Burns v National Bank of New Zealand Ltd [2003] NZCA 232; [2004] 3 NZLR 289; (2003) 16 PRNZ 846 (26 September 2003)

Court of Appeal of New Zealand

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Burns v National Bank of New Zealand Ltd [2003] NZCA 232 (26 September 2003); [2004] 3 NZLR 289; (2003) 16 PRNZ 846

Last Updated: 17 December 2011

IN THE COURT OF APPEAL OF NEW ZEALAND

CA159/02

BETWEEN E A M BURNS AND Y J BURNS
Appellants

AND THE NATIONAL BANK OF NEW ZEALAND LIMITED
First Respondent

AND G J C FERGUSON
Second Respondent

CP43/02

BETWEEN E A M BURNS AND Y J BURNS
Plaintiffs

AND THE NATIONAL BANK OF NEW ZEALAND LIMITED
First Defendant

AND G J C FERGUSON
Second Defendant

Hearing: 28-29 May 2003

Coram: Keith J Blanchard J Glazebrook J

Appearances: K J Crossland and L J Meredith for Appellants
D Chan for First Respondent
P W Michalik for Second Respondent

Judgment: 26 September 2003

JUDGMENT OF THE COURT DELIVERED BY GLAZEBROOK J

Table of Contents

Introduction [1]
Background facts [5]
Summary judgment appeal [10]
High Court decision [10]
Submissions for Mr and Mrs Burns [11]
The Bank’s submissions [14]
Discussion on summary judgment [16]
Strike-out application [22]
High Court decision [22]
Submissions for the Bank and Mr Ferguson [24]
Submissions for Mr and Mrs Burns [26]
What is spoliation of evidence? [30]
Position in the United Kingdom, Australia and Canada [36]
Position in the United States [38]
Tort of abuse of process [66]
Existing remedies for spoliation [74]
Policy issues [85]
Do the US cases help? [87]
Should the case go to trial? [89]
Result and costs [92]

Introduction

[1] In October 1996 Mr and Mrs Burns settled proceedings against the National Bank for $15,000. In those proceedings Mr and Mrs Burns had alleged that the Bank was liable to them as a constructive trustee for $52,296 held in what the Burns said was a brokerage account operated by customers of the Bank, Messrs Bush and Radburnd. They alleged that this sum had, with the Bank’s knowledge, been transferred to another of the Burns/Radburnd accounts and applied to reduce their overdraft.
[2] Mr and Mrs Burns now allege that the Bank failed to discover certain documents in those proceedings and that, if they had had those documents at the proper time, they would not have settled the proceedings or at least would have settled on more favourable terms. They seek summary judgment against the Bank in respect of alleged misrepresentations contained in the lists of documents filed by the Bank. They ask that the settlement agreement be set aside, the proceedings reinstated and that they be awarded damages for wasted legal costs. In the High Court, Master Gendall refused to enter summary judgment in their favour.
[3] Mr and Mrs Burns additionally allege that the Bank and its solicitor, Mr Ferguson, committed the tort of spoliation and seek damages. The tort of spoliation has not previously been recognised in New Zealand and is concerned with the destruction or concealment of property preventing its use in litigation. The Bank and Mr Ferguson applied to strike out this cause of action. In the High Court Master Gendall refused this application.
[4] Mr and Mrs Burns appeal against the decision refusing summary judgment. The respondents’ application to review the Master’s ruling on the strike out has been removed to this Court under s64 of the Judicature Act 1908.

Background facts

[5] From 1981 to 1993 Mr and Mrs Burns traded in partnership in a business that supplied orchardists with fruit tree rootstock. In the course of that business in 1987 they supplied rootstock to Mr Bush and Mr Radburnd, customers of the Bank, who traded under the name Horticultural Contact. Horticultural Contact was to on-sell the rootstock to third parties. Mr Bush and Mr Radburnd became insolvent and Horticultural Contact did not pay the Burns for the trees.
[6] In 1993 the Burns commenced an action against the Bank in the District Court at Hastings alleging that the Bank was liable as a constructive trustee of $52,296. It was alleged that the Horticultural Contact bank account was a brokerage account with the major part of the funds (after deduction of commission) in that account held in trust for the Burns and other rootstock suppliers. It was alleged that the sale proceeds had in fact been applied towards reducing Horticultural Contact’s indebtedness with the Bank, and further that the Bank had been aware that the account was being used in this way, which made the Bank liable as a constructive trustee of the sale proceeds.
[7] Discovery was sought from the Bank. Between October 1993 and September 1996 the Bank produced five lists of documents largely through its solicitor, Mr Ferguson. The trial began on 21 October 1996 and one day later was settled, with the Bank agreeing to pay $15,000 to the Burns to discontinue the action. This compromise was reached on the advice of the Burns’ then counsel after indications from the Judge that he considered the account had been conducted on a debtor/creditor basis rather than a brokerage basis at the relevant time.
[8] In 1998 Mr Burns was approached by a Mr and Mrs Walker, who operated a similar fruit tree nursery business, to give evidence in a case they were bringing against the Bank. In those proceedings, Walkers Nurseries Ltd v National Bank of New Zealand HC NAP CP 45-95 2 Aug 2001, Ellis J held that Horticultural Contact had agreed to hold money on trust for the Walkers and that a transfer to another account with the Bank was a breach of fiduciary duty. Because the Bank had knowledge of this, relief was available against the Bank by way of constructive trust.
[9] In the course of the Walkers Nurseries proceedings the Bank discovered documents that were not included in the discovery made in the Burns’ proceedings. Mr and Mrs Burns allege that they should have been so discovered. Of the 557 documents that were not discovered, a number are, Mr and Mrs Burns allege, of particular relevance. The Bank and Mr Ferguson, who was named as a co-defendant, do not accept that discovery was deficient.

Summary judgment appeal

High Court decision

[10] The application for summary judgment was dismissed by Master Gendall because he was satisfied that there was a fairly arguable defence to the Burns’ claim. The Master pointed to evidence that Mr and Mrs Burns were induced to settle on the advice of counsel because of the view taken by the District Court Judge of the nature of the relationship with Horticultural Contact. It was arguable in his view that the non-discovered documents would not have changed that position. The Master was satisfied that there was force in the argument that, on the evidence, the relationship between Mr and Mrs Burns and Horticultural Contact was one of creditor and debtor.

Submissions for Mr and Mrs Burns

[11] Mr Crossland, for Mr and Mrs Burns, submitted that the Master did not apply the legal principle pertinent to the setting aside of judgments and compromises of actions where one party has concealed relevant documents from the other in discovery. The appropriate test, he submitted, is whether the documents “might” or “may” have affected the result and thus whether the Burns “may” have been misled into settling on terms that they would not otherwise have accepted. He referred to the case of Commonwealth Bank of Australia v Quade (1991) 178 CLR 134 as authority for that proposition.
[12] Mr Crossland next submitted that the Master erred in accepting as arguable the Bank’s defence that the Burns were not induced to enter into the compromise agreement by the misrepresentation. Evidence led by the Burns that the compromise would not have been entered into and that the action would have been conducted differently had proved the inducement element of the cause of action.
[13] Finally Mr Crossland submitted that the Master erred in traversing the Bank’s contention that the relationship between the Burns and Horticultural Contact was one of creditor and debtor. As a matter of law a pre-existing fiduciary relationship is not required. What is required is an equitable obligation in respect of the property. In the case of agents contractual debts and equitable obligations can co-exist.

The Bank’ s submissions

[14] Mr Chan, for the Bank, submitted that the Burns’ reliance on Quade is misplaced. That case involved an appeal from a judgment on the basis of newly discovered evidence whereas this case is founded on misrepresentation under the Contractual Remedies Act 1979 in respect of a contract of settlement. In any event Quade holds that the Court needs to take account of a variety of possibly competing factors before ordering a new trial including the degree of culpability, lack of diligence and the extent of any likelihood that the result would have been different. It is not possible to weigh such factors at a summary judgment stage.
[15] In addition, Mr Chan submitted that summary judgment was inappropriate because there were two defences that were (at least) arguable. First it was arguable that the alleged misrepresentation did not induce the Burns to enter into the agreement to settle the District Court proceeding. Rather the Burns decided to settle because the Judge considered that they could not show that Horticultural Contact was their agent, that the account was a brokerage account or that the Bank was aware of this. The documents referred to by the Burns do not help with this argument. Secondly Mr Chan submitted that in any event no remedy would have been available under the Contractual Remedies Act.

Discussion on summary judgment

[16] We accept Mr Chan’s submission that the case of Commonwealth Bank of Australia v Quade (1991) 178 CLR 134 is inapplicable. As he submitted, the issue in Quade was the appropriate test to be applied on an application for a new trial where fresh evidence had come to the notice of the unsuccessful party after trial. The issue here is whether the Bank has a defence to the Burns’ allegation that they were induced to enter into the settlement (a contract like any other) by misrepresentations made on behalf of the Bank.
[17] We move now to the question of whether there is an arguable defence to the misrepresentation claim. Mr Burns deposed that he and his wife “would not have settled the District Court action for $15,000 and would have pressed ahead with the case had we had the documents we saw after the case had settled”. Mr McKenzie QC, who was counsel for the Burns in the case, was not quite so definite. He deposed that it had become clear during the hearing that the Judge did not consider the Burns to have a prima facie case because he considered that the account was conducted on a debtor/creditor basis at the relevant time. In Mr McKenzie’s view it was likely therefore that the Judge would dismiss the Burns’ claim (possibly at the conclusion of their case) and award costs against them. The Burns were not on legal aid and had limited resources. He thus advised settlement.
[18] Mr McKenzie deposed that in his view the Burns’ case would, however, have been strengthened had a number of the since discovered documents been available at the time of trial. He referred in particular to two letters of 27 May 1987 and a memorandum from Mr Sewell (the Bank Manager) to Mr Ferguson of 11 November 1988. He said that the documents would have shown that Mr Sewell had been informed that the Horticultural Contact account was a different type of account from the other Bush and Radburnd accounts and that there was an obligation to treat it in a different way. The documents also in his view provide evidence that the Bank had been informed that money from the Horticultural Contact account had, with the concurrence of the Bank manager, been paying other debts. He deposed that the failure to discover those documents:

... significantly prejudiced the Burns in the conduct of their proceeding and precipitated settlement discussions which I believe would not otherwise have taken place. Had such discussions taken place, I believe that the outcome of those discussions was likely to have been different, having regard to the impact which this additional and relevant material would have had on advice given to the Burns as to their likely prospects of success were the proceedings to have been continued, or were they to later take their case to appeal.

He does not go so far as to say that he would definitely have advised against settlement (or at least settlement on those terms) had the documents been available.

[19] In our view it is clearly arguable that settlement on those terms would have taken place in any event. The claim in the District Court had been run on the basis that the Horticultural Contact account was a brokerage account. There was, however, evidence to show that in fact it was operated on a debtor/creditor basis. None of the documents referred to by Mr McKenzie in his affidavit, nor the other documents referred to us by Mr Crossland, support the proposition that the account was operated as a brokerage account. At most the documents show that the Bank may have thought at various times that the account was a brokerage account. This would be beside the point if it were not in fact a brokerage account.
[20] It is true, as Mr Crossland submitted, that contractual debts and equitable obligations can co-exist but that does not appear to be the basis upon which the case was run in the District Court. Nor do any of the documents relate to this question. The documents may show that, if there were such equitable obligations and the Bank was aware of these, then the Bank knew those obligations were being breached, but this was, arguably, accepted by the Bank in its statement of defence. The documents do not, however, relate (at least directly) to whether such obligations existed. We observe in passing that, in this regard, the Walkers Nurseries case, referred to above at para [8], appears to differ in a number of material respects from this case, at least on the current state of the evidence. In particular, in that case a separate trust account had been opened, albeit never used.
[21] It must be reasonably arguable that the District Court judge would have taken the same view of the case, even if the documents had been available. It must also be reasonably arguable, as a consequence, that the Burns would have been advised to settle for the same reasons as were articulated by Mr McKenzie. It must further be reasonably arguable that they would have accepted that advice. We therefore agree with the Master that this is not an appropriate case for summary judgment.

Strike-out application

High Court decision

[22] Turning to the strike-out application, the Master pointed out that the tort of spoliation of evidence has not been recognised in New Zealand and that this was the case in Australia and the United Kingdom as well. He indicated that spoliation had been raised as a separate tort recently in Canada and had been accepted in some States in the United States, although there were conflicting authorities in both jurisdictions.
[23] The Master noted the Bank’s arguments that such a tort would cut across the tort of abuse of process and was unnecessary for policy reasons but concluded “on a small margin” that, given the reluctance courts should show to striking out novel causes of action, it should be considered at a full substantive hearing.

Submissions for the Bank and Mr Ferguson

[24] Both Mr Chan, for the Bank, and Mr Michalik, for Mr Ferguson, provided detailed submissions. They submitted that the Master’s decision not to strike out the Burns’ action in tortious spoliation of documents was an error of law. In their submission this Court should reject a new tort of spoliation of evidence for four main reasons. They submitted that:

• (a) a new tort of spoliation would cut across the established principles of law in the tort of abuse of process;
• (b) there are existing sanctions and remedies for the conduct sought to be covered by the proposed tort of spoliation and therefore a new tort is not necessary;
• (c) there are compelling policy reasons militating against the introduction of this new tort; and

(d) the United States and Canadian cases relied on by the Burns are of limited help and relevance.

[25] Finally Mr Chan and Mr Michalik submitted that it is not necessary to allow the claim to go to trial. Instead this is an appropriate case for striking-out as the policy issues are clear and the pleaded case presumably contains all the facts relied on to establish the claim.

Submissions for Mr and Mrs Burns

[26] Mr Crossland, for the Burns, submitted that no court can make a significant decision on a new area of law at the strike out stage. The development of the law should be based on actual facts found at trial and not hypothetical facts that are assumed, possibly wrongly, as true for the purposes of strike out. Mr Crossland pointed to the Canadian approach of allowing a claim for the recognition of the tort of spoliation to proceed to trial.
[27] In Mr Crossland’s submission a tort of spoliation should, in any case, be recognised. The tort protects property rights and is a logical development from other torts involving damage to economic expectancy by unlawful means. This distinguishes the case from abuse of process cases which are founded on an entirely different basis. In addition, traditional remedies may not always be sufficient to compensate any party wronged by a spoliation.
[28] Mr Crossland submitted that new torts do not always increase the likelihood of litigation. Nor should the need for finality in litigation prevent the recognition of the tort. Justice should not be sacrificed for court efficiency and finality when the substance of the tort is that the procedure by which a decision was reached was flawed and unfair. Additionally, the difficulty of assessing damages should not be a ground for refusal to recognise the tort.
[29] In any event, Mr Crossland submitted, the benefits of recognising this tort far outweigh any negative perceived consequences. A spoliation tort will promote truth and fairness. Deterrence is also promoted because the potential for damages and publicity will significantly increase, and the policy goal of accurate fact finding will be assisted by the tort since spoliation of evidence prevents fair and proper determination of issues.

What is spoliation of evidence?

[30] Blacks Law Dictionary (7ed, 1999) 1409 defines spoliation as:

The intentional destruction, mutilation, alteration, or concealment of evidence, usu. a document. If proved spoliation may be used to establish that the evidence was unfavorable to the party responsible.

[31] Mellinkoff’s Dictionary of American Legal Usage (West Publishing, 1992) 610 defines spoliation as:

An antique way of saying spoiling or destroying. The act done by someone who hardly anyone but a lawyer would call a spoliator.

Spoliation of evidence is then described in Mellinkoff as alteration, destruction, or disposal of a writing or property preventing its use in litigation. The description goes on to say that intentional spoliation supports an inference that the item was unfavourable to the person responsible. It further notes that, in criminal law, spoliation may amount to obstruction of justice and that, in some jurisdictions, intentional or negligent spoliation may be a cause of action in tort for destroying or injuring the case of a plaintiff who needed the evidence.

[32] As discussed in more detail below, an independent tort of spoliation has been recognised in some States in the United States. There are two main types of spoliation that have been recognised - intentional spoliation and negligent or reckless spoliation. A defendant in a spoliation case can be either a party to the underlying litigation or a third party. The Burns allege both intentional and negligent spoliation against the Bank and Mr Ferguson.
[33] Intentional spoliation includes both destruction and concealment of documents. The elements of the tort were set out by the Ohio Supreme Court in Smith v Howard Johnson Company 615 NE 2d 1037, 1038 (1993) as follows:

[T]he elements of a claim for interference with or destruction of evidence are (1) pending or probable litigation involving the plaintiffs, (2) knowledge on the part of defendant that litigation exists or is probable, (3) wilful destruction of evidence by defendant designed to disrupt the plaintiff’s case, (4) disruption of the plaintiff’s case, and (5) damages proximately caused by the defendant’s acts ...

[34] The elements of negligent or reckless spoliation of evidence, as enumerated by the District of Columbia Court of Appeals, were set out in Holmes v Amerex Rent-a-Car 710 A 2d 846, 854 (1998) as follows:

(1) existence of a potential civil action; (2) a legal or contractual duty to preserve evidence which is relevant to that action; (3) destruction of that evidence by the duty-bound defendant; (4) significant impairment in the ability to prove the potential civil action; (5) a proximate relationship between the impairment of the underlying suit and the unavailability of the destroyed evidence; (6) a significant possibility of success of the potential civil action if the evidence were available; and (7) damages adjusted for the estimated likelihood of success in the potential civil action.

[35] There is some variation in the elements required to sustain a claim for spoliation among the various States. For example in Tomas v Nationwide Mutual Ins Co 607 NE 2d 944, 948 (1992) the Court of Appeals of Ohio suggested that, in order to succeed, the plaintiff had to show that, but for the failure to retain the material (in that case the steering mechanism of a vehicle), the plaintiff would have succeeded in the underlying litigation. Some judgments even suggest that it is necessary to resolve the plaintiff’s underlying claim before embarking on a spoliation claim in order to prevent speculative recovery in a spoliation action – see e.g. Federated Mutual Insurance Co Ltd v Lichfield Precision Components Inc 456 NW 2d 434, 439 (Minn 1990). Others suggest that a single trial is preferable – see e.g. Boyd v Travelers Ins Co 652 NE 2d 267, 272 (Ill 1995). While we note these differences in approach, for present purposes we need only concern ourselves with the broad outline of the torts as set out above.

Position in the United Kingdom, Australia and Canada

[36] An independent cause of action based on spoliation of evidence is not recognised in the United Kingdom or in Australia. The Victorian Court of Appeal recently examined the question of the destruction of documents in British American Tobacco v McCabe [2002] VSCA 197. The Court noted the recognition of the tort of spoliation in some United States jurisdictions but said that the tort forms no part of Australian law and that the law in Australia relies upon procedural sanctions. The question on that appeal was, rather, the sufficiency and applicability of the procedural remedies available, not the invocation of a new tort – see paras 163-164.
[37] The position in Canada is that there has been a tentative recognition of the tort of spoliation in Ontario, at least to the extent of permitting the issue to proceed to trial – see e.g. Spasic Estate v Imperial Tobacco Ltd (2000) 49 OR (3d) 699. But British Columbia has held that there is no such tort in Canada – see Endean v Canadian Red Cross Society (1998) 157 DLR (4th) 465. The Supreme Court of Canada is yet to consider the issue. Leave to appeal was granted in Endean but the appeal was not pursued. Leave to appeal was refused in Spasic Estate but no reasons were given for that refusal. The refusal of leave cannot be taken as signifying approval of the decision as it may be, for example, that the Court considered the appeal premature as the case was to proceed to trial.

Position in the United States

[38] The first decision expressly to recognise the tort of spoliation in the United States was the 1984 Californian case of Smith v Superior Court 198 Cal Rptr 829 (Cal Ct App 1984) in which parts of a van involved in an accident that caused serious injury were disposed of by the defendant with knowledge of their evidentiary importance. The Court referred to the ability of the common law to develop. New torts could be recognised as the need arose, with the common thread being the idea of unreasonable interference with the interests of others (at 832). As an analogy to the tort of intentional interference with prospective business advantage, the opportunity to win a lawsuit was compared with a reasonable probability of obtaining a contract or profit. The Court considered that a prospective civil action in a product liability case is “a valuable ‘probable expectancy’ that the court must protect from the kind of interference alleged herein” (at 837). The guiding principle for the Court appeared to be that “for every wrong there is a remedy” (at 832).
[39] A number of States have since recognised spoliation as a separate tort but more have rejected it, at least on the facts of a particular case. In addition, not all of the States which recognise an independent tort of spoliation accept all forms of spoliation. For example in Hannah v Heeter (No. 30962, 30 June 2003) the Supreme Court of Appeals of West Virginia recognised a tort of intentional spoliation of evidence, whether by a party to a civil action or a third party. It rejected a tort of negligent spoliation by a party to litigation and allowed the tort of negligent spoliation by a third party only if that third party had a special duty to preserve the evidence arising from a contract, agreement, statute, administrative rule, voluntary assumption of duty or other special circumstance. In contrast, Alabama does not recognise an independent tort of spoliation at all where the spoliator is a defendant in an action, but does recognise third party spoliation where a third party has knowledge of a pending or potential lawsuit and accepts responsibility for evidence that would be used in the lawsuit – see Smith v Atkinson 771 So 2d 429 ( 2000).
[40] It is interesting that the State which first recognised spoliation as an independent tort has now rejected the concept, at least in terms of intentional spoliation. The Supreme Court of California held by majority in Cedars Sinai Medical Center v The Superior Court of Los Angeles County 954 P 2d 511 (1998) that there is no tort remedy for the intentional spoliation of evidence by a party to the cause of action in cases in which the spoliation victim knows or should have known of the alleged spoliation before the trial. The minority did not discuss the spoliation issue because of procedural concerns.
[41] The majority saw their task as being to weigh the relevant policy considerations that favour or oppose a tort remedy for first party spoliation. They began by condemning the intentional destruction of evidence. They pointed out that destroying evidence increases the risk of an erroneous decision on the merits of the underlying cause of action and that it can also increase the costs of litigation as parties attempt to reconstruct the destroyed evidence or to develop other evidence, which may be less accessible, less persuasive, or both. They said, however, that that alone is not enough to justify creating tort liability for such conduct. It was necessary to determine whether a tort remedy for the intentional first party spoliation of evidence would ultimately create social benefits exceeding those created by existing remedies for such conduct and outweighing any costs and burdens it would impose. They had three concerns in this regard - the conflict between a tort remedy for intentional first party spoliation and the policy against creating derivative tort remedies for litigation-related misconduct, the strength of existing non-tort remedies for spoliation, and the uncertainty of the fact of harm in spoliation cases (at 515).
[42] They considered that an enquiry into whether there should be a tort remedy for the intentional spoliation of evidence must begin with a recognition that using tort law to correct misconduct arising during litigation raises policy considerations not present in deciding whether to create tort remedies for harms arising in other contexts. They pointed out that, in the past, the Court had favoured remedying litigation-related misconduct by sanctions imposed within the underlying lawsuit rather than by the creation of new derivative torts. They referred in particular to the fact that there is no civil remedy against a witness who commits perjury. The goal in this respect was to promote finality of litigation (at 515-516).
[43] The majority then discussed the adequacy of the current non-tort remedies, such as the evidentiary presumption that destroyed evidence was unfavourable to the party which has destroyed it, discovery sanctions, disciplinary sanctions against lawyers involved and criminal sanctions. They concluded that these remedies are extensive and apparently effective as they considered that the problem of spoliation, although real, did not appear to be widespread. They remarked that the reported Californian cases describing instances of intentional spoliation are not numerous (at 517-518).
[44] A number of other considerations weighing against the recognition of a tort remedy for intentional first party spoliation were then set out, the first being the uncertainty of harm. The majority said (at 518):

It seems likely that in a substantial proportion of spoliation cases the fact of harm will be irreducibly uncertain. In such cases, even if the jury infers from the act of spoliation that the spoliated evidence was somehow unfavorable to the spoliator, there will typically be no way of telling what precisely the evidence would have shown and how much it would have weighed in the spoliation victim’s favor. Without knowing the content and weight of the spoliated evidence, it would be impossible for the jury to meaningfully assess what role the missing evidence would have played in the determination of the underlying action. The jury could only speculate as to what the nature of the spoliated evidence was and what effect it might have had on the outcome of the underlying litigation.

[45] They criticised Smith v Superior Court (supra) for failing to distinguish between uncertainty as to the fact of harm and uncertainty as to amount of damage (at 519). The latter would not be a bar to a remedy. Uncertainty as to the fact of harm, however, meant that a tort remedy would not accurately compensate for losses caused by spoliation or correct errors in the determination of issues in the underlying litigation. It would also create the risk of erroneous determinations of liability when the availability of the spoliated evidence would not have changed the outcome of the underlying litigation.
[46] The majority also considered that a tort remedy would impose costs that would weigh against the creation of a separate tort remedy. The risk of erroneous liability could lead persons or entities to preserve documents and things of no apparent value, merely to avoid the possibility of spoliation liability. There was also the cost to defendants and the courts of litigating meritless spoliation claims. There could also be inconsistency between the findings in the spoliation action and those in the underlying cause of action, whether tried separately or together. If tried separately there would be the added burden of duplication of evidence through the necessity to re-run the original litigation (at 519-520).
[47] Finally they did not consider that the existence of a separate tort of spoliation would significantly increase deterrence of the destruction of evidence beyond that afforded by existing remedies. Nor, given the uncertainty of harm, would a tort remedy more accurately compensate the spoliation victim and thus increase deterrence by reducing the benefit to the spoliator. Neither would it increase the frequency with which destruction comes to light, as the motive and opportunity to discover instances of spoliation were at their greatest during discovery in the underlying action. They concluded (at 521):

As we noted at the outset, the intentional spoliation of evidence by a party to the litigation to which it is relevant is an unqualified wrong. We conclude, however, that it is the rare case in which a tort remedy for an intentionally caused harm is not appropriate. The remedies already available in first party spoliation cases to the spoliation victim, especially the evidentiary inference provided by Evidence Code section 413 and the discovery remedies of Code of Civil Procedure section 2023, provide a substantial deterrent to acts of spoliation, and substantial protection to the spoliation victim. Given that existing remedies will in most cases be effective at ensuring that the issues in the underlying litigation are fairly decided, whatever incremental additional benefits a tort remedy might create are outweighed by the policy considerations and costs described above. By opening up the decision on the merits of the underlying causes of action to speculative reconsideration regarding how the presence of the spoliated evidence might have changed the outcome, a tort remedy would not only create a significant risk of erroneous findings of spoliation liability but would impair the fundamental interest in the finality of adjudication and the stability of judgments.

[48] The Supreme Court of California has also by majority rejected an independent tort of intentional spoliation by a third party in Temple Community Hospital v The Superior Court of Los Angeles County 976 P 2d 223 (1999). It did so for similar reasons to those set out in Cedars-Sinai, including the same considerations relating to the desirability of finality in litigation. The majority said (at 229):

We are reluctant to provide disappointed litigants a second opportunity to seek the compensation they sought in the original lawsuit, even if they seek it against a party not involved in the original lawsuit. We also are reluctant to require courts to provide a forum for parties who seek to avoid the effect of a prior judgment by asserting that a collateral wrong improperly affected the verdict. The spoliation tort not only would provide the disappointed litigant a second opportunity to seek compensation, it would require retrial of the first case in order to permit the plaintiff to demonstrate in what respect the alleged spoliation altered the outcome of the first trial. Indeed, the matter might still continue, for spoliation in the second trial might give rise to yet a third lawsuit.

[49] The Court noted, as it had in Cedars-Sinai, that perjury by a witness is not actionable in tort. The Court saw third party spoliation of evidence as analogous to perjury by a witness. As in the case of spoliation by a party, one party unfortunately may be deprived of critical evidence or of a defence, or remain uncompensated for an injury (at 229-230). The Court concluded, however (at 230), that this potential injustice cannot be avoided “if we are to escape what we have identified as the greater harm of subjecting parties, witnesses, and the courts to unending litigation over the conduct and outcome of a lawsuit”. The Court acknowledged that perjury and spoliation are distinguishable in the sense that, if perjury is discovered before or during trial, it may be possible to expose the falsehood through cross-examination, whereas the absence of evidence that has been suppressed by a non-party sometimes may foreclose a claim altogether. The Court continued (at 230):

Nonetheless, our desire-for the benefit of litigants, witnesses, and the courts – to avoid endless litigation makes us reluctant to permit a party who is disappointed in the verdict in one case to have a second opportunity to obtain compensation or other relief from a new defendant whose spoliation of evidence assertedly brought about the disappointing verdict on the underlying claim.

[50] The majority also considered that, to the extent there was a real problem with third party spoliation, such spoliation would often be exposed in the underlying litigation. They pointed out that there is in any event likely to be little motivation for intentional spoliation when the third party is wholly divorced from the litigation. They also referred to the uncertainty of the fact of harm and the causation issues discussed in Cedars-Sinai but with the added dimension that, where the third party spoliator is not acting at the behest of a party, both parties to the litigation may be victimised by the destruction of evidence and it may be difficult to determine who has suffered the loss (at 230-231).
[51] They considered that the burdens and costs of recognising a tort remedy for third party spoliation were considerable and probably greater than in the case of first party spoliation, if for no other reason than that the cost to potential defendants was so much larger, especially with regard to the burdens it could impose on third parties to retain evidence. They said (at 232):

We believe the broad threat of potential liability, including that for punitive damages, might well cause numerous persons and enterprises to undertake wasteful and unnecessary record and evidence retention practices. Medical providers, for example, might feel constrained to retain contaminated surgical devices and byproducts of medical procedures out of fear of liability.

[52] The majority recognised that there were some differences between parties to litigation and third parties in that some of the sanctions, such as the evidentiary inference as well as many of the discovery sanctions, were not available in respect of third party spoliation. The majority nevertheless considered that there were sufficient sanctions, including contractual remedies, if a duty to preserve evidence arose through contract. They said (at 232):

The victim of third party spoliation, however, is not entirely helpless. Some discovery sanctions are available to punish third party spoliation, including monetary and contempt sanctions against persons who flout the discovery process by suppressing or destroying evidence....A criminal sanction remains available under Penal Code section 135, as are disciplinary sanctions against attorneys who may be involved in spoliation.

...We observe that to the extent a duty to preserve evidence is imposed by statute or regulation upon the third party, the Legislature or the regulatory body that has imposed this duty generally will possess the authority to devise an effective sanction for violations of that duty. To the extent third parties may have a contractual obligation to preserve evidence, contract remedies, including agreed-upon liquidated damages, may be available for breach of the contractual duty. Criminal sanctions, of course, also remain available.

[53] They went on to say that, if existing remedies appear limited, that may well be because third party spoliation has not appeared to be a significant problem in the Californian courts. They considered that the non-party who is not acting on behalf of a party but is independently motivated to destroy evidence with the intent to interfere in the outcome of litigation between other parties must be a rarity, perhaps because such destruction can subject the non-party to criminal prosecution (at 232).
[54] Finally the majority said that their conclusion that California should not recognise a tort of intentional spoliation by a third party was strengthened by the anomaly that would be created if there was liability for third party spoliators when the Court in Cedars-Sinai had held there was no liability on litigants who engage in such behaviour to obtain an advantage in their own litigation. They concluded (at 233):

...the benefits of recognizing a tort cause of action, in order to deter third party spoliation of evidence and compensate victims of such misconduct, are outweighed by the burden to litigants, witnesses, and the judicial system that would be imposed by potentially endless litigation over a speculative loss, and by the cost to society of promoting onerous record and evidence retention policies.

[55] We have described the two majority judgments of the Supreme Court of California in some detail because they conveniently set out the policy considerations against recognising spoliation as a separate tort. It is also significant that the decisions are from the State which first recognised the tort.
[56] On the whole, the cases in which the tort has been recognised do not discuss the policy issues favouring the establishment of a separate tort in much detail. Recognition of the tort is based on the disapproval of spoliation and a desire to ensure an effective and appropriate remedy for the wronged party. These themes and that of deterrence also pervade the academic commentaries that favour recognition of the independent tort. We set out below a selection of the academic commentary which helpfully details the policy considerations favouring the recognition of a tort of spoliation.
[57] Steffen Nolte in “The Spoliation Tort: An Approach to Underlying Principles” (1994) 26 St Mary’s LJ 351 suggests the establishment of an independent tort is necessary because the existing remedies are inadequate, in particular against third party spoliators. He says (at 355):

In effect, traditional procedural and nonprocedural remedies are flawed by their limited scope, their inadequate preventive effect, and their failure to provide the victim with just compensation.

[58] An independent tort, with the possibility of both punitive damages and compensatory damages, would, in his view, provide a further level of deterrence. He acknowledges the difficulty of calculation of damages in spoliation cases but considers (at 396) that a relaxation of the damages standard is justified because spoliation of evidence:

...constitutes serious discovery abuse, violating the spirit of liberal discovery, orderly judicial procedures, and traditional notions of fair play in civil litigation.

[59] Nolte also acknowledges the increased likelihood of litigation and the conflict with the goal of finality. He comments, however (at 398-399):

Although these concerns are justifiable, the goal of justice should not be sacrificed for the goals of court efficiency and finality. Importantly, jurisdictions adopting the spoliation tort have not reported an avalanche of lawsuits reflecting endless litigation.

[60] Professor Nesson in “Incentives to Spoliate Evidence in Civil Litigation: The Need for Vigorous Judicial Action” (1991) 13 Cardozo L Rev 793 makes the same point about the inadequacy of existing remedies. In particular he points out (at 801) that what is often referred to as the ultimate sanction, the dismissal of a claim or a defence, is not in fact punitive:

[C]ourts have maintained that defaulting a defendant or dismissing a plaintiff deters future spoliation. This is sophistry. There is nothing punitive in imposing default or dismissal in a case the spoliator would have lost anyway.

[61] Pati Jo Profahl in “Smith v Superior Court: A New Tort of Intentional Spoliation of Evidence” (1985) 69 Minn L Rev also favours the recognition of an independent tort of spoliation, stressing the public interest in deterring the destruction of evidence. The article says (at 972-3):

The benefits of recognizing a tort cause of action for the intentional spoliation of evidence outweigh any burdens that may result to potential defendants. The new tort promotes both public interests, by enhancing the administration of justice and deterring the destruction of evidence, and private interests, by providing an injured plaintiff with a realistic opportunity to receive compensation for injuries. Any burden imposed on potential defendants would be minimal and may be largely avoided. If, for example, the duty to preserve evidence proves excessively costly to the custodian, the court may order the evidence transferred to the other party and charge that party with the duty of keeping the evidence at its own cost. The obligation imposed thus may be seen as merely a duty to not spoliate rather than an affirmative duty to preserve evidence.

It is also pointed out (at 979) that the imposition of a default judgment can only apply where there is no proper response to an order compelling discovery. It does not deal with destruction of evidence before the proceedings were instituted.

[62] Jay E Rivlin in “Recognizing An Independent Tort Action Will Spoil A Spoliator’s Splendor” (1998) 26 Hofstra L Rev 1003 also considers the traditional remedies inadequate and in particular the fact that they are tied to the trial. The article says:

The traditional spoliation remedies suffer from numerous shortcomings: the remedies do not send a deterrence message to potential spoliators; the remedies are only geared to be used during a trial and not after; the remedies do not adequately address the situation when a nonparty spoliates; and the remedies do not momentarily compensate the victimized litigant who usually bears the full cost of discovering the spoliation. Although the traditional remedies have been available to the courts for centuries, spoliation is still a major problem facing the legal system today.

[63] The article points to the slight risk of being caught compounded by the leniency of the penalties that would not outweigh the enormous benefits of withholding evidence if viewed from the perspective of the Justice Holmes’ “bad man”, the person who considers only the material consequences of his actions (a reference to the 1897 address of Oliver Wendell Holmes, “The Path of the Law” (1897) 10 Harv L Rev 457, 459). Rivlin asserts that once a case is settled there is virtually no chance of the spoliation being discovered “because the victimized litigant has no occasion, incentive, or practical means to further investigate the case”. The article concludes with a focus on the deterrent effect of punitive damages awards:

Punitive damages for grossly wanton conduct would bolster the deterrence effect of the intentional tort. There would be a new factor in the cost/risk-benefit calculation. The potential spoliator would no longer believe that the analysis is weighted heavily in favour of spoliating evidence. The chances of being caught would increase if liability is extended to when the ‘fraud’ is discovered. Economically, with potential compensatory and punitive damage awards, the cost of being found liable for the spoliation would be much greater.

[64] Lawrence Solum and Stephen Marzen, in “Truth and Uncertainty: Legal Control of the Destruction of Evidence” (1987) 36 Emory LJ 1085, identify (at 1166) three ways in which legal rules can help rectify the destruction of evidence. These are punishment (by which they primarily mean deterrence), promotion of accuracy and compensation. They say:

...a legal rule might make destruction of evidence a criminal act; the function of that legal rule would be punishment. Or a legal rule might impose an adverse inference on a party or deem a particular issue in a lawsuit admitted by that party; in this case, the purpose of the legal rule might be further accuracy. Lastly, a legal rule might seek in some rough way to redress the imbalance caused by the destruction of relevant evidence; the function of this rule would be compensation of the disadvantaged party. In general, the three ways in which a legal rule may rectify evidence destruction may be termed the ‘functions’ of that rule.

[65] The authors suggest that it is important to distinguish between these three functions in analysing which of the possible remedies is appropriate. They see the independent tort of spoliation as primarily serving the ends of compensation. They appear to see the tort as a last resort and recognise the uncertain nature of the damage. They say (at 1193-4):

One approach to the development of an integrated strategy for the legal control of destruction in civil litigation would begin with consideration of the suitability of each of the doctrines to serve the accuracy, compensatory, and punitive functions. For example, the spoliation inference is most readily adaptable to the accuracy function. In some cases, drawing the spoliation inference will allow the underlying civil litigation to proceed with some confidence that the outcome will likely be the same as if the evidence had not been destroyed. In contrast, the spoliation tort seems best adapted to providing compensation for the loss to the victim of spoliation. Whereas the spoliation inference is usually an all-or-nothing matter – the inference may or may not suffice to enable the victim to win – the spoliation tort allows a damage award tailored to the lost expectancy. Selection of doctrine may also be constrained by precedent in a given jurisdiction, especially in the case of the spoliation tort.

Analysis should begin by returning to the policies favoring legal controls on evidence destruction and the ways (functions) in which these policies might be served. Truthseeking and fairness to litigants would both be served by techniques which restore the accuracy of the original proceedings. Thus, if the substance of destroyed evidence may be reconstructed from other sources, or if reconstruction would plainly not have affected the outcome of the proceeding, a monetary discovery sanction might be all that is appropriate under the circumstances.

Alternatively, if the destructive act results in the irretrievable loss of evidence, but the lost evidence is relevant to a limited issue or issues in the case, a nonmonetary, issue-related discovery sanction or an adverse inference instruction might be in order. If the accuracy of the original proceeding cannot be restored, the trial judge should weigh the materiality of the evidence and the reason for its destruction in deciding whether to order dismissal of the complaint or a default judgment. If discovery sanctions are too severe, a less definite instruction explaining the spoliation inference should be considered. If the particular destructive act renders the spoliation inference inadequate – for example, in a case in which it is difficult or impossible to speculate what the outcome in the underlying litigation would otherwise have been – the victim might be left to pursue an action in tort. In that case, the objective would be to compensate the victim for the loss of an expectancy of admittedly uncertain dimensions.

Tort of abuse of process

[66] The Bank’s and Mr Ferguson’s first submission was that a new tort of spoliation would undermine the existing tort of abuse of process. The cause of action for abuse of process arises when a party has misused the processes of the court for an improper and ulterior purpose, such as extortion or oppression. The leading case is Grainger v Hill [1838] EngR 365; (1838) 4 Bing NC 212; 132 ER 769. In that case the mortgagee of a vessel had the owner arrested, ostensibly for non-payment of the mortgage debt (claimed well before it was due). The true purpose was to compel the owner to hand over the register of the vessel without which the ship (the mortgagee’s security) could not sail. The owner alleged that the mortgagee had abused the process of the law by applying it to extort property from him and successfully claimed damages for the loss of the voyages which he could not undertake without the register. The abuse of process was not the commencement of proceedings for the debt which the mortgagee knew was not owing but the commencement of the proceedings with the aim of extorting the register, an object wholly collateral to the proceedings – see the discussion in Gordon v Treadwell Stacey Smith [1996] 3 NZLR 281, 290-293.
[67] Presenting a false case does not amount to abuse of process (although of course other sanctions could operate). As is said in Stephen Todd (ed) The Law of Torts in New Zealand (3ed, Brookers, 2001) 963, referring to the cases of Cabassi v Vila [1940] HCA 41; (1940) 64 CLR 130 (HCA); Hargreaves v Bretherton [1959] 1 QB 45; Marrinan v Vibart [1963] 1 QB 528 (CA) and Metall und Rohstoff AG v Donaldson Lufkin & Jenrette Inc [1990] 1 QB 391, 470 (CA):

The distinction is between corruptly trying to win a case and corruptly using it for a collateral purpose. This also explains why the tort does not extend to a person who dishonestly presents a false case for the purpose of advancing or sustaining his or her claim or defence in civil proceedings, or who gives perjured evidence in a criminal action.

[68] Mr Chan and Mr Michalik submitted that spoliation of evidence is a form of presenting a false case and that this has been excluded from the tort of abuse of process for good policy reasons, including the goal of promoting finality of litigation. This Court, they submitted, should refuse to recognise spoliation as a separate tort for the same reasons as in South Pacific Manufacturing Co Ltd v New Zealand Security Consultants & Investigations Ltd [1992] 2 NZLR 282 where this Court struck out a claim that an insurance investigator owes a plaintiff a duty of care when investigating the plaintiff’s insurance claims. One of the reasons given was that the alleged duty would cut across established principles of law in other fields and in particular would deprive defendants of protections those laws provided, such as, in the case of defamation, qualified privilege – see the judgment of Richardson J at 309.
[69] In this case the suggested independent tort of spoliation does not cut across other areas of law in the sense that protections available under those other areas would not be available. It is thus not quite the same situation as the Court was dealing with in South Pacific Manufacturing Co Ltd. Nevertheless it would extend tort law into the area of litigation-related misconduct during the course of proceedings, an area which has been seen as not properly within the established litigation based torts. While this does not necessarily rule out recognising the new tort, it does indicate that there should be a large measure of caution exercised before overturning such a long-standing policy choice.
[70] Mr Crossland submitted that spoliation is distinct from abuse of process because spoliation is concerned with the protection from interference of a plaintiff’s property right whereas abuse of process is concerned with the misuse of the legal process to gain a collateral advantage. On this analysis, however, any litigation based misconduct must potentially interfere with a property right. This would mean, therefore, that perjury should be included in any new tort.
[71] Mr Crossland recognised that there is a resemblance between perjury and spoliation in that both involve truth suppression, but argued that it is only a superficial resemblance. They are, in his submission, quite different. Perjury, in the sense of giving false evidence in court, is by its nature committed in a public forum where opposing counsel has the opportunity to expose the truth through cross-examination. Spoliation of evidence, on the other hand is, in his submission, committed in secret. In addition, Mr Crossland submitted that the purpose behind immunity from civil suit for perjury is that witnesses are not discouraged from giving evidence, a matter which does not apply to spoliation.
[72] We acknowledge that there are differences between perjury and spoliation. We are not convinced, however, that the differences are so great as to justify a different approach. To the extent that any alleged spoliation involves alteration of documents, while the alteration would have occurred in private, the altered document would nevertheless be available for cross-examination (and forensic analysis). There is also the opportunity to cross-examine at trial in relation to whether documents have been concealed or destroyed. While one of the reasons for immunity from civil suit for perjury would not be likely to apply to intentional spoliation at least, the other purpose served by not allowing a civil suit for litigation based misconduct is the goal of ensuring finality of litigation. This goal would be compromised by the ability to issue further proceedings for spoliation as much as it would be by allowing proceedings related to other litigation based misconduct. The existence of the tort may also encourage over-complete discovery which can increase cost and serve to obscure the truly relevant documents. It may also serve to undermine the aim of the reforms recommended by the Law Commission (if they are implemented) to limit the discovery process – see General Discovery (NZLC R78, 2002).
[73] Finally we remark that the recognition of spoliation as an interference with a property right would mean that a defendant would have difficulty seeking compensation based on the tort of spoliation if a plaintiff or third party had spoliated evidence as it would be difficult for a defendant in most circumstances to point to a chose in action or “probable expectancy” to protect unless the latter phrase is seen as including a “probable expectancy” of not losing a lawsuit. This would, however, unduly stretch the concept of property.

Existing remedies for spoliation

[74] The second point made on behalf of the Bank and Mr Ferguson was that a wide range of remedies already exist in New Zealand for the non-disclosure of documents and there is no need for any further remedy. The existing remedies include provisions in the High Court Rules such as r277, which provides for sanctions in circumstances where a party makes default in complying with any interlocutory order, including a discovery order. Possible sanctions include dismissal of a plaintiff’s claim or striking out a defence. Rule 317A provides that a non-party who wilfully and without lawful excuse fails to comply with a discovery order is guilty of contempt of Court. There are also the existing principles related to contempt of court and the possibility of disciplinary action against any legal practitioner involved, as well as criminal sanctions. These include ss108-117 of the Crimes Act which define perjury and related crimes, including fabricating evidence, ss231 and 232 proscribing fraudulent destruction and concealment of documents and ss266, 266A and s266B relating to forgery and fraudulent use of documents.
[75] In addition, the presumption omnia praesumuntur contra spoliatorem (all things are presumed against the spoliator) arises – see for one of the earliest examples Armoury v Delamirie [1722] EWHC KB J94; (1721) 1 Str 505; 93 ER 664 (KB). See also The Ophelia [1916] 2 AC 206 in which Sir Arthur Channell stated (at 229-230):

If any one by a deliberate act destroys a document which, according to what its contents may have been, would have told strongly either for him or against him, the strongest possible presumption arises that if it had been produced it would have told against him, and even if the document is destroyed by his own act, but under circumstances in which the intention to destroy evidence may fairly be considered rebutted, still he has to suffer. He is in the position that he is without the corroboration which might have been expected in his case.

[76] Mr Crossland submitted that the existing remedies are largely ineffective in cases of this nature in that most are only available in the course of litigation. They thus provide inadequate compensation for those, like the Burns, who discover spoliation after trial or after settling the action. Insofar as criminal sanctions are concerned, he submitted that police priorities would mean such offences are rarely prosecuted. There is thus inadequate deterrence. Criminal sanctions against a spoliator are also unlikely to compensate the wronged party. Mr Michalik and Mr Chan on the other hand submitted that these remedies must be effective as so few cases have arisen in the New Zealand context.
[77] The Californian Supreme Court also took the view, based on the number of cases in the Californian courts, that the problem was not widespread there. As has been seen, the commentators in the United States who favour the recognition of an independent tort take a contrary view. They say that the problem is widespread but hidden and cite surveys of lawyers that, they say, highlight the problem. While we are not aware of any similar surveys that have been conducted in New Zealand, the Law Commission in its report, General Discovery (NZLC R78, 2002), cited submissions that suggested the problem was more widespread in New Zealand than the Law Commission had originally thought. It said (at para 23):

We do not and cannot know the extent to which litigants cheat in the preparation of discovery lists by concealing or destroying potentially damaging documents. Submitters suggested to us that observations in our preliminary paper that “the received but perhaps over-sanguine view is that generally speaking there is honest compliance” recorded an unduly cosy assumption too shaky to serve as an adequate foundation for rule making. It was suggested that experienced litigants, aware of their discovery obligations, may conceal inconvenient documents from their own lawyers. It was asserted, moreover, that the ongoing shift away from professionalism towards a more business oriented approach to lawyering meant that it can no longer be assumed that solicitors will continue to respect their obligations. We are unpersuaded by this last point. It would be a remarkably foolish lawyer who would risk the disciplinary sanctions (which could include striking off) that would result if it were found out that the lawyer had been a party to discovery abuse. We agree, however, that the sanctions need strengthening.

[78] Even assuming that the problem is in fact widespread in New Zealand, we do not consider that the answer is the recognition of an independent tort of spoliation. In terms of deterrence, the addition of a further remedy would obviously have some effect but in the circumstances this is unlikely to be great. The United States jurisdictions which recognise the tort have a variety of ways of assessing damages. The one that is the most prevalent is that which calculates damages on the basis of the loss of a chance. In Holmes v Amerex Rent-A-Car 710 A 2d 846, 853 (DC 1998) the court held that:

...in an action for negligent or reckless spoliation of evidence, damages arrived at through just and reasonable estimation based on relevant data should be multiplied by the probability that the plaintiff would have won the underlying suit had the spoliated evidence been available.

[79] Oliver Wendell Holmes’ proverbial bad man, referred to in para [63] above, could reason that, without spoliation he would pay 100% of damages whereas with spoliation he risked paying only a lesser percentage. Any cost/benefit analysis would thus favour spoliation. In the United States context the addition of punitive damages may change that equation – see e.g. Dale v Dale 78 Cal Rptr 2d 513 (Cal App 1998). In New Zealand, however, exemplary damages awards are traditionally not high. We also consider that a person not deterred by the possibility of criminal conviction is unlikely to be deterred by a possible civil sanction.
[80] In terms of the effectiveness of criminal sanctions we are not prepared to assume that the police, whatever their policing priorities, would ignore crimes that strike at the heart of the justice system. We thus do not accept Mr Crossland’s argument that criminal sanctions are ineffective. We also note, as did the Law Commission in the passage quoted above, that any legal practitioner involved in spoliation risks disciplinary sanctions and in extreme cases the ultimate sanction of being unable to continue practising as a lawyer. This must provide a powerful deterrent, at least to lawyers.
[81] Another concern expressed has been that the existing remedies inadequately compensate the victims of spoliation. In this regard we agree with the majority of the Californian Supreme Court in Cedars-Sinai (discussed in para [45]) above when they said that there is in fact a risk of erroneous liability findings with a separate spoliation tort due to the uncertainty of the fact of harm. There is thus a risk that some victims would be overcompensated. Equally, if the damages are calculated on the basis of loss of a chance, some victims will be undercompensated. A party winning at trial does not have its damages reduced by the percentage chance it had of losing the case.
[82] There is also the criticism that the existing remedies are not effective when spoliation is discovered after trial or, as in the case of the Burns, after settlement. In this regard we would favour remedies which would allow, in suitable cases, another trial in the underlying litigation rather than there being a separate cause of action for spoliation which carries the risk of inconsistency of result. If there has been concealment of documents then in any re-run of a case these documents would be taken into account and there would also be the possibility of adjustment of costs. If documents have been destroyed then a similar result can be achieved through the evidentiary presumption, except in rare cases. It must of course be recognised that before there can properly be an inference that the spoliated document is unfavourable to the cause of the party who has destroyed it, there must be some evidence of its contents – see Wigmore on Evidence (3ed, 1940) s291. The presumption could also only serve to strengthen a plaintiff’s case and not to prove it. An inference cannot be a total substitute for evidence. In some cases – likely to be few - the result of this will be the total inability to bring an action because the party has no evidence as to the nature of the documents that have been destroyed and no other evidence. This is unfortunate but policy in this area should not be driven by the rare case.
[83] Finally we note that the Law Commission in its report General Discovery (NZLC R78, 2002) recommended the strengthening of existing remedies, not the creation of new remedies. For example, it recommended (at para 24) strengthening the sanctions for wilful discovery abuse by making those sanctions mandatory unless the party in default satisfies the Court that there are special reasons why an order should not be made. It also considered that, because compliance with discovery obligations is difficult to police and is heavily dependent on the list-maker’s sense of obligation, it is appropriate to restore the requirement that discovery lists be verified by affidavit (para 27).
[84] The Rules Committee, the statutory body responsible for procedural rules in New Zealand’s main courts, released a consultation paper on 19 September 2003 seeking comment on proposed amendments to the discovery process in the High Court Rules based on the Law Commission Report. The proposed amendments do not include the Law Commission’s recommended mandatory sanction for discovery abuse. They do, however, require that discovery lists are to be verified by affidavit (proposed rule 295(2) at p13), and go further in codifying the solicitor’s obligation to ensure that his or her client understands and fulfils their discovery obligation faithfully (proposed rule 296 at p14). It is not the time for the courts to be creating new remedies when the Law Commission has so recently reported and the matter is under consideration by the Rules Committee, which as the Law Commission recognised, is the legislator in this case, and when the effectiveness of the changes to the discovery provisions have yet to be tested.

Policy Issues

[85] Mr Michalik and Mr Chan also submit that there are policy reasons for not recognising a separate tort. These have been set out in detail by the Californian Supreme Court, as discussed at paras [40]-[54] above, and we agree with their analysis. In short, the policy reasons that favour non-recognition include that alternative remedies are available, that the fact of damage is too speculative and that the tort is potentially inconsistent with the policy favouring final judgments, since a plaintiff who lost the primary lawsuit may bring a second separate suit by establishing that a piece of relevant evidence was destroyed or concealed. This creates the possibility of inconsistent results. While New Zealand does not, to the same extent as California, require “an antidote for the fevers of litigation” (Cedars-Sinai at 515), this Court should still be wary about adopting a new tort that could have the consequence of undermining the finality of adjudication and producing further litigation.
[86] In addition, Mr Michalik submitted that recognising a tort of third party spoliation by lawyers acting for the opposing party would have the potential to place those lawyers in a position of conflict. A lawyer owes a duty to the court and to his or her client. Possible spoliation liability could unacceptably interfere with the relationship between a lawyer and his or her client by creating an inconsistent duty towards an opposing party. We accept this submission.

Do the US cases help?

[87] As has been seen, there is no consensus even in the United States as to whether an independent tort of spoliation should be recognised. The trend appears to be against recognition, and significantly the State that first recognised the tort has now rejected it, probably in all its manifestations. Although Cedars-Sinai and Temple related to intentional spoliation we consider the reasoning is equally applicable to negligent spoliation. In Daniel F Gourash (ed) Spoliation of Evidence: Sanctions and Remedies for Destruction of Evidence (American Bar Association, 2000) 65, the authors consider that these decisions, and others between 1998 and 2000, may signal a trend away from adopting spoliation of evidence as a separate tort. They point out that, of the jurisdictions to recognise spoliation of evidence as a separate tort for the first time, only a handful have done so since 1995. In the circumstances we do not consider the United States cases of assistance. There is a similarity to the position in South Pacific Manufacturing Co Ltd where Cooke P said (at 293) of the duty the plaintiffs had argued for in that case that had been recognised by some United States courts:

...it is not, as yet at any rate, a widespread or uncontroversial development. For New Zealand purposes it can be of only limited help.

[88] Jurisdictions such as Australia and the United Kingdom have traditionally been seen as more like New Zealand and those jurisdictions do not recognise a separate tort of spoliation. We also observe that most of the spoliation cases that have arisen in the United States relate to personal injury litigation which here is covered by the accident compensation regime. In addition, the legal tradition in the United States is more activist, especially in the area of tort law, than it has been in New Zealand – see the discussion in John Fleming The American Tort Process (Clarendon, 1988) 32. In particular, Professor Fleming notes the pressure on the legal system to cope with social change since the last world war, particularly in the field of tort law. He considers that in the United States, more than elsewhere, it has fallen almost exclusively to the courts, unaided by legislation, to determine the direction and pace of legal adjustment. That is not generally the position in this country.

Should the case go to trial?

[89] We have had very full argument on all aspects of spoliation. We agree with Mr Chan and Mr Michalik that we have sufficient information at this stage to come to a view on whether the tort should be recognised in New Zealand. This case is distinct from, say, a negligence claim alleging a novel duty of care where the exact relationship between the parties is required to be determined in order to decide whether a duty should be imposed.
[90] The position here is similar to that in the South Pacific Manufacturing Co Ltd case where this Court struck out claims of the existence of a duty of care owed by an insurance investigator investigating a plaintiff’s insurance claim. Although accepting that the discretion to strike out was one to be exercised only sparingly, Casey J (at 311) considered that case appropriate for a striking out application because the nature of the work undertaken by insurance investigators was well known and the Court was able to assess the relevant policy considerations.
[91] In the present case the relationships between the parties are well understood. The parties’ roles, as opponents in litigation, and legal counsel are likewise well understood, as are the duties and responsibilities attaching to each role. It is difficult to see what further information would be forthcoming if a full trial were held. We thus have felt able to deal with the matter at this stage and, for the reasons we have already canvassed, we do not consider that an independent tort of spoliation (whether negligent or intentional and whether first party or third party) should be recognised in New Zealand.

Result and costs

[92] The Burns’ appeal against Master Gendall’s refusal to enter summary judgment in their favour is dismissed.
[93] The decision of Master Gendall dismissing the National Bank of New Zealand Ltd and Mr Ferguson’s application to strike out the Burns’ second alleged cause of action in spoliation is set aside and the strike-out application is granted.
[94] Costs of $8,000 plus reasonable disbursements are awarded to the Bank. Costs of $4,000 plus reasonable disbursements are awarded to Mr Ferguson.

Solicitors:

Stace Hammond, Hamilton for Appellants

Minter Ellison Rudd Watts, Wellington for First Respondent

Morrison Kent, Wellington for Second Respondent