COURTESY MOTORS LIMITED v ENDEAVOUR COMMERCIAL LIMITED [2021] NZHC 221

COURTESY MOTORS LIMITED v ENDEAVOUR COMMERCIAL LIMITED [2021] NZHC 221 [19 February2021]IN THE HIGH COURT OF NEW ZEALANDPALMERSTON NORTH REGISTRYI TE KŌTI MATUA O AOTEAROATE PAPAIOEA ROHECIV-2020-454-40[2021] NZHC 221BETWEEN COURTESY MOTORS LIMITEDPlaintiffAND ENDEAVOUR COMMERCIAL LIMITEDDefendantHearing: On the papersAppearances: J Maassen for plaintiff/respondentG Mason for defendant/applicantJudgment: 19 February 2021JUDGMENT OF COOKE J[1] By application dated 18 December 2020 Endeavour Commercial Ltd (ECL)applies to set aside certain claims of privilege made by the plaintiff, Courtesy MotorsLtd (CML) in relation to particular documents. The application is opposed.[2] When the matter was discussed at a telephone conference before the AssociateJudge a timetable was set for the exchange of submissions on the basis that theapplication would be determined on the papers. Although the matter was initially tobe addressed by the Associate Judge, it has now been referred to me as Duty Judge.[3] The application relies on ss 53, 54 and 65 of the Evidence Act 2006. I alsodeal with the matter as an application pursuant to r 8.25 of the High Court Rules 2016.The substantive claims[4] CML's substantive claim puts in issue whether, in late 2020, the parties enteredinto a new agreement to lease from 1 May 2020 in respect of premises already leasedby ECL to CML in Levin. CML's case is that the parties did not reach agreement.ECL says that they did. CML commenced this proceeding in August 2020 seekingdeclaratory relief to the effect that there is no enforceable agreement to lease. ECLhas filed and served a defence and counterclaim seeking a declaration as to the termsof the lease it says exists.[5] When CML filed a formal affidavit of documents it claimed privilege in respectof the two documents that are the subject of this application:(a) as document P1, being a copy of a draft deed of lease bearing thesignature and initials of one of CML's directors, Mr Gordon Powley;and(b) as document P3, being a copy of the draft deed bearing bothMr Powley's signature and initials and notes made by CML's solicitor.[6] In support of its application challenging CML's claims to privilege in respectof those two documents, ECL has filed and served an affidavit sworn by one of itsdirectors, Mr Warren Diffey. In support of its opposition, CML has filed and servedtwo affidavits, the first sworn by Mr Powley, and the second sworn Mrs MelanieSargent, a partner in Wadham Partners, the company's solicitors.The factual position[7] ECL leased to CML the property from which it operated its business. The leaseexpired on 30 April 2020. Well before then the parties had entered into discussionsabout a new lease, primarily through Messrs Diffey and Powley. By early 2020 thosediscussions were well advanced. Whether or not the parties had reached agreementon issue for trial.[8] In any event, on 20 February 2020, ECL's solicitors, CS Law, wrote to CMLattaching a draft deed of lease. On receipt of that letter Mr Powley signed andinitialled the draft. He says that he intended to seek advice from Mrs Sargent beforeasking his fellow director, Mr Peter Cutts, to execute it.[9] On 27 February 2020 Mr Powley emailed Mrs Sargent attaching P1, the draftlease, now of course signed and initialled by him, and saying:Hi Melanie,This is a new lease with Mr Diffey for our Levin premises, 336–340 OxfordStreet, Levin (not our most trusting landlord). We have already agreed on afive year term and amount, he has not offered a right of renewal.Would you please check the new lease carefully for Courtesy Motors Ltd for change to special clauses that may have changed to his advantage (thebuilding now is thirty years plus in age).[10] Mrs Sargent says that she reviewed the draft and in the course of doing so madea series of notes on a copy that she must have printed out in preparation for givingCML oral advice.[11] Negotiations between the parties continued. Mr Powley says that theimplications of the Covid-19 pandemic then altered the views that he and Mr Cuttshad about whether, and the terms on which, they wished to renew the lease. As aresult, the negotiations petered out, the parties adopted their opposing positions inrelation to the existence or otherwise of an enforceable agreement, and CMLcommenced this proceeding.[12] Mrs Sargent's evidence is that the copy of the draft lease on her file which hadnot only been signed and initialled by Mr Powley but which now also incorporated hernotes (P3) " was included inadvertently in the initial disclosure". Mrs Sargent'saffidavit continues:[13] Instead of returning the document, Mr Mason and Mr Rowan thenrelied on that document in a Statement of Defence and Counterclaimnoting that Mr Powley had signed the document but did not identifythat Mr Cutts had not and nor had the document been executed inaccordance with the requirements of CS Law.[14] The inadvertent disclosure arose because of an electronic error byCloud sharing between the barrister and solicitors acting for CourtesyMotors Limited. That resulted in the creation of a folder where thelease document identified as [P3] was not the unmarked lease beingthe unmarked-up lease sent by Mr Rowan. Instead, erroneously [P3]was the lease document with my working notes plainly shownidentified as [P3].[15] When the error was noted, I wrote requesting the return of thedocument of [P3] immediately. A copy of that dated 25 September2020 is annexed hereto and marked as Exhibit C (page 44).[16] All of the documents over which privilege is claim concerncommunications between Courtesy Motors Limited and me for thepurpose of giving legal advice.[13] In his affidavit, Mr Diffey says:I confirm that after Gordon Powley, a director of the Plaintiff, and I hadnegotiated an agreement to lease, my solicitors, C S Law, forwarded by posta draft deed of lease under cover of a letter dated 20 February 2020, a copy ofthat letter and draft lease is attached marked "A". This is the version asprovided by the defendant in its initial discovery marked [EC6].[14] This confirms that what the plaintiff sent to the defendant on 20 February 2020was an unmarked draft.[15] Mr Diffey goes on to say that on receipt of the plaintiff's initial disclosure henoted that the plaintiff had disclosed a version of the deed of lease signed byMr Powley, which also had Mrs Sargent's notes on it, and continues:6. It seemed strange to me for it to be signed as the Plaintiff was denyingin the proceeding that there was an agreement. Gordon and I havebeen dealing with leases for property since the last century so signingand returning it was normal practice for Gordon. This time it gotsigned and was not returned.7. The Plaintiff had provided a copy of its counsel John Maassen'sopinion dated 28 May 2020 which did not refer to Gordon Powleyhaving signed the lease. A copy of that opinion is attached andmarked "E".8. It did not occur to me when I saw document [P3] that it had beenmistakenly disclosed. There was nothing to indicate that this was thecase.[16] In due course ECL entered an appearance by filing and serving a defence andcounterclaim in which it expressly referenced P3.[17] At this point, CML raised the issue of privilege in relation to P3.Wadham Partners wrote to Cullinane Steele on 25 September 2020 saying:We provided the documents [P3] inadvertently with our bundle in our initialdisclosure. It is a privileged communication regarding solicitor and clientwork on the file. Please return the document. The document has no relevanceto an objective assessment of the parties' intentions based on communicationbetween the parties. if you do not return the document and accept there isprivilege we will apply to the Associate Justice and seek costs and file acomplaint against you and Mr Mason under CCR 2012 13.9.4.Assessment[18] Privilege is governed by sub-pt 8 of pt 2 (ss 53–67) of the Evidence Act 2006which largely codifies the common law. For present purposes, the starting point iss 54 which concerns legal professional privilege. Section 54(1) provides:A person who obtains professional legal services from a legal adviser has aprivilege in respect of any communication between the person and the legaladviser if the communication was—(a) Intended to be confidential; and(b) Made in the course of and for the purposes of—(i) the person obtaining professional legal services from theirlegal adviser; or(ii) the legal advisor giving such services to the person.[19] The unmarked draft lease sent by ECL's solicitors to CML's directors undercover of their letter of 20 February 2020 is clearly an open document, and not adocument in respect of which either party can claim privilege. The question is whetherprivilege can be claimed in relation to the copies of the document that were written onby CML's representatives.P1: The Executed Copy[20] By signing and initialling the copy of the document Mr Powley effectivelycreated a new document (P1). He emailed it to Wadham Partners on 27 February 2020.The issue is whether CML is entitled to claim privilege in respect of P1. The test iswhether the document was created for the purposes of seeking legal advice.[21] I do not accept Mr Maassen's submission that this document was created forthat purpose. The act of copying, or transmitting a document to a solicitor for thepurpose of advice does not mean that a document becomes privileged.1 That documentis an open document irrespective of who had possession of it. The document was notcreated for the purpose of obtaining legal advice. When a person alters a documentfor the purposes of getting legal advice — for example by writing a question on thedocument sent to their solicitor, then privilege can attach to that document.2 It dependson the purpose for which the alteration was made, and in particular whether it wasmade for the purpose of obtaining advice under s 54(b). But it is the alteration that ismade to the document, rather than its transmittal, that may give rise to a claim ofprivilege.[22] In his affidavit Mr Powley says that he initialled and signed the lease whilstalso intending at the same time to send it for legal advice. He says:Preparing the email and partially executing the lease were together a singleprocess that I followed for Courtesy Motors in which obtaining legal advicewas a core component[23] I do not accept that the act of executing the document can be said to have beenan act done for the purposes of obtaining legal advice. Neither does Mr Powley saythat in this evidence. I accept that the document was likely to be transmitted for thepurpose of obtaining advice, but the execution of it could not be. It follows that P1 isnot privileged.P3: The Annotated Copy[24] The copy of the document on which Mrs Sargent then made notes needs to beanalysed as a separate document. I accept that copy was a document in respect ofwhich the CML was entitled to claim privilege. It clearly falls within s 54(1) of theEvidence Act. I do not understand Mr Mason to contend otherwise. In the case of P3the issue is whether by including it in its initial disclosure to ECL CML waived anyclaim to privilege.1 Simunovich Fisheries Ltd v Television New Zealand Ltd [2008] NZCA 350 at [162] and [169];Pearce v Foster (1885) 15 QBD 114 (CA) at 118–119.2 Or at least the written annotation, although conceptually it assists in thinking of this as a newlycreated separate document with the annotation.[25] Section 65 of the Evidence Act deals with waiver. Section 65(1) confirms thecommon law position that privilege may be waived expressly or impliedly. Section65(2) continues:(2) A person who has a privilege waives the privilege if that person, oranyone with the authority of that person, voluntarily produces ordiscloses, or consents to the production or disclosure of, anysignificant part of the privileged communication, information,opinion, or document in circumstances that are inconsistent with aclaim of confidentiality.[26] That principle is qualified by s 65(4) which provides:(4) A person who has a privilege in respect of a communication,information, opinion, or document that has been disclosed to anotherperson does not waive the privilege if the disclosure occurredinvoluntarily or mistakenly or otherwise without the consent of theperson who has the privilege.[27] Both counsel refer to the analysis of mistake provided by Asher J in BodyCorporate 191561 v Argent House Ltd who said:3I conclude that the mistake must be a mistake as to the act of disclosure itselfrather than the implications of it. Thus, a mistake in the handing over of agroup of documents which were thought to contain all non-privilegedmaterial, but which unbeknownst to the discloser contained privilegedmaterial, would be the sort of mistake envisaged. It would be a voluntary butmistaken act. It would be unintentional. However, if the mistake was adeliberate handing over of a document without a consideration that it wasprivileged, or forgetting that it was privileged, that would not be the sort ofmistake covered by the section.[28] I do not accept Mr Mason's submission that there has been no explanation inthe evidence outlining a mistake of the kind referred to. Mrs Sargent said that thedisclosure by Wadham Partners on behalf of CML was inadvertent and unintended.She explains that disclosure occurred as a consequence of a mistake made whenelectronic copies of the documents were created when the documents were providedto counsel. The electronic copy of the lease was created using P3 rather than theunexecuted copy. This evidence is not contradicted, or challenged.[29] In his evidence Mr Diffey says that it did not occur to him that the documenthad been mistakenly disclosed. But it is not, or is no longer a requirement to show3 Body Corporate 191561 v Argent House Ltd (2008) 19 PRNZ 500.that the recipient was aware that there has been a mistake.4 That is not referred to ins 65(4). If another lawyer becomes aware that privileged information may have beeninadvertently provided r 13.9.4 of the Lawyers and Conveyancers Act (Lawyers:Contacting Client Care) Rules 2008 is engaged and there is a professional obligationto inform the other lawyer and to return the documents. But even if the lawyer is notaware there has been a mistake s 65(4) still operates.[30] I am satisfied, therefore, that the annotated copy of the lease (P3) is privileged,that it was inadvertently disclosed, and that privilege remains in that document.Outcome[31] The application is granted in relation to P1, but declined in relation to P3.[32] It follows that the application is successful in relation to one document, andunsuccessful in relation to the other. In those circumstances it would seem that anyissue in relation to costs would likely involve costs lying where they fall.Cooke JSolicitors:Wadham Partners, Palmerston North for plaintiffCullinane Steele Ltd, Levin for defendant4 Compare Lyttelton Port Company Ltd v Aon New Zealand Ltd [2017] NZHC 2215.