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High Court of New Zealand Decisions |
Last Updated: 10 September 2018
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IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
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CIV-2016-404-2365
[2017] NZHC 2642 |
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BETWEEN
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BODY CORPORATE 212050
Plaintiff
I-CHEN LEE and JOHAN JIA-HANN LIM & ORS
Second Plaintiffs
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AND
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COVEKINLOCH AUCKLAND LIMITED (IN LIQUIDATION)
First Defendant
CHESTER CONSULTANTS LIMITED
Second Defendant
AUCKLAND COUNCIL
Third Defendant
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Hearing:
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27 September 2017
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Appearances:
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Ms Meechan QC and J Wilson for Third Defendant (Applicant) Ms Greenhalgh
for Plaintiffs (Respondent)
Ms R M Irvine-Shanks for James Hardie (Non-party)
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Judgment:
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27 October 2017
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JUDGMENT OF ASSOCIATE JUDGE J P DOOGUE
This judgment was delivered by me on
27.10.17 at 3.30 pm, pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
BODY CORPORATE 21250 &Ors v COVEKINLOCH AUCKLAND LIMITED (IN LIQUIDATION) & Ors [2017] NZHC 2642 [27 October 2017]
Date...............
[1] The background to the application is as follows. On 23 February 2017, Bell AJ noted in a minute that there was general agreement between the parties that there should be tailored discovery, but that the parties were unable to agree on all the categories to be disclosed. The Judge encouraged the parties to reach agreement on categories of documents to be disclosed. Their agreement proved not to be possible and, accordingly, the third defendant filed an application seeking orders regarding discovery, confidentiality and privilege. Those will be described subsequently in this judgment. The applications are opposed.
History of the proceedings
[2] The following account of the history of the proceedings would not seem to be controversial at all. It is taken from the submissions which were filed on behalf of the plaintiffs by Ms Greenhalgh:
2011 Claim
Current claim
work, amended designs and building consents were required, and remedial costs escalated significantly. The total projected cost to complete the remedial work escalated from $4,300,000 to $11,649,063.
[3] I interpolate that in the course of this judgment, I shall refer to James Hardie New Zealand Limited and Hawkins Construction North Island Limited, collectively, as “the constructors”.
[4] The misfortunes of the plaintiffs, far from ending at the point where the remediation work was commenced, actually multiplied. The remediation project was a disaster. The total projected cost, which I understand was estimated by CoveKinloch and Chester (the first defendant), amounted to $4,300,000. However, as work progressed, the cost of the remedial work escalated to $11,649,053. Eventually the remedial work was abandoned on 19 April 2016. The building was demolished.
[5] In the wake of these unfortunate developments, the plaintiffs have issued a second set of proceedings, this time against Auckland Council, the third defendant.
[6] At the heart of the proceeding is a claim that Auckland Council was negligent in the following respects:
carried out in accordance with the Remedial Plans submitted with the building consent application.
[7] Essentially, the plaintiffs say that the remediation plans which were prepared by CoveKinloch and Chester did not meet the requirements of the Building Act 2004. It is said they did so negligently and that one consequence of their negligence was that the defects in the remediation plans were not exposed. As a result, the plaintiffs assert that Auckland Council’s issue of a building consent in 2013 caused them to lose a chance to obtain a better settlement from the constructors. I understand that if Auckland Council had brought the problems with the remediation plans to the plaintiffs’ attention, the plaintiffs would have been alerted to the need to reformulate the claim which would have been based on appropriate remediation plans. This would have, in turn, involved far greater cost of construction than the original mediation plans. Armed with this information, it will be alleged that the plaintiffs would have presented a more realistic claim to the constructors and would have had the chance to hold out for a greater settlement sum than what was actually agreed to in the 2013 settlement agreement. This loss of a chance ought to be compensated for by the defendants, the plaintiffs allege, with damages assessed at $3,519,359.46 as well as general damages.
[8] The way that the matter is pleaded in the third amended statement of claim is as follows:
- (a) The loss of a chance to obtain a higher amount in settlement of the Claim if the Design Defects were identified and the Remedial Plans were amended to rectify the Design Defects prior to obtaining a tender, which was relied on to quantify the Claim and to settle the Claim, amounting to $3,519,359.46 ("Loss of Chance"), comprised of:
(i) Increase in the settlement as a result of additional remedial work costs, of $3,313,175.46.
(1) The Claim was based on a tender value of
$4,290,955.90 and project management costs of
$250,000.
(2) If the Design Defects were identified and the Remedial Plans were amended to rectify the Design Defects
prior to obtaining a tender, the tender value for the resulting remedial work ("Comprehensive Remedial Scope") would have been $10,062,915.
(3) The difference between the tender value on which the Claim was based and the tender value for the Comprehensive Remedial Scope is $5,521,959.10.
(4) The plaintiffs would have received aproximately 60% of the remedial costs in settlement of the Claim. 60% of $5,521,959.10 is $3,313,175.46.
[9] Ms Meechan QC, counsel for the third defendant, described the latest proceeding as being novel in that a duty of care of this kind has not been previously recognised.
[10] She also submitted that there must be some doubt as to whether a claim of this kind is one where the courts would be prepared to recognise a duty of care. In essence, her submission was that the history of claims being brought by building owners against territorial authorities has always been concerned with providing compensation to the building owner for defects in the building which the plaintiff has acquired. Such claims are based upon the assumption that had the council taken the appropriate care when issuing consents, code of compliance certificates and the like, the harm which is the basis of the claim would not have been caused to the plaintiff. She referred to the litigation in Invercargill City Council v Hamlin.1
[11] In the judgment of the Court of Appeal in that case, Cooke P in the course of considering the policy that permits claims for defective premises to be brought against territorial authority said:2
... A main point is that, whatever may be the position in the United Kingdom, home owners in New Zealand do traditionally rely on local authorities to exercise reasonable care not to allow unstable houses to be built in breach of the bylaws ... The linked concepts of reliance and control have underlain New Zealand case law in this field from Bowen onwards.
[12] In the present case, by contrast, she submitted the plaintiffs were attempting to impose a duty on the Council to protect the interests of parties who are attempting to
1 Invercargill City Council v Hamlin [1994] 3 NZLR 513 (CA).
2 At 519.
recover compensation from builders by ensuring that the assumptions upon which the owners base their claim – in this case the necessary extent of repairs to the apartments
– are correct. Further, unless the Council exercises appropriate care, it will be liable for economic loss that follows from the decision of the owners to compromise their claim at too low a figure.
[13] The only comment that I make on this aspect of the matter is that the points taken by Ms Meechan would not seem to be without substance. However, they do not need to be determined in the circumstances of this case. The point that is made, and taken, though, is that it is probably correct to say that the duty of care argued for in this case is a novel one.
Order 1 - all documents discovered in the 2011 claim
[14] The third defendant seeks orders that the plaintiffs discover all of the documents discovered in the plaintiffs’ original proceedings (“2011 proceeding”). As I have previously noted, this is a tailored discovery order.
[15] The plaintiffs oppose order 1 on the grounds:
Relevance
[16] It is necessary to have a reasonably detailed understanding of the nature of the claim in order to assess what issues are relevant which, in turn, informs the question of what documents ought to be discovered.
[17] In the third amended statement of claim, the breach of obligation on the part of the third defendant was formulated in the following terms:
62. The Council owed the plaintiffs a duty to exercise reasonable skill and care in performing the functions under the Building Act 2004 and in particular to only issue the Building Consent if it was satisfied on reasonable grounds the provisions of the Building Code would be met if the remedial work was carried out in accordance with the Remedial Plans submitted with the building consent application.
[18] In its statement of defence, the third defendant says:
62. It admits that it owes the plaintiffs a duty to exercise reasonable skill and care in performing its functions under the Building Act 2004. It says further that such a duty does not extend to protecting the plaintiffs from losses caused by themselves, their agents or persons whose acts are attributed to them ...
[19] In the notice of opposition, the plaintiffs say:
(a) the remedial scope and design;
(b) the building consent; and
(c) tenders and remedial costs
[20] One of the steps which the plaintiffs will have to negotiate in the course of proving its claim is that, at the time when the 2011 claim was commenced, they misunderstood what steps would be required to be taken to reinstate the building. As a result, they embarked upon a misconceived remediation program. It was misconceived in two ways. Firstly, because it led to an understatement of what remedial works were going to be necessary to bring the building up to standard and the cost of those works. Under such an approach, it would be assumed that had there not been a breach of the alleged duty, they would have claimed for the higher amount,
that is the amount that was ultimately expended on the property. Whether any complications arise from the fact that that money spent on the remediation program, as it evolved once repairs were commenced, ultimately appears to have been wasted do not fall to be decided at this stage of the case. Alternatively, the 2011 remediation plan may have been misconceived because it assumed that the building could be economically repaired when it could not.
[21] Whatever approach is taken, a clear understanding is going to be required of what basis or understanding the plaintiffs adopted when bringing their claim and then compromising it in 2011.
[22] It is likely that the plaintiffs will have had in their possession documents which set out their position in regard to the settlement which they had generated or acquired themselves. It is likely that the litigation that they commenced against the constructors also resulted in documents being created or acquired by those parties, which they were required to provide under compulsion of the discovery order to the plaintiffs. As a generalisation, those documents will include relevant documents to the issues that I have described above.
Approach to tailored discovery
[23] The High Court Rules, which deal with the question of tailored discovery, do not give particular guidance as to the basis upon which the power to order that type of discovery is to be exercised. Rule 8.8 confers power on the court to make a tailored discovery order where the interests of justice require an order involving more or less discovery then standard discovery would require.
[24] There is no prescription of the degree of relevance which any particular documents must have before the court will make a tailored discovery order. In cases where greater discovery is called for, such as where the presumption in r 8.9 applies, it may be that a less rigorous measuring stick of relevance is to be applied. I am not aware of any authority exactly on this point but it would seem obvious that the documents must have some degree of connection to, or relationship with, the issues in the case before tailored discovery can be ordered. It is unlikely that the “interests of
justice” could be invoked to direct a party to provide documents which are entirely
irrelevant.
Applying the approach in this case
[25] The question arises as to whether a tailored discovery order is justified in the present case. It is clear that the 2011 litigation involving this building was directed to establishing that the constructors had been negligent or had permitted the construction of a building which did not comply with the relevant building codes. The issues in that case were therefore different from those in the present.
[26] The 2016 litigation is concerned with a different topic, namely the circumstances in which the plaintiff settled the 2011 litigation and the way in which they allege the architects, consultants and quantity surveyors (“the designers”), who advised them on the settlement and gave them incorrect advice about the necessary scope and scale of the works to remedy the defects in the property.
[27] Underlying the 2016 litigation is the contention that the plaintiffs were labouring under a misunderstanding as to the proper scope of the remedial works and that that misunderstanding was attributable to negligent advice which the designers gave to them. The ultimate proposition which the plaintiffs put forward is that, as a result of the negligence of the third defendant, they were not disabused of the misunderstanding that they had come to resulting from the negligent advice from the designers.
[28] In the present pleadings, the third defendant has made few, if any, admissions concerning the key elements of the plaintiffs’ case. Therefore, it can be supposed at this point that all the principal contentions that underlie the 2016 litigation are in dispute.
[29] It could be that the third defendant does not accept that the plaintiffs were misled. It is at least logically open to the third defendant to contend that the plaintiffs made choices themselves based on, for example, considerations of cost, so that what might otherwise have been a feasible remediation plan was not carried through. Such an approach would involve the proposition that the plaintiffs were not misled.
[30] The documents generated for the 2011 litigation would assist an understanding of what material the plaintiffs had in their possession when they made critical judgements about the level at which they would settle their claim against the constructors.
[31] The constructors’ understanding of the extent of their liability is likely to have been influenced by the documents which had been generated around about the time of the 2011 litigation. The effect that the declining of the building consent might have had on their thinking needs to be briefly considered. The constructors, no doubt, would insist that any questions of negligence on their part be assessed in the light of what information and documents had been provided to them by the plaintiffs acting through the designers, who were the plaintiffs’ agents for this purpose. Placing oneself in the shoes of the constructors at the time of the settlement, it is necessary to consider what effect a notional decision of the Council to decline consent would have had on their thinking. It seems to be inferred from all the circumstances that the Council declining the building consent would have amounted to an implicit statement from the Council that a different, and more expensive, remediation plan was going to be required. The constructors may well have taken the view that they were contracted to erect a building on the basis of the plans that were actually provided to them and that subsequent expressions of view on the part of the Council about the different remediation work required, and the different cost thereof, did not necessarily mean that they, the constructors, were liable to meet that difference. Questions about factors that might have influenced the constructors are therefore relevant.
[32] Enough has been said in my view to justify the view that the documents disclosed by the parties in the litigation are likely to provide relevant background which would assist the court in resolving the various difficult issues that are going to arise in this case if it goes to trial.
[33] It may be that none of the documents can be described as adverse documents of the kind that r 8.7, the rule about standard discovery, contemplates. But the applicant for discovery does not need to establish that the more exacting standard under r 8.7 applies before a tailored discovery order extending to the documents in the litigation can be made.
[34] The parties were agreed that before an order for discovery can be made, the party seeking discovery of the documents must show that it is proportional to the requirements of the case.
[35] The plaintiffs claim that requiring discovery of all of the foregoing files in addition to those which have already been discovered would be disproportionate. Ms Greenhalgh’s submission made was:
[36] The development, which occurred not long before the hearing took place, was that the plaintiffs obtained from the constructors a full set of all of the documents discovered in the 2011 litigation. Initially, it seemed that the set of documents could simply be discovered by the plaintiffs and the issue of the litigation documents being discovered would have been solved. However, there was another layer of complexity to the issue which I understand to be as follows. The third defendant has sought an affidavit of documents from the plaintiffs themselves setting out what documents they discovered in the 2011 proceeding. The plaintiffs do not dispute that they have some of these documents. The copies that they have, however, are hard copies and it will be a prolonged and difficult process to identify which discovery number in the affidavit of documents each of the paper documents that the plaintiffs hold, corresponds to. A requirement that the plaintiffs match all of the documents is going to involve them in considerable expense, I was told.
[37] The constructors have electronic images of all of the documents discovered in the case. But there is a complication with this aspect of the matter as well. The documents held by the constructors are described as being “bulk PDF” images. There is not a separate image for each of the documents. Each image apparently comprises quite a number of documents, hence the reference to the word “bulk”. Ms Greenhalgh told me that it would be possible to render the bulk documents into individual documents, all of which could be individually text searched. I was not clear about the cost of undertaking such an exercise but I understand that it could be in excess of $50,000.
[38] There is a paucity of information which would permit an informed discussion of the issue about proportionality of the steps that the plaintiffs will be required to take. But assuming that in order to provide discovery in an acceptable form, I would not be prepared to assume that the exercise is disproportionate to the importance of the opposing party having discovery. This, as Ms Meechan, counsel for the defendant, submitted, is a claim for damages between $4,000,000 and $5,000,000. The issues are complex. I consider that it is also reasonable to have regard to the additional fact that Ms Meechan mentioned, which is that the third defendant in this case is faced with a claim that is concerned with a weathertight building which has since been demolished. The third defendant will not have the opportunity to inspect the property. It is therefore of particular importance that all reasonable steps should be taken to maximise the amount of information that the third defendant, and the court, have available to them when considering the dispute between the parties.
[39] A further matter which needs to be mentioned is the point which the plaintiffs included in their notice of opposition, which was that the plaintiffs have discovered over 8,000 documents in the current proceeding already. In her submissions, Ms Greenhalgh summarised the matter in these terms:
(a) Expert reports, remedial documents, scope, plans and specifications, remedial contracts, building consent documents, remedial cost documents and tenders, including all documents relied on to quantify the 2011 claim and documents created after 19 July 2013;
(b) Body corporate documents including annual general meeting and extraordinary general meeting minutes, including all Body Corporate documents discovered in the 2011 claim and all documents created after the 2011 claim settled;
(c) Unit owner documents including consequential loss documentation;
(d) All second plaintiff and experts’ briefs of evidence served in the 2011 claim and all exhibits to those briefs (James Hardie and Hawkins did not serve briefs);
(e) All pleadings in the 2011 claim.
[40] In Karam v Fairfax New Zealand Ltd, the process of weighing proportionality was described as involving a cost/benefit assessment of the cost of giving discovery of documents against their potential evidential value.3
[41] No doubt that if the proposed documents to be discovered amounted to duplications of documents that have already been discovered, the principle of proportionality is involved. It could be said that it would be disproportionate to provide additional discovery in the area in question because it would be of little utility and considerable expense to do so. However, I am not satisfied that the discovery that is sought does in fact lack materiality or importance in the proceedings so that it would have little utility. As to the cost, Ms Meechan renewed her submission that the third defendant is exposed to a claim for over $4,000,000 in this case and the plaintiffs ought to have understood at the outset by putting forward such a claim that they will be exposing themselves to substantial cost.
[42] The second point is that there are difficulties in accepting an argument that an absolute number of documents nominated by the discovering party should be regarded as sufficient. It may be an argument that could succeed in some cases. For example, if there was a claim involving damages of say, $450,000, and the discovering party had already produced 2,000 documents, it might be disproportionate if it could be demonstrated that the orders sought by the other side would require a further 8,000 documents to be discovered. At some point, I agree, the court can draw a meaningful conclusion from absolute numbers. To require discovery of 10,000 documents in a
claim of the size of the one given in the example that I have mentioned would seem to be inherently disproportionate. However, I do not believe that that inference necessarily arises in the circumstances of the current case.
Collateral use of discovered documents
[43] As already noted, part of the application which the defendants have filed seeks orders relating to all documents discovered by other parties in the 2011 proceeding.
[44] The plaintiffs resist providing the documents which were discovered in the 2011 proceeding by the constructors on the grounds that they are forbidden by the terms of r 8.30 to disclose documents discovered by a party in earlier proceedings for a collateral purpose.
[45] Rule 8.30(4) provides that a party to a proceeding may only use a discovered document for the purpose of that proceeding and must not make it available to any other person (unless it has been read out in open court). Notwithstanding r 8.30(4), it is clear that the court may permit a collateral use of a document.4
[46] Ms Meechan referred to the decision of Rodney Hansen J in Hunter Grain Ltd v Price in which the Judge stated:5
[51] The general rule is that the Court will not release or modify the implied undertaking given on discovery save in special circumstances and where the release or modification will not occasion injustice to the person giving discovery.
[52] A consideration of the circumstances necessarily begins with the close connection between the two claims ... Many of the factual and legal issues will inevitably be common to the two proceedings. They are claims which, in normal circumstances, would have been combined in the one proceeding and heard together ...
[47] Counsel further submitted that in Hunter Grain, the plaintiff was permitted collateral use of the documents on the grounds that the Court determined the claims were closely linked, and to prevent the collateral use of the documents would deprive
4 Hally Labels Ltd v Powell [2013] NZHC 900 at [23].
5 Hunter Grain Ltd v Price HC Tauranga CIV-2008-470-192, 3 August 2010. Citations omitted.
the plaintiff of “strongly probative evidence” in the related claim. The outcome would
be disproportionate.6
[48] I respectfully agree with the conclusions that the Judge came to in Hunter Grain. In that decision, the Court was carrying out a review of an earlier decision of the court in Hunter Grain Ltd v Price.7 Part of the earlier judgment from which the application to review originated stated:
[35] In his judgment in Riddick Lord Denning referred to the balance that was required to be struck between two competing public interests. The first was the public interest that full disclosure of documents should be made so that the Court could get at the truth of a dispute. Against that needed to be balanced a public interest in preserving privacy and protecting confidential information. Lord Denning said at 895-896:
“The reason for compelling discovery of documents in this way lies in the public interest in discovering the truth so that justice may be done between the parties ...Compulsion is an invasion of a private right to keep one’s documents to oneself. The public interest in privacy and confidence demands that this compulsion should not be pressed further than the course of justice requires. The courts should, therefore, not allow the other party – or anyone else – to use the documents for any ulterior or alien purpose. Otherwise the courts themselves would be doing injustice ... In order to encourage openness and fairness, the public interest requires that documents disclosed on discovery are not to be made use of except for the purpose of the action in which they are disclosed.”
[36] The above statement of principle was adopted by Rodney Hansen J in Telstra New Zealand Ltd v Telecom New Zealand Ltd (2000) 14 PRNZ 541 at [47].
[37] In the Riddick case, Waller LJ said in his judgment at 912:
“The interests of the proper administration of justice require that there should be no disincentive to full and frank discovery.
Although this court indicated that a claim might arise based on this document dated April 16, 1969, the court was not called upon to
consider whether or not such action would be an abuse of the process of the court. Indeed the fact that it was disclosed on discovery is not mentioned in the judgments. In my opinion it is highly desirable that there should be no discouragement to full and frank disclosure on
6 At [47].
7 Hunter Grain Ltd v Price HC Tauranga CIV 2008-470-192, 28 April 2010.
discovery. If there be a risk that disclosures may produce new causes of action parties may be deterred from disclosing the document.
I am of the opinion that to use this document, which had been compulsorily disclosed in other proceedings, is an abuse of the
process of the court and it would be contrary to public policy to allow it to be used in these proceedings.”
[38] One of the factors that Waller LJ referred to as supporting the restriction on use of discovered documents was the need to protect
individuals giving discovery from the contingency that if they give discovery that may lead to further causes of action against them. So, in Riddick the documents that the defendant was required to disclose in the wrongful
imprisonment cause of action should not be permitted to be used as a basis upon which to prove liability in a later defamation action ...
[49] I do not understand that in his review judgment Rodney Hansen J disagreed with any of the foregoing. Therefore, it would seem that the principle which is under discussion here is intended to achieve the following outcomes. First, there is a recognition of the concept that if a party has reason to suspect that documents provided on discovery will be further disseminated beyond the immediate parties to the proceeding, that will provide a disincentive to give full discovery. Secondly, the discovery process involves an incursion into the privacy of the party giving discovery and the principle against collateral use, while recognising the inevitability of such an outcome, would seek to limit to the extent practicable the degree to which documents given on discovery find their way into the hands of other persons not engaged in the proceeding. Thirdly, it would also be a disincentive to discovery if parties required to submit to an order of the court had reasonable grounds to apprehend that there was a risk that the documents would find their way into the hands of third persons who may use them as the basis for mounting a claim against the discovering party.
[50] The application for discovery orders seeks that the plaintiffs provide all documents discovered by other parties in the 2011 proceeding. This would include the documents which James Hardie provided.
[51] A contention was put forward on behalf of James Hardie by which it says that it, while not a party to the proceeding, is a party which would be affected by the discovery orders which the plaintiffs seek. Brief explanation is required of the position of James Hardie.
[52] James Hardie submits that the third defendant has made it clear that an issue in the current proceedings will be the testing of James Hardie’s likely liability in the 2011 proceeding, had it gone to trial. This consideration is apparently put forward as a basis for opposing any discovery directions which will result in James Hardie’s discovered documents in the 2011 proceeding from being made available to the parties to the current proceeding. Assuming that this is correct, it does not appear to be a reason for declining discovery.
[53] As I understand it, the case for James Hardie is that it is exposed to actual or potential claims in weathertight building litigation which have yet to be disposed of. While no particulars were provided of how many such claims there were, the third defendant was not disposed to dispute that that was the case. The concern which James Hardie has is stated in the following terms by counsel in her synopsis of submissions:
[54] While it is understandable that James Hardie would entertain concerns, they need to be kept in perspective. It would seem likely that the court hearing the current claim would be very careful when considering any conclusions that were adverse to
parties not before the court, such as James Hardie. Consistent with such an approach, it seems unlikely that documents which James Hardie has produced on discovery would be construed in a speculative way which is unfair, given the absence of balancing comment or evidence from James Hardie. I consider that James Hardie can have confidence that the court hearing the proceedings would be alert to ensure that where a document was capable of more than one meaning, one of which was damaging to James Hardie and the other not, then the court would be slow to come to an adverse conclusion based upon such a document.
[55] In any case, if the merits of James Hardie’s case can be explored in the current proceeding, then that will occur in any event. That is not an outcome that can be altered by the form of discovery directions which are given in this case.
[56] Further, it should be possible by a mechanism of this kind to prevent third parties obtaining copies of the documents which they, in turn, could seek to use as a basis for existing or fresh claims against James Hardie. They, in turn, would be subject to restraints on using documents which were disclosed in discovery and earlier proceedings (that is the current proceeding). It is, however, possible that absent use of the documents in litigation, they could be used in other ways to pressure James Hardie in some way or to damage its reputation. My conclusion is that subject to the agreement of any reasonable restrictions which James Hardie may propose, these documents ought to be discovered. Leave is reserved to the parties to seek further directions concerning protective mechanisms that should be adopted if they are unable to agree.
[57] My conclusion is that the balance of factors which the court needs to take into account when considering this matter point towards the desirability of the constructors’ documents being disclosed by the plaintiffs in discovery. A close relationship that such documents have to the issues at large in the litigation outweighs the risks to the constructors. Further, such risks as there are are not as substantial as James Hardie appears to consider them. There are also conditions which can mitigate the adverse effects of the documents being referred to.
[58] The essential determination that I make is that the orders which are sought under the heading “Order 1” ought to be granted.
[59] At the hearing on 27 September 2017, the plaintiffs and the third defendant by their counsel agreed that they would cooperate on the preparation of a form of order which would ensure that the discovery by the plaintiffs of the documents discovered in the 2011 proceeding was proportional and designed to ensure that there was no unnecessary duplication. It is to be expected that the parties will be able to successfully come to an agreement on that point without the further intervention of the court. In case that expectation is misplaced, leave is granted to apply for further directions in relation to the form of the order.
Order 2
[60] In the affidavit of documents that it filed, the plaintiffs claimed confidentiality in respect to the 2013 settlement agreement and six other documents. The terms on which confidentiality was claimed was that the documents were confidential, the parties to the settlement did not consent to the disclosure of the documents and that the “plaintiffs are not in a position to disclose the documents listed”.
[61] At the hearing of the applications, Ms Greenhalgh accepted on behalf of the plaintiffs that:
[62] The third defendant submitted that the plaintiffs do not contend that the documents are not relevant and that would seem to be the case. The claim for the plaintiffs is that had they been informed of certain matters, they would have negotiated for a settlement superior to the one that they actually claimed. As a result, the terms
of the original settlement are likely to be relevant for the purposes of discovery. The plaintiffs seek orders under s 69 of the Evidence Act 2006. That provision states:
69 Overriding discretion as to confidential information
(1) A direction under this section is a direction that any 1 or more of the following not be disclosed in a proceeding:
- (a) a confidential communication:
- (b) any confidential information:
- (c) any information that would or might reveal a confidential source of information.
(2) A Judge may give a direction under this section if the Judge considers that the public interest in the
disclosure in the proceeding of the communication or information is outweighed by the public interest in—
(a) preventing harm to a person by whom, about whom, or on whose behalf the confidential information was obtained, recorded, or prepared or to whom it was
communicated; or
(b) preventing harm to—
- (i) the particular relationship in the course of which the confidential communication or
confidential information was made, obtained, recorded, or prepared; or
(ii) relationships that are of the same kind as, or of a kind similar to, the relationship referred to in subparagraph (i); or
(c) maintaining activities that contribute to or rely on the free flow of information.
(3) When considering whether to give a direction under this section, the Judge must have regard to—
(a) the likely extent of harm that may result from the disclosure of the communication or information; and
(b) the nature of the communication or information and its likely importance in the proceeding; and
(c) the nature of the proceeding; and
(d) the availability or possible availability of other means of obtaining evidence of the communication or
information; and
(e) the availability of means of preventing or restricting public disclosure of the evidence if the evidence is given; and
(f) the sensitivity of the evidence, having regard to—
- (i) the time that has elapsed since the
communication was made or the information was compiled or prepared; and
(ii) the extent to which the information has already been disclosed to other persons; and
(g) society's interest in protecting the privacy of victims of offences and, in particular, victims of sexual offences.
(4) The Judge may, in addition to the matters stated in subsection (3), have regard to any other matters that the Judge considers relevant.
(5) A Judge may give a direction under this section that a
communication or information not be disclosed whether or not the communication or information is privileged by another provision of this subpart or would, except for a limitation or restriction imposed by this subpart, be privileged.
[63] I respectfully agree with the conclusion expressed by Asher J in Intercity Group (NZ) Ltd v Nakedbus NZ Ltd that s 69 applies in cases where confidentiality is claimed in relation to the discovery of documents.8 It is not limited in its effect to an issue of confidentiality of evidence to be adduced at the hearing of the proceeding.
[64] The judgment in Intercity made reference to the Court of Appeal judgment in
Port Nelson Ltd v Commerce Commission where the Court said:9
... It is a matter of balancing on the one hand the interests of justice in ensuring that [the plaintiff] is able to prepare and present its case, and on the other the interests of [the defendant] in safeguarding its confidential information in a competitive market.
...
... Relevant documents should generally be made available for inspection. The fact that they are regarded as being confidential, and would not be made available were it not for the requirements of the litigation, is immaterial. An order for non-disclosure can only be made when the Court is satisfied in terms of r 312 that such an order is “necessary”. It must be either apparent from the document in question or shown by other evidence that disclosure would be likely to prejudice the party in some significant way. Even the possibility of prejudice may be sufficient, but that will depend on the seriousness of the possible prejudice and on the significance of the document to the issues in the proceeding, and the extent to which limited disclosure may enable the concerns of both parties to be accommodated.
[65] I also agree with the view expressed in Intercity that the provisions of s 69 do not require a materially different approach from that which was taken in Port Nelson Ltd, which was decided before the section came into effect.
[66] One of the key matters that needs to be considered when making a judgment on whether confidential information should be discovered and, if so, the conditions
8 Intercity Group (NZ) Ltd v Nakedbus NZ Ltd [2013] NZHC 2261.
9 Port Nelson Ltd v Commerce Commission (1994) 7 PRNZ 344 (CA) at 347-348.
subject to which that should occur, is the question of what harm might be done to the party claiming confidentiality if the material became available to the opposing party.
[67] In this case, it would be difficult to argue that the plaintiffs would suffer any harm from the disclosure of the material and indeed they do not contend that that is so. Rather the plaintiffs assert that their hands are tied and that they cannot consent to the release of the confidential information without the agreement of the constructors.
[68] In the case of the constructors, I have already discussed whether there is a substantial and real threat to their interests posed by the disclosure of the terms of the settlement. I have doubts that there is. Without going into all of the grounds afresh, the points which seem to have relevance are that:
[69] I therefore consider that it would be unlikely, even if the terms of the settlement agreement became more widely disseminated, that harm would result to the constructors.
[70] However, against the risk that I might be wrong in reaching the foregoing conclusions, I would accept that it would be sensible for conditions to be established before the confidential documents in this case are disclosed to the opposing parties. I do not consider there can be any objection to such conditions being imposed. After all, it is the parties to this litigation alone who have a legitimate interest in the information contained in the settlement documents.
[71] The parties should confer on the confidentiality mechanisms which they consider are appropriate in this case with a view to consent orders being made. I reserve leave to apply for further directions in regard to this matter in the event that the parties are unable to come to a concluded agreement.
[72] The position of the plaintiffs was stated in the notice of opposition filed on their behalf as being that the plaintiffs were not in a position to disclose the documents listed in schedule 1 to the application, “except to the extent that they may be required to disclose the documents by law.” That is to say, the plaintiffs did not themselves put forward substantive grounds as to why the documents ought not to be disclosed.
[73] The case for the third defendant was that it was crucial for it to know what the terms of the settlement were and, in particular, matters such as the proportions in which the constructors agreed to contribute to the settlement with the plaintiffs.
[74] My conclusion is that in a case where the plaintiffs are pleading that they have lost a chance to settle a compromise at a higher figure than the one which they actually obtained, it must be relevant for the court to know what the quantum of the actual settlement was. Apart from anything else, that will influence the question of any quantum that might be ordered if the plaintiffs are able to prove liability at trial. The document is important to the proceedings overall.
[75] The real concern, therefore, is to enquire whether there is likely to be any prejudice to the constructors through having the agreement disclosed. This raises similar arguments to those which were discussed in the preceding part of the judgment which was concerned with Order 1. Once again, I consider that the outcome depends upon whether it will be possible to ensure that there is no further dissemination of the settlement agreement beyond the parties to this litigation.
[76] In any event, there is legitimate room for questioning whether there will be prejudice to the constructors through disclosure of the terms of the settlement agreement to the plaintiffs. The argument which they put forward appears to be based upon a concern that the third defendant, as a co-defendant in future proceedings, may
possess a tactical advantage in knowing about the fact that the constructors settled this case and the extent of the settlement.
[77] It seems likely that there have been previous cases where James Hardie will have come to a compromise settlement and others where it has not done so. A wide variation in the circumstances of the cases which the constructors have been involved in would seem to suggest that that is the likely position.
[78] If the restrictions on further dissemination of this document are successful, the only party involved in future claims which will have had access to it is the third defendant. I am unable to accept that the third defendant would be so naive as to suppose that because on a previous occasion involving its own unique facts James Hardie entered into a compromise agreement, that James Hardie would be disadvantaged in future dealings with the third defendant because of the latter’s knowledge of the existence of the compromise agreement and its contents.
Disclosure of James Hardie’s negotiating strategy
[79] An argument put forward by James Hardie was to the effect that because the third defendant and its legal advisers frequently encounter James Hardie as a co- defendant in building claims, that disclosure of documents in this proceeding which provide evidence of the negotiations leading up to the entry into the compromise in 2013 could prejudice James Hardie when dealing with future claims involving the same two parties.
[80] I consider that this argument is of little or no weight. The responsible officers for dealing with these claims on behalf of the third defendant are likely on many occasions to have witnessed at first hand negotiations in which their employer and James Hardie were involved. Provision of documents which might disclose the course of negotiation in the present case is unlikely to add greatly to the sum of their knowledge.
[81] No evidence was put before the court to the effect that these negotiations led for the first time to a compromise settlement involving James Hardie. It is possible
that James Hardie has been involved in compromise agreements previously and that those were proceedings to which the third defendant was a party.
[82] I do not consider that this can be a factor which constitutes prejudice that would justify the court in declining to make an order pursuant to s 69 of the Evidence Act.
Order 3 - disclosure of without prejudice documents
[83] The order which is sought in this part of the application is to access without prejudice documents which were exchanged by the parties to the 2011 litigation leading up to the compromise agreement entered into in 2013.
[84] The position is governed by s 57 of the Evidence Act, which provides as follows:
57 Privilege for settlement negotiations, mediation, or plea discussions
(1) A person who is a party to, or a mediator in, a dispute of a kind for which relief may be given in a civil proceeding has a privilege in respect of any communication between that person and any other person who is a party to the dispute if the communication—
(a) was intended to be confidential; and
(b) was made in connection with an attempt to settle or mediate the dispute between the persons.
(2) A person who is a party to a dispute of a kind for which relief may be given in a civil proceeding has a privilege in respect of a confidential document that the person has prepared, or caused to be prepared, in connection with an attempt to mediate the dispute or to negotiate a settlement of the dispute.
(2A) A person who is a party to a criminal proceeding has a privilege in respect of any communication or document made or prepared in connection with plea discussions in the proceeding.
(2B) However, the court may order the disclosure of the whole or any part of a communication or document privileged under subsection (2A) if the court considers that—
(a) the disclosure is necessary for a subsequent prosecution for perjury; or
(b) the disclosure is necessary to clarify the terms of an agreement reached, if the terms are later disputed or are ambiguous; or
(c) after due consideration of the importance of the privilege and of the rights of a defendant in a criminal proceeding, it would be contrary to justice not to disclose the communication or document or part of it.
(3) This section does not apply to—
(a) the terms of an agreement settling the dispute; or
(b) evidence necessary to prove the existence of such an agreement in a proceeding in which the conclusion of such an agreement is in issue; or
(c) the use in a proceeding, solely for the purposes of an award of costs, of a written offer that—
(i) is expressly stated to be without prejudice except as to costs; and
(ii) relates to an issue in the proceeding; or
(d) the use in a proceeding of a communication or document made or prepared in connection with any settlement negotiations or mediation if the court considers that, in the interests of justice, the need for the communication or document to be disclosed in the proceeding outweighs the need for the privilege, taking into account the particular nature and benefit of the settlement negotiations or mediation.
[85] Ms Meechan in her submissions commented on the effect of the section as follows:
6.4 The learned authors of Cross on Evidence consider that the existing and developing common law exceptions to the privilege will continue to be used by the Courts as a guide. This includes the leading English cases of Unilever Plc v Proctor & Gamble and Oceanbulk Shipping and Trading SA v TMT Asia Ltd.
[86] The Oceanbulk Shipping and Trading SA v TMT Asia Ltd case was concerned with agreements hedging the supply of bulk carrier ships.10 The parties had attempted to negotiate a settlement of their agreement in without prejudice meetings and had also exchanged without prejudice correspondence. They had come to an agreement but a dispute had developed between them as to the interpretation of it. The question was whether the overall justice of the case allowed the court to take account of the without
10 Oceanbulk Shipping and Trading SA v TMT Asia Ltd [2010] UKSC 44, [2011] 1 AC 662.
prejudice negotiations as part of the process of interpreting the parties’ compromise agreement. After an extensive review of the without prejudice principle and cases where exceptions to it had been allowed, the United Kingdom Supreme Court came to the view that the use of the without prejudice negotiations for the purposes proposed in the case was justified in principle.
[87] The default position, as per ss 57(1) and (2), is that these documents are confidential and subject to a privilege. The issue is whether the exception in s 57(3)(d) applies, namely whether lifting the privilege is in the interests of justice.
[88] The Oceanbulk Shipping and Trading SA v TMT Asia Ltd case11 and other English appeal cases, including Unilever Plc v The Procter & Gamble Co,12 make it clear that the without prejudice rule, out of which the current statutory privilege arises, is founded partly on public policy and partly in the agreement of the parties. Further, the protection of admissions against interest is the most important practical effect of the rule.13 The protection of those admissions serves the ultimate objective of enabling the parties “to speak freely about all issues in the litigation both factual and legal when seeking compromise and, for the purpose of establishing a basis of compromise, admitting certain facts.”14
[89] The rule is designed to avoid the situation where parties who do speak freely in negotiations find later that they have done so to their detriment. If there is no identifiable potential detriment arising from removing the veil of confidentiality, then there may be good discretionary reasons why the communication under consideration should not be extended the protection of the confidentiality rule.
[90] In this case, there are a couple of considerations that must be mentioned.
11 Oceanbulk Shipping and Trading SA v TMT Asia Ltd, above n 10.
12 Unilever Plc v The Procter & Gamble Co [2001] 1 All ER 783 (CA).
13 Unilever Plc v The Procter & Gamble Co, above n 12, at 796.
[91] Firstly, if the protection of confidentiality was lifted from the documents, one of the parties to those negotiations, the constructors, would not be exposed to any additional jeopardy. The current case is not against the constructors.
[92] Second, exchanges of information leading up to the negotiated agreement may be very relevant to the cause of action which the plaintiffs now bring against the third defendant.
[93] But a possible adverse consequence exists. And, in my view, it is influential. If the confidentiality was lifted, the plaintiffs would be required to provide documents which may assist their opponent. Obviously the party who might be assisted if privilege was lifted is not one of the parties to the original negotiations. That, however, does not seem to affect the outcome of the decision that the court is required to make. In a situation such as the present one, the facts giving rise to the causes of action may in due course spin-off other claims involving entirely different parties. Reasonably informed parties going into negotiations with one of perhaps several potential parties in the sense that I have just mentioned may well apprehend that if they speak freely or disclose documents that could be damaging to them, another party may at some later date chance upon the damaging material and seek to use it against them. There can be no doubt that, in those circumstances, a prudent party would have real concerns about protecting its position by not making admissions. Raising the confidentiality protection has the potential therefore to cause harm to the plaintiffs.
[94] This is not a situation where the plaintiffs entered into negotiations in bad faith and the validity of the settlement agreement is being challenged. It does not fall within any of the other common law exceptions set out in the Oceanbulk Shipping case, which s 57(3)(d) was based on.15
[95] As the authorities note, the confidentiality privilege is based upon an implied agreement between the parties, as well as public policy considerations. In the circumstances of the present case, where the plaintiffs seek to maintain confidentiality, they are in effect doing so against a party who could not be said to have implicitly agreed to the confidentiality of communications to which it was not a party. However,
15 Oceanbulk Shipping and Trading SA v TMT Asia Ltd, above n 10, at [32]-[33].
the claim for confidentiality can be justified on the alternative basis of public policy, the implications of which I have attempted to explain in the preceding paragraphs.
[96] It is necessary next to consider the interplay between the interests of the applicant defendant and wider interests of justice considerations. In the present case it seems to me that the strong policy reasons that exist to support the confidentiality privilege can only be overcome where there is a particularly compelling case for the applicant to access the documents exchanged in the course of confidential negotiations.
[97] In assessing this particular issue, it is not possible to express more than tentative views. The court does not know what the privileged documents consist of. Some inferences can be available which help to inform this decision.
[98] The original claim which was settled by the parties comprised, first, a claim against the builder, Hawkins. The second part would seem to have comprised a claim against James Hardie on the basis that it was the original supplier of a building system and associated building materials. In both cases, I assume, the claim was that because of negligence on the part of these parties loss was caused to the building owners. There may have also been a claim for misrepresentation pursuant to the Fair Trading Act in the case of James Hardie.16 The present claim as I have noted elsewhere is based upon negligence by those whose obligation was to provide advice about the appropriate remediation of the property. Therefore there is no basis for the court to assume other than that the causes of action against the defendants in each of the cases were of a different character.
[99] It is possible that there is some overlap in the documents that came into existence in the compromised claim and the present claim. It may be that in the course of the confidential negotiations the constructors made comments attempting to defend their position on the basis that they carried out what they were commissioned to build and that if the resulting structure was unsuitable, that was the responsibility of those who designed it, and not the constructors.
[100] An issue that will arise for consideration in the second case is whether the advice which the designers gave to the plaintiffs lead to loss. That links to the defendant because the allegation in the second claim is that the defendant ought to have appreciated that the remedial plan which the designers advised on was defective and that the defendant armed with this knowledge ought to have exercised its statutory power to decline consent because of those substandard aspects of the design. In the course of the negotiations leading up to the compromise, no doubt the contents of the remedial plan which the plaintiffs put forward reflected advice which the designers had given them. It is possible in theory that a much more comprehensive remediation plan was put forward in the negotiations but that the constructors were not prepared to agree to liability based upon the same. Perhaps the plaintiffs were driven to accept a more modest remediation plan because that was all that they could get out of the constructors by way of payment. That in turn might show that the plaintiffs embarked upon a plan which they were aware that shortcomings. That might be relevant to the dispute they now have with the defendant. This would be one of the few areas where there is at least a logical possibility that there are documents from the negotiation process in 2013 which could assist the defendant
[101] The fact that the remediation plan was referred to in the negotiations, as seems probable, is not of great assistance to the defendant because, after all, the application for building consent which the plaintiffs lodged with the defendant contained all that information anyway. I accept that a quest to obtain discovered documents cannot be defeated by the party saying that the applicant has other means of proving the point that the documents contain. In other words an applicant does not have to show that it is necessary that in order for discovery is made. However when it comes to balancing the discretionary interests that need to be factored in when a decision is being made under section 57, I consider this element cannot be ignored.
[102] The tentativeness of these conclusions reflects the uncertainty that any documents that had a significant relevance to the present dispute were actually brought into existence in the course of the negotiations. It is of course difficult for a party in the position of the defendant to surmise what documents might become available on discovery. But unfortunately that is the obligation that a party such as the defendant
has, in my assessment, when attempting to outflank the interests of justice considerations in section 57(3)(d).
[103] There will be other cases, and an example is where the court is required to resolve ambiguities in a compromise agreement. In such a case, an inference may be available which persuades the court that it can be reasonably certain that documents exchanged during the negotiations will have relevance to the court’s task of interpreting the parties agreement. In such a case the interests of justice may have to defer to the interests of the parties.
[104] The present case, though, is different and it is not possible to conclude that the degree of unfairness that would result to the defendant/applicant if an order were not made means that the policy reasons behind the privilege are outweighed.
[105] For those reasons, in my view, there is no reason why the plaintiffs should not be able to invoke confidentiality in regard to the discussions that occurred with the constructors. The confidentiality is applicable in my view and there is no policy reason why the court should depart from that position by making an order under s 57(3)(d) of the Evidence Act.
Order 4 - solicitor client privilege - election
[106] The third defendant also seeks access to the communications between the plaintiffs and their then solicitors. It submits:
7.2 On one analysis privilege in relation to that advice has been waived by the plaintiffs having put in issue the matters on which they relied in reaching the 2013 settlement. There should be complete transparency of the context and all factors that funnelled into the decision to settle. Clearly advice from their solicitors was factored into the decision to settle on the terms of settlement.
[107] The application for Order 4 is in the following terms:
It is submitted that the plaintiffs should be required to make a binding election now whether or not to maintain privilege in these documents; and to the extent the plaintiffs elect to waive privilege that the plaintiffs produce these documents to the defendants.
[108] Section 54 of the Evidence Act governs privilege for communications with legal advisors, while s 65(1) allows the privilege holder to waiver that privilege either expressly or impliedly.
[109] The position which the plaintiffs take in regard to this point is that the communications were intended to be confidential and were communications between the plaintiffs and its legal advisors for the purpose of providing legal services to the plaintiffs. Further, the documents which the third defendant seeks discovery of contain references to communications between the parties to the 2011 proceeding which were intended to be confidential and were made in an attempt to settle the dispute between the parties. The grounds relied upon by the plaintiffs also appear to include the contention that the plaintiffs cannot waive privilege “under section 57 of the Evidence Act 2006” without the consent of all parties and all parties do not consent.17
[110] It is not entirely clear to me what the objective of order 4 might be. It would appear that the third defendant is seeking to elicit from the plaintiffs notification of whether it is their intention to waive legal professional privilege. I can understand that it would produce certainty for the third defendant to be advised now that the plaintiffs maintain professional privilege over communications with their lawyers so that the third defendant can prepare for trial accordingly. But there could be a negative aspect to such a requirement. The plaintiffs, having made an election to insist on the confidentiality, might consider that they are required to adhere to that position even though they subsequently come to the view that there are good reasons why they might wish to waive it. In such a circumstance, they might be reluctant to notify the third defendant of a decision which could have the effect of streamlining the proceeding to the convenience of the Court and the parties.
[111] Beyond that, I do not think any useful comment can be made. I am not persuaded that such an order is required or that a Court would have authority to make it.
Transferring the costs of discovery
[112] The plaintiffs made a general submission that the costs of completing discovery ought to be met in the first instance by a contribution from the defendant. I do not consider that there is any proper basis for such an order. Such an order would be exceptional and would require evidence of factual matters that bear upon the exercise of the court’s discretion. I am unaware of any such considerations in the present case and I do not consider such an order would be justified.
Costs
[113] The parties should confer on the question of costs with a view to reaching agreement. If no agreement is possible, they are to file submissions not exceeding six pages in length on each side within 10 working days of the date of this judgment.
J.P. Doogue
Associate Judge
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URL: http://www.nzlii.org/nz/cases/NZHC/2017/2642.html