ARVIDA AL HOLDINGS LTD v LENDLEASE CAPITAL SERVICES PTY LTD [2023] NZHC 2254 [23 August 2023]

ARVIDA AL HOLDINGS LTD v LENDLEASE CAPITAL SERVICES PTY LTD [2023] NZHC 2254[23 August 2023]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYI TE KŌTI MATUA O AOTEAROATĀMAKI MAKAURAU ROHECIV-2019-404-001462[2023] NZHC 2254BETWEEN ARVIDA AL HOLDINGS LIMITEDPlaintiffAND LENDLEASE CAPITAL SERVICES PTYLIMITEDDefendantHearing: 14 August 2023Counsel: SC Trevella and BJ Ward for PlaintiffM Eastwick-Field and AR MacDuff for DefendantJudgment: 23 August 2023JUDGMENT OF DOWNS JThis judgment was delivered by me on Wednesday, 23 August 2023 at 10 ampursuant to r 11.5 of the High Court Rules.Registrar/Deputy RegistrarSolicitors:Bell Gully, Auckland.Russell McVeagh, Auckland.The case[1] Arvida AL Holdings Ltd1 sues Lendlease Capital Services Pty Ltd2 for breachof contract, following its purchase of five retirement villages. Each village has acommunity centre, an apartment complex, and either townhouses or villas. The saleand purchase agreement contains this warranty:No apartment building or community centre forming part of the BusinessPremises has significant and systemic watertightness issues which wouldrequire remedial works which result in a Loss to the Group in excess of$7,500,000.[2] Arvida sues under the warranty on the basis it will suffer losses from"significant and systemic watertightness issues" well beyond $7,500,000. Trial begins5 February 2024. Four weeks have been set aside.[3] This judgment addresses interlocutory applications concerning discovery,waiver of legal professional privilege, and the admissibility of evidence.Discovery and waiver of legal professional privilegeBackground[4] Only a little background is needed.[5] Lendlease contends each community centre, and each wing of apartments, is aseparate "building" under the warranty. Consequently, only losses exceeding$7,500,000 per building are caught. Arvida disputes this interpretation. Arvida alsoadvances a rectification argument. It says if the warranty means what Lendlease saysit means, that does not reflect what the parties intended. Arvida says the partiesintended the warranty to mean:No apartment buildings or community centre buildings forming part of theBusiness Premises have significant and systemic watertightness issues whichin aggregate would require remedial workings which result in a Loss to theGroup in excess of $7,500,000.1 Arvida.2 Lendlease.[6] Lendlease contests rectification relying, at least in part, on the evidence ofTony Randello. Mr Randello headed Lendlease's mergers and acquisitions team whenthe sale and purchase agreement was negotiated. Mr Randello was responsible forformulating the warranty. He gives evidence of the warranty's evolution from25 January until 31 January 2016, when the sale and purchase agreement wasexecuted. In so doing, Mr Randello waives legal professional privilege over a handfulof related communications. Mr Randello says (in his brief of evidence):3However, Blackstone and their lawyers continued to press for the inclusion ofa watertightness warranty. There was therefore discussion internally withinLendlease on 25 January 2016 about how to best approach the warrantyregarding the watertightness of the Villages. David Korman initiallysuggested the following (which I understood was drafted by Chapman Tripp):14.2 The buildings on the Business Premises are not constructed insuch a manner, or from such materials, that would give rise tosignificant and systemic watertightness issues which would costmore than $[10,000,000] in aggregate to remedy.In my view, that proposed wording would have brought the villas into thescope of the warranty which I did not want to be included as they wereconstructed in a materially different fashion.I was also concerned that the proposed wording could be interpreted as anaggregate monetary threshold. The warranty, as proposed, could be breachedin circumstances where multiple buildings suffered from watertightness issuesbut the cost to repair each building was less than $10 million provided the totalquantum exceeded $10 million.I therefore proposed that the warranty should read:No apartment building or Community centre building on theBusiness Premises have significant and systemic watertightnessissues which would cost more than $10,000,000 to remedy.I further noted that:I don't want to aggregate which is why I have changed buildings tobuilding and taken out the bit about aggregating.... Also limited tomajor buildings as we are not warranting villas which are a verydifferent building construct.A slightly amended version of my proposed wording was then shared withBlackstone's counsel later that day. The proposed warranty shared withBlackstone read:No apartment building or community centre building forming part of theBusiness Premises has significant and systemic watertightness issues whichwould cost more than $10,000,000 to remedy.3 Brief of evidence dated 29 March 2023 at paras 73–83.On 27 January 2016, I understand that there was a call between the legaladvisors on either side following which, Blackstone provided a further versionof the SPA, again, containing edits to the Watertightness Warranty:No apartment building or community centre building forming partof the Business Premises has significant and systemic watertightnessissues which would require remedial works which result in a Loss tothe Group in excess of $7,500,000.I got comfortable with reducing the threshold to $7.5 million because theproposal was for that threshold to apply on a per building basis. My rationalefor this was that Ocean Shores had cost a total of $15 million; that projectconcerned three buildings (two apartment blocks and the community centre),which translated to an average of $5 million per building; taking into accountsome cost inflation since the Ocean Shores remediation had been completedand to recognise that Lendlease probably got a good deal on the constructionwork, a threshold of $7.5 million per building for the other Villages in theportfolio (each of which had two to three buildings) would equate roughly toan "Ocean Shores" type event. It was certainly never my intention that thewarranty would respond to something less serious than "another OceanShores".I was also comfortable with the other changes to the wording, which allowedother losses from the remedial works to be captured within the monetarythreshold.No further changes were made to the wording of the Watertightness Warranty,and the SPA was executed on 31 January 2016 with the following:14.2 No apartment building or community centre building formingpart of the Business Premises has significant and systemicwatertightness issues which would require remedial works whichresult in a Loss to the Group in excess of $7,500,000.My clear recollection is that the intent of the Watertightness Warranty was forthe $7.5 million threshold to apply per building, with each of the communitycentre building and apartment buildings comprising separate buildings. Whencirculating the final drafting for sign-off, I explained that:In relation to 14.2 whilst the threshold is lower, you will note that asubtle change to the wording means than [sic] it is for any onebuilding. That is, given Ocean Shores was for 3 buildings ...2 Apartment Buildings and a community centre, the threshold iseffectively $7.5m x 3 = $22.5m.Arvida's applications[7] Arvida says Mr Randello's evidence means:Lendlease has waived privilege over documents containing or recordingcommunications between it and its legal advisors between 15 December 2015and 31 January 2016 that concern the parties' understanding of the scope andpurpose of the watertightness warranty clause in the parties' agreement.Arvida seeks discovery of related communications. Arvida also contests Lendlease's"heavy-handed" redaction of some discovered documents.[8] Mr Ward took me to some of the email correspondence to which Mr Randellowas privy. He noted the first piece has the heading, "Ocean Shores event warranty".Ocean Shores is one of the retirement villages purchased by Arvida from Lendlease.Ocean Shores requires significant remediation of its community centre and apartmentcomplex as both leak; a concern animating Arvida throughout its negotiations withLendlease. Mr Ward contends at the very least, privileged discussion of Ocean Shoresis so closely connected to the terms of the warranty, such discussion should bediscovered, given Mr Randello has put the evolution of the warranty in issue relying,in part, on privileged communications.Lendlease's response[9] Lendlease accepts Mr Randello has waived privilege over the emailcorrespondence identified in his evidence. Lendlease also accepts Mr Randello'sevidence constitutes "an associated collateral waiver of privilege over documentsrelevant to the same issue for which those privileged email exchanges were deployed".But, on behalf of Lendlease, Ms Eastwick-Field contends no further discovery isrequired and its redactions are appropriate.Analysis[10] Section 65 of the Evidence Act 2006 provides for the waiver of legalprofessional privilege, and other forms of privilege recognised by the Act, when theprivilege holder (a) produces a privileged communication in circumstancesinconsistent with confidentiality or (b) acts to put the privileged communication inissue in a proceeding.[11] The authors of Cross on Evidence capture the concept this way under thebanner of "collateral waiver":4Collateral waiver will ... apply to all other privileged communications anddocuments dealing with the same issue. A party will not be entitled selectively4 Mathew Downs (ed) Cross on Evidence (online ed, LexisNexis) at [EVA65].to waive privilege for only some of the material relating to the relevant issue,and thus rely on material favourable to its case, while keeping unfavourablematerial confidential. The issues in the context are the specific propositionsthat the party offering privileged material in evidence seeks to support withthe privileged material offered.[12] Two cases are illustrative.[13] In Capital + Merchant Finance v Perpetual Trust Ltd,5 the question waswhether a settlement agreement had been concluded. The plaintiff filed evidence fromits lawyers, which led to a contention it had waived privilege over all of its legalcommunications during the settlement negotiation period. The plaintiff argued it wasrequired to discover only the specific communications and any obviously related ones.Katz J concluded "the correct position lies somewhere between these extremes".6The Judge identified 10 discrete topics in relation to which "the principle of collateralwaiver [required] the disclosure of any documents".7[14] In Robert Jones Holdings Ltd v McCullagh,8 the liquidators disclosed10 privileged communications to support the contention the company in liquidation,Northern Crest Investments Ltd,9 was insolvent at the relevant time. Robert JonesHoldings argued that by doing so, the liquidators had waived legal professionalprivilege in relation to the balance of communications between Northern Crest and itslawyers. I reached a more confined conclusion. I held by "tendering otherwiseprivileged communications on discrete factual propositions, the liquidators havewaived privilege on those factual propositions in undiscovered privilegedcommunications".10 I added:11It will be apparent I have not accepted the entirety of RJH's argument:Mr Chesterman contended RJH was entitled to all otherwise privilegedcommunications between Northern Crest and its lawyers. However, thecorrect principle is that RJH is entitled to those communications only to theextent they deal with the factual propositions I have identified earlier. Onedoes not police cherry-picking by harvesting the entire crop.5 Capital + Merchant Finance Ltd v Perpetual Trust Ltd [2015] NZHC 1233.6 At [29], citing Nea Karteria Maritime Co Ltd v Atlantic & Great Lakes Steamship Corp (No 2)[1981] Com LR 138.7 At [33].8 Robert Jones Holdings Ltd v McCullagh [2016] NZHC 2529.9 Northern Crest.10 Robert Jones Holdings Ltd v McCullagh, above n 8, at [67].11 At [68]–[70].To give an example, if the privileged communications contain instances inwhich Mr Stapleton refers to his fees, whether paid or otherwise, those mustbe discovered to that extent. Similarly, if Mr Stapleton in an otherwiseprivileged communication refers to the threat or apparent absence of threatposed to Northern Crest by its indebtedness to RJH or Minter Ellison RuddWatts, that communication must be discovered, again to that extent.It is important to be clear this ruling relates only to communications made byMr Eakin and Mr Stapleton, the two correspondents in relation to whom theliquidators have waived privilege. And as observed, only to the extent eitherindividual refers to any of the discrete factual propositions at [58]–[60]. Legalprofessional privilege is protected for good reason and any incursion into thatprinciple must be strictly proportionate. So too waiver in this context.[15] These cases disclose a unifying principle: care must be taken in identifying theproposition, factual or otherwise, to which the privileged material has been deployedso as to ensure the scope of the collateral waiver is not broader than needed to furtherthe interests of fairness and accuracy in policing risk of selectivity or artifice.[16] Consequently, Arvida's contention at [7] cannot be sustained. It is, asMs Eastwick-Field observes, "breathtakingly broad". Arvida's contention at [8] mustalso be rejected, albeit with caveats I shall come to shortly. The privileged material(and Mr Randello's evidence more generally) is deployed in relation to the termbuilding, and the related idea of whether the warranty was to aggregate cover.12 Theprivileged material is not deployed in relation to an Ocean Shores event, or what thatmeans. Furthermore, Mr Randello does not deny Arvida wanted cover for anOcean Shores event, whatever that may mean.[17] The first caveat is this. If, between 25 January and 31 January 2016,Mr Randello referred to Ocean Shores or an Ocean Shores event to define, explain,elucidate, or delimit: (a) the term building or (b) the related idea of whether thewarranty was to aggregate cover, privilege has been waived over that aspect of thecommunications for the simple reason it falls within the scope of the collateral waiver.The caveat also applies to communications Mr Randello received in this period—within, of course, the scope identified—as Mr Randello has waived privilege on behalfof Lendlease. The privilege is held by Lendlease, not Mr Randello. Similarly,Lendlease must also discover, if it has not already, communications received by12 As elements of what Lendlease intended the warranty to mean.Mr Randello between 25 January and 31 January 2016 in relation to (a) the termbuilding and (b) whether the warranty was to aggregate cover.[18] For completeness, Ms Eastwick-Field allowed me to read, at the hearing,material withheld by Lendlease. I repeat what I said then in the hope of providingcomfort: nothing withheld appears to advance, materially or otherwise, Arvida'srectification argument.Admissibility determinations: Dr Adrian Speirs[19] Dr Spiers was a microbiologist. Dr Spiers examined samples of timber takenfrom the frames of the buildings at the villages. Dr Spiers offered an opinion about(a) their moisture content and (b) whether the timber had suffered decay. Between7 February and 9 July 2018, Dr Spiers prepared four associated reports. Dr Spiers hassince died.[20] Lendlease objects to the admission of the reports and reliance on them byArvida's witnesses. Lendlease acknowledges Dr Spiers is unavailable as a witness.However, it contends the circumstances relating to the reports do not providereasonable assurance they are reliable. Ms Eastwick-Field says it is not known wherethe samples were taken from; Dr Spiers' methodology is uncertain; and there areambiguities in the report, most evidently, why reference to the presence of"occasional hyphae" in the timber appears to have different outcomes as to decay.13[21] The first objection is addressed by a second brief of evidence ofKevin McLeod, a building surveyor. Mr McLeod's evidence makes clear, orreasonably so, where the samples were taken. More significantly, but like the first, thesecond and third objections are not directed at the threshold index of reliability withwhich s 18 of the Evidence Act 2006 is concerned.14 The objections go to weight, notadmissibility.[22] In any event, it is evident the reports were made by Dr Spiers in his capacityas an expert (a point now accepted), to determine the weathertightness of the frames13 It is not known whether the timber samples remain available.14 Adams v R [2012] NZCA 386.in the villages' buildings. The reports are formal. They were prepared for litigation,or at least with litigation in mind. Dr Spiers has testified as an expert in cases of thisnature. Given all this, it is beyond argument Dr Spiers was aware of the need foraccuracy. So, the circumstances relating to his reports provide reasonable assuranceof their reliability.[23] Lendlease will suffer some disadvantage from being unable to cross-examineDr Spiers. But that is something that will be apparent to the Judge, therebyameliorating prejudice. Furthermore, Lendlease may explore with its experts, orArvida's experts, Dr Spiers' likely methodology. Admission of the evidence wouldnot, therefore, have an unfairly prejudicial effect on the proceeding.15 To exclude itwould.Other admissibility determinations[24] On 29 May 2023, Arvida filed briefs of evidence in reply to those of Lendlease.Lendlease challenges the admissibility of the entirety of some of these briefs, as wellas aspects of the remaining briefs. Lendlease contends it would be unfair to admit theevidence, and admission would needlessly prolong the trial. Indeed, Lendleasecontends admission may put the trial it at risk. The last concern is this. Four weekshave been set aside for the trial. If the challenged evidence is admitted, the trial mayoverrun by five days. The roster cannot accommodate that. But, as it happens, it isnot clear four weeks is sufficient even if none of the supplementary evidence wereadmitted. In other words, the trial may overrun regardless.[25] It is common ground r 9.8 of the High Court Rules 2016 applies, which reads:169.8 Supplementary briefs(1) A party wishing to offer a supplementary brief must serve it as soon aspossible.(2) The acceptance and use of the supplementary brief in court will be atthe discretion of the trial Judge.15 Evidence Act 2006, s 8.16 Under the timetable, Arvida was confined to evidence "in reply to evidence in support ofaffirmative defences only". Lendlease did not press an argument the evidence was beyond thescope of the timetable by this language alone.[26] Supplementary evidence has been excluded when it would have been availableto the plaintiff had she, he, or it turned its mind to the point earlier,17 or when theevidence does no more than anticipate a possible line of cross-examination.18 Similarconsiderations arise under s 8 of the Evidence Act, especially when admission of theevidence may jeopardise the fixture.Michael James[27] Michael James is a fire engineer. Mr James says the remediation proposed byLendlease does not adequately address what is required in relation to"passive fire work". Mr Ward contends Mr James' evidence is genuinelysupplementary for this reason: it responds to the remediation proposed by Lendlease.[28] I disagree. Mr James' evidence is really about validating the extent of fire-related works within Arvida's proposed remediation. Mr James' brief seeks to do sothrough the vehicle of an attack on Lendlease's proposal. Admission would requireLendlease be given an opportunity to respond, in turn placing yet more pressure on analready squeezed estimate.[29] The evidence is inadmissible.Kevin McLeod: aspects of his brief[30] Lendlease objects to paragraphs 62, 75, 89, 110, 131 and 160–161 ofMr McLeod's supplementary brief, as well as the final row of the table atparagraph 178. All concern a range of matters addressed by Mr McLeod as a buildingsurveyor.[31] Mr MacDuff contends the paragraphs constitute obvious "backfilling".[32] I disagree. Much of the evidence in question is no more than a clarification orelucidation of what Mr McLeod has said earlier. It is likely the evidence would emergein cross-examination anyway.17 Curry v Goodwin HC Auckland CIV-2002-404-1820, 27 August 2004 at [30(a)].18 Body Corporate 354085 v Auckland Council (No 1) [2016] NZHC 200 at [8].[33] The evidence is admissible.Jason Brooks and Rowan Robinson[34] Jason Brooks is a building surveyor. Rowan Robinson is a chartered quantitysurveyor. Mr Ward says the evidence of each witness is properly supplementary as itlargely replies to evidence adduced by Lendlease.[35] Some of the evidence of each is in the nature of reply evidence, but eachsupplementary brief is primarily offered to buttress the evidence of another expert.Consequently, the proposed evidence adds little to the extensive evidence alreadybefore the Court, while aggravating pressure on the fixture.[36] The evidence is inadmissible.Richard Fairhead[37] Richard Fairhead is an engineer with expertise in relation to facades.Mr Fairhead responds to the evidence of Peter Lalas, a façade engineer retained byLendlease. Mr MacDuff says it was "entirely foreseeable this sort of expert opinionmay be required; however, Arvida chose not to adduce his evidence as part of itsprimary case".[38] I disagree. Mr Fairhead notes Mr Lalas has, among other things, allegedly:relied on superseded standards; incorrectly calculated wind loads; and overlookedother matters. These could not have been anticipated. The evidence is genuinely inthe nature of reply.[39] The evidence is admissible.Dr Robin Wakeling[40] Dr Robin Wakeling is a microbiologist. Lendlease objects to paragraph 8 ofDr Wakeling's supplementary brief, which says:In forming my own views, I have considered the reports which I annexed withmy last statement. I have also considered two further reports I prepared in2017 for the Parklane and Peninsula Club villages for the purposes of thewarranty claim. I overlooked these reports in my last statement. In additionto my reports, I have read and considered three reports prepared by the lateDr Adrian Spiers in 2018 for the Mayfair, Parklane and Peninsula Clubvillages.In my opinion, my analysis demonstrates that the conditions for fungal growthand decay are prevalent and widespread throughout the property, for example:(i) 97 out of 97 samples (100%) analysed by me (Beagle)contained fungal growths;(ii) 28 out of 97 (29%) had confirmed toxigenic mouldStachybotrys contamination; and(iii) 49 out of 97 (51%) contained fungal decay.[41] Mr MacDuff says Arvida should not have the benefit of evidence Dr Wakelingomitted to provide earlier.[42] Strict application of the principles articulated at [25]–[26] to this situationwould be rather arid. Experts are human; they make mistakes. Dr Wakeling'sevidence is ultimately offered to assist the Court in its determination of the buildings'weathertightness. That Dr Wakeling has prepared additional reports on this topic islikely to be of substantial assistance to the Court. Furthermore, it would be artificialto exclude the evidence.[43] The evidence is admissible.Edward Saul[44] Mr Saul is the director of a company that offers building inspection services,construction advice, and project management. Mr Saul has extensive experience withbuilding consents. Mr Saul says aspects of Lendlease's proposed remediation do notcomply with the Building Code and would not receive consent. Mr MacDuff contendsMr Saul's evidence is not truly responsive and should be excluded for this reason.[45] I disagree. Mr Saul's evidence constitutes a legitimate critique of Lendlease'sremediation.[46] The evidence is admissible.James Alexander[47] Mr Alexander is a building surveyor. Mr Alexander shadowed at least one ofLendlease's experts during his examination of buildings at the villages. Mr MacDuffacknowledges this aspect of Mr Alexander's evidence but describes it as "purportedlyframed commentary on Lendlease's experts", when really it is evidence of allegeddamage not disclosed in Arvida's initial evidence.[48] I disagree. Overall, Mr Alexander's evidence is directed at the adequacy of theexaminations conducted by an expert on behalf of Lendlease. The evidence is,therefore, in the nature of reply.[49] The evidence is admissible.Observation[50] These determinations may place additional pressure on the fixture. I, therefore,invite the parties to reflect on, and implement—with, of course, the trial Judge'sblessing—measures to use the available time as efficiently as possible, including, forexample, time limits for opening and closing addresses, limits in relation to evidencein chief and cross-examination, and expert caucusing.Result[51] Arvida's application for further and better discovery is dismissed with thecaveats at [17].[52] The contested evidence of:(a) Michael James, Jason Brooks and Rowan Robinson is inadmissible.(b) Kevin McLeod, Richard Fairhead, Dr Robin Wakeling, Edward Sauland James Alexander is admissible.Costs[53] Overall, each party has enjoyed a similar level of success. For this reason, I aminclined to let costs lie where they fall. If the parties do not agree costs, they mayreturn with memoranda of not more than six pages each, in this sequence:(a) Arvida on or before 13 September 2023.(b) Lendlease on or before 20 September 2023...Downs J