Guttenbeil v Tower Insurance Limited [2012] NZHC 2106 (13 August 2012)

Last Updated: 30 August 2012

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2010-404-5675 [2012] NZHC 2106

BETWEEN HERMAN ROBERT GUTTENBEIL AND YVONNE GAY GUTTENBEIL

First Plaintiffs

AND SARAH GUTTENBEIL AND BRENT GUTTENBEIL

Second Plaintiffs

AND XS PERFORMANCE LIMITED Third Plaintiff

AND TOWER INSURANCE LIMITED First Defendant

AND IAG NEW ZEALAND LIMITED Second Defendant

Hearing: 13 July 2012

Appearances: E Telle with L T Meys for Plaintiffs

R Hern with G Wishart for First Defendant

R Armstrong for Second Defendant

Judgment: 13 August 2012

JUDGMENT OF ASSOCIATE JUDGE R M BELL [judgment re-called and re-issued]

_Solicitors:

This judgment was reissued by me on 22 August 2012 at 3:00pm

pursuant to Rule 11.5 of the High Court Rules.

(amending paragraph [55] hereof)

...................................

Registrar/Deputy Registrar

Neilsons Lawyers (Edwin Telle/Luke Meys) P O Box 13723 Onehunga 1643, for Plaintiffs

Email: [e-mail] / [e-mail]

McElroys (Richard Hern/G Wishart) Auckland, for First Defendant

Email: [e-mail] / [e-mail]

Young Hunter (A R Armstrong) P O Box 929 Christchurch 8140 for Second Defendant

_{Email: [e-mail]}

GUTTENBEIL V TOWER INSURANCE LIMITED HC AK CIV-2010-404-5675 [13 August 2012]

[1] There are cross-applications for discovery. The defendants’ joint application against the plaintiffs is largely resolved. The plaintiffs’ application against the defendants is contested. It raises these questions:

[a] Have the defendants properly listed documents in their control?

[b] Are internal documents of the defendants’ consultants and investigators in the defendants’ control?

[c] From when can the defendants claim litigation privilege?

[d] Can the defendants claim litigation privilege for witness statements? [e] Does an insurer’s duty of utmost good faith require the defendants to

disclose documents subject to litigation privilege?

[f] Have the defendants waived privilege under section 65(2) of the

Evidence Act 2006? and

[g] Have the defendants put documents in issue under section 65(3)(a) of the Evidence Act 2006?

What the case is about

[2] The plaintiffs sue Tower and IAG for claims under insurance policies.

[3] The first plaintiffs are the parents of the second plaintiffs. The first plaintiffs and their daughter, Sarah, lived at 77 Tautari Street, Orakei, Auckland. The family have a company, XS Performance Ltd, that carried on business supplying performance car parts and accessories. The plaintiffs are the only shareholders of XS Performance Ltd. Yvonne Guttenbeil is the sole director. XS Performance Ltd operated from leased premises at 431 Church Street East, Penrose, Auckland.

[4] Tower Insurance Ltd, the first defendant, is the insurer of the Guttenbeils’ family home at 77 Tautari Street. IAG, the second defendant, insured the household contents, Mrs Guttenbeil’s Chrysler car, and the business and premises of XS Performance Ltd.

[5] On 14 June 2009 the house at 77 Tautari Street was extensively damaged in a fire. The plaintiffs claimed under the insurance policies. Both defendants declined the claims. It is common ground that the cause of the fire was arson. The defendants say that the first and second plaintiffs were parties to the arson. They say that the Guttenbeils were in dire financial circumstances before the fire. Both their business and personal finances were at crisis point. The house at 77 Tautari Street is said to have suffered leaky building defects, affected by water ingress and widespread timber decay. It was said to be unsaleable and could not be economically repaired. The value of the property at 77 Tautari Street was considerably less than the mortgage debt secured over it. The Guttenbeils were out of time under s 393 of the Building Act 2004 for suing anyone for the building defects.

[6] The defendants also say that entry to the house to light the fire was not forced, the fire was set in such a way as to make it appear that its cause was accidental, the accelerant used was kerosene – a kerosene container was found in the basement garage after the fire. The Guttenbeils are alleged to have given false information as to the reported theft of a Mazda ute before the fire. Although they were out of town, the Guttenbeils are said not to have any good reason to be absent from Auckland on the day of the fire and were absent only on a pretext to create an alibi. The Chrysler car at the premises suffered smoke and soot damage but expensive components from the car had been removed and replaced by standard components. There were very few items of personal significance found in the family home after the fire.

[7] The Guttenbeils sue Tower and IAG under the insurance policies. Their claims are more extensive than I have outlined above, but for this decision it is not necessary to set out more details. Similarly, it is not necessary to summarise the array of defences being run by the defendants.

Defendants’ discovery application

[8] By the hearing the focus of the defendants’ application was discovery of financial records of XS Performance Ltd and documents relating to TEA Custodians Ltd’s mortgage, including communications with the lawyers for TEA Custodians, Gibson Sheat. The defendants’ initial discovery application sought extensive non- party discovery and sought extensive discovery of documents of the plaintiff. However, by the hearing, the defendants’ request for non-party discovery had been largely resolved and no orders for non-party discovery were sought. The plaintiffs had made extensive informal disclosure of documents. They did so, while maintaining that the disclosure was not necessary because the documents could not be relevant. They also reserved the claim for privilege in respect of one class of documents (documentation with Simpson Western).

[9] At the hearing, the defendants simply sought an affidavit to be sworn by the plaintiffs confirming the adequacy of the informal disclosure that they had made. That is, they wanted an order for one of the plaintiffs to swear an affidavit as to the disclosure of the documents relating to the financial records of XS Performance Ltd. The affidavit would be in the form required by the rules, but the descriptions of documents used in correspondence between the parties would be adequate. The affidavit would also confirm that there are no other documents in the possession of the plaintiffs. The plaintiffs did not oppose an order for a supplementary affidavit of documents in those terms.

[10] There was also the question of documents relating to TEA Custodians Ltd. In the end, Mr Armstrong did not press for an order in respect of those documents, accepting the statements by the plaintiffs that they do not hold any further documentation beyond what they have already disclosed.

[11] There remains the question of costs. The plaintiffs are legally aided. The defendants sought an order under s 45(5) of the Legal Services Act 2011, declaring what costs would be payable if an order for costs were made. Mr Armstrong limited his claim for costs to the filing of the application. Mr Telle opposed saying that the application was totally unnecessary.

[12] I find that the application was necessary, because the documents were relevant. They were relevant because the financial position of XS Performance Ltd was in issue. XS Performance Ltd is one of the plaintiffs. It is suing for losses said to arise from IAG’s cancellation of its insurance cover. Its financial records are relevant to its own claim. Further, they are relevant to the Guttenbeils’ personal financial position, which bears on the question of motive for the alleged insurance arson.

Plaintiffs’ discovery application

Have the defendants properly listed documents in their control?

[13] The first part of the plaintiffs’ application seeks orders for the defendants to properly and individually identify and describe each discoverable document. The real nub of their complaint came down to these matters:

[a] The defendants had not separately identified and described attachments to other documents and emails;

[b] The defendants had listed documents in groups, rather than individually; and

[c] The defendants had not discovered documents held by inquiry agents and other consultants they had instructed.

[14] The grounds for their complaint are that they were unable to ascertain whether claims to privilege were valid, that documents that ought to have been disclosed had not been and that they were unable to ascertain the identity of witnesses interviewed by the defendants’ consultants.

[15] In Vanda Investments Ltd v Logan,1 Associate Judge Osborne summarised the purpose of the discovery rules:

1 Vanda Investments Ltd v Logan HC Dunedin CIV 2009-412-219, 27 November 2009 at [48].

(a) To ensure (to the reasonable satisfaction of the Court and other parties)

that all disclosure has been given. (b) In relation to open documents:

i. To enable the opposite party to identify the documents; and

ii. To enable the opposite party to request particular documents for inspection or copying; and

iii. To enable the Court to order production and to ensure that such and order is enforced.

(c) In relation to privileged documents –

1. To enable the opposite party to become aware of the documents claimed to be privileged.
   
2. To enable that party to meaningfully consider a challenge to the claim of privilege.
   

(d) In relation to documents no longer in the possession of the discovering party, to enable the opposite party to decide whether to seek discovery against a third party or to issue a subpoena to that person

(e) To enable the opposite parties and the Court to meaningfully apply the provisions of r 8.37 as to the effect of failure to include a document in an affidavit of documents.

(f) To enable the Court to enforce the provisions of r 8.38 as to the admissions as to documents being originals or true copies.

[16] That decision was given before the new discovery rules came into force on

1 February 2012.2 However, with one minor exception,3 the new Rules are also directed at the same purpose. The plaintiffs’ application can be considered in the light of that purpose.

[17] In this case, discovery was first directed at a case management conference in November 2010. The defendants’ discovery had to comply with the Rules then in force. A schedule to an affidavit of documents had to comply with the requirements of former r 8.21. That is in similar terms to current r 8.16, except for references to

_{the listing requirements under the new Schedule 9. The plaintiffs refer to that}

2 _{High Court Amendment Rules 2011.}

3 Rule 8.38 of the old Rules has not been reproduced in the new Rules.

schedule as assisting in relation to the proper identification and listing of privileged documents. They note that clause 8 of the schedule contains specific requirements for emails and attachments to documents:

(2) Emails

The following applies in relation to emails:

(a) all individually discoverable emails must be listed separately:

(b) if an email is part of a chain, parties should make reasonable efforts

(subject to issues of time, cost, and proportionality) to—

(i) discover the top-level version of each relevant email contained within the chain; and

(ii) investigate whether email chain technology may assist in directing parties to the end point of an email chain.

(3) Attachments

The following applies in relation to attachments:

(a) any document that is attached to or embedded within another document is to be classed as an attachment:

(b) attachments must be listed as separate documents:

(c) in general, attachments must appear immediately after the parent document in the list, and will take the next document.

[18] The current r 8.17 allows the court to vary a discovery order if compliance or attempted compliance with the terms of the order has revealed a need for a variation. If it is claimed that the defendants’ discovery to date does not meet the purpose of discovery, as identified by Associate Judge Osborne, the listing requirements of Schedule 9 serve as a convenient guide.

[19] Earlier case law, such as Todd Pohokura Ltd v Shell Exploration NZ Ltd4 made it clear that there must be adequate identification of documents for which privilege is claimed for the opposing party to consider the validity of claims for

_privilege.

4 Todd Pohokura Ltd v Shell Exploration NZ Ltd [2008] NZHC 1190; (2008) 18 PRNZ 1026 (HC).

[20] The defendants’ discovery affidavits include in their privilege sections email chains and correspondence without identifying attachments. The defendants justify this by citing the ability to group documents under former rule 8.21(2), now rule

_{8.16(2). Clause 9(2) of the 9}th _{Schedule also recognises that documents for which}

privilege is claimed may be group listed. Documents may be grouped only if they are of the same nature. In Attorney-General v Wang NZ Ltd, Master Williams QC said: 5

The overriding consideration is the ability of the opposite party or the Court to specify the document in any application for inspection or production. If the nature of the group of documents is such that identification for those purposes is possible by doing no more than describing the group, then the group rather than its constituents only needs to be described. Such might occur, for example, in a case involving the production of a number of identical documents where it would be sufficient to describe them in the list of documents and include the number without enumerating every one. Another example might be the production of a receipt book numbered sequentially where it would be a sufficient description to describe it as a receipt book containing receipt numbers sequentially a-b and issued between certain dates. But where the nature of the documents is such that identification for the purposes mentioned is not possible globally, then the proper course is for the documents to be enumerated separately.

[21] The plaintiffs’ objection that attachments have not been separately listed and described is sound. The criticism is directed more at Tower’s affidavit of documents. The fact that a document is an attachment or enclosure to anot her document does not by itself mean that it is of the same nature, under the judgment of Master Williams. Attachments need to be separately identified and described so that the plaintiffs can check any claim to privilege.

[22] IAG’s supplementary affidavit of documents lists individual emails separately. Tower’s supplementary affidavit of documents lists some email chains as well as individual emails. The senders and recipients of the emails and the dates are identified. It is clear that they are communications subject to privilege. The claim to privilege is addressed later. The grouping of the emails by chain is sufficient.

[23] The way to address the matter is to require each defendant to file a further affidavit stating whether all attachments to documents for which privilege has been

5 Attorney-General v Wang (1990) 2 PRNZ (HC) 245 at 251.

claimed have already been listed and described and if not, then separately listing and identifying those attachments.

[24] The plaintiffs object that the defendants have not adequately described statements obtained from witnesses. The plaintiffs seek identification of all potential witnesses interviewed by the defendants’ investigators. The defendants claim privilege for witness statements. I uphold that claim for reasons given later. As litigation privilege attaches to those statements, the defendants are not required to disclose the identity of witnesses. The plaintiffs cannot overcome that by insisting on more detailed descriptions which would identify the witnesses.

Are internal documents of the defendants’ consultants and investigators in the

defendants’ control?

[25] The plaintiffs say that the defendants have not made adequate discovery, because while their lists of documents refer to reports they have received from their consultants and inquiry agents, they have not disclosed documentation held by their agents.

[26] Rule 8.7 requires the parties to disclose documents that are or have been in their control. Under r 1.3(1):

Control, in relation to a document, means –

(a) possession of a document; or

(b) the right to possess the document; or

(c) a right, otherwise than under these rules, to inspect or copy the document.

[27] The control test under r 8.7 differs from the old formula “power possession or control”. It is more extensive in that a party may now be required to discover a document when they have no more than an entitlement of access to inspect or copy.

[28] In Keep Bros v Birch and Bradshaw Ltd,6 an application by the defendant for discovery and inspection of a diary kept by the plaintiff’s solicitor failed because the diary was not the property of the plaintiff and it did not have any control over it.

[29] That case marks the distinction between documents which an agent produces for his principal, and documents which the agent produces in the course of work for a principal but which the agent retains as his own property. Thus an accountant may use a client’s source documents to produce a finished set of accounts, but in the course of his work may use working papers, which remain the accountant’s property. In a similar way, agents engaged by the defendants to make enquiries produced reports for the defendants which must be included in an affidavit of documents. However, in the course of preparing their reports, those agents may have produced and kept their own records to assist them to produce their reports. Those internal documents of the agents are not the property of the defendants and are not within the defendants’ control. As between the agents and the defendant, the defendants have no right to inspect and copy the internal records of their agents.

[30] In Johansen v American International Underwriters (NZ) Ltd,7 the court ordered discovery of documents which were held to be within the power of the plaintiff on the grounds that he could have access to them under privacy principles in s 6 of the Privacy Act 1993. In this case, the plaintiffs did not allege that the defendants had any such right of access under Privacy Act principles.

[31] Accordingly, internal documents of the consultants and investigators which remained the property and under the control of the agents, are not accessible to the defendants to inspect and copy, and are therefore outside their control. They do not

_{need to be included in the defendants’ affidavits of documents.}

6 _{Keep Bros v Birch and Bradshaw Ltd [1928] NZLR 360.}

7 Johansen v American International Underwriters (NZ) Ltd (1997) 11 PRNZ 22 (HC).

From when can the defendants claim litigation privilege?

[32] The defendants have gathered evidence to support their declinature of the plaintiffs’ claims. The inquiries carried out for the defendants included those by investigators, a fire cause and origin expert, loss adjusters and building consultants. The defendants say that this information-gathering is subject to litigation privilege as it was obtained when the defendants reasonably apprehended that the information would be required for proceedings such as the present one, and was compiled and prepared for the purpose of litigation, to be used by the defendants’ lawyers.

[33] Tower says that it reasonably apprehended the prospect of litigation in about

16 or 17 June 2009. IAG says that it reasonably apprehended that litigation was probable by 17 June 2009.

[34] The plaintiffs contest this. They say that at that stage the defendants could not have reasonably anticipated litigation. They note that Tower did not decline their claim until 1 April 2010. IAG did not decline their claim until 1 June 2010. They accept that by that stage litigation may have been more than a mere possibility but they say that litigation privilege cannot attach to all the documents that came into the defendants’ control during the information-gathering phase.

[35] There is a preliminary evidential objection to be considered. The plaintiffs object to two affidavits IAG relied on to support its claim for litigation privilege. One affidavit was sworn by a solicitor in the firm acting for IAG. The other was sworn by Ms Buttner, the claims officer who dealt with the plaintiffs’ claim when it was first notified in June 2009. The objections to the lawyer’s affidavit were based on r 13.5 of the Lawyers and Conveyancers Act (Lawyers Conduct and Client Care) Rules 2008, in particular rr 13.5.1 and 13.5.2. Rule 13.5.1 says:

A lawyer must not act in a proceeding if the lawyer may be required to give evidence of a contentious nature (whether in person or by affidavit) in the matter.

Rule 13.5.2:

If, after a lawyer has commenced acting in a proceeding, it becomes

apparent that the lawyer or a member of the lawyer’s practice is to give

evidence of a contentious nature, the lawyer must immediately inform the court and, unless the court directs otherwise, cease acting.

They also objected that the content of her affidavit was contentious, and that it also contained hearsay, speculation and incorrect statements of fact.

[36] The objection to Ms Buttner’s affidavit was that it contained hearsay and

speculation.

[37] Rule 7.29 of the High Court Rules provides that rr 9.75 to 9.88 apply, with all necessary modifications, to affidavits filed in interlocutory applications. Under r 9.76(1)(d), affidavits must be confined to matters that would be admissible if given in evidence at trial by the deponent. In interlocutory applications, that rule is relaxed by r 7.30:

7.30 Statements of belief in affidavits

(1) A Judge may accept statements of belief in an affidavit in which t he grounds for the belief are given if—

(a) the interests of no other party can be affected by the application; or

(b) the application concerns a routine matter; or

(c) it is in the interests of justice.

(2) Subclause (1) overrides rule 7.29.

[38] “Statements of belief” in r 7.30 has been applied to allow statements of

information and belief.8 Grounds for a belief must be asserted.

[39] The lawyer says that her affidavit is based on her knowledge of the files of IAG and the lawyers. She recounts information that had been given to IAG by the plaintiff, by loss adjustors instructed by IAG and by Tower. She recounts steps taken by IAG in response to the claim, including instructing investigators and instructing lawyers. She also recounts steps taken to instruct panelbeaters to collect the Chrysler car from Tautari Street and gives a hearsay account of the panelbeaters’

_{visit to the premises as well as account of what a tow-truck operator found at the}

8 Hanna v Auckland City Corporation [1945] NZLR 622 at 632; Andrew Beck (ed) McGechan on

Procedure (online looseleaf ed. Brookers) at [HR7.30.02].

premises. She also deposes to information said to have been available to IAG from which IAG could infer that any claim by the Guttenbeils might be fraudulently made. She also deposes that the circumstances of vandalism of the Chrysler car were suspicious.

[40] I admit those parts of the lawyer’s affidavit where she reports from information set out in IAG’s file the steps taken in relation to the claims. It would be unnecessarily inconvenient to require every person who actually carried out those steps to depose in separate affidavits as to those steps. However, I disregard as argumentative those parts of her affidavit directed at showing that IAG had reasonable grounds to suspect insurance fraud at particular dates. Those parts of her affidavit are really matters for submission, rather than for evidence. They are also contentious.

[41] I admit Ms Buttner’s affidavit in its entirety. She reports information provided to her between 15 and 17 June 2009. She had formed the view that arson by the insured’s son was suspected. That belief went to whether IAG reasonably suspected litigation. She has deposed as to the information on which she formed her belief. Her affidavit is clearly relevant and admissible.

[42] Here is a chronology of steps taken:

14 June 2009: The fire at 77 Tautari Road.

15 June 2009: The plaintiffs notify Tower and IAG. Tower’s investigation manager requests an investigator to conduct a scene examination.

16 June 2009: Mr Noble, the cause and origin expert, and Mr Carson go on site. Mr Carson arranges for Tower’s in-house lawyer to receive the information resulting from the investigations.

16 June 2009: IAG refers the plaintiffs’ claim to loss

adjusters.

17 June 2009: Tower’s in-house lawyer gives further instructions to Mr Noble and to investigation agents to carry out further investigations.

17 June 2009: IAG’s claims officer receives reports from loss adjusters, establishes that Tower has insured the property, agrees with Tower to share costs of investigation and records that the claims will be subject to privilege. IAG referred the claim to its lawyers, noting “this is a contents claim and arson by the insureds’ son is suspected”.

22 June 2009: Tower appoints a Mr Byrne to work with other investigation agents.

23 June 2009: Mr Noble, the cause and origin expert, reports to Tower: “In my opinion this is an arson for fraud insurance claim involving the insureds, and their son is nominated as the likely fire- setter”.

23 July 2009: Maynard Marks, building consultants, gives a report to Tower that the property had significant leaky building issues.

5 August 2009: A New Zealand Fire Service fire investigation report of 5 August 2009 contains this handwritten conclusion: “Very good example of set up, fire, clothing in and around wires to gain false electrical effect” and “not much furniture in place – books like partial cleanout

prior to fire.” “Incendiary concern”. Later in August inquiry agents for the insurers conduct full interviews of the Guttenbeil family.

October 2009: The defendants agree to provide alternative accommodation to the Guttenbeils, although on a ‘without prejudice’ basis.

12 October 2009: Tower instructs the law firm now handling the claim for Tower.

3 December 2009: Mr Noble provides a cause and origin report.

1 April 2010: Tower declines the plaintiffs’ claim.

1 June 2010: IAG declines the plaintiffs’ claims.

27 August 2010: The plaintiffs issue this proceeding. [43] Section 56 of the Evidence Act 2006 provides for litigation privilege:

56 Privilege for preparatory materials for proceedings

(1) Subsection (2) applies to a communication or information only if the communication or information is made, received, compiled, or prepared for the dominant purpose of preparing for a proceeding or an apprehended proceeding (the proceeding).

(2) A person (the party) who is, or on reasonable grounds contemplates becoming, a party to the proceeding has a privilege in respect of—

(a) a communication between the party and any other person:

(b) a communication between the party's legal adviser and any other person:

(c) information compiled or prepared by the party or the party's legal adviser:

(d) information compiled or prepared at the request of the party, or the party's legal adviser, by any other person.

(3) If the proceeding is under, or to be under, Part 2 of the Children, Young Persons, and Their Families Act 1989 or the Care of Children

Act 2004 (other than a criminal proceeding under that Part or that Act), a Judge may, if satisfied that it is in the best interests of the child to do so, determine that subsection (2) does not apply in respect of any communication or information that the Judge specifies.

[44] Section 53 states the effect of the privilege:

53 Effect and protection of privilege

(1) A person who has a privilege conferred by any of sections 54 to 59 in respect of a communication or any information has the right to refuse to disclose in a proceeding—

(a) the communication; and

(b) the information, including any information contained in the communication; and

(c) any opinion formed by a person that is based on the communication or information.

(2) A person who has a privilege conferred by section 60 or 64 in respect of information has the right to refuse to disclose in a proceeding the information.

(3) A person who has a privilege conferred by any of sections 54 to 59 and 64 in respect of a communication, information, opinion, or document may require that the communication, information, opinion, or document not be disclosed in a proceeding—

(a) by the person to whom the communication is made or the information is given, or by whom the opinion is given or the information or document is prepared or compiled; or

(b) by any other person who has come into possession of it with the authority of the person who has the privilege, in confidence and for purposes related to the circumstances that have given rise to the privilege.

(4) If a communication, information, opinion, or document, in respect of which a person has a privilege conferred by any of sections 54 to 59 and 64, is in the possession of a person other than a person referred to in subsection (3), a Judge may, on the Judge's own initiative or on the application of the person who has the privilege, order that the communication, information, opinion, or document not be disclosed in a proceeding.

(5) This Act does not affect the general law governing legal professional privilege, so far as it applies to the determination of claims to that privilege that are made neither in the course of, nor for the purpose of, a proceeding.

[45] As these sections codify the common law, it is still convenient to refer to past authorities. A convenient summary of propositions derived from earlier case law is found in the decision of Master Williams QC in Harrison v Attorney-General:9

(a) The privilege sought to be invoked is that branch of legal professional privilege usually called “litigation privilege”. Unless the documents come within the ambit of legal professional privilege, no privilege against production can be invoked.

(b) Whether or not litigation privilege, as opposed to solicitor and client privilege, can be invoked depends on whether it satisfies the test laid down by Cooke J (as he then was) in [Guardian Royal Exchange Assurance Ltd of New Zealand Ltd v Stuart [1985] 1 NZLR 596] in the following terms:

“... When litigation is in progress or reasonably apprehended, a report or other document obtained by a party or his legal adviser should be privileged from inspection or production in evidence if the dominant purpose of its preparation is to enable the legal adviser to conduct or advise regarding the litigation.”

(c) The tests are conjunctive ...: the document is privileged only if, first, the dominant purpose of its preparation is to enable the party’s legal adviser to conduct or advise regarding the litigation, and secondly, if, when the document was produced, the litigation to which it referred either was then in progress or was reasonably apprehended and subsequently ensued.

(d) Whether or not the dominant purpose for the preparation of the report was to enable the legal adviser to conduct or advise regarding the litigation is a question of fact.

(e) In deciding on whether the dominant purpose for the preparation of the document entitles it to litigation privilege regard is to be had as to the intention of the composer of the document and the intention of the person or authority under whose direction it has been produced or brought into existence. ...

(f) There usually being no difficulty concerning the ambit of litigation privilege relating to documents brought into being once that litigation is in progress, the difficulty is to decide whether litigation was “reasonably apprehended” when the document was produced.

(g) When litigation is “reasonably apprehended” is a question of fact. ...

The tests in that respect has been variously described but the apparent diversity is almost certainly more illusory than real:

9 Harrison v Attorney-General HC Wellington (1989) 4 PRNZ 122. See also Commerce Commission v Caltex New Zealand Ltd HC Auckland CL 33/97, 10 December 1998: Laurenson v Wellington City Corporation [1927] NZLR 510: E- Sport Yachting Ventures Ltd v Southern Stars HC Auckland CIV-

2008-404-1120, 29 July 2011: Mudgway v New Zealand Insurance Co Ltd [1988] 2 NZLR 283; and

Jupiter Air Ltd v Australian Aviation Underwriting Pool Pty Ltd (2004) 13 ANZ Insurance Cases

77,577 (HC).

“A mere vague apprehension of litigation” is not sufficient: there must

be a bona fide belief that litigation will probably ensue. ...

The litigation must be “more than a possibility”. ... The litigation must be “pending or contemplated”. ...

The litigation must have been “reasonably anticipated”. ...

The litigation must have been “in reasonable prospect” (Re Highgrade

Traders Ltd: ...

“I do not think that litigation can be said to be reasonably

apprehended until the decision to decline has been made’ (Kerr at p

6 but the learned Judge immediately went on to say that ‘even if that

proposition is not valid as a generalization, I think it is valid in

relation to this case’).”

(h) Privilege may be more readily accorded to documents in claims between insurers and third parties by contrast with claims between insured and insurer. ...

(i) A waiver of privilege in respect of a document does not act as a waiver of privilege in respect of any annexures or documents referred to in that document.

(j) Underpinning the whole of the above is the contemporary trend towards openness in litigation and a trend against withholding relevant evidence.

...

[46] It also needs to be noted that litigation privilege attaches in respect of communications or information made or compiled for the dominant purpose of preparing for a “reasonably anticipated” proceeding. As Dobson J noted in Reid v Crown Law Office:10

This allows full and frank exchanges of views, testing of positions and facilitation of better conditions for the preparation of a party’s case in litigation than would be the case if the product of all work designed to assist the party in litigation was constrained by the prospect of disclosure to opposing parties.

[47] In Jupiter Air Ltd v Australian Aviation Underwriting Pool Pty Ltd,11 Master Lang noted that in any case where an insurance claim is declined there is a possibility that litigation will follow. The existence of such a possibility is however, not sufficient to provide grounds for withholding documents on the ground of

_{privilege. There must be a bona fide belief that litigation will probably ensue.}

10 _{Reid v Crown Law Office HC Wellington CIV-2008-485-1203, 21 April 2009 at [13].}

11 Jupiter Air Ltd v Australian Aviation Underwriting Pool Pty Ltd, above n 9.

Master Lang also accepted that the early engagement of loss assessors and solicitors is not necessarily of great significance. In the case of large claims, a prudent insurer is almost always likely to seek assistance from those quarters at an early stage. It would also be wrong in principle if an insurer could defeat claims for production simply by ensuring that loss assessors’ solicitors were instructed as soon as a claim for cover was received.

[48] In some insurance cases the courts have drawn a distinction between carrying out inquiries with a view to deciding whether or not to decline a claim, and carrying out inquiries with a view to conducting litigation. See, for example, Guardian Royal Exchange Assurance of New Zealand Ltd v Stuart.12 In other cases the courts have found those purposes inseparable. An example of that is Re Highgrade Traders Ltd where Oliver LJ:13

What, then, was the purpose of the reports? The learned judge found a duality of purpose because, he said, the insurers wanted not only to obtain the advice of their solicitors, but also wanted to ascertain the cause of the fire. Now, for my part, I find these two quite inseparable. The insurers wer e not seeking the cause of the fire as a matter of academic interest in spontaneous combustion. Their purpose in instigating the enquiries can only be determined by asking why they needed to find out the cause of the fire. And the only reason that can be ascribed to them is that of ascertaining whether, as they suspected, it had been fraudulently started by the insured. It was entirely clear that, if the claim was persisted in and if it was resisted, litigation would inevitably follow. The claim had been made, and there was no indication that it was not going to be pressed, particularly after Mr MR’s acquittal. It is, as it seems to me, entirely unrealistic to attribute to the insurers an intention to make up their minds independently of the advice which they received from their solicitors, that the claim should or should not be resisted. Whether they paid or not depended on the legal advice which they received, and the reports were prepared in order to enable that advice to be given. The advice given would necessarily determine their decision and would also necessarily determine whether the anticipated litigation would or would not take place. ...

And at 174:

... there was no purpose for bringing the documents into being other than that of obtaining the professional legal advice which would lead to a decision whether or not to litigate. That, in my judgment, was a sufficient purpose on its own to entitle them [the insurers] to privilege quite apart from any subsidiary purpose which they might serve in any litigation which might ensue as a result of the decision.

12 _{Guardian Royal Exchange Assurance of New Zealand Ltd v Stuart [1985] 1 NZLR 596.}

13 Re Highgrade Traders Ltd [1984] BCLC 151 (CA) at 173.

[49] In this case the defendants’ claim to privilege turns on what conclusions can be drawn from the initial investigations of the Guttenbeil property at 77 Tautari Street. Mr Noble, the fire investigator, went to the scene on 16 and 17 June. He found that deliberate acts of fire-setting appeared to have taken place in two strategically selected areas. In his view, each fire appeared to have been set to specifically target and obscure some of the pre-existing rotten water damage immediately above the areas of fire origin. For one of the fire seats, in a hot water cupboard, some of the lining around the hot water cylinder had been removed and kerosene-soaked linen had been wrapped around the copper water pipes and insulation of the power cables, the fabric packed against the studs. In his opinion, it appeared that this was done in anticipation of the fabric being consumed and the cause then being attributed to an electrical event. There was no evidence of illegal forced entry, which suggested that the offender had key access. The burglar/smoke alarm system had been left turned off. There was evidence of recent deliberate damage (kicked in panelling and screwdriver holes) to the exterior cladding on either side of the stairs to the roof. A jerry can (later found to contain kerosene) and a “Sunlight” detergent bottle, which had a strong odour of a hydrocarbon fuel, were found in the garage beside a Chrysler vehicle. A police summons to Brett Guttenbeil for possession of methamphetamine and for driving while disqualified, and two small bags containing a residue of white crystalline substance were found in his bedroom.

[50] Mr Noble says that he regards these features as “red flag” matters. He regarded the matters as so unusual that he called Tower’s investigation manager to see them in person. His findings were that the matter went beyond arson, and pointed to arson by the insured.

[51] Mr Carson, the investigation manager, confirms attending the scene examination with Mr Noble, and with a Mr Hanson, a loss adjuster instructed by IAG. He corroborates the observations made by Mr Noble.

[52] Ms Judelson, then Tower’s in-house lawyer, says that on 16 June Mr Carson briefed her on his site inspection. She says that on 16 June she formed the view that there was a likelihood that the Guttenbeils’ claim would be declined, and that

litigation would follow between the Guttenbeils and Tower based on the initial scene evidence, summarised by Mr Noble. She gave further instructions for a thorough investigation to be carried out.

[53] The Guttenbeils attack the assessment made by Mr Noble. They accept that he was entitled to find that the fire appeared to be planned and deliberate, but they say that he could not reasonably come to the view that the Guttenbeils were involved in the fire. The Guttenbeils were known to be out of Auckland on the night of the fire, a matter accepted by the insurers. Given their absence from Auckland, the Guttenbeils say that at 16 June 2009, Mr Noble could not reasonably have come to the view that the insured were responsible for the arson. The Guttenbeils’ attack continued that throughout the investigation process there was not an adequate foundation for litigation to be apprehended. They point to the requirement of reasonableness, and say that that was not satisfied.

[54] I find that on his initial site visit on 16 June 2009, Mr Noble had formed the view that he was dealing with a case of arson by an insured. That he genuinely held that view cannot be questioned.

[55] The next enquiry is whether he was “trigger happy” – had he reached the view that this was insurance fraud prematurely? There is corroboration for the position that Mr Noble took in the Fire Service’s later report of 5 August 2009. The Fire Service considered the matter so suspicious that the police were called. The Guttenbeils cannot question the reasonableness of the Fire Service’s views. If the Fire Service, an independent body, could come to a conclusion that this was a fire set up, with suspicious elements such as furniture having been removed, there is no reason why Mr Noble could not come to the same view.

[56] The circumstances of the fire, as Mr Noble found them on 16 June 2009, gave him grounds to recommend to Tower that this was a case of arson and insurance fraud. At that stage, Tower did not have to have complete evidence to justify declinature. But it had enough information to tell it that there was good ground to suspect fraud by its insured and, if its insured persisted with a claim and it was declined, litigation would follow.

[57] As Mr Noble’s views were communicated through Mr Carson to Ms Judelson, on 16 June Tower had reasonable grounds to expect litigation to follow.

[58] The evidence for IAG is to similar effect. IAG had instructed loss adjusters to investigate. They reported to IAG on 17 June 2009. The claims officer, Ms Buttner, has attached to her affidavit a copy of handwritten notes she made at this time. The handwritten notes record suspicious aspects of the fire: the fact that it was arson; that the house was a leaky building with extensive rotting to the building and contents; that there were three seats of fire; that an open diesel can was found along with a pair of rubber gloves and a plastic bottle with remains of diesel; that the Guttenbeils’ son was bailed to that address; and that a substance which may have been methamphetamine was found at the house.

[59] IAG also made decisions to carry out investigations on the basis that the insured were involved in the fire and that any claim made under the policy would result in litigation. As with Tower, I find that IAG had reasonable grounds to apprehend litigation on 17 June 2009.

[60] From that time on, the various inquiries made by building consultants, fire cause investigators, loss adjusters and inquiry agents for Tower and for IAG were directed at gathering information which could be submitted to lawyers to use in any proceeding that the Guttenbeils might bring.

[61] The Guttenbeils point to the time taken before the defendants declined the claims. The time taken for the declinatures to be made is consistent with extended inquiries being made, with checks being made, and with legal advice being sought. Privilege may arise before declinature. General Accident Fire & Life Assurance

Corporation Ltd v Elite Apparel Ltd14 is an example of litigation privilege applying

at an early stage of an arson investigation, although the decision to decline was given only months afterwards.

14 General Accident Fire & Life Assurance Corporation Ltd v Elite Apparel Ltd [1987] 1 NZLR

129 (CA).

[62] The Guttenbeils also note the defendants’ offers of accommodation. Those offers were made on a ‘without prejudice’ basis. They do not count against the defendants continuing to carry out their investigations on the basis that information obtained would be used in litigation. The offers are not evidence that the defendants had not reasonably apprehended litigation as early as June 2009.

[63] I uphold the defendants’ claims for litigation privilege for documents relating to the investigation of the plaintiffs’ claims from the dates claimed by the defendants.

Can the defendants claim litigation privilege for witness statements?

[64] A feature of the Guttenbeils’ attack was to try to establish the identity of lay witnesses interviewed by the defendants. It has long been good law that witness statements may be subject to litigation privilege. In Curling v Perring Sir Charles Pepys MR said:15

If the right of inspecting documents were carried to the length contended for by the Plaintiff, it would be impossible for a Defendant to write a letter for the purpose of obtaining information on the subject of the suit without the liability of having the materials of his defence disclosed to the adverse party.

[65] Similarly, in Jeffries v Privacy Commissioner the Supreme Court said: 16

[24] Both at common law and under s 56, the privilege attaches to any communication or information if “made, received, compiled, or prepared” for the dominant purpose of preparing for litigation. In some circumstances the name of the informant may itself be information received or compiled for the dominant purpose of preparing for litigation. That will often be the case where the informant is a potential witness and may also be the case where the identity of the informant is linked with the substance of the privileged information provided. In other cases, the identity of the informant may be irrelevant to the litigation and will not itself be information received or compiled for the purpose of its preparation. It is not possible to be more specific than to allow that the identity of the informant is capable of being within the scope of the privilege. ...

[66] In this case I am satisfied that the defendants’ agents conducted interviews

_{with people who were potential witnesses in this proceeding, and that those}

15 _{Curling v Perring [1835] EngR 519; (1835) 2 My & Kay 380, 39 ER 989 at 990.}

16 Jeffries v Privacy Commissioner [2011] 1 NZLR 45 (SC) at [24].

interviews and the records of them were made for the purpose of this proceeding. Litigation privilege applies to those statements.

Does an insurer’s duty of utmost good faith require the defendants to disclose

documents subject to litigation privilege?

[67] The plaintiffs also rely on the duty of disclosure under a contract for insurance to seek discovery of documents that would otherwise be subject to litigation privilege. While both insured and insurer are under a duty of disclosure, that duty applies when the insurance is taken out. That is apparent from the speech

of Lord Jauncey in Banque Financière de la Cité v Westgate Insurance Co Ltd.17

The duty of disclosure arises because the facts relevant to the estimation of the risk are most likely to be within the knowledge of the insured and the insurer therefore has to rely upon him to disclose matters material to that risk. The duty extends to the insurer as well as to the insured: Carter v Boehm (1766) 3 Burr. 1905. The duty is, however, limited to facts which are material to the risk insured, that is to say, facts which would influence a prudent insurer in deciding whether to accept the risk and, if so, upon what terms and a prudent insured in entering into the contract on the terms proposed by the insurer. Thus any facts which would increase the risk should be disclosed by the insured and any facts known to the insurer but not to the insured, which would reduce the risk, should be disclosed by the insurer. There is, in general, no obligation to disclose supervening facts which come to the knowledge of either party after conclusion of the contract (Lishman v Northern Maritime Insurance Co. (1875) L.R. 10 C.P. 179), subject always to such exceptional cases as a ship entering a war zone or an insured failing to disclose all facts relevant to a claim...

Although there have been no reported cases involving the failure of an insurer to disclose material facts to an insured the example given by Lord Mansfield in Carter v Boehm, 3 Burr. 1905 is of an insurer who insured a ship for a voyage knowing that she had already arrived. Another example would be the insurance against fire of a house which the insurer knew had been demolished. In these cases the undisclosed information would have had a material and direct effect upon the risk against which the insured was seeking to protect himself. Indeed the insured would have said that the risk no longer existed.

[68] The remedy for non-disclosure is usually to cancel the contact. Such a remedy would be of no use to the plaintiffs in this case.

[69] Once parties have reasonably apprehended that there will be litigation following the declinature of a claim, the gathering of evidence for the litigation is

17 Banque Financière de la Cité v Westgate Insurance Co Ltd [1991] 2 AC 249 (HL) at 281-282.

covered by litigation privilege. The statutory provisions as to privilege in the Evidence Act prevail over any common law rules as to disclosure. Further, by the time the defendants began investigating the Guttenbeils’ claims, any duty of disclosure on an insurer under insurance law had long expired.

Have the defendants waived privilege under section 65(2) of the Evidence Act 2006?

[70] The plaintiffs say that the defendants have waived privilege in certain documents:

[a] A report by Maynard Marks, building consultants as to the weather-

tightness of the plaintiffs’ home.

[b] Statements made by alleged witnesses.

[c] A fire cause and origin report by David Noble of 2 December 2010. All these documents are subject to litigation privilege under s 56 of the Evidence

Act.

[71] The plaintiffs rely on s 65 of the Evidence Act:

65 Waiver

(1) A person who has a privilege conferred by any of sections 54 to 60 and 64 may waive that privilege either expressly or impliedly.

(2) A person who has a privilege waives the privilege if that person, or anyone with the authority of that person, voluntarily produces or discloses, or consents to the production or disclosure of, any significant part of the privileged communication, information, opinion, or document in circumstances that are inconsistent with a claim of confidentiality.

(3) A person who has a privilege waives the privilege if the person—

(a) acts so as to put the privileged communication, information, opinion, or document in issue in a proceeding; or

(b) institutes a civil proceeding against a person who is in possession of the privileged communication, information, opinion, or document the effect of which is to put the privileged matter in issue in the proceeding.

(4) A person who has a privilege in respect of a communication, information, opinion, or document that has been disclosed to another person does not waive the privilege if the disclosure occurred involuntarily or mistakenly or otherwise without the consent of the person who has the privilege.

(5) A privilege conferred by section 57 (which relates to settlement negotiations or mediation) may be waived only by all the persons who have that privilege.

[72] The plaintiffs’ submissions broadly allege waiver under s 65(2) and (3)(a). The thrust of their submissions was that the defendants’ had referred to privileged information in open correspondence in such a way as to amount to a waiver.

[73] The Maynard Marks report can be disposed of briefly. Tower’s lawyers had sent a copy of the Maynard Marks report to the plaintiffs’ lawyers on a “without prejudice” basis. The letter sending out the report did not spell out the consequences of the report being disclosed on a “without prejudice” basis. I infer that the plaintiffs and their lawyers would be able to use the report in assessing whether to continue with their claim, and might show it to any expert whom they would want to consult for advice on weathertightness issues. The plaintiffs accepted that they would not be able to use the report for cross-examination. Under the Privy Council’s decision in B

v Auckland District Law Society,18 a limited waiver does not extinguish privilege. It

did not become necessary to pursue the issue, because Tower’s lawyer made what he called a “pragmatic decision” to no longer contest the waiver point. If Tower had not earlier waived the privilege, it did so during the hearing.

[74] On witness statements, the plaintiffs rely on the letter of declinature from

Tower’s lawyers dated 1 April 2010, which said in part:

Tower now has evidence from a number of sources that the Guttenbeils were at the property in the early hours of 14 June. Critically, one witness saw flames on the deck. ...

[75] Mr Noble made a fire cause and origin report dated 2 December 2009. He has sworn an affidavit as to his initial scene inspection. That affidavit goes to the question when litigation was reasonably apprehended. His affidavit waives privilege

_{for an email message sent to Tower’s corporate counsel on 23 June 2009.}

18 B v Auckland District Law Society [2004] 1 NZLR 326 (PC) at [66]-[69].

The affidavit also refers to his report of 2 December 2009 but does not waive privilege for it. The affidavit does say that his report confirms his initial views as to the cause of the fire being incendiary and that the most likely scenario was arson for insurance fraud by the insureds, whereas the likelihood of the fire being a random act by a burglar or revenge-motivated arsonist was negligible.

[76] The defendants have not disclosed the actual statements by witnesses or Mr Noble’s actual fire and cause and origin report. However, the plaintiffs say that there has been a voluntary disclosure of significant parts of these documents in circumstances that are inconsistent with a claim of confidentiality – under s 65(2).

[77] Undoubtedly any disclosure under s 65(2) has been voluntary in this case. There is no suggestion that the references to witnesses in the letters of declinature or to Mr Noble’s reports in his affidavit are in any way unintended or inadvertent.

[78] In Houghton v Saunders [Privilege], French J summarised the case law on implied waiver under s 65(2):19

It is possible to distil the following principles from the case law:

(i) Where a party’s use of privileged material destroys its confidentiality, the privilege will be treated as impliedly waived, even if that was not the party’s actual intention: Equiticorp Industries Group Ltd v Hawkins (No.2) [1990] 2 NZLR 175 (HC) at 180. ...

(ii) waiver can occur pre-trial Equiticorp: Chandris Lines Ltd v

Wilson & Horton Ltd [1981] 2 NZLR 600 (HC).

(iii) whether “a significant part” of privileged material has been disclosed as required by s 65(2) will depend on the substance rather than the quantity of the privileged material that is disclosed: Bete Fog Nozzle Inc v Delavan Ltd (2008) 19 PRNZ

439 (HC) at para 23.

(iv) disclosure of the existence of a privileged document as distinct from its content will not normally amount to implied waiver: Equiticorp at 180: pp 23-24; Chandris Lines at 611; Shannon v Shannon [2005] 3 NZLR 757 (CA). In so far as Tau v Durie [1996] 2 NZLZR 190 (HC), (1996) 9 PRNZ 7 may be authority to the contrary, it should not be followed.

19 Houghton v Saunders [Privilege] [2009] NZHC 878; (2009) 19 PRNZ 476 (HC) at [55], quote taken from Station

Properties Ltd v Lever Action Ltd HC Auckland CIV 2009-404-354 at [27].

(v) deliberate disclosure of a complete copy of the privileged document will amount to waiver: Equiticorp at 180: pp 23-24; Chandris Lines at 611.

(vi) deliberate disclosure of some of the content of the privileged document will not necessarily amount to an implied waiver but may do so: Ophthalmological Soc of NZ Inc v Commerce Commission [2003] 2 NZLR 145 (CA); ... Astrazeneca v Commerce Commission [2008] NZHC 521; (2008) 12 TCLR 116, at para 39.

(vii)the test to be applied is whether in all the circumstances the conduct is inconsistent with maintaining the confidentiality of the privileged material in a way that could lead to injustice if the privilege is upheld: Ophthalmological Society at p 154. ... This test, although enunciated in a pre-Evidence Act decision, is still applicable to a consideration of both s 65(2) and s 65(3)(a): Astrazeneca at paras 31-39.

[79] I also note the following. In Ophthalmological Society v Commerce

Commission the Court of Appeal said:20

[30] The fairness factor has, however, rightly been treated as of particular importance in cases where partial disclosure of legal advice raises questions over whether natural justice requires disclosure of the whole advice. In the end, however, as Mann v Carnell makes plain, it is the Court’s objective judgment as to the consistency of the conduct with maintaining the privilege which must be assessed in all the circumstances. That requires close analysis of the particular context: what is the issue in relation to the privilege; how does the privilege relate to that issue and is there inconsistency that could lead to injustice if the privilege is upheld. The weight to be given to fairness in the Court’s exercise of judgment will differ according to the circumstances including the character of the privilege it is said has been waived which, as in this case it is litigation privilege.

[31] Litigation privilege is a branch of legal professional privilege which distinct from the lawyer-client privilege. Although sharing the same general purpose of legal professional privilege of promoting the sound administration of justice, litigation privilege is justified by a distinct public policy consideration. It is that the effective conduct of litigation in an adversary system requires that parties and their lawyers be free to conduct their preparations for litigation in the confidence that they will not have to disclose material they gather, including that from third parties, to their opponents. Litigation privilege is not directly concerned with promoting the lawyer-client relationship as such (McNicholl Law of Privilege 1992 pages 46-52). As the Law Commission has put it, litigation privilege “does not protect private secrets but only the process of collecting evidence” (see discussion by the Law Commission in Evidence Law: Privilege (NZLC pp 23,1994, paras 89-99).

20. Ophthalmological Society of New Zealand Inc v Commerce Commission [2003] 2 NZLR 145 at [30]-[31].

[80] Unfairness has often been claimed as a ground for waiver of privilege where one party has advanced its claim in proceedings by using protective material in such a way as to give rise to unfairness in the resolution of proceedings if that material is not available to the other side for assessment and to answer.

[81] The plaintiffs advance arguments of fairness by pointing to the defendants’ superior resources, superior ability to make enquiries and gather evidence, and their relative disadvantage. Certainly there is an inequality of means and resources between the plaintiffs on the one hand and the defendants on the other. But s 65(2) is not directed at reducing such inequalities.

[82] The unfairness in the test is directed at a party continuing to assert confidentiality in documents which it has effectively disclosed, either wholly or to a significant part. In this case, the point is the same as that made by the Court of Appeal in Ophthalmological Society:21

It is not, however, unusual for counsel to indicate to their opponents, prior to formally serving briefs, the content of the evidence they intend to call. By doing that for their own purposes they do not intend to nor, consider objectively, do they act in a manner that is inconsistent with maintaining their client’s privilege in material associated with the briefing process.

[83] The disclosure by the defendants in this case does not go beyond that. The reference to eye witnesses and to Mr Noble’s report in the letters of declinature, and Mr Noble’s reference to his report in his affidavit, have been used to show that the defendants have grounds for the positions they have asserted - to decline the plaintiffs’ claim in the declinature letter and to assert litigation privilege - but that disclosure is not inconsistent with the defendants continuing to claim litigation privilege in the evidence they have collected for the trial. There is no waiver under s 65(2).

Have the defendants put documents in issue under section 65(3)(a) of the Evidence

Act 2006?

[84] The plaintiffs did not separately refer to s 65(3)(a) but I consider it in any case.

21 Ibid, at [42].

[85] The decision of the Court of Appeal in Shannon v Shannon,22 shows that the privilege under s 65(3)(a) has limited application. The paradigm of waiver of privilege under s 65(3)(a) is the client who sues his lawyer in negligence. The client cannot rely on legal professional privilege to prevent the lawyer relying on communications between them. It is beside the point that the case is also covered by s 65(3)(b). That waiver of privilege had already been recognised at common law:

Lillicrapp v Nalder & Son.23 Australian case law has taken a broader view of the

waiver, as the Court of Appeal discussed in Shannon v Shannon, but the court held that that was not the law in New Zealand. The court discussed the Law Commission’s draft Evidence Code. Section 69(3)(a) of the draft code has been enacted unchanged in s 65(3)(a). The court doubted that the provision was intended to widen the waiver to what it called the narrow form of “putting in issue” under Australian case law. The Court of Appeal approved the article, “Implied Waiver of

Privilege”24 which Panckhurst J described in Astrazeneca Ltd v Commerce

Commission:25

The authors attribute the development of both forms of the “putting in issue” exception to a misunderstanding of unfairness. Legal professional privilege necessarily involves unfairness, in that assertion of the privilege requires a Court to decide a factual question without examining all relevant evidence. Such unfairness is unavoidable. It is a necessary price of the existence of the privilege. By contrast an implied waiver of privilege arises where a party seeks to inject the substance of a privileged communication into a proceeding to advance its position, but at the same time asserts privilege in relation to that communication. In this situation genuine (as opposed to unavoidable) unfairness may arise because the party asserting privilege relies upon the privileged communication, yet seeks to deny access to it. The other party is prejudiced on account of reliance in circumstances where there is no opportunity to challenge the substance of the communication.

[86] At [37] Panckhurst J went on:

I understand the Court to have reached the view that a waiver occurs not merely because a party asserts reliance upon a privileged communication, but where a party both relies on a privileged communication and seeks to inject its substance into the proceeding, such that it is unfair to take the benefit of the communication absent disclosure of its contents.

_{[87] And at [39]:}

22 _{Shannon v Shannon [2005] 3 NZLR 757 (CA).}

23 _{Lillicrapp v Nalder & Son (a firm) [1993] 1 All ER 724 (CA).}

24 _{Don Mathieson QC and Julian Page “Implied Waiver of Privilege” [2000] NZLJ 355.}

25 Astrazeneca Ltd v Commerce Commission [2008] NZHC 521; (2008) 12 TCLR 116 at [35].

To my mind the judgments in Ophthalmological Soc and Shannon indicate where the boundaries of s 65(3)(a) lie. While the former espouses a test based on the Court’s objective judgment as to the consistency of the claimant’s conduct with maintaining the privilege, the discussion in Shannon elucidates the principles which underpin that test. The mere relevance of a privilege communication to an issue in the case provides no basis for waiver. Even a party’s asserted reliance upon a privileged communication is generally insufficient. Waiver occurs where a party both asserts reliance upon the privileged communication and also seeks to inject the substance of the communication in evidence. At that point an abuse of the privilege exists. The claimant cannot have the benefit of reliance upon the substance of the advice and still seek to shield that advice from disclosure to the other side. To permit this would give rise to unfairness in the required sense, in that the party’s conduct would be offensive to the trial process.

[88] In this case, it is beside the point that the information that the defendants have gathered for trial is relevant. It is also beside the point that the defendants have asserted reliance on that material. Those matters do not go to “putting in issue” as identified by the Court of Appeal in Shannon v Shannon and by Panckhurst J in Astrazeneca Ltd v Commerce Commission. The defendants have not put the witness statements or Mr Noble’s report in issue in the sense required for s 65(3)(a).

Outcome

[89] I make the following orders:

(a) Within 15 working days of this order, the plaintiffs are to file and serve a supplementary affidavit of documents as to disclosure of financial records of XS Performance Ltd. The affidavit is to be in the form required by the High Court Rules, but the documents may use descriptions of documents used in the parties’ correspondence. The affidavit is also to confirm that the plaintiffs do not hold any further discoverable documents.

(b) There is a declaration under s 45(5) of the Legal Services Act 2011 that, but for the plaintiffs’ grant of legal aid, they would have been required to pay costs on the defendants’ application on the 2B scale at the rates in force at the time of the application for the preparation, filing and service of the application. If the parties cannot agree on that sum, memoranda may be filed.

(c) In all other respects, the defendants’ discovery application is dismissed.

(d) Within 15 working days of this order, each defendant is to file and serve a further affidavit stating whether all attachments to documents for which privilege has been claimed have already been listed and described and if not, then separately listing and identifying those attachments.

(e) In all other respects, the plaintiffs’ discovery application is dismissed.

(f) The parties are directed to confer as to costs on the plaintiffs’ application. If

they are not able to agree, memoranda may be filed for my decision.

(g) Leave is reserved to the parties to apply for further directions as to the implementation of these orders.

(h) The Registrar is to allocate a further case management conference before

Associate Judge Christiansen.

..........................................

R M Bell
Associate Judge