SAMANTHA O'BRIEN V THE NEW ZEALAND HOME LOAN COMPANY LIMITED HC AK CIV 2010-404-008323

SAMANTHA O'BRIEN V THE NEW ZEALAND HOME LOAN COMPANY LIMITED HC AK CIV 2010- 404-008323 22 July 2011IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYCIV 2010-404-008323BETWEEN SAMANTHA O'BRIENPlaintiffAND THE NEW ZEALAND HOME LOANCOMPANY LIMITEDDefendantHearing: 21 July 2011Appearances: W A McCartney for the PlaintiffM D Branch for the DefendantJudgment: 22 July 2011JUDGMENT OFASSOCIATE JUDGE CHRISTIANSENThis judgment was delivered by me on22.07.11 at 4:30pm, pursuant toRule 11.5 of the High Court Rules.Registrar/Deputy RegistrarDateSolicitors/Counsel:W McCartney, Barrister, Auckland – bill@mccartney.co.nzM Branch, Harkness Henry, Hamilton – murray.branch@harkness.co.nz / keiran.lomas@harkness.co.nz[1] The plaintiff has applied for an order to set aside or to modify the defendant‟sclaim of privilege to two documents identified by its affidavit of documents. Thedefendant claims those documents are privileged under s 57(1) of the Evidence Act2006 (the Act). The plaintiff‟s contention is that at the time the documents came intoexistence there was no dispute between the defendant and a Mr Ludwig; or that anydispute was not of a kind where relief may be given in a civil proceeding betweenthe defendant and Mr Ludwig.[2] The issue concerns whether the evidence discloses the existence of a dispute of sufficient kind to qualify for s 57(1) privilege. As this is the plaintiff‟s applicationpremised upon a claim that s 57 does not provide privilege, the plaintiff bears aresponsibility to show there was no sufficient evidence of a dispute, or at least toprovide the Court with proper cause to undertake its own inspection of the twodocuments concerned.Background[3] The defendant is a mortgage brokerage franchisor. Mr Ludwig was a franchisee who operated his franchise through NZ Home Loans Auckland Central Limited (Auckland Central). Mr Ludwig was the sole director and shareholder of that company.[4] The plaintiff pleads that Mr Ludwig operated what he called a "private fund"which was separate from his company‟s franchise; that through the private fund MrLudwig received money from investors and on lent it to third parties.[5] When the plaintiff placed funds with Mr Ludwig for investment she says MrLudwig represented to her that those funds would be invested in fixed term bondsissued by the defendant. But, instead those funds were placed in the private fund.They were then invested but the investment failed and the plaintiff‟s funds were lost.[6] In her claim against the defendant the plaintiff pleads that a "departureagreement" between Mr Ludwig and the defendant enabled the former to operate hisprivate fund. The statement of claim pleads that the departure agreement required Mr Ludwig to misrepresent the nature of the private fund including falsely promoting the defendant as the party with which the plaintiff was contracting.[7] The plaintiff pleads that in November 2009 she became aware of MrLudwig‟s misrepresentation and she issued proceedings against him and againstAuckland Central.[8] In due course Mr Ludwig was adjudicated bankrupt and Auckland Central was placed into liquidation.[9] The proceedings against the defendant were filed in December 2010.[10] In this proceeding the defendant has provided copies of documents in the period of late-November early December 2009, save for the two documents it asserts are privileged. One of those is a letter from the defendant to Mr Ludwig dated 23 November 2009. The other is a letter from Mr Ludwig to the defendant dated 30 November 2009. Those documents are of interest to the plaintiff because theyclearly form part of the context of matters at a time when the defendant, as did theplaintiff, discovered issues arising from Mr Ludwig‟s operation of his personal fund;when Mr Ludwig acknowledged to the plaintiff and other investors that theinvestment of those funds had failed; when the defendant terminated its franchiseagreement with Auckland Central; and in the outcome of which issues between MrLudwig/Auckland Central and the defendant were resolved.[11] Mr McCartney submits the evidence of correspondence at that time does not disclose a dispute. He agrees there is evidence of a resolution of issues but those issues never amounted to a dispute, much less one of the type for which s 57 afforded protection. In support of this perspective of matters he identifies the following factors:(a) Mr Ludwig emailed Mr Harris of the defendant:Hello Phil.With great humility I add to the list; ...Phil clearly I am penniless and recognise my part in this. Would it be too cheeky to get say... just to get by really I will get a job but ifprison is likely don‟t want to start looking.Feel free to call me Phil if you need any further info.(b) An email from Mr Harris to Mr Ludwig dated 26 November 2009:LuddyNotice of termination attached as discussed. I will get this onto letterhead once I get to the office over the weekend. Will see you at 9:00am tomorrow.RegardsPhil...TERMINATION NOTICEPlease treat this letter as notice of termination of the franchise agreement that exists between us. This termination takes effect immediately, and is in reliance on section 16.4(c) of the franchise agreement (which is relevant in event of a wilful deception of customers by the franchisee in connection with the operation of the licensed business), as well as in reliance on our rights at law. The conduct that gives rise to this termination notice is you taking funds from customers on the basis that those customers could invest in our investment products (which did not exist).As you will be aware, various obligations apply to you under the franchise agreement in the event that it is terminated by us. We reserve all our rights and remind you of all your obligations under the franchise agreement.Yours faithfullyPhil HarrisGeneral Manager(c) An email from Mr Ludwig to Mr Harris dated 1 December 2009:For your info Phil...Hello EveryoneIt is with huge regret that I advise that I have been disenfranchised by NZ Home Loans on the grounds of misconduct. Amongst other things and with the very best of intentions throughout the process, Ihave dissipated the funds you entrusted with me. I do not know how else to put it really. With all the best intentions in the developments and the bonds, I have failed and already lost all my own equity. Of course I regret this immensely and say that I have begun liquidating other assets as fast as I can to repay you as much as possible....As a result of the action taken against me, I have been removed as Franchisee and my business will be taken over so any hope of repaying from my business as the economy improves is gone...The business itself continues to effectively serve 800 odd customers from what was my Auckland Central base. As you are a client or aprospect of the business as well as having interest in "My Slush Fund" I ask that you treat the remaining staff with respect and courtesy as they have no knowledge of my investment dealings. Nor are they privy to the proposed progress.This too will reflect badly on the brand but it does not have anything to do with NZ Home Loans per say. It is unfortunate that our introduction was largely on the bases of you seeing me as that but you were essentially dealing solely with myself in any capacity I may have presented. I did not intend to deceive but rather err in my lack of purposeful identity. The reality is that the FUND was always simply a private fund between friends and family and hence the casual nature by which I managed it.I regret this immensely and whether you accept or not I am hugely embarrassed and regretful about the hardship this will cause you all. I am not at liberty to communicate to you individually and assure you that the Court has frozen all my assets with a view to maximising distribution. There will be no more interest payments made....(d) Email from Mr Ludwig to Mr Harris dated 2 December 2009:Hi PhilIn an effort to keep all this contained we are looking at costs from Up front $4k – 20K noted as available. If I apply for legal aid which I have been trying to do, it deflects the better lawyers from being able to assist as they are not (the honest ones) prepared to take legal aid and a subsequent top up. I am only doing this for brand protection as I have nothing to protect.What shall I do?...(e) A letter from Mr Harris to the plaintiff dated 14 December 2009:Dear SamanthaIan LudwigIt has recently been brought to our attention that Mr Ian Ludwig, until recently a Home Loans Franchisee operating through New Zealand Home Loans Auckland Central Limited, took a deposit of money from you.Mr Ludwig had no authority to accept any deposits of this type under the auspices of the New Zealand Home Loan franchise business. Indeed, he has confirmed to us that when he accepted the deposit from you he accepted it on a personal basis and not as part of his New Zealand Home Loans franchise business....(f) Email from Mr Ludwig to Mr Harris dated 28 April 2010:Please be advised I have put the company into Voluntary Liquidation...I am also under investigation by the Police and they too will be in touch with you if they have not already done so.I also advise with considerable regret that this outcome is far from ideal for any of the parties but this action has been done to try and maximise the result and repayment in part of your funds...(g) Email from Mr Harris to Mr Ludwig dated 29 April 2010:Hi LuddyThanks for that. As far as I can work out all appears to be proceeding in an orderly way...Thank you very much for your cooperation and assistance through this process. I have appreciated this and I think has helped to achieve the best outcome in the circumstances....[12] Mr McCartney submits the purport of this correspondence indicates a friendly tone, a resignation by Mr Ludwig to his fate, cooperation and friendship. Mr Ludwig admitted his wrongdoing and his responsibility for the loss of those affected. Mr McCartney submits that Mr Ludwig has not claimed to have been wrongfully disenfranchised; that he does not anywhere indicate a dispute with the action taken by the defendant.[13] Mr McCartney submits whilst clearly in the circumstances the potential for a dispute existed, the evidence shows that there was no such dispute. Mr McCartney submits therefore there was no dispute and the s 57 protection does not apply. He submits that there is a sufficient basis for the Court, to exercise its discretion to view the two letters for which privilege is claimed, in order to confirm whether or not they have relevance to matters in dispute between the parties.[14] Mr McCartney submits that his email correspondence with Mr Ludwig in July of this year does not detract from the position advanced on behalf of the plaintiff.[15] On 1 July 2011 Mr McCartney emailed Mr Ludwig:...In order to satisfy Harkness Henry, would you please confirm that you waive any privilege in the two letters referred to.Would you also please confirm that you do not believe there to have been any dispute between you and NZ Home Loan Company at the time.[16] Mr Ludwig responded by email dated 7 July 2011:...Please be advised that I have no difficulty in correspondence between NZ Home Loans Company Limited and myself being made available to you. What does concern me is the inaccurate affidavit filed in the High Court byMs O‟Brien. I advised you at the Court that day that the affidavit wasincorrect. It is in total conflict with the facts and is not in line with [the] position and opinion [of] my other creditors.This dispute as you refer to between myself and NZ Home Loans Company Limited was significant. I was immediately removed as a Franchisee and was barred from my offices when NZ Home Loans became aware of my insolvency and were fearful that I had misled clients which in fact I did not. The discipline which was dealt with in an ambassadorial way was both immediately debilitating and final.[17] Mr McCartney submits the Court should ignore that final paragraph. He suggests Mr Ludwig may have taken that view in hindsight it occurring some 18months after the events. Mr McCartney submits that also Mr Ludwig‟s letter is notreally concerned about the consequences of what happened because everything had been resolved. He submits the Court should not treat the email as anacknowledgement that there was a dispute in the November – December 2009 period.Considerations[18] The meaning of s 57(1) of the Act is clear. Where, in a dispute of a kind where one party may be entitled to seek relief in a civil proceeding, there has been communication with the other party that was intended to be confidential and was made in an attempt to settle the dispute, that communication will be privileged and neither party, nor indeed any other person is entitled to break that confidence. Nor pursuant to s 65(5) of the Act can one party alone waive that privilege.[19] As he must for the purposes of his submissions in support of the plaintiff‟sapplication, Mr McCartney has focussed upon those elements tending to show the absence of a dispute at the relevant time. He submits the language used in the context taken from that correspondence does not identify the existence of a dispute.[20] On 20 July 2011, the day prior to my hearing this application, Mr Harris filed an affidavit in which he rejected claims of a lack of a dispute. He deposed:(a) The defendant disputes it authorised Mr Ludwig to operate a private fund. He was granted a departure from the franchise agreement to provide lending services from other entities to his clients. That departure did not extend to an authorisation to operate a private fundand did not in any way suggest he could issue "Bonds" on behalf ofthe defendant.(b) On 17 November 2009 the defendant received a complaint allegingthat Mr Ludwig and Auckland Central owed money and payment wasoverdue. At around this time the defendant was also contacted by theplaintiff. Mr Allan had no idea that Mr Ludwig had been conductingthose activities.(c) At a meeting on 20 November 2009 Mr Ludwig confirmed to MrHarris that the allegations were correct. He rejected Mr Harris‟suggestion that Mr Ludwig had breached the franchise agreement.(d) By his email to Mr Ludwig dated 29 April 2010 Mr Harris was thanking Mr Ludwig for allowing the defendant‟s investigator toaccess his records and to ascertain the extent of breaches which occurred.(e) Ultimately no settlement could be achieved with Mr Ludwig because he was adjudicated bankrupt on 28 July 2010.(f) The subject letters were marked "without prejudice".[21] Save perhaps for reference to sub paragraph (c) above it seems clear that MrHarris‟ evidence is not contentious.[22] It will be helpful to analyse what is contemplated by the word "dispute" inthe Act and to consider the plaintiff‟s position that the Act is a code.[23] In NZICA v Clarke 1 Keane J examined the extent to which the common lawwas excluded by the Act when considering s 57(1). The learned Judge‟s discussionstarts at paragraph [38] of the judgment:Resort to common law[38] Section 10(1), which governs interpretation, sets the balance. The Act is the starting point and may well be the end point. It speaks for itself and is not to read subject to the common law. If it speaks explicitly and completely there can be no resort to the common law. If it speaks less than definitively and completely there can and may need to be, but only insofar as the common law marches with the purposes, principles and letter of the Act.[39] Section 10(1) says that the Act:(a) must be interpreted in a way that promotes its purpose and principles; and1 (2009) 19 PRNZ 246.(b) is not subject to any rule that statutes in derogation of the common law should be strictly construed; but(c) may be interpreted having regard to the common law, but only to the extent that the common law is consistent with –(i) its provisions; and(ii) the promotion of its purpose and its principles; and(iii) the application of the rule in section 12.Scope of common law privilege[43] Section 57, according to The Evidence Act 2006: Act and analysis,233, EV 57.09, is definitive: „Section 57(3) sets out the onlyexceptions to the privilege for settlement negotiations or mediationwhich are recognised by the Act‟. And as to the common law exceptions: „The common law recognised other exceptions to the privilege. However, the effect of codification is that there is little room to argue for the continued existence of these earlierexceptions.‟ Section 67 confers the only independent ability todisallow privilege.[45] The common law distinguished what was privileged from what was not, not formally, but in substance. It admitted without prejudice communications, or aspects of them, where that did not offend the purpose of the privilege. It withheld privilege from anything tainted...[24] His Honour also referred to the authority of Field v Commissioner of Railways (NZW) (1955) 99 CLR 285, 291 – 293 wherein the Court stated an admission was held not to be privileged, because it was not reasonably incidental to the negotiation or settlement.[25] His Honour also said:[50] The Unilever case does affirm that the common law protects all aspects of a communication absolutely. Statements in negotiation, Robert Walker LJ said, are not to be dissected to protect only admissions against interest...Conclusions[26] Mr Branch submits and I accept that the term "dispute" not only coversdisputes in the sense of litigation being threatened or seriously contemplated but any attempt to resolve liability arising out of the breach of a legal obligation. To my mind the evidence clearly discloses that Mr Ludwig and Mr Harris met andcommunicated in circumstances surrounding the sudden disclosure of irregularcommercial practices which impacted on their companies‟ franchise agreement. Thedefendant wanted to deal with the issue of breach, the financial implications of same, and to examine a way in which the breach claim could be resolved. The relevant correspondence (that for which privilege is claimed), was unquestionably markedwithout prejudice. Mr Ludwig‟s 7 July 2011 email refers to their having been a"significant" dispute at the time. I discount suggestions that expression can beviewed other than as an acknowledgement of what occurred. Negotiations and resolution without hostility does not connote an absence of a dispute. Also in this case there is evidence that Mr Ludwig, at the time, contested the claim that he had breached the franchise agreement.[27] This case is a little different than others. This application does not concern the confidences of two parties who are taking their dispute to Court. Rather it concerns two parties corresponding about their relationship and their problems. Therefore, this application is about confidentiality issues in another matter being brought into the context of the plaintiff‟s claim against one of those parties.[28] I accept Mr Branch‟s submission that in this situation the strongest publicissue considerations should be borne in mind before permitting disclosure of a confidence to which one of the litigation parties was not party. There is good purpose in preventing access to statements or offers made in the course of negotiations for settlement particularly when the party seeking disclosure of the confidence was not party to it.[29] Whether communications are protected as being "without prejudice" dependson the intention of the parties, which may in clear cases be inferred even though it isnot expressly made "without prejudice"... All documents which form part ofnegotiations between the parties are prima facie privileged for omission fromevidence if they are marked "without prejudice", even if the document in questionmerely initiates the negotiations, and even if the document itself does not contain anoffer". 22 McGechan on Procedure 1-976.[30] Whilst the relevant correspondence period indicated contrition and cooperation on the part of Mr Ludwig it resulted in Auckland Central beingdisenfranchised over Mr Ludwig‟s objection that he had not breached the agreement.The documentation evidenced a settlement of issues in the context of which there had been a dispute between the parties.[31] Mr McCartney has urged me to review the two documents in question for the purpose of deciding the validity of a claim that privilege attached to them.[32] Clearly the Court has an unfettered discretion to inspect documents in applications such as this. But the practice of reviewing documents is not one that ought to be considered as a matter of course. In this case I do not consider a reviewis necessary. The undisputed evidence is marked "without prejudice". Mr Ludwighas acknowledged there was a substantial dispute between the parties at the relevant time.[33] In my assessment the circumstances disclosed are such that it is plain the elements of s 57 are present.Result[34] The plaintiff‟s application to set aside or modify the claim of privilege isdismissed.Costs[35] These are fixed on a category 2B basis and are payable to the defendant.Associate Judge Christiansen