Request for amounts paid to private sector consultants for asset sale advice

Commercial
Legislation:
Official Information Act 1982
Section 9
Legislation display text:
Official Information Act 1982, ss 9(2)(b)(ii), s 9(2)(i), 9(2)(j)
Agency:
Minister for State Owned Enterprises
Ombudsman:
Sir John Robertson
Case number(s):
W1912
Issue date:
Language:
English

Request for amounts paid to private sector consultants for asset sale advice—initially refused under ss 9(2)(b)(ii) and 9(2)(j)—not possible to deduce individual fee structures or methodology from the information at issue—s 9(2)(b)(ii) did not apply—information at issue would be, at most, of a background nature (since it related to a different transaction) and was at a high level of generality—s 9(2)(j) did not apply—while the information might be considered by firms in deciding whether to pitch a proposal for a particular advisory contract, s 9(2)(i) not satisfied—argument that disclosure may result in a reduction in number of advisors willing to undertake Government work not persuasive due to the vigorous competition for the contracts—strong public interest in release to permit scrutiny of the level of expenditure and questions to be asked about the use of advisers and the decisions that have been taken

This investigation involved a request to the Minister of State Owned Enterprises for:

  1. The amounts paid for asset sale advice to private sector consultants in the 1987/88 and 1988/89 financial years.

  2. The breakdown of the above figures according to each private sector consultant used, including details as to which asset sale advice contract went to which private sector consultant.

  3. Details of the remuneration paid to the private sector members of the State-Owned Enterprises Steering Committee.

The information at issue in request 1 was released in aggregate form to the requester. The Minister also advised the names of the consultants who had been employed by the Government on this work in response to request 2. As to request 3, in the course of the Chief Ombudsman’s review of the Minister’s response to the requester, the aggregate amount paid to the private sector members of the Steering Committee in the 1988/89 year was released. Nothing had been paid in the previous year.

The information for review was the unanswered part of request 2, namely, the amounts for each asset sale paid to individual consultants. Initially the decision to withhold this information was made under sections 9(2)(b)(ii) and 9(2)(j) of the OIA.

In relation to section 9(2)(b)(ii), the Chief Ombudsman asked the Minister to consult some of the firms concerned about whether release of the requested information would, in their view, be likely to prejudice the interests which that section may protect. In his reply, the Minister distinguished between:

  • fees for commercial advisers, that is, merchant banking and sharebroking firms; and

  • fees for general advisers, that is, lawyers, accountants, etc.

General advisers

The Minister explained that fees paid to general advisers were usually based on standard charging methods, usually an hourly rate corresponding with the seniority of the professional adviser. While the advisers concerned expressed ‘reluctance’ at having their affairs revealed publicly, they had not been able to provide evidence to show they would be disadvantaged by disclosure of their fees, for example, by demonstrating that publication of fees in the past had disadvantaged them.

Commercial advisers

The Minister advised that the views expressed by the commercial advisers ‘amounted to fairly strong concern about disclosure’, but in the absence of any evidence to show they would be disadvantaged by disclosure of their fees, the Minister conceded that there was probably not a clear case for withholding information about fees under section 9(2)(b)(ii). However, the Minister continued to believe that there were very strong grounds for not releasing information about the fees paid to the commercial advisers and that Treasury’s ability to negotiate the best deal possible on behalf of the Crown would be seriously undermined if the fees paid to commercial advisers were known.

Since the decision on the request, the Government had announced its decision to sell some assets and further sales were expected. Accordingly, the Chief Ombudsman had to assess whether disclosure of the information at issue would be so likely to ‘prejudice or disadvantage’ Treasury in negotiations that it was ‘necessary’ to withhold that information.

The Chief Ombudsman noted that on its own the information at issue did not disclose whether a particular figure represented payment for scoping, or for sale, or for both; or how the figure was made up, that is, fee structure, and what costs were involved.

Treasury argued that the fee structure was such that the amount of the fee was dependent on the final sale price and the amount by which that exceeded the agreed valuation and that, were details of fees paid to individual consultants disclosed, a commercial adviser would be able to deduce reasonably accurately how a particular fee had been structured.

The critical points for investigation therefore were:

  • the validity of Treasury’s view about the deduction that could be made by a commercial adviser; and

  • whether the effect suggested meets the test in section 9(2)(j).

Given the clear public interest in Treasury obtaining advice at the most reasonable rates, the Chief Ombudsman accepted that the disclosure of information which would prevent Treasury from obtaining advice at the best price would be a ‘prejudice’ in terms of section 9(2)(j). However, the question was whether the information at issue met the test under section 9(2)(j). On the one hand, it could be argued that, given the degree of competition between potential advisers, Treasury’s negotiating position could not be undermined by disclosure of specific fees paid in specific cases. On the other hand, given the unique nature of each asset put up for sale, the need to spend time persuading an adviser that a previous fee did not set a benchmark, could be said to be a ‘disadvantage’ to the negotiations which justified withholding. However, the Chief Ombudsman considered that Treasury would already have to do this to some extent if it chose to employ an adviser who had been employed previously.

In the circumstances, the Chief Ombudsman was not convinced that a strong case for withholding had been made out under sections 9(2)(b)(ii) or 9(2)(j).

Section 9(2)(b)(ii)

The Chief Ombudsman was not satisfied from the replies received that it would in fact be possible to deduce individual fee structures or methodology from the particular information under request; nor did the requester seek information about fee structures. Any question about disclosure of such information was therefore a separate matter in terms of the OIA.

The Chief Ombudsman did accept the comment made by some advisers that the requested information would undoubtedly be of interest to other market participants. However, section 9(2)(b)(ii) does not protect information on this basis. It requires an assessment that making available the requested information ‘would be likely’ to prejudice certain interests. As noted above, Ombudsmen base their interpretation of this test in line with the case of Commissioner of Police v Ombudsman [1988] 1 NZLR 385. The information provided did not satisfy the Chief Ombudsman that this test was met.

Further, the payments in issue related to transactions in which commercial advisers had played varying roles. In some instances advisory services only were provided which, the replies confirmed, tended to be regarded by Treasury as straight time compensation projects for which charge out rates were likely to be in line with an international norm. In this regard the situation concerning commercial advisers’ fees was not dissimilar to that in respect of general advisers’ fees, which the Minister had accepted could be made available.

As for the argument that the information was sensitive in relation to ‘commercial reputation’ on the basis that the information on its own might be misleading, and that any damage to reputation would not be confined to the New Zealand market, the Chief Ombudsman did not accept that the predicted prejudice ‘would be likely’.

Finally, it was clear that advisers would not voluntarily disclose information of the kind requested, which was described as ‘commercial and proprietary’ by one adviser. However, this is not a criterion for withholding under the OIA: Watt Company  NZ Ltd v Queenstown Lakes District Council [1991] 2 NZLR 180.

Section 9(2)(j)

The difficulty that the Chief Ombudsman encountered was in assessing the degree to which information of the kind requested would be relevant to any negotiation such that prejudice or disadvantage would be so likely to occur that it was necessary to withhold the information. The information requested would be at most of a background nature (because it related to a different transaction) and was, moreover, at a high level of generality, not disclosing fee structure or information about what the payment represented in terms of work by a commercial adviser. At the end of the day he was simply not convinced that section 9(2)(j) applied in this case.

Section 9(2)(i)

The Chief Ombudsman accepted that the sale of state assets was a ‘commercial activity’ in terms of this section, which was carried out by the Treasury as agent for the Crown. He therefore gave careful consideration to whether it was necessary for the requested information to be withheld to enable the Treasury to carry out this, or related commercial activities, without prejudice or disadvantage. The concerns raised by the Minister had centred on:

  • price, that is, that disclosure would tend to result in what has been paid at the top end of the scale setting a benchmark for advisers’ expectations; and

  • reduction in the number of advisers willing to submit for work as a result of being put off by disclosure of their prices.

The argument on price was difficult to sustain in relation to contracts for which individual firms of commercial advisers compete. Specific enquiries aimed at establishing the degree of competition for commercial advisory contracts had been made. The replies received from the Minister and from the consultants themselves served to confirm the Chief Ombudsman’s impression that competition was generally very vigorous. While it might be that the information at issue would be considered by firms in deciding where to pitch a proposal for a particular advisory contract, the Chief Ombudsman was not satisfied that this factor was such that withholding the information was necessary in terms of the prejudice predicted. Similarly, he did not accept that section 9(2)(i) was satisfied in relation to prices not subject to the usual appointment process.

The Chief Ombudsman noted the argument about participants not being willing to undertake Government work. While acknowledging that this might be the result of disclosure and also that at least one commercial adviser noted this possibility, the Chief Ombudsman was obliged to point out that it was equally possible that this result might not occur. In fact, the vigorous competition for the contracts made it a less likely result than the opposite one. In any event, the Chief Ombudsman did not accept that the test under section 9(2)(i) was met.

Countervailing public interest

It is only necessary to consider this question where it is accepted that one of the reasons under section 9(2) applies. Although the Chief Ombudsman was of the view that none of the withholding provisions considered applied to the information in this case, he nevertheless decided to consider the public interest in case he had underestimated the strength of the arguments advanced in relation to the three withholding provisions cited.

The starting point in assessing the public interest is always section 4 of the OIA, since this section sets out the purposes of the legislation. One of these purposes, namely, promoting the accountability of Ministers and Departments, is what underpinned the view that the public interest required the disclosure of the information at issue in this case.

The argument had been advanced that the need for accountability was adequately met by:

  • the application of controls on expenditure, for example, procedures for approval of proposed expenditure and audit requirements;

  • the competitive nature of the process; and

  • the publication of information about aggregate costs of advice and work by consultants used in asset sales (such as was provided in the initial response to this request).

It had also been pointed out that the procedures to be followed for the selection and retention of these advisers were publicly available.

While acknowledging that these matters went some way towards meeting the need for accountability, the Chief Ombudsman did not accept that they went far enough. Where a commercial advisory contract is let after competition by a non-public invited tender there is still a need, in the public interest, for the results of that process to be made available. Where no such process is undertaken the public interest in disclosure is increased.

Not only does disclosure permit scrutiny of the level of expenditure on particular transactions, it also permits questions to be asked about the use of advisers and the decisions that have been taken. In the absence of individual contract sums, the information requested went part way towards meeting these objectives. Indeed one of the firms specifically acknowledged that, while they believed there were legitimate considerations in support of non-release of the information, these were not considered to be such as to necessarily outweigh the arguments in favour of disclosure.

For the above reasons the Chief Ombudsman confirmed his view that good reason did not exist under the OIA to withhold the information requested about commercial advisers’ fees. He therefore recommended that the Minister make available the relevant information. The Minister accepted the recommendation.

This case note is published under the authority of the Ombudsmen Rules 1989. It sets out an Ombudsman’s view on the facts of a particular case. It should not be taken as establishing any legal precedent that would bind an Ombudsman in future.

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