Chapter 5: Protecting commercial interests

Some problems


The Ombudsmen’s Guidelines set out the steps which need to be gone through in assessing each of the withholding grounds. They note that when applying section 9(2)(b)(ii) it is not enough to recognise potential commercial sensitivity: it must be established what prejudice or harm might follow from disclosure and why that level of prejudice would be unreasonable. Then any countervailing public interest in disclosure must be considered. The Ombudsmen point out that direct consultation with affected third parties may sometimes be needed to establish the nature of any prejudice to them.177

We noted in the issues paper that some concern has been expressed as to the substance and application of the withholding grounds. Nicola White notes that “commercial interests” is one of the most frequently used grounds and notes that there is “some uncertainty at the margins”.178 Steven Price notes, commenting on the confidentiality ground:179

Agencies occasionally used this exception to withhold contractual documents which were, as one agency put it, “confidential to the parties and were entered into on that basis.” It was usually not clear who sought – or benefited from – the confidentiality or, more importantly, what harm might come of disclosure.

The responses to our 2009 survey, and, more particularly, the submissions to our issues paper confirmed that these grounds are problematic. Responses and submissions divide fairly clearly into two groups.

On the one hand, the agencies holding information, and also the persons and organisations whose information is held by agencies, almost unanimously felt the grounds were (i) uncertain and difficult to apply; and (ii) not sufficiently broad to cover all information that needs to be protected. They wanted further guidance and/or definition. They also felt that “commercial” should be broadly interpreted and not confined to activities designed to make a profit. A number felt that information held by an agency but owned by a third party should be outside the reach of the Act altogether.

On the other hand, those who use the Act (researchers, members of the media and citizens) unanimously asserted that agencies are using the lack of clarity in the “commercial” grounds to illegitimately withhold much information of real public interest. We have no doubt that this happens, and that “commercial sensitivity” is sometimes used to conceal information which it would merely be embarrassing to release. Submissions provided some quite worrying examples. These submitters also wanted more clarity, but certainly did not want any expansion of the commercial grounds.

Getting the right balance, therefore, is not going to be easy. Nor is redrafting, or even guidance, going to be a complete answer. Attitudes cannot be reversed so easily.

The variety of activities

The “commercial” grounds cover a potentially large variety of activities, and protect a number of differing interests. Here are some examples: the list is by no means exhaustive.

Prejudice to holding agency

Sometimes it is the interests of the agency holding the information which is protected by the withholding grounds.

First, delicate contractual negotiations between an agency and a private sector organisation might be prejudiced by the premature disclosure of the negotiating stance of one or both parties. As merely one example, knowledge of an agency’s fall-back position on an item in the negotiation would clearly put the agency at a bargaining disadvantage.

Secondly, where an agency is competing in the market with a range of organisations, whether public or private, disclosure of its trade secrets – including customer lists – could place it at a disadvantage with its competitors, some of whom have no corresponding duty of disclosure.

Thirdly, local authorities sometimes compete with others to attract events to their areas. They may be concerned that disclosure of details could put them at a disadvantage with competing venues, and also in future negotiations. They might well allege not only that other practical venue funders would be given an insight into the funding positions of local authorities that had secured events in the past; but also that promoters might be reluctant to deal with that local authority again.

Fourthly, an agency might commission and pay for a research report to use as a basis for making decisions on an important projected development. The agency would no doubt deem it unacceptable if a competitor were able to have access to that research at little or no cost under the OIA and use it for its own purposes.

Prejudice to third party

The OIA applies to all information held by an agency, even if that information is about a third party, or was generated or supplied by that third party. Sometimes it is the third party’s interests which are protected by the withholding grounds. Here are two examples.

First, an agency such as a university or Crown research institute (CRI) may do research under contract for a third party. As like as not there will be an express confidentiality contract, but even where there is not, confidentiality will usually be able to be implied. It would often be unreasonable if another organisation could have access under the OIA to the research findings generated by the agency.

Secondly, persons or organisations who are applying for a decision (for example on a licence or consent) from an agency may have to supply information to the agency – indeed sometimes they may be statutorily required to do so. If the information supplied were to be available to a competitor under the OIA, their commercial position might well be prejudiced.180

As a result of the developments we have outlined at paragraphs 5.6 to 5.9, much more third party information is now held by government agencies than was the case in 1982. The application of the OIA to it is one of the most misunderstood and contentious aspects of its operation. We return to this matter shortly.

Prejudice to holding agency and third party

In some instances, including some of those already given as examples, it may be alleged that the interests of both the holding agency and a third party are affected.

First, if details of negotiations are released, the interests of both the agency and the other party to the negotiations may allegedly be compromised.

Secondly, if an agency discloses information about, or belonging to, a third party it may make the third party less willing to deal with the agency in future. In a competitive market this might prejudice government agencies such as CRIs and universities.

Thirdly, reinforcing the point, it has been said that in some instances the release of third party information can cause a diminution of trust in government.

Countervailing public interest

So these are some examples of fact situations, and the interests often alleged to be at stake. Those interests are usually protected by one of the withholding grounds in the legislation. On the other side of the ledger, however valid those interests and arguments may be, there may be a public interest in disclosure against which they need to be balanced. The submissions of the requesters emphasised some of those countervailing public interests. The following points were made.

First, sometimes agencies spend a very large amount of taxpayer or ratepayer money on large projects. Some of those projects may turn out in hindsight to have been ill-advised, and not the best use of resources. It may turn out for example that outsourcing was not the cheapest or most cost-effective option. Agencies should not be able to conceal such hard facts behind the shield of a commercial withholding ground.

Secondly, public-private partnerships, and contracts between public and private organisations, need as much, and perhaps more, scrutiny than pure public agency activity. There may be conflicts of interest; allegations of favouritism are not uncommon.

Thirdly, under the Local Government Act 2002, local authorities have obligations to consult their communities in the course of decision-making. If there is to be effective consultation, the community needs to know the facts. One submitter told us of cases where, under the cloak of a commercial withholding ground, a local authority would not provide information which was necessary for those being consulted to fully assess a proposal.

Fourthly, information from privately contracted research may be highly relevant to public participation in central or local government decision making, or even raise a risk of harm to communities. In such situations the public interest in disclosure should be taken into account.

A fifth possible argument is that studies conducted for and by a public agency often have the public benefit as their purpose, and should thus “belong” to the public.

A point which has been raised by submitters and others is that it may be difficult to assess, in a particular case, what actual harm will be caused by a disclosure. It is easy to assert that a commercial position will be damaged by the disclosure of information; it can sometimes be much harder to prove it. Steven Price made this point in the passage quoted earlier in this chapter. The Ombudsmen’s Guidelines also note that, when dealing with the “prejudice to the commercial position” ground in section 9(2)(b)(ii), it is not enough to recognise potential commercial sensitivity: it must be established what prejudice might follow from disclosure, and why that level of prejudice would be unreasonable. That is often not easy to do.

Office of the Ombudsmen Practice Guidelines – Official Information (Wellington, 2002) Part B at [4.2].

Nicola White Free and Frank: Making the Official Information Act 1982 Work Better (Institute of Policy Studies, Wellington, 2007). White did not research the operation of the LGOIMA.

Steven Price The Official Information Act 1982: A Window on Government or Curtains Drawn? (New Zealand Centre for Public Law, Victoria University of Wellington, Wellington, 2005) at 42.

See Mai Chen Public Law Toolbox (LexisNexis, Wellington, 2012) at [10.4.13] advising third parties at the time of supplying information to make clear their view about the grounds for withholding it if requested.