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High Court of New Zealand Decisions |
IN THE HIGH COURT OF NEW ZEALAND
AUCKLAND REGISTRY
CIV 2004-488-756
BETWEEN CONTRACTORS BONDING LIMITED
Plaintiff
AND THE WHANGAREI DISTRICT
COUNCIL
Defendant
Conferences: 26 June 2006
28 August 2006
Appearances: P Stevenson
for Plaintiff
N Ingram QC for Defendant
Judgment: 3 November 2006 at 11.30 am
JUDGMENT OF ASSOCIATE
JUDGE SARGISSON
E- ma il:
P Stevenson penelopestevenson@clear.net.nz
N Ingram QC - noel.ingram.qc@paradise.net.nz
Solicitors:
Thomson Wilson, PO Box 1042, Whangarei
Anthony Thomas, PO Box 4166, Shortland Street, Auckland
CONTRACTORS BONDING LIMITED V THE
WHANGAREI DISTRICT COUNCIL HC AK CIV 2004-488-
756 3 November 2006
[1] Contractors Bonding Limited commenced this proceeding
in November
2004.
[2] The Whangarei District Council filed and served its affidavit as to documents
on 17 November 2005. It
claims privilege in respect of a number of documents
which Contractors Bonding has challenged by way of interlocutory application.
The
Council does not accept that its claim to privilege is not properly made.
[3] Counsel for both parties have taken a pragmatic
approach to the resolution of
the dispute. They have agreed that the Court should view the disputed documents to
decide whether,
based on their contents, a claim to privilege is fairly made in the
case of each document. That is the only question I am concerned
with, and I proceed
on that basis accordingly.
[4] No issues are raised as to the relevance of the documents.
Background
[5] The background to this proceeding involves a dispute about the fulfilment of
the conditions of a subdivision consent which
the Council granted in 1998, on the
application of the subdivider, Sand Piper Cashmere Limited.
[6] Under the conditions, the
subdivider was obliged to provide a bond in
registrable form to secure performance of the conditions. Contractors Bonding
guaranteed Sand Piper's obligations under the bond.
[7] Sand Piper and the Council disagreed about what the subdivider was
required
to do to comply with the conditions. The correspondence indicates that in April
2000 the subdivider and a Ms Jamieson threatened
to make a claim against the
Council. However, the subdivider went into liquidation in February 2001 without
having satisfied the
Council that the conditions of consent had been fully performed.
[8] In June 2001 the Council made demand on Contractors Bonding
for payment
of the bond monies.
[9] On 31 July 2001, Mr Black who was apparently acting as counsel for the
company in liquidation
and possibly Ms Jamieson, made demand on the Council
claiming for losses of around $1 million, allegedly arising from the Council's
actions.
[10] The Council immediately notified its insurer, Risk Pool, of the potential
claim. Although threatened, proceedings
have not eventuated, but they remained a
live possibility for some time.
[11] In the meantime, Contractors Bonding disputed its
liability to pay under the
bond and the Council threatened to pursue a legal remedy. This dispute was
resolved by agreement
in August 2002. Under the terms of the agreement,
Contractors Bonding was required to undertake the outstanding work by
31 October
2002, and the Council covenanted that it would release Contractors Bonding from its
obligation to make payment under the
bond on completion of the work. The Council
also covenanted to assign its rights under the bond to Contractors Bonding, upon
completion
of the works.
[12] The works were eventually completed. In July 2003 the Council decided to
release the bond, and provided a
discharge to the ANZ Bank. That resulted in the
subsequent registration of the discharge of the bond. It is the discharge of the bond
that gives rise to the current
proceeding. Contractors Bonding says the release was a
breach of the covenant of assignment, and that the Council's breach has caused
it
loss and that it can no longer look to the subdivider's successors to recover the cost
of compliance with the bond because the
bond is no longer registered against the title
to the land.
The Council's affidavit as to documents and Procedural Matters
[13]
The Council's affidavit includes, at Schedule 2, the documents it says are
subject to privilege.
[14] Contractors Bonding
challenges the Council's claim to privilege in respect of
the documents identified as items 3, 4, and 5 in the schedule. The documents
comprise:
a) Correspondence between the Council and its solicitors, Thomson
Wilson;
b)
Correspondence between the Council and Heaney & Co, the solicitors
for the Council's insurer, Risk Pool.
c) Several internal memoranda;
d) A bill of costs which Thomson Wilson sent to the Council.
e) A letter Heaney & Co wrote to Mr Black in September 2001.
[15] Contractors Bonding's application seeking orders
setting aside the claim to
privilege is supported by an affidavit from a Mr Harris. Mr Harris' deposition sets
out the numbers and
the dates of the documents in issue, but discloses little about the
grounds of the application. The grounds in the application itself
point to a concern
that the claim to privilege lacks clarity.
[16] The Council for its part has filed a notice of opposition
in which it seeks to
clarify that its claim to privilege rests on two bases. First, non-litigation legal
professional privilege,
and secondly, common interest litigation privilege. The
Council has listed the documents which it says are subject to the
former category of
privilege and those which it says are subject to the latter. The basis for the claim to
privilege has been restated
in a memorandum provided by counsel.
[17] Relevance is not a matter the parties have put in issue. If the claim to
privilege
is not fairly made in respect of any document, then the plaintiff has a right
to inspect it.
Legal Principles
[18] It is helpful
to set out a brief summary of the principles applying to the non-
litigation privilege and common interest litigation privilege which
are of particular
relevance in this case. In discussing the latter, it is useful to also refer to litigation
privilege.
Non-litigation
Legal Professional Privilege
[19] Non-litigation legal professional privilege, sometimes referred to as legal
advice privilege,
protects confidential communications between a client and its legal
advisor from disclosure in legal proceedings, where those communications
are made
for the purpose of giving or obtaining legal advice.
[20] It is well accepted that this privilege is of fundamental
importance to the
administration of justice. It is not upheld for the sake of the client alone, but for the
wider interests of all
who might otherwise be deterred from telling the whole truth to
their solicitors: see B v Auckland District Law Society [2004] 1
NZLR 326, 344,
referring to R v Derby Magistrates' Court ex p B [1995] UKHL 18; [1996] 1 AC 487, 508.
Cross on Evidence 8th Ed notes at 10.21 that the ambit of communications
[21]
passing between solicitor and client
covered by legal professional privilege is not to
be construed too narrowly:
It extends to all communications relating to
the normal business of a
solicitor, thus extending to routine communications between them, in
relation, for example,
to a conveyancing transaction.
[22] The key requirements are that the document must have been brought into
existence for the
purpose of seeking legal advice or in the course of communications
between solicitor and client, and that those communications were
intended to be
confidential: see Commissioner of Inland Revenue v West-Walker [1954] NZLR 191
(CA).
[23] While legal advice privilege does not cover matters which relate purely to
business and have no legal content, the
privilege does cover the "presentational"
aspect of matters which have some legal content: see Three Rivers District Council
v
Governor of the Bank of England [2005] 4 All ER 948 at [34].
Litigation Privilege
[24] Litigation privilege arises only when litigation is in prospect or pending.
From that moment
on, any communication between the client and the client's
solicitor, or between one of them and a third party, will be privileged
if it comes into
existence for the sole or dominant purpose of either giving or getting legal advice
with regard to the litigation
or collecting evidence for use in the litigation. This is
the basis for claiming privilege for correspondence with witnesses of fact
or experts,
and proofs, reports or documents generated by them. The principle is that a party or
potential party should be free to
seek evidence without being obliged to disclose the
result of his researches to the other side: see Phipson on Evidence 16th Ed,
23-81.
Phipson states at paragraph 23-82:
In order for litigation privilege to apply, there must be a confidential
communication between client and lawyer or lawyer and agent, or between
one of these a third party made for the dominant
purpose in use of litigation;
...
Common Interest Privilege
[25] Common interest privilege may be claimed by a person
who is not strictly a
client of the legal advisor if the person has an interest in common with such a client:
see Cross on Evidence
at 10.22.
[26] The following extract from Lord Denning in Buttes Gas & Oil Co v Hammer,
(No.3) [1981] 1 QB 223 encapsulates the rationale for this form of privilege:
It often happens in litigation that a plaintiff or a defendant has
other persons
standing alongside him who have the self-same interest as he and who
have consulted lawyers on the
self-same points as he but these others have
not been made parties to the action.
In all such cases I think the
Court should for the purposes of discovery
treat all the persons interested as if they were partners in a single firm
or
departments in a single company. Each can avail himself of the privilege in
aid of litigation. Each can collect
information for the use of his or the
other's legal advisor . . . All (documents) are the subject of the privilege in
aid of anticipated litigation, even though it should transpire that, when
litigation is afterwards commenced, only one
of them is made a party to it.
[Emphasis added]
[27] Common interest privilege is available where litigation is anticipated
or
pending and where it is not (Unilateral Investments Limited v NZ Acquisitions
Limited) [1993] 1 NZLR 468.
Documents for which non-litigation professional privilege is claimed
Correspondence between the Council and Thomson Wilson
[28] The disputed correspondence between the Council and its solicitors,
Thomson Wilson, comprises:
a) Item 3 documents
145, 146, 152, 167, 195, 196,198.
b) Item 4 documents 24, 49, 58, 69, 73, 105.
c) Item 5 documents
26, 29, 33, 34, 37, 38, 42, 75, 102, 163, 178.
[29] The Council claims non-litigation legal professional privilege for this
correspondence
(including several drafts of such correspondence). The period the
correspondence covers is September 1999 to August 2003.
[30]
Ms Stevenson argued that the claim to privilege appears to relate to
documents and correspondence in the nature of or concerning
simple conveyancing
transactions. She argued that the correspondence appears to lack the legal content
necessary to attract privilege
in terms of the principles set out in Three Rivers.
[31] Having viewed the correspondence, I am satisfied that:
a)
The correspondence is not in the nature of or concerning simple
conveyancing transactions.
b) The
correspondence is part of a continuum of correspondence in
which the Council was seeking, and given, legal advice
about the
conditions attaching to the sub-division consent and the various
proceedings that were
threatened by and against the Council.
c) The correspondence includes several drafts of letters to the subdivider
and Mr Thomas, the solicitor for Contractors Bonding, which were
obviously written for discussion
with the Council, in connection with
the dispute as to the conditions of consent.
[32] As such, all of the correspondence
(including the draft correspondence) arises
in the course of Thomson Wilson's normal legal business in providing its client with
legal advice, and it is clearly covered by legal professional privilege. In the case of
some of the correspondence, litigation privilege
could also have been claimed.
[33] That brings me to the remaining documents for which non-litigation privilege
is claimed.
Bill of Costs
[34] Item 3, document 151 is a bill of costs. Bills of costs do not normally attract
privilege. A fee note is
incidental to legal advice and is not strictly for the purposes
of legal advice: see Richmond Limited v PPCS Limited (HC Dunedin,
CP10/02, 24
July 2002, Master Venning). In rare cases, however, it may be possible for the
content of advice to be inferred from
the form of a communication between lawyer
and client which does not ostensibly convey legal advice: see Rosenberg v Jaine
[1983] 1 NZLR 1, 8.
[35] In the present case, the bill of costs is expressed in terms that allow the
content of advice to be inferred and accordingly,
it attracts privilege.
Advice as to liquidation
[36] Item 3, document 198 is advice from Thomson Wilson to the Council that
the
subdivider has been placed into liquidation. In the case of this document it is
difficult to see the basis of the claim to
privilege. The letter has no legal content, but
merely advises of an event which is a matter of public record. In the circumstances,
the claim to privilege is not fairly made.
[37] In summary, with the exception of document 198, all of the documents for
which
non-litigation privilege is claimed are documents for which the defendant is
entitled to claim privilege.
Documents for which common
interest litigation privilege is claimed
Correspondence between the Council and Risk Pool's solicitors
[38] The disputed correspondence
between the Council and Risk Pool's solicitors,
Heaney & Co, comprises:
a) Item 3 documents 209, 214, 217, 218, 219,
220, 223, 224, 230.
b) Item 5 documents 51, 66-69, 84, 86-88, 110, 117, 118, 120, 135 and
136.
[39]
The Council claims common interest litigation privilege for this
correspondence. The period the correspondence covers is August
2001 to October
2002.
[40] Ms Stevenson explained her concern is that this correspondence contains
some documents that pre-date
the commencement of the proceeding and came into
existence well before the Council's discharging of the bond. Ms Stevenson queried
how correspondence going back to 2001 can give rise to common interest litigation
privilege when the bond was not discharged till
2003. She explained that her
concern is also that these documents may be statements of Council policy and lack
the necessary element
of legal advice.
[41] I have viewed the correspondence. It comprises communications that are
clearly consequential upon the
Council's notification to Risk Pool of the threatened
claim by the subdivider in liquidation and Risk Pool's request to Heaney
& Co for
legal advice about the claim.
[42] The correspondence:
a) Discloses that the Council is a member of Risk
Pool, and Risk Pool is
the Council's insurer.
b) Risk Pool requested Heaney & Co to investigate the background
to
the notification of the claim by the subdivider in liquidation and to
advise it whether Risk Pool's
protection wording will respond to the
claim and if so to make recommendations for its future management.
c) Heaney & Co sought details of the claim in a telephone conversation
with Mr Black on 24 August 2001. At the
same time it wrote to the
Council requesting information relevant to the claim, and it was given
information
from the Council.
d) Shortly afterwards, on 7 September 2001, Heaney & Co wrote to Mr
Black advising that
it was acting for the Council in respect of the
claim. At least from that point on, Heaney & Co acted for the Council
in respect of the claim.
e) Although litigation did not eventuate, the prospect remained alive
from the period covered by the correspondence.
[43] The correspondence falls into two groups:
a) The initial
correspondence prior to Heaney & Co's letter to Mr Black
on 7 September 2001. It is clear that this correspondence
came into
existence at Risk Pool's instigation for its purpose of obtaining legal
advice as to whether
its policy covered the claim and to have Heaney
& Co's advice and recommendations on how to manage the claim.
b) Correspondence which came into existence as a consequence of Risk
Pool's decision to appoint Heaney &
Co to act for the Council in
respect of the claim.
[44] The second group of correspondence is of a kind that clearly entitled the
Council to resist
its production on the grounds of litigation privilege. It is also
correspondence in which the Council and Risk Pool have a common
interest in terms
of the test found in Buttes Gas & Oil. Both the Council and Risk Pool shared the
same interests in the anticipated
litigation and the management of the Council's
defence. As such, it attracts common interest litigation privilege.
[45] The first
group of correspondence, although pre-dating Risk Pool's decision
on the question whether or not to extend indemnity to the Council
and to appoint
Heaney & Co as the Council's solicitors, also, in my view attracts privilege in the
hands of the Council. It is plainly
privileged in the hands of Risk Pool because it
was brought into existence by Risk Pool for the purpose of Risk Pool's using it to
obtain legal advice on the claim and to assist in any ensuing litigation should Risk
Pool decide to afford indemnity. At that stage,
Risk Pool had a need to receive legal
advice because of the prospect of litigation and their real interest in seeing that the
claim
was defended in circumstances where they had not made any decision to
decline indemnity.
[46] However, it is also correspondence
in which the Council has the same
interest. That an insurer and an insured have a common interest in the subject matter
of legal
advice in these circumstances has been accepted in other jurisdictions. In
Bulk Materials (Coal Handling) Services Pty Ltd v Coal
and Allied Operations Pty
Ltd (1988) 13 NSWLR 689 it was held that in circumstances where an underwriter
had not yet extended, but was likely to extend, indemnity to an insured and
otherwise had interests in the anticipated litigation identical with those of the
insured, there was a common interest apt for the
application of common interest
privilege to documents and copy documents passing from the underwriter to the
insured. See also Guinness
Peat Pty v Fitzroy Robinson Partnership [1987] 1 WLR
1027, where the insured's correspondence with the insurer came into existence for
the purpose of the insurer's obtaining legal advice
on the claim and for use in any
ensuing litigation.
[47] I do not overlook that Heaney & Co's enquiry of the Council reflected
that
Risk Pool's interest was in obtaining information for the purpose of obtaining legal
advice as to whether the policy covered
the claim and as to the management of the
claim.
[48] In both Bulk Materials and Guinness Peat Pty, it was accepted that these
dual
purposes were inseparable and that the dominant purpose test was satisfied.
[49] This approach was also followed in The
"Sagheera" [1997] 1 Lloyd's Reps
160, 166. Litigation was reasonably in prospect when documents involving third
party communications
came into existence for the dual purpose of taking legal
advice and for using that information in litigation. It was not possible
on the facts to
separate or distinguish those purposes and accordingly, the Court found that the
dominant purpose test was satisfied;
the third party communications were treated as
being within litigation privilege but not legal advice privilege.
[50] The same
approach is appropriate in this case.
[51] I also do not overlook that the privilege claimed relates to proceedings that
were
threatened prior to the commencement of the current proceeding. Although the
point was not expressly raised by Ms Stevenson, given
that her concern that the
documents in question predate the Council's release of the bond in 2003, it is useful
to note the following
statement in B v Auckland District Law Society [2004] 1 NZLR
326.
[44] Some principles are well established and were
confirmed by Lord
Taylor of Gosforth CJ in R v Derby Magistrates' Court at p 503.
First, the privilege
remains after the occasion for it has passed:
unless waived "once privileged, always privileged".
[52] For the
above reasons, I am satisfied that the correspondence between the
Council and Heaney & Co is correspondence in respect of which common
interest
litigation privilege has been fairly and properly claimed.
[53] In these circumstances, and on the basis of the contents
of the
correspondence, it is clear that the correspondence has been brought into existence
for the dominant purpose of being used
for the obtaining and provision of legal
advice in relation to the threatened claim and in any ensuing litigation.
[54] That
brings me to the remaining documents for which common interest
litigation privilege is claimed.
Internal Memoranda/Letter to Michael
Black
[55] The remaining documents are:
a) Two internal memoranda written by Council officers which are listed
in Item 5 as documents 83 and 85 of 14 September 2001 and undated.
b) The letter from Heaney & Co
to Michael Black dated 7 September
2001. It is listed in Item 5 as document 86.
[56] The first internal memorandum
is an officers' report to the Resource
Consents Manager setting out the effect of Heaney & Co's written advice to the
Council of
7 September 2001 and Heaney & Co's letter to Mr Black.
[57] An internal memorandum prepared by the client setting out the effect
of legal
advice is privileged if that legal advice itself attracts privilege: Equity Corp Finance
Group Ltd v Collett (1991) 3 PRNZ 509, 513.
[58] Applying this test, the first of the internal memoranda is clearly privileged.
[59] As for the second memorandum,
it relates to a draft letter by Heaney & Co to
Mr Black and a Council officer's comments to Heaney & Co on the draft. It is clear
from its contents that it is privileged.
[60] The last document is Heaney & Co's letter of 7 September 2001 and to Mr
Black.
It seeks particulars from Mr Black as to the basis of the financial losses
allegedly incurred by his client in undertaking the subdivision.
The writer seeks an
understanding of the claims that Mr Black's client intended to bring. It is self-
evident that it is not a
document for which privilege may be claimed.
[61] In summary, with the exception of Document 86, all of the documents for
which
common interest litigation privilege is claimed are documents for which the
defendant is entitled to claim privilege.
Costs
[62]
Costs are reserved.
[63] I would like to hear briefly from counsel on the matter of costs and I allocate
a telephone conference
on Thursday 9 November 2006 at 2.15 pm. If that time does
not suit counsel, they are invited to contact my case officer at the Auckland
Registry
and another time will be allocated.
Dated at Auckland on ______________________ at ____________ am/pm.
_______________________
Associate Judge Sargisson
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URL: http://www.nzlii.org/nz/cases/NZHC/2006/1354.html