Banking

Financial advisers update

The government has recently made a range of significant announcements on the Financial Advisers Act 2008 and Financial Service Providers (Registration and Dispute Resolution) Act 2008. Buddle Findlay will send a separate legal update to clients analysing the effect of these announcements shortly.

Government responds to CMDT report

The government has released its response to the report of the Capital Markets Development Taskforce (CMDT).  The response does not provide any significant new details or policy announcements.  The majority of the recommendations “supported” by the government have already been included in other work programmes, particularly the review of the Securities Act.  This includes looking at the regulation of managed funds and reviewing the functions and structures of regulatory agencies, including the Companies Office, the Securities Commission and NZX.

As highlighted in the media recently, the government also proposes to adopt the CMDT’s recommendation to transform New Zealand into a financial services hub for the Asia-Pacific region. The government is due to release an implementation plan by 31 May 2010. This plan will detail prospective changes to tax laws and financial regulation so that New Zealand can provide a competitive environment for capital markets, financial services and funds management.

Some of the more high-profile recommendations do not appear to have received the support of government – although they have not been ruled out completely.  This includes limiting financial advisers regulation to retail financial advisers and the suggestion to list equity of state owned enterprises.

The government’s response is available here, and the CMDT report here.

You can also read Buddle Findlay’s earlier summary of the CMDT report here.

Dealings with secured property

The recent case Motorworld (in liquidation) v McGregor (17 February 2010) CIV-2007-404-6558 High Court Auckland, Lang J considered the Personal Property Securities Act 1999’s rules regarding dealing in secured property.

Motorworld imported vehicles from Japan.  Title was expressly retained pending payment.  The importer delivered the vehicles to an auctioneer for on-sale. 

Motorworld became hopelessly insolvent, so the vendor pursued the auctioneer for a claim in conversion (among other actions) to recover the purchase price of the vehicles.  In order to establish the claim, the vendor needed to establish a right to possess the vehicles.  The vendor relied on section 109 of the PPSA, which provides that a secured party may take possession of goods subject to a security interest to establish such a possessory interest.

The Court accepted that the vendor may have a possessory interest up to the point the goods were sold.  Thereafter however, sections 45 (in particular) and 53 of the PPSA apply.  Section 45 provides that a security interest continues in sold goods, unless the secured party authorised the dealing.  Section 53 further provides that a buyer of goods sold in the ordinary course of the seller’s business acquires them free of a section 45 security interest, unless the buyer knew such sale was not authorised by the secured party. 

The Court therefore held that the vendor had no right to possession of the goods once sold (and therefore no claim in conversion), as the vendor had authorised the dealing.

As of publication, the full case is not available online.

Review of Credit Contracts and Consumer Finance Act

The Ministry of Consumer Affairs has announced the results of public consultation on the review of the Credit Contracts and Consumer Finance Act 2003 (the CCCFA).  The aim of the review is to determine whether the CCCFA is providing the appropriate protections to New Zealand consumers as was intended when the CCCFA came into force in April 2005. 

The Ministry released a discussion document in September 2009.  The discussion document outlined various proposals to improve the CCCFA such as increasing disclosure of prepayment fees, requiring disclosure from credit card issuers on the true cost of interest accruing when only minimum payments are made, whether credit card limit increases should be opt-in only, whether hardship applications can be made when a borrower is in default, and requiring itemised disclosure of any property over which the lender has a security interest.

59 submissions on the Discussion Document were received, ranging from banks, finance companies, consumer advocacy groups and industry groups.  Generally submissions from the consumer advocacy groups favoured the proposals while lender submitters favoured the status quo under the CCCFA.

A full analysis of the submissions will be undertaken by the Ministry over the next few months.  See here for more information. 

Reserve Bank Releases consultation paper on liquidity policy

On 2 February 2010 the Reserve Bank released a consultation paper on policy options for liquidity requirements  for the non-bank deposit taking (NBDT) sector.  The liquidity policy is to be implemented under the new Part 5D of the Reserve Bank of New Zealand Act 1989, part of the government’s response to the series of finance company collapses.

The current consultation paper puts forward 3 options for the liquidity requirements for NBDTs:

• Maintaining the status quo.  This would amount to relying on existing liquidity requirements in trust deeds of NBDTs without any change
• Prescribing a measurement framework and requiring quantitative liquidity requirements in trust deeds.  This would involve the Reserve Bank setting common definitions and standards for measurement, but the actual liquidity requirements would be left to trust deeds.  This would allow easy comparison of NBDT liquidity requirements and positions, but would not say what those liquidity requirements must be
• Prescribing quantity requirements against a liquidity management framework.  This would involve the Reserve Bank actually saying what liquidity requirements NBDTs must satisfy.

Any comments on the consultation paper must be submitted to the Reserve Bank by 15 March 2010.  The Reserve Bank’s recommendations will be put to Cabinet in the second quarter of 2010, and following this, further consultation with the industry will take place, if required.  The Reserve Bank will then develop draft regulations on liquidity. 

The consultation paper is available here. 

Novation of agreements and loan asset sales

The recent Australian Federal Court case of Goodridge v Macquarie Bank [2010] FCA 67 has cast some doubt over the validity of loan asset sales in Australia.  If this case is followed in New Zealand, concerns will arise over the validity of novation provisions contained in various facility agreements that state that the borrower’s consent is not required to a transfer of the lender’s rights and obligations. 

The case involved a revolving margin lending arrangement between the first defendant bank and the plaintiff borrower.  Under the margin lending agreement, the plaintiff had the right to draw down the loan up to a specified limit, as long he provided sufficient security.  The agreement purported to give the bank the right to assign, transfer, novate or otherwise deal with its rights and obligations under the agreement without the consent of the borrower. 

Through a complicated series of transactions the bank “sold” its margin loan book to the ultimate purchaser, the second defendant, Leveraged Equities (LE).  Notices were sent out to the bank’s customers informing them of the assignment, however, the plaintiff did not receive such a notice.  Due to declining market conditions, various margin calls were made on the plaintiff’s margin loan account, and as a result of his failure to meet these calls LE sold the plaintiff’s portfolio.

The plaintiff claimed that the margin calls made by LE were invalid for a host of reasons, including that the sale of the margin loan by the bank to LE was invalid.

The Australian Federal Court found in favour of the plaintiff and held that the plaintiff’s margin loan agreement had not been validly novated or assigned to LE.  The Court held that the bank could not have successfully novated the loan agreement without the plaintiff’s consent, despite the loan agreement expressly stating that such consent was not required.  The Court reiterated that a novation was a transaction by which all the parties to a contract agreed that a new contract be substituted for one that had already been made.  It was therefore one thing for the bank to deal with its assignable rights without the borrower’s involvement, but it was another for the bank to create and impose a contract between that borrower and a third party in circumstances where the borrower has no participation in or knowledge of the formation of that agreement.  As a result, the Court held that the clause in the loan agreement stating that the borrower’s consent was not needed for a novation to occur was merely an agreement to agree. 

The Court also held that the bank could not have assigned its rights under the loan agreement to LE given that the bank’s rights to the existing legal debt and the supporting security were intertwined with its obligation to lend the plaintiff further advances.  Therefore, the bank’s contractual rights could not be assigned without its contractual obligations also being transferred.  In Australia, a contractual obligation cannot be assigned with contractual rights.  However, in New Zealand section 11 of the Contractual Remedies Act 1979 allows for both contractual rights as well as obligations to be assigned (see SB Properties (In Liquidation) v Holdgate (2009) 9 NZBLC 102,697; [2009] NZCA 327, which lead to a different result in New Zealand on this point.  Buddle Findlay’s September 2009 article on this case is available here.

The full Goodridge v Macquarie Bank case can be viewed here. 

Anti-money laundering discussion paper released

The Ministry of Justice has recently released a discussion paper on the preliminary regulations and code of practice for the Anti-Money Laundering and Countering Financing of Terrorism Act (the AML/CFT). 

The discussion paper seeks submitters’ preliminary views on the options and approach for the regulations and codes of practice.  This includes matters such as:

• What types of entities, financial products or services may qualify for exemptions (whether full, partial or temporary)
• The threshold for reporting “occasional” transactions (currently set at $10,000 under the Financial Transactions Reporting Act), including the possibility of a lower level for casinos and “stored value” cards, money orders, postal orders and foreign currency exchange
• Possible options for satisfying “know your client” obligations, including documentary, electronic and other non face-to-face verification procedures, and third party reliance
• Possible arrangements for Designated Business Groups (DBG).  A DBG may share elements of an AML/CFT programme as well as share record keeping, ongoing customer due diligence and account monitoring systems.

The Ministry of Justice plans to produce a further consultation document once feedback has been received and this will be provided to industry in May.  Final proposals will then be put to Ministers and Cabinet in July. 

The AML/CFT requirements are extremely far-reaching.  While the current document deals primarily with establishing frameworks for later substantive obligations, it will be worthwhile for many businesses to engage now rather than later.  Some businesses may be surprised that they are caught by AML/CFT requirements. Any businesses that handle money or other forms of “stored value products” such as money orders, postal orders and foreign currency exchange should pay particular attention.  The sooner any issues are raised, the more likely they can be taken into account appropriately. 

Submission on the discussion document can be made to the Ministry of Justice.  Submissions are due by 19 March 2010.

The discussion paper is available here.

NZBA deeds of subordination and priority - negotiate a priority amount that includes a buffer

In the recent case of Belgrave Finance (In Receivership) v KC Securities (9 February 2010) CIV-2009-404-006022 High Court Auckland, Bell AJ, the Court considered NZBA deeds of subordination and priority (NZBA Priority Deeds).

This case reminds secured lenders that, when negotiating priority amounts (ie Secured Party Amounts in paragraph (a) of the definition of Secured Party Priority Amount) under NZBA Priority Deeds, higher ranking secured parties should include a buffer for interest that may be unpaid at the time of enforcement.  As acknowledged by the Court, “banking practice suggests that lenders use the Secured Party Amount to give themselves sufficient freeboard to allow increasing loads of debt under the security while keeping priority…Banks keep priority by negotiating for a priority amount that will be more than the amount of anticipated advances”.  The interest component of a party’s priority amount under NZBA Priority Deeds (i.e. paragraph (b) of the definition of Secured Party Priority Amount – the “interest component”) should not to be relied on as “a second chance buffer”. 

In this case, the first secured party and the second secured party had entered into a NZBA Priority Deed.  The gross amount realised on enforcement was $2.7m.  The amount for which the first secured party had undisputed priority was $2.3m (comprised of a stipulated First Secured Party Amount of $1,895,000 and enforcement costs of $407,587).  What was disputed was by how much the first secured party’s priority amount was extended by virtue of the interest component. 

The first secured party unsuccessfully argued that the interest component is calculated by taking the stipulated Interest Period and multiplying this by the highest interest rate payable by the debtor under the relevant securities, irrespective of whether proceeds are paid to it before the end of that period.  On this approach, interest equated to $758,000 (i.e. interest on $1,895,000 at 20 percent per annum for 24 months), taking the first secured party’s total priority amount to over $3m, leaving nothing for the second secured party. 

This approach was not accepted by the Court.  It held that the interest component can only be used to calculate interest actually incurred.  The stipulated Interest Period is a long stop provision.  Interest may not be claimed for longer than this, but it may run for a shorter period.  If the balance outstanding reduces to nil by payment following enforcement of the security, then interest stops running.  The Court held that the interest stopped running on the date of settlement of the sale of the relevant property, well before the expiration of the 24 month period contended by the first secured party.

Interest begins to accrue, under this earlier version of NZBA Priority Deed, on the “Enforcement Date” (as defined in the NZBA Priority Deed).  The Court decided this was the expiration date of the notice given under section 92 of the Property Law Act 1952.  This gave an interest component of $218,000, leaving the second secured party sufficient proceeds to satisfy the full amount owing to it.

Secured lenders using the NZBA Priority Deeds might wish to check whether this decision accords with the method they use to fix priority amounts.  The uncertainty surrounding this suggests that it would be prudent for them to negotiate a priority amount that includes a sufficient buffer for interest and any other liabilities outstanding at the time of enforcement. 

Commercial - a focus on contract interpretation

A new interpretation - using evidence of prior negotiations in interpreting contracts

Vector Gas v Bay of Plenty Energy [2010] NZSC 5

“There is no logic in ascribing a meaning to the parties if it is objectively apparent they have agreed what that meaning should be”.

So said Justice Tipping in a recent Supreme Court decision which discusses principles of contractual interpretation, particularly the role of prior negotiations in interpreting a contract.

The case concerned a dispute over the payment Bay of Plenty Energy (BoPE) was required to make to Vector Gas (then NGC) (Vector) for gas supplied to it pending resolution of another dispute between the parties.  The parties had agreed that Vector would supply BoPE with gas at a price of $6.50 per gigajoule.  The dispute was whether that price was inclusive or exclusive of transmission costs (being a difference of $3m).

The Supreme Court found in favour of Vector, holding that objectively it was clear that the parties had agreed in correspondence between them that the price was exclusive of transmission charges.  BoPE’s assertion on the ordinary meaning of the words of the agreement between them that the cost was inclusive of transmission charges was considered “commercially absurd” by Justice Blanchard. 

The traditional view that regard to prior negotiations when interpreting a contract is impermissible was dismissed by the Court.  This was despite the traditional view being recently confirmed in England’s House of Lords (Chartbrook v Persimmon Homes [2009] UKHL 38), a decision recently followed in Australia.  The Supreme Court has taken a different approach, noting that the traditional view is not “an absolute rule of exception”.  Justice Blanchard stated that

“… there is no reason in principle why the Court should not have regard to communications between the parties for the light they may throw upon the objective commercial purpose and, in particular, what ground the contract was to cover.”

The plain meaning or the words of the agreement at issue suggested a price inclusive of transmission costs.  However, when considered in light of the correspondence between the parties culminating in this agreement, the commercial context clearly pointed to a price exclusive of transmission costs.

All those engaged in commercial negotiations and the drafting of commercial agreements should be aware that evidence of those negotiations may be used as an interpretative aid for determining the commercial purpose of a contract in the event of a dispute over the terms of their agreements.  Of course, such disputes would not arise if key terms were clearly expressed and the decision reinforces the need for all drafters of commercial agreements to be thorough in documenting all terms of their agreements. 

Update: When an absolute warranty isn't absolute

Tasman Liquor Company v Nine Paddocks & Jones [2009] NZCA 593 (Ellen France, Gendall and Harrison JJ)

Readers of November 2009’s Legal Update on Banking and Commercial Law may recall the High Court decision in Nine Paddocks v Tasman Liquor Company HC Invercargill CIV-2008-425-000354, 24 July 2009, which held that a disclosure warranty not expressly qualified by reference to the vendor’s knowledge (a so-called “absolute” warranty) was implicitly so qualified.  That decision has now been upheld on appeal.

Nine Paddocks had sold its liquor distribution business to Tasman for a purchase price of which approximately 40% constituted goodwill.  Fifty percent of the turnover of the business had come from sales to CEA Trading, with CEA having entered into what was believed to be an exclusive dealing arrangement with the distribution business.  Both Nine Paddocks and Tasman were unaware that CEA had also entered into an arrangement with Lion Nathan under which Lion Nathan had the right to require CEA to start purchasing exclusively from Lion Nathan.  Lion Nathan exercised that right soon after the sale and purchase of the business.  The issue was whether Tasman could withhold about one-third of the goodwill as reflecting the reduction in the value of the business. 

The sale agreement included the following warranty:

“13.1 The Vendor and the Covenantor have disclosed to the Purchaser details of all material contracts which relate to the Business or to which the Vendor is a party in relation to the Business.”

The Court of Appeal recently upheld the High Court’s interpretation of clause 13.1 that the clause did not require disclosure of contracts in respect of which the parties were unaware:

“Where the warranty requires disclosure of material contracts there has to be a knowledge of the contracts (with the materiality being a separate matter for objective assessment), before the duty to disclose arises.  It is not possible to say that someone must disclose that of which they are unaware.”

The difference in the drafting between the clauses did not mean the warranty in clause 13.1 was absolute.  The “crucial words” in clause 13.1 were “have disclosed”, the court finding that “there cannot be disclosure without there being knowledge of that which should be disclosed”. 

How entire are entire agreement clauses?

PAE (New Zealand) v Brosnahan, Carter & Pattinson [2009] NZCA 611 (Ellen France, Gendall and Harrison JJ)

The Court of Appeal has recently confirmed that courts may look behind an entire agreement clause in circumstances where it is not fair and reasonable that the clause should be conclusive between the parties, typically because of a power imbalance between the parties.  The Court also stated that entire agreement clauses may operate to exclude liability under section 9 of the Fair Trading Act 1986 (FTA). 

The case concerned (amongst other things) an unsuccessful appeal against a decision of the High Court dismissing claims brought by PAE against the respondent directors alleging pre-contractual misrepresentations under the Contractual Remedies Act 1979 (CRA) and misleading and deceptive conduct under the FTA.  PAE and the respondent directors had entered into a written agreement under which PAE had purchased the respondent directors’ shares in Central Property Services (CPS).  Financial statements provided by the respondent directors to PAE during the pre-contractual negotiation period were materially incorrect in their representation of CPS’s profit margin.  The contract contained an entire agreement clause to the effect that the agreement constituted “the entire agreement between the parties and supersede[d] all prior agreements, understandings, negotiations, representations, and discussions, whether oral or written, of the parties”. 

The Court on appeal confirmed that an entire agreement clause “is not absolute or conclusive”.  Instead, section 4(1) of the CRA affords a “wide judicial discretion” to determine whether it is fair and reasonable that the provision be conclusive.  Although that issue is to be determined “having regard to all the circumstances of the case”, the criteria listed in section 4(1) focus on “an assessment of the relative positions of the parties and their access to independent legal advice”.  The purpose of section 4(1) is to protect a relatively vulnerable party from a more powerful party’s ability to impose an exemption from liability “which is contrary to the factual reality or an existing legal obligation and is thus unreasonable and unfair”. 

The court found that the entire agreement clause was not unreasonable as:

• There was no imbalance in the parties’ respective bargaining strengths
• PAE had access to (and obtained) independent financial and legal advice
• PAE had sufficient opportunity to safeguard itself against the adverse consequences of any pre-contractual misrepresentations. 

The Court commented further (in a statement not strictly necessary to decide the case) on the efficacy of entire agreement clauses in respect of excluding liability under the FTA for pre-contractual conduct.  Although it is settled that a party cannot contract out of the prohibition on misleading and deceptive conduct in section 9 of the FTA, that protective policy has less force in the context of commercial transactions involving substantial, independently advised parties, negotiating from positions of equality.  Section 9 should not be treated as a general warranty.  An entire agreement clause may exclude liability under section 9 by stipulating that pre-contractual conduct no longer matters, thereby breaking the chain of causation between the conduct and the loss. 

The key lessons from this case are two-fold.  First, the effectiveness of an entire agreement clause will depend on whether the court considers it fair and reasonable in the circumstances.  The party who will rely on the clause should therefore be aware that the clause may be vulnerable where the other party has substantially lesser bargaining strength, and should ensure that the other party has had a reasonable opportunity to obtain independent legal advice.  Secondly, in the context of large-scale commercial transactions, drafting an entire agreement clause in which the parties agree that pre-contractual conduct no longer matters may effectively exclude liability for that conduct under section 9 of the FTA as well as under the CRA. 

Is time of the essence?

Open Country Cheese Company v Fonterra Co-operative Group (HC, 11/12/2009; Courtney J, Auckland, CIV 2008-4040-727)

This recent High Court case, provides a timely reminder of the need to expressly state whether the time for performance under a contract is critical.

The usual rule is that time is not of the essence unless the contract stipulates otherwise, or the particular circumstances require that implication.  Alternatively, where there has been an unreasonable delay under a contract the party not in default can give notice to the party in default making time of the essence.  The effect of time being of the essence is that if there is a failure to perform an obligation in the agreed period, it will be treated as breach of a condition, entitling the innocent party to terminate the contract.

In this case, the relevant contract (for the supply of up to 50 million litres of raw milk to independent processors at a regulated price) did not contain a time of the essence clause.  Open Country Cheese was required to provide Fonterra with advance estimates of its raw milk demand.  It provided an estimate for the wrong month and Fonterra claimed that as a result of this failure it was entitled to supply milk at the higher market price, time being of the essence to the contract.  The court disagreed, finding that neither the contract nor the relevant circumstances (including the regulatory framework under which Fonterra is required to sell raw milk to independent process at the regulated price, and Fonterra’s internal planning requirements and practices) made time of the essence.  Accordingly, Fonterra was required to supply Open Country at the regulated price.

Often supply contracts with standard boilerplate clauses are used without considering the particular context.  This case provides a reminder that consideration needs to be given to the critical requirements of the deal, and how these requirements ought to be reflected in the contract.

Company

Continuous disclosure for State Owned Enterprises

Last month 9 of the largest State-Owned Enterprises (SOEs) introduced new continuous disclosure rules.  The 9 SOEs are NZ Railways Corporation, Transpower, Meridian, Mighty River Power, Landcorp, Genesis, NZ Post, Solid Energy and Kordia.

Broadly, the new rules require each SOE to immediately disclose:

• The fundamental terms of any “material transaction” that is entered into
• Information that the SOE estimates will have a material effect on its current commercial value or
• Information that relates to the declaration of a dividend, or a declaration not to declare a dividend.

Whether disclosure under the rules must be made in a particular circumstance requires an assessment based on the “current commercial value” of the relevant SOE, which is the estimate of the SOE’s current commercial value as set out in its most recent statement of commercial intent.  For example, a “material transaction” is one for which the consideration to be paid or received is more that 5% of that SOE’s current commercial value.

The disclosure obligations under new rules are subject to the existing “no surprises” policy that applies to SOEs.  Each SOE must therefore ensure that the relevant shareholding Ministers are aware of the information to be disclosed before that information is disclosed in accordance with the new continuous disclosure rules.

Disclosure on an SOE’s website is sufficient to meet the obligation under the rules to disclose to the public.  The new rules also introduce an obligation to release yearly and half yearly information relating to changes in, amongst other things, group revenue, group profit and group net profit.

The new rules and the level of disclosure required is particularly interesting in relation to those SOEs that are electricity generators and retailers, whose listed rivals have previously had to release significantly more information than was the case for SOEs.

The announcements are available here.

Competition

Proposed criminalisation of cartels

In January 2010 the Ministry of Economic Development released a discussion document on cartel criminalisation.  The paper canvasses options to target hard-core cartels and sets out 3 possible approaches to criminalising cartel conduct:

• Creating an offence based on the existing civil prohibitions in the Commerce Act
• Adopting the Australian offence provisions
• Taking a greenfields approach and developing new offences based on first principles.

The Commerce Act currently specifically prohibits cartel behaviour such as price fixing and bid rigging and allows for civil penalties to be imposed on persons found in breach of the Act.  Pecuniary penalties under the Act are up to $500,000 for an individual and, in the case of a body corporate, up to $10m, 3 times the commercial gain resulting from the breach, or 10% of the annual turnover of the body corporate and its interconnected bodies corporate. 

While the move to criminalise hard-core cartel activity is unsurprising, given that many of our major trading partners have already criminalised such conduct, or are in the process of criminalising the conduct, the case for criminalisation must be considered in light of the nature of the regulator we have in New Zealand.

In recent years, the Commerce Commission has aggressively pursued leading companies in key industries, in particular in the electricity industry.  In doing so, it relied on its coercive powers to require information to be provided, and for individuals to attend the Commission for interviews.

Without the threat of criminalisation, in our view companies who were the subject of the Commission’s coercive powers were generally co-operative, seeking to provide the Commission with the information it requested.  Companies did this even though the extraordinary amounts of information requested under those section 98 notices made the issue of the notice little more than a fishing expedition, allowing the Commission to conduct a largely fruitless search for contraventions of the Commerce Act.

In the event that hard-core cartels are criminalised, we can expect that firms will take a much more cautious approach to providing information under a section 98 notice, particularly where there can be any doubt as to the validity of the exercise of the Commission’s coercive powers.

Submissions on the discussion paper are due by 31 March 2010.  The discussion document is available here.

Effect of Commerce Commission’s section 100 orders

Air New Zealand and others v Commerce Commission (HC, Auckland, CIV 2009-404-001554, 21/10/09, Andrews J)

The recent judgment of the High Court in Air New Zealand and others v Commerce Commission confirms that there are limits on the scope and effect of orders made by the Commerce Commission under section 100 of the Commerce Act.

The Commission may make an order under section 100 that prohibits the disclosure of any information, document, or evidence given to the Commission.  The Commission may specify the period for which the orders have effect, but an order ceases to have effect after the conclusion of the relevant investigation.  Administrative law principles also require the Commission to exercise the power under section 100 reasonably, on proper grounds and in accordance with the purposes of the Act.

The Air New Zealand case involved the Commission’s investigation into alleged anti-competitive conduct in relation to the imposition of fuel surcharges on international air cargo services by Air New Zealand and other airlines.  As part of the investigation, the Commission compelled employees of Air New Zealand to appear before the Commission to give evidence, and made section 100 orders in respect of some of the employees.  After the Commission issued proceedings against Air New Zealand in December 2008, Air New Zealand requested that the orders be discharged so that it could access information given by its employees in order to respond to the Commission’s case.  Air New Zealand then sought judicial review of the Commission’s refusal to discharge the orders. 

The Court decided that the making of the section 100 orders was reasonable in this case to protect the integrity of the investigation.  However, it was held that the power to prohibit disclosure does not extend to any information given by the Commission, and that the orders could not validly remain in effect after the Commission issued the proceedings because at that time the Commission’s investigation had concluded.  It was also held that the continuation of the section 100 orders breached section 27(3) of the New Zealand Bill of Rights Act (which provides for the principle of litigation on an even basis) because the orders would allow the Commission to enjoy a significant advantage over Air New Zealand which would not be available to an ordinary litigant.  The orders were therefore quashed.