CONTRACTORS BONDING LIMITED V THE WHANGAREI DISTRICT COUNCIL HC AK CIV 2004-488-756

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