Re Jephcott and Department of Community Services 14 ALD 93

Harris v Australian Broadcasting Corporation [1983] FCA 242; 50 ALR 551

Re James v Australian National University 2 AAR 327

Solicitor for the Respondent: Australian Government Solicitor

B.J. McMAHON This is an application to review a response by the respondent to a request for access to documents made under the Freedom of Information Act 1982.

2. Following negotiations, the terms of the request for access were clarified in a letter written on behalf of the applicant to an officer of the respondent on 5 October 1993. Omitting formal parts the letter read as follows -

"Following your letter of 27th ult, giving preliminary estimate

of charges in relation to Mr Connolly's FOI request, I wish to

narrow this request to photocopies of the following:

1. Expressions of interest/tenders for the disposal of the

uranium stockpile received since 30 June 1992 and responses to

these expressions of interest.

2. Summaries of disposal strategies (including Ministerial

minutes) for the Uranium stockpile including and subsequent to

the decision to reactivate the sale.

3. The protocol between ERA and the Australian Government.

4. The protocol between NYNCO and the Australian Government.

5. Any mineral export permit(s) for the uranium stockpile.

6. Any restricted goods export permit(s) for the uranium

stockpile.

7. Any advices from the Australian Safeguards Office to the

Department of Primary Industry and Energy concerning safeguards

clearance for the uranium stockpile.

8. Correspondence between ERA or NYNCO and the Asset Sales Task

Force since the decision to reactivate the sale.

Could you please direct all correspondence to David Connolly,

MP, Shadow Minister for Privatisation, RG 47, Parliament House,

Canberra ACT 2600."

3. By letter dated 24 November 1993, the respondent replied by attaching a statement of reasons prepared by Dr GA Feeney, Deputy Chairman of the Task Force on Assets Sales, the relevant administrative unit within the respondent Department. That statement of reasons is in these terms -

"STATEMENT OF REASONS AND OTHER PARTICULARS OF DECISIONS

IN ACCORD WITH SECTION 26

OF THE FREEDOM OF INFORMATION (FOI) ACT 1982

I have identified a number of documents as falling within the

scope of the FOI request of 6 October 1993 from Mr C Fryar on

behalf of Mr David Connolly, Shadow Minister for Privatisation

to the Department of Finance (copy at Attachment A).

Some of the documents were prepared outside this Department and

I have consulted with the authors where appropriate.

Documents were sought under eight separate headings.

1. Expressions of interest/tenders for the disposal of the

uranium stockpile received since 30 June 1992 and responses to

these expressions of interest

- The TFAS received expressions of interest/tenders from five

organisations only two of which could be considered to be from

organisations outside the mainstream uranium industry and

sufficiently separated in time from the current disposal

program. The documents relating to these two organisations are

at Attachment B. Under Sections 39 and 43(1)c(i) of the FOI Act

the remaining documents are exempt and to include details of

these documents in the statement of reasons would make that

statement itself exempt (Section 26(2)).

2. Summaries of disposal strategies (including Ministerial

minutes) for the Uranium stockpile including and susequent (sic)

to the decision to reactivate the sale

- All documents containing summaries of the disposal strategies

subsequent to the decision to reactivate the sale are listed at

Attachment C, together with the exemption status and the reason

for exemption. All these documents are exempt under Sections 36

and 39 of the FOI Act.

3. The protocol between ERA and the Australian Government

- Under Sections 26(2), 39 and 43(1)c(i) of the FOI Act the

Department neither confirms nor denies the existence of such a

document

4. The protocol between NYNCO and the Australian Government

- Under Sections 26(2), 39 and 43(1)c(i) of the FOI Act the

Department neither confirms nor denies the existence of such a

document.

5. Any mineral export permit(s) for the uranium stockpile

- No such documents exist on Departmental files

6. Any restricted goods export permit(s) for the uranium

stockpile

- No such documents exist on Departmental files

7. Any advices from the Australian Safeguards Office to the

Department of Primary Industries and Energy concerning

safeguards clearance for the uranium stockpile

- No such documents exist on Departmental files

8. Correspondence between ERA or NYNCO and the Task Force on

Asset Sales since the decision to reactivate the sale

- Under Sections 26(2), 39 and 43(1)c(i) of the FOI Act the

Department neither confirms nor denies the existence of such

documents.

Documents exempt under Section 36 of the FOI Act involve advice

or recommendation prepared in the deliberative processes

involved in the functions of the Department of Finance the

release of which would not be in the public interest

Exemptions under Section 39 of the FOI Act are made as release

of this information would adversely affect the international

uranium market and hence the financial interests of the

Commonwealth in the disposal of the material with a consequent

effect on the Budget deficit, against the public interest. The

uranium market is relatively thin, with few buyers and sellers

active at any one time. As a result of this, the activities in

the market by market participants are extremely confidential and

sensitive. The mere knowledge by one participant that another

one is purchasing or actively selling a quantity of uranium

affects prices almost immediately. Such information would be

conveyed even if the Commonwealth acknowledged who it has or has

not engaged to dispose of the material.

This adverse effect would be substantial given that the

Commonwealth uranium stockpile consists of some 4.5 million lbs

of uranium concentrates and at the current spot price of around

US$10 per lb even a 5 per cent drop in the price would reduce

the proceeds from sale by more than $3 million and be cause

itself to consider deferral of the disposal program. In addition

such a reduction in price would have a much greater effect on

the Australian uranium industry.

The Commonwealth, in disposing of the stockpile, is very mindful

of the need to maintain a commercial approach to its task so as

to maximise the return to the taxpayer in the public interest

and ensure an orderly market both during and after our disposal

program.

Exemption under Section 43(1)c(i) of the FOI Act are made as

release of the information would adversely affect the business

affairs of outside organisations. Documents requested under

category 1 and those of the type requested under categories 3, 4

and 8, if they existed would contain details of the terms and

conditions of agreements which would be used by the

organisations competitors. For one participant to be aware of

what another has done in the recent past would give the learning

participant an unfair advantage in knowing the position of the

other participant. In addition the making public of a commercial

relationship between a principal and its agent could damage the

reputation of either party where the maintenance of

confidentiality of the participants is critical. Such a

situation exists within the uranium industry.

I acknowledge that I have considered whether there is an

obligation to release edited copies of any of the documents and

have determined that, in this instance, no such obligation

arises."

4. The response was undisturbed by an internal review and the terms of the decision were repeated in the statement given pursuant to s 37 of the Administrative Appeals Tribunal Act 1975. The acronyms TFAS ERA and NYNCO stand respectively for the Task Force on Asset Sales, Energy Resources of Australia Limited, and New York Nuclear Corporation. The reference in the request and the response to protocols was taken by the parties to be a reference to formal agreements. The term "protocol" is usually used in conjunction with an international agreement between sovereign states. There is no suggestion that either of the protocols referred to in the request or the response constitute any such international agreement.

5. The respondent denied that there were any documents falling within the terms of categories 5, 6 and 7. I take this to be a refusal of access under s 24A. No question was raised by the applicant that the pre-conditions to the operation of the section had been met, namely that all reasonable steps have been taken to find the document. It will therefore not be necessary to deal further with these 3 categories.

6. In relation to categories 3, 4 and 8, the respondent Department neither confirmed nor denied the existence of the requested documents and relied upon ss 26(2), 39 and 43(1)c(i) to support such a response.

7. There is no basis in ss 39 or 43 which would justify a response of refusing to confirm or deny the existence of a document. The reference to s 26(2) appears to be an error which has been repeated not only in the reconsideration, but also in the s 37 statement and even in counsel's written outline of submissions. What appears to be intended was a reference to s 25. That section is in the following terms -

"s25(1) Nothing in this Act shall be taken to require an agency

or Minister to give information as to the existence or non-existence

of a document where information as to the existence or

non-existence of that document, if included in a document of an

agency, would cause the last-mentioned document to be an exempt

document by virtue of section 33 or 33A or subsection 37(1).

(2) Where a request relates to a document that is, or if it

existed would be, of a kind referred to in subsection (1), the

agency or Minister dealing with the request may give notice in

writing to the applicant that the agency or the Minister, as the

case may be, neither confirms nor denies the existence, as a

document of the agency or an official document of the Minister,

of such a document but that, assuming the existence of such a

document, it would be an exempt document under section 33 or 33A

or subsection 37(1) and, where such a notice is given:

(a) section 26 applies as if the decision to give such a notice

were a decision referred to in that section; and

(b) the decision shall, for the purposes of Part VI, be deemed

to be a decision refusing to grant access to the document in

accordance with the request for the reason that the document

would, if it existed, be an exempt document under section 33 or

33A or subsection 37(1), as the case may be."

8. The section authorises a response of refusing to confirm or deny the existence of a document only where, if such a document existed, it would be exempt under ss 33 or 33A or sub-section 37(1). Section 33 provides that a document is an exempt document if disclosure would or could reasonably be expected to cause damage to the security, defence or international relations of the Commonwealth or would divulge any information, communicated in confidence by a foreign government or authority. There is no suggestion that any of the documents in the 3 categories, if they existed, would have such an effect if disclosed. Similarly, s 33A exempts a document if its disclosure would or could reasonably be expected to cause damage to relations between the Commonwealth and a State, or would divulge information or matter communicated in confidence by or on behalf of a State. There is no suggestion that if any of the documents falling within the terms of these 3 categories of the request were disclosed that such a result would ensue.

9. The only basis upon which the respondent is entitled to invoke the procedure of s 25 is to assert that if the documents existed, they would be exempt under sub-section 37(1). The respondent appears to have been under a misapprehension that it was entitled to rely upon this sub-section which is in the following terms -

"s37(1) A document is an exempt document if its disclosure under

this Act would, or could reasonably be expected to:

(a) prejudice the conduct of an investigation of a breach, or

possible breach, of the law, or a failure, or possible failure,

to comply with a law relating to taxation or prejudice the

enforcement or proper administration of the law in a particular

instance;

(b) disclose, or enable a person to ascertain, the existence or

identity of a confidential source of information, or the

non-existence of a confidential source of information, in relation

to the enforcement or administration of the law; or

(c) endanger the life or physical safety of any person."

10. The section deals with documents affecting enforcement of law and protection of public safety. It is not primarily directed towards the preservation of confidential sources of information unless they are "in relation to the enforcement or administration of the law". The respondent appears to have been under the misapprehension that it is entitled to respond to a request through the mechanism of s 25 where it simply wishes to maintain anonymity of the parties.

"3. The respondent neither confirms or denies the existence of

any documents within categories 3, 4 and 8. To do otherwise

would either confirm or deny the identity of parties to

protocols with the Australian Government in relation to the sale

of the stockpile. Whilst it is acknowledged that the Australian

Government is party to arrangements for the sale of the

stockpile it is considered that material which would enable the

identification of the other parties is exempt from disclosure

for the reasons set out hereunder."

12. In his evidence he said that even to disclose the fact that there was an agreement between the parties named in the request or that there had been any correspondence of the nature requested would, in the peculiar circumstances of the uranium market, have an adverse effect on the value of the Commonwealth stockpile.

13. The section is not designed to protect such a situation. It requires any agency relying upon it not simply to say that it refuses to confirm or deny the existence of a document pursuant to s 25, but also to say that assuming the existence of such a document, it would be an exempt document under one of the 3 sections, which must be stipulated by the decision-maker. Where such a response is given, the decision is deemed to be a decision refusing to grant access on the grounds of claimed exemption under one or more of the 3 sections.

14. In this case, there has not been a valid s 25(2) response. It is not necessary to assume the existence of putative documents and decide whether they would be exempt by reason of including information which might bring them within the terms of the 3 sections, as was discussed in Re Jephcott and Department of Community Services 14 ALD 93. No valid response was given which would enliven the operation of s 25 and, in any event on the evidence before me, there is no way in which any of the documents as described in the request (if they exist) could fall within the terms of any of the 3 named sections.

15. Accordingly I consider that there has been no response to questions 3, 4 and 8 and that consequently the provisions of s 56 apply namely, that there has been a deemed refusal to grant access.

16. Responses to question one fell into 2 categories. Eight documents were listed and described for which no claim for exemption was made, and which were released to the applicant. They consisted of expressions of interest from merchant banks and associated correspondence offering to assist in the sale of the uranium stockpile owned by the Commonwealth. The evidence of Dr Feeney was that in the developing of the Commonwealth sales strategy, the proposal to engage merchant banks was subsequently abandoned because of the depressed state of the market. Alternative strategies were then developed.

17. The second category of documents consisted of expression of interest and associated correspondence from ERA and NYNCO. These are claimed to be wholly exempt.

18. Responses to question 2 consisted of minutes and file notes and advice to the Minister of Finance dealing with strategies for the disposal of the stockpile. These are also said to be totally exempt.

19. Exemption has been claimed under a number of sections. In my view, the evidence supports a claim for total exemption under s 39 of all the listed documents and of the documents to which there has been a deemed refusal of access. The section is in the following terms -

"s39(1) Subject to subsection (2), a document is an exempt

document if disclosure under this Act would have a substantial

adverse effect on the financial or property interests of the

Commonwealth or of an agency.

(2) This section does not apply to a document in respect of

matter in the document the disclosure of which under this Act

would, on balance, be in the public interest."

20. At June 1993, the Commonwealth owned some 4.5 million lbs of uranium and it continues to own a significant quantity.

21. Evidence was given by Dr Feeney as to the way in which the international uranium market is organised in his affidavit -

"6. I have consulted certain participants in the uranium market

and in preparing my affidavits in this matter I have relied on

information provided by those participants as well as on my own

knowledge gained from performance of my position as Deputy

Chairman referred to above.

7. The world uranium market is complex involving both commercial

and political considerations. The former Soviet Union has a very

large stockpile and is also subject to a number of economic and

political imperatives which mitigate against a rational pricing

regime. Importation into the US of material from the former

Soviet Union is subject to a Suspension Agreement which has the

effect of imposing a surcharge on such material.

8. The total world annual demand for uranium is about 120

million pounds however most of this demand is covered by long

term contracts, including many entered into by end users with

Australian producers. These long term contracts which provide a

level of certainty to the purchasers can be based on fixed

prices or on formulae using spot market indicators.

9. The spot market is primarily US based and deals largely in

material for electricity generation in the US. The spot market

is characterised by Requests for Quotes (RFQ's) for relatively

small amounts of material, typically between 50,000 lb and

300,000 lb, but can sometimes be up to 500,000 lb. These RFQ's

are typically issued by the US electricity utilities to enhance

their flexibility in managing their long term contracts. The

RFQ's nominate the amount (or a range) and timing for the

delivery of material and request the sellers to compete

primarily on the basis of price but sometimes also on the

flexibility within the volume range. When the outcome of any RFQ

becomes known (either formally or informally) to the market it

is factored into the calculation of the published spot price.

There are three widely used spot price indicators, published by

Nuexco, Nukem and the Uranium Exchange Corporation. According to

the Uranium Exchange Corporation, spot market activity in 1993

amounted to 29.4 million pounds.

10. Bids in response to these RFQ's are relatively few. The

majority of the producers' material is committed to long term

contracts. Western producers may be reluctant to bid if they

believe that the material is being sought to enhance the

flexibility of the utility in the implementation of a long term

contract with the producer, ie they may be bidding against

themselves. There is a small number of traders, principally

Nuexco and Nukem and to a lesser extent UG. In the US market

there are also only two brokers of any significant status: New

York Nuclear Corporation (NYNCO) and the Uranium Exchange

Corporation. Of course the utilities after consideration of

these relatively few bids have the capacity to take none or

propose lower volumes. This leads to a very thin market in which

low volume transactions can have a significant effect on the

spot price. I am informed and believe that transactions as small

as 50,000 pounds have provoked substantial drops in published

market indicators many times in the past.

11. In this context the Commonwealth uranium stockpile,

comprising some 4.5 million lb as at June 1993, is a significant

quantity and therefore an important factor in the total uranium

market.

12. In the thin uranium market the activities of market

participants are extremely confidential and sensitive."

22. It was argued by the applicant that disposal of a stockpille of 4 million lbs in a market of 120 million lbs annually would have little impact. No evidence was submitted to support this argument. In the light of further evidence given by Dr Feeney, I would have to find that access to the remaining documents would be virtual disclosure of the Commonwealth's strategy for selling that 4 million lbs in a thin, confidential and sensitive market and that this would inevitably affect the general spot price and the price which the Commonwealth might reasonably be expected to achieve if the present confidential strategy is maintained.

23. Dr Feeney's evidence as to the results of disclosure was as follows -

"18 The documents for which access has been denied relate to

either the development or prosecution of the Commonwealth's

strategy. Many of these documents contain important information

on critical elements of the strategy. I have had direct

approaches from some other players in the uranium industry

seeking information on the strategy. More commonly, however, I

have been made aware of approaches to other parties seeking

information. In any such encounters I, and to my knowledge the

other parties to our agreements, have provided only publicly

available information such as that given in the Budget papers.

19. Public access to many of the documents would reveal many

details on the commercial activities of third parties and would

have a detrimental effect on their businesses.

20. Access would also provide the market with considerable

intelligence on the supply of material over the next year which

would adversely influence the market price and thus the proceeds

to be received to the Budget under existing agreements to the

extent that prices are related to the spot market and under any

future agreements. The Commonwealth is expecred (sic) to sell

the remaining material by the end of 1994-95. Any disclosure of

the terms and conditions of any past arrangements would

seriously jeopardise any future arrangements for sale. Given a

stockpile of 4.5 million lbs, a current spot price of around

SUS9.35 per lb and a current exchange of $A0.73 for $US1, even a

5 per cent drop in the spot price would reduce the proceeds from

sale in the order of $A3 million.

21. A reduction in the spot price would lead to a reduction in

the return for Australian producers with spot market related

long term contracts."

24. It may well be true, as the applicant argued, that the market has known for some time about the disposal of the Commonwealth's stockpile and it may well be that the existence of this stockpile has already had an effect on supply and demand calculations. In the light of the largely uncontradicted evidence of Dr Feeney, however, a finding is inevitable that further adverse effects on the price of uranium would be brought about by disclosing any further details of the current size of the stockpile and the strategy that has been adopted for its disposal.

25. Section 39(1) exempts documents if their disclosure would have "a substantial adverse effect" on the financial or property interests of the Commonwealth or of an agency. The detailed evidence quoted above, shows the exact drop in value that could occur if there were a 5 per cent drop in the spot price. That resultant drop would, in my view, cause a substantial adverse effect on the value of the Commonwealth's property in its uranium stockpile. Although there does not appear to have been any judicial consideration of the terms of s 39, the phrase "a substantial adverse effect" has been considered in the context of other sections of the Act. There must be a degree of gravity before this exemption can be made out (Harris v Australian Broadcasting Corporation [1983] FCA 242; 50 ALR 551 at 564); the effect must be "serious" or "significant" (Re James and Australian National University 2 AAR 327 at 341). Normally a value judgment has to be made as to whether an adverse effect is or is not substantial when considering exemptions claimed under other sections. In the case of claims made under s 39 it is possible to quantify the meaning of "substantial" by reference to the movements in dollar value of Commonwealth property. The evidence before me indicates a risk of an adverse dollar value movement of a significant sum of money, which may fairly be described as substantial, or serious.

26. Sub-section (2) requires one to balance this substantial adverse effect against the public interest. The applicant is a Member of Parliament. At the time he made his request, he held the office of Shadow Minister for Privatisation and Administrative Services. The questions raised by him relate to matters of public interest as prima facie the public has a right to know, in general terms, the way in which the Government is carrying out its plan to realise assets that belong to the public. Mr Connolly said from the Bar table that his interest in the subject had at first been aroused through an approach made by one of the merchant banks which, he said, had offered to take over the whole management of the stockpile but had been rejected. Since pursuing the matter on behalf of the bank, he said that he had come upon a wall of non disclosure. I can understand his concern on behalf of the public and I recognise that there is an element of public interest in raising the requests which he did.

27. Against that, however, is the fact that the evidence shows that the value of the Commonwealth's property will be diminished to a substantial degree if the requests are granted. More importantly, in my view, the evidence shows that the spot price would be reduced by this disclosure. Dr Feeney gave evidence that most of the contracts written by Australia's uranium producers for long term delivery are based on a moveable price basis related to the spot market. If the general price of uranium were to fall on that market, not only would the value of the Commonwealth's stockpile be affected adversely, but also the gross sale prices that might reasonably otherwise be expected to be received by Australia's uranium producers would be proportionately diminished. In my view this is a compelling public interest consideration which, in the peculiar circumstances of the uranium market, must outweigh the public interest that exists in the right to know. This is a particularly important consideration in the present case because no producers are parties to this application nor have they an opportunity to direct its outcome, which could have such adverse financial consequences for them and for the industry.

28. I am satisfied, therefore, that a claim for exemption in respect of all the disputed documents has been made out under s 39. It will not be necessary to consider their claims for exemption under the other sections mentioned in the response to the original request

29. The decision under review is therefore affirmed.