively mean that information cannot be disclosed. In Wyatt Co Ltd v Queenstown Lakes District Council, Jeffries J denounced the idea of “a kind of commercial Alsatia beyond the reach of statute”.181

Perhaps the strongest case for an exemption would be the situation where an agency such as a university or CRI has done research commissioned and paid for by a third party. It would be very unusual indeed to find that the public interest required disclosure in such a case, but even then there could be situations, however unlikely, when it did: for example research which involved the use of unlawful methodology, or where the findings demonstrated a major threat to public safety.

Properly applied, the existing withholding grounds (particularly paragraphs (b) and (ba)) are, we believe, sufficient to protect the interests of the third party in such a case. They involve a balancing exercise, and the stronger the third party interests involved the stronger will need to be the public interest to justify disclosure.

A case heard by the Ombudsmen, dealing with the research situation we have just been discussing, makes this point. The Ombudsmen said:182

Section 9(2)(i) is always likely to apply where a CRI has entered into a commercial contractual arrangement to undertake research for a client. Disclosure of that research to another party without the specific consent of the client would prejudice the CRI’s ability to obtain further contracts. … As a matter of law, a blanket assurance cannot be given that the countervailing public interest will never be strong enough to outweigh the need to avoid prejudice of disadvantage to a CRI’s commercial activities. However, CRIs can reasonably advise potential clients that in cases where a Crown agency is acting in a purely commercial activity, completely separate from any regulatory or social policy function, there is likely to be little countervailing public interest in disclosure.183

We therefore do not favour any special legislative exemption for third party information. In the great majority of cases it is safe now.

However given the shifting context of government’s relationships with the private sector, we think an added measure of confidence would be gained by amending paragraphs (i) and (j) to bring them into better alignment with (b) and (ba). In their current form (i) and (j) protect the commercial activities and negotiations only of Ministers and government agencies. There is no clear reason for so confining them. We believe they should be changed to cover third parties as well. Both paragraphs should be amended to cover “any person, including a Minister of the Crown or any department or organisation that holds the information”. In paragraphs 5.66 to 5.69 of this chapter we also summarise recommendations made in other parts of this report which are aimed at giving greater protection to third parties.

R15Information about third parties held by agencies subject to the OIA and LGOIMA should not form a category of information excluded from the Acts.

R16Section 9(2)(i) and 9(2)(j) of the OIA should be amended to cover the commercial activities of “any person, including a Minister of the Crown or any department or organisation holding the information”. Section 7(2)(h) and 7(2)(i) of the LGOIMA should be amended to cover the commercial activities of “any person, including a local authority holding the information”.

The meaning of “commercial"

There is much concern about one aspect of the statutory provisions. The concern has been expressed particularly by public agencies and relates to the question of whether “commercial” requires a profit-making purpose. As we noted in the issues paper, the Ombudsmen have taken the view that to be “commercial”, activities must be undertaken for the purpose of making a profit. The Ombudsmen’s Guidelines say:184

The first issue to consider is the meaning of “commercial”. The Ombudsmen are of the view that, in order to be “commercial”, activities must be undertaken for the purpose of making a profit. This interpretation is based on:

·Dictionary definitions of the word “commercial”, which refer to the conduct of commerce and trade for the purposes of profit and loss; and

·Case law which has established that a profit motive is implied by the term “commercial” activities. For example, in Calgary (City) v Alberta (Assessment Appeal Board), the Court, citing other Canadian case law, stated that:

“…whatever other attributes an activity may have it is not a commercial activity unless in addition it has as its predominant purpose the making of a profit.”

It is therefore considered that a profit motive is a pre-requisite for the conduct of “commercial” activities.

A distinction is recognised at law between financial motives and “commercial” motives. Prudent management of the financial position of an organisation does not establish that there is a “commercial” motivation.

The status of an organisation is not always relevant – for example, a charitable organisation may conduct activities in order to earn a profit, even though those profits are then applied for charitable purposes.

The submissions to our issues paper demonstrated widespread unhappiness amongst agencies with this interpretation, although requesters of information tended to support it. A number of points were made by the agencies. One was that many agencies – local authorities for example – do not exist to make a profit; their main purpose is to provide for their communities. Other submissions noted that while agencies obviously must have regard to financial considerations, for some of them breaking even rather than making a profit is their major concern. The Ministry of Economic Development gave examples from outside the public sector to emphasise that having a profit motive does not necessarily coincide with the concept of “commercial”. They said, by way of example: “Industrial and provident societies do not have a profit motive but it is difficult to assert that their activities are not commercial in nature.”185  Another submission said:

We acknowledge that to qualify as “commercial”, an activity needs to be driven by some kind of financial incentive, but a strict profit-making threshold is unnecessary. To draw the line between commercial activities that are carried out for other financial gain is arbitrary and unjustified.

We think that some of the submissions may have misunderstood the essence of the Ombudsmen’s interpretation. The Ombudsmen’s Guidelines acknowledge that the status of a body does not determine every kind of activity it may carry out.186 For example a University may have a commercial position with respect to research contracts for which it tenders to make financial gains, notwithstanding that by its nature it is not a commercial enterprise.

However, we are persuaded that there is such misunderstanding of the scope of “commercial” that legislative amendment would be an advantage. One option would be to define the term “commercial” as not requiring a profit motive. However, as the Ombudsmen note in their submission to the issues paper, there is a good deal of case law establishing that “commercial” does have the sense, in law, of profit-making. We believe that, rather than disturb that established legal meaning, a new withholding ground should be added to section 9(2) to make it clear that competitive position and financial interests are to be protected. It might read that information can be withheld:

[W]here the making available of information would be likely to cause material prejudice to the competitive position or financial interests of any person, including the agency that holds the information.

This ground would be in addition to, and not in substitution for, the existing commercial grounds. The Ombudsmen, in their submission on the issues paper, say that they are not opposed to the addition of such a ground.187

Provisions protecting “competitive position” and ensuring the avoidance of financial detriment appear in the freedom of information legislation of other jurisdictions: Canada is an example.188 The new ground would not require a profit-making motive. The words are wide enough to protect a range of situations, among them the interest in securing goods and services at the best price.

We think that this suggestion would provide a sensible solution to the current difficulties, except that we would wish to make it clear that the “competitive position” or “financial interests” in question might be those of either the agency holding the information or a third party who has supplied it or for whom it is held, or who is the subject of it.

We do not think that such an addition to the withholding grounds will unreasonably increase the amount of information which can be withheld. Rather it will mitigate the present level of uncertainty.189

Other possible amendments

We have considered other possible amendments to the commercial grounds.

At first we wondered whether the withholding grounds in section 9(2) clearly enough cover the situation where the information has not been supplied to the holding agency, but has, rather, been generated by it for a third party. A research report generated by a CRI for a commissioning third party would be an example. A few submissions echoed this concern. But we now think that paragraph (ba) is sufficient as it stands. The Ombudsmen in their submission agree. Paragraph (ba) deals simply with “information which is subject to an obligation of confidence”, and both the qualifications in (i) and (ii) are capable of applying to the situation we are considering. We note that paragraph (b) could also on occasion be used in this context. So we do not think amendment is required to cover information generated by the holding agency.

It was also suggested to us in one submission that the test of “unreasonable” prejudice in section 9(2)(b)(ii) sets the bar too high, and that any prejudice should be enough. Yet the qualifier does serve a purpose. It lessens the possibility of fanciful or imagined claims of prejudice. We are not inclined to amend this longstanding provision in this way.

Possible clarification of provisions

There is a question of whether there is a case for another sort of amendment: amendment to clarify and increase understanding of these grounds, without altering their substance. There are a few possible candidates:

(a)Section 9(2)(ba) combines two slightly different concepts: information which is subject to an obligation of confidence; and information the provision of which has been, or could be, required. It has been suggested that section 9(2)(ba)(i) does not fit entirely happily with the second of these things, although it can have some application (in that if information is required to be supplied the threat of disclosure may in future lead to its being supplied in unsatisfactory form).

(b)The distinction between “commercial position” in section 9(2)(b)(ii) and “commercial activities” in section 9(2)(i) is subtle.

(c)There are possible overlaps between some of the paragraphs. It may at times be possible to rely on either or both of section 9(2)(b) and section 9(2)(ba); or either or both of section 9(2)(i) and section 9(2)(j).

(d)Some terms used in the paragraphs of section 9 may not be readily understood by persons coming to them for the first time. The term “trade secrets” was identified as one of them, and it was suggested that it might be worth defining it, perhaps using the definition in the Crimes Act.

We think there is not a strong case for what would amount to little more than adjusting language. The withholding grounds are couched in brief and flexible terms. They have been in much the same form for nearly 30 years. They are familiar. We fear that to change them would open new ambiguity and room for doubt. It could unsettle such established understandings as have developed. Moreover it would be most unlikely to change behaviour stemming from ingrained resistance to disclosure.

We believe that the best way of increasing certainty is the solution we propose in chapter 2: improved guidance, enhanced by the inclusion of principles and real-life examples. Perhaps the strongest case for legislative attention is a possible definition of “trade secret”. But even there it will be difficult to capture the concept in a brief form of words. There are legal textbooks which explain the term in considerable detail. Once again we prefer guidance to a legislative solution which could affect the balance of the provision.

R17The term “commercial” should not be defined in the legislation. Instead, a new withholding ground should be added to section 9(2) of the OIA and section 7(2) of the LGOIMA, stating that good reason for withholding official information exists (subject to the public interest override) where the making available of the information would be likely to cause material prejudice to the competitive position or financial interests of any person, including the agency that holds the information.


The public interest in disclosure

In the commercial context, as in others, the balancing exercise which is carried out to determine whether the public interest warrants disclosure can be quite difficult. It is particularly so here because there also needs to be weighed in the balance the public interest in maintaining confidentiality and in supporting effective commercial arrangements. It seems to us that the following public interest factors are of particular relevance to the commercial withholding grounds:

(a)the need for trust and good relationships with third parties that provide commercial information;

(b)oversight of, and accountability for, public expenditure;

(c)the citizen’s right to know how taxpayer or ratepayer funds are being used;

(d)ensuring that agencies can compete fairly on a level playing field;

(e)the contribution of the information to a wider public policy debate;

(f)the return of a profit to the Crown or local government;

(g)the promotion of ethical yet profitable commerce;

(h)the potential impact of the enterprise on people’s lives.

We asked in the issues paper whether it might be worth listing such factors in the legislation, specifically in relation to the commercial withholding grounds. In light of the uncertainty surrounding the commercial withholding grounds there may be a stronger argument for legislating public interest criteria in relation to them than in relation to other grounds.

But we expressed the reservation that to do so would be subject to the same disadvantages as apply to legislating for public interest more generally: namely that legislative lists of factors can give rise to rigidity and the appearance of exclusivity. In such a complex and dynamic area that would be unsatisfactory.

The great majority of submissions on the issues paper agreed. They welcomed guidelines on the subject, particularly with examples, but feared that legislating the factors to be taken into account would be too rigid. On balance we agree, but would urge that the Guidelines be as comprehensive as possible.

R18The public interest factors relevant to the commercial withholding grounds should not be included in the legislation, but should be the subject of more guidance, with examples.


Other protections in this report

Given the number of submissions which expressed a degree of concern about the application of the OIA in the commercial arena we here reiterate recommendations we make elsewhere in this report which might impact on the commercial withholding grounds (as well as on others).

First, in chapter 7 we suggest there should be a separate withholding ground for information which is supplied in the course of an investigation or inquiry. This ground would be able to be overridden by the public interest.

Secondly, in chapter 10 we strongly support the practice of consulting with third parties who might be affected before disclosure is made, although we do not go so far as to require that to be mandatory. Some say that in the commercial arena the consultation process can be frustrating because third parties are not necessarily clear about the harm that disclosure may cause them; the process may take much longer than the statutory deadlines; often the third parties cannot advise with certainty whether the information should be protected or disclosed; and the whole process has an inhibiting effect on the commercial relationship between the parties. Despite this it is normally strongly advisable. In chapter 10 we recommend imposing a requirement that third persons be notified in appropriate time before the information is disclosed. This would give a third party that considers that it is threatened by serious commercial prejudice the opportunity of applying for judicial review.

Thirdly, in chapter 11 we recommend that the Ombudsmen be able to hear complaints from third parties that the decision to release information about them was wrongly made, due to a failure to properly apply the withholding grounds or carry out the public interest balancing exercise.

[1991] 2 NZLR 180 at 191.

Office of the Ombudsmen, Case Notes (11th Compendium, 1998, W35177) at 112.

It has been said to us that the argument for non-disclosure may be stronger in the scientific context than in the social science context. We are not entirely sure this is necessarily the case.

Office of the Ombudsmen, above n 177, at 7. See also Office of the Ombudsmen “Grounds for Withholding Commercial Information” (June 2007) 13 OQR 2.

See also Law Commission Reforming the Incorporated Societies Act 1908 (NZLC IP 24, 2011) at ch 1.

Office of the Ombudsmen, above n 177.

Office of the Ombudsmen “Submissions of the Ombudsmen – The Public’s Right to Know” (17 December 2010) available under the “Publications” heading on the Ombudsmen’s website.

Access to Information Act (RSC 1985 cA-1), s 20.

See also Paul Quirke “Drawing Back the Corporate Veil: Reforming the Commercial Activities Exception in s 9(2)(i) of the Official Information Act 1982” (LLM Research Paper, Victoria University of Wellington, 2005).