WELLINGTON CITY COUNCIL v LOCAL GOVERNMENT MUTUAL FUNDS TRUSTEE LIMITED[2015] NZHC 1151

WELLINGTON CITY COUNCIL v LOCAL GOVERNMENT MUTUAL FUNDS TRUSTEE LIMITED [2015] NZHC 1151 [27 May 2015]IN THE HIGH COURT OF NEW ZEALANDWELLINGTON REGISTRYCIV-2014-485-9933[2015] NZHC 1151BETWEEN WELLINGTON CITY COUNCILPlaintiffAND LOCAL GOVERNMENT MUTUALFUNDS TRUSTEE LIMITEDDefendantHearing: 7 May 2015Counsel: T C Stephens with G M G Joe for PlaintiffE J Horner for DefendantJudgment: 27 May 2015JUDGMENT OF THE HON JUSTICE KÓS(Particular discovery; challenge to privilege claim)[1] The Wellington City Council has been put to substantial cost in defending and settling a weathertightness proceeding brought by owners of the Lofts Apartments at 181-185 Victoria Street, Wellington.[2] From 1997 to 2008 the Council was a participant in a mutual liability scheme providing professional indemnity and public liability protection to local government organisations. That body is known as RiskPool, and it is the defendant in this proceeding.[3] Weathertightness problems at the property were identified in 2004. In May 2004 the Council gave written notice to RiskPool of an occurrence which might give rise to a claim. But no proceedings were brought against the Council until 2011. RiskPool claims it was not notified of the existence of the proceedings until 26 August 2013. It says that by reason of such late notification, ensuing change of position and the existence of an alleged absolutely unfettered discretion as towhether claims are met out of pool cover, it was entitled to decline cover to the Council.The application[4] An affidavit of documents was sworn by Ms Juliet Martin, the general manager of RiskPool, in November 2014. It has given rise to a dispute over discovery.[5] This judgment deals with an application for particular discovery under r 8.19, and a challenge to privilege claim under r 8.25.[6] After the application was made the defendant conceded that some of the privilege claims had not been properly advanced. The result has been disclosure of a number of documents, and the recategorisation of those and others.[7] At the beginning of the hearing, counsel for the defendant also conceded that some of the categories of documents for which particular discovery is sought could be the subject of a Court order if the Court was so minded. These were sensible and necessary concessions.[8] I will now address each category of particular discovery that remains in issue, and conclude with the remaining challenge to privilege claim. That challenge now concerns one document only.Particular discoveryItem 1: Documents relating to RiskPool's decision to decline to indemnify theCouncil, including the relevant Board meeting minutes and Board papers/information that the Board considered in making its decision[9] RiskPool accepts that these documents would be relevant, if extant. But it says that all documents within this category have been disclosed.[10] I am not satisfied that a sufficient search has been made of relevantdocuments. Ms Martin's original affidavit of documents refers to instructions to her solicitors to "obtain all relevant information". It then refers to Ms Martin havingherself undertaken a "review" of the defendant's computer directory, referencingdocuments held by either Juliet Martin (General Manager) or Jane Brown (Legal Officer) in relation to the "Lofts Apartments and/or Wellington City Council".Although Ms Martin and Brown were employed by the defendant by late 2013 when the decision to decline was made, they were not employed by it in 2011 when otherdocuments relevant to the plaintiff's case may have been generated. The temporal range of relevancy in this case dates back to May 2004 at least and potentially before. It follows that applying those limited search criteria cannot have generated a complete and adequate search of documents relevant to this proceeding.[11] Ms Horner has now conceded that a further search will be required. A further affidavit will be supplied identifying the nature of the search undertaken and either confirming the absence of documents (if the original position is sustained) or else disclosing those documents that have come to light as a result of a proper search.Item 2: the defendant's reinsurance contract/policy wording for each layer ofreinsurance that it held for the 2003/2004 year[12] In declining cover and defending this proceeding RiskPool contends it was prejudiced by the late notification of the proceeding because of the 2011commutation of RiskPool's reinsurance for the 2003/2004 fund year, whichreinsurance or otherwise responded to the claim. The Council does not accept that contention, itself contending that RiskPool did not have reinsurance for the 2003/2004 year, and that any reinsurance it did have for that fund year had already been exhausted.[13] RiskPool also says, as I have already said, that it has an absolutely unfettered discretion under the scheme rules whether to meet claims out of pool cover. The Council contests that contention. It says that the discretion is impliedly constrained by the purpose and intent of the scheme Trust Deed and scheme rules. No separate question decision under r 10.15 has been made on this point, and it remains at large. As Dobson J made clear in Hager v Attorney General, the scope of discovery obligations cannot be determined on the assumption that a particular claim ordefence will prevail.1 Relevance for the purpose of discovery cost corresponds to all issues currently and credibly live in the pleadings.[14] The nature and extent of reinsurance previously held by the defendant for the 2003/2004 fund year is plainly relevant to the issues live on the pleadings. Discovery of the Item 2 documents must be given.Item 3: the defendant's financial records detailing the balance of the RiskPool fundand reinsurance for 2003/2004 fund year, surpluses from other fund years andguarantees or other assets available to the defendant to meet the Council's LoftsApartments' claimItem 8: the defendant's financial records detailing the balance remaining of thecommutation payment received for the 2003/2004 fund year[15] One of the reasons for declinature given by RiskPool was that the Council'sclaim for cover would, if accepted, require an additional call on members. That was because there was insufficient remaining from the 2011 commutation payment. That allegation is challenged in these proceedings. The Council contends in the alternative to making a call on members, that recourse ought be had to surpluses from previous fund years or guarantees from the parent company (provided for in the Trust Deed and scheme rules).[16] In these circumstances it is clear that these particular documents are relevant to the issues in the proceeding. They are plainly in the possession of the defendant. They should be discovered.1 Hager v Attorney General [2014] NZHC 3293 at [28] – [29].Item 4: memoranda, letters, emails, reports, spreadsheets, Board papers, Boardminutes and other documents relating to RiskPool's negotiation of the commutationagreement with Swiss Re, including the defendant's commutation offer to Swiss Rewhich preceded Swiss Re's commutation counter-offer on 1 September 2011Item 5: the Board papers and other documents/information that RiskPool consideredin deciding to accept Swiss Re's commutation counter-offer but including theaccounts, documents and other information requested by the defendant's directors asrecorded in the minutes of their telephone conference on 22 September 2011[17] Ms Horner now accepts that both of these classes of documents are relevant, and that a further and more complete search needs to be undertaken.Item 6: the final executed commutation agreement between the defendant and Swiss Re[18] Since the filing of the application, RiskPool has conceded that the final commutation agreement is relevant and not privileged. It has been disclosed.Item 7: the terms of Heaney & Co/Heaney & Partners engagement by the defendant[19] There is an interesting argument that notification of the proceedings to RiskPool was not late, but occurred in 2011 – either constructively, because RiskPool was aware of the proceeding, or by attribution of knowledge, becauseRiskPool's solicitors, Heaney & Co, were also the Council's solicitors in the 2011proceedings.[20] Ms Horner's advice to the Court is that, following due enquiry of Heaney & Co, no formal written contract of engagement between that firm and RiskPool has ever existed. It appears that the retainer by RiskPool has been on a case by case, or instruction by instruction, basis. I am not prepared to order discovery of these diffuse arrangements. However the forthcoming further affidavit of documents by the defendant will need to set out the precise position as to the absence of more formal retainer.Item 9: memoranda, letters, emails, reports, spreadsheets, Board papers, Boardminutes and other documents relating to the defendant's request for additionalcontributions from members of the RiskPool scheme and basis upon which such requests are made[21] RiskPool pleads that it was prejudiced by late notification. That is because, first, there was insufficient commutation payment left to indemnify the plaintiff against the Lofts Apartments claim. Secondly, an additional call on members would need to be made. That call, it is said, would have imposed hardship on members, and would have discouraged members from rejoining the scheme or continuing withtheir membership. That is the defendant's pleading, and has put in issue the very point Item 9 relates to.[22] Ms Horner accepts the relevance of the documents sought but seeks some limitation as to scope.[23] In discussing the matter with Mr Stephens, I suggested that the scope of Item 9 discoverable at this point be limited to actual calls and Board papers and minutes regarding such calls. Mr Stephens requested that I extend the class of documents included to communications from members indicating their reaction to calls made by RiskPool. I accept that that is a reasonable requirement.[24] There will therefore be an order for discovery in terms of Item 9, as limited by paragraph [22]. Leave is reserved to make further application depending on the outcome of the further discovery ordered.Challenge to privilege[25] The single unresolved challenge to RiskPool's privilege claims concernsdocument P1.113. It was originally simply described as authored by "RiskPool", andsaid to be a minute dated 3 October 2011. It was originally claimed to be subject to litigation privilege. The claim has now been amended to solicitor-client privilege. The authorship has been enlarged: it is a "combined memorandum from fund manager, scheme manager and scheme solicitor".[26] Ms Horner is now to consider its status further.[27] The Court has not been asked to inspect the document. However I note two points of general principle:(a) Where a document is a composite of legal advice (otherwise privileged) and non-legal advice, only the portions of the document expressing legal advice are privileged. That part of the document should be redacted. The balance must be disclosed.2(b) The fact that the in-house scheme solicitor has given advice does not mean that legal advice given by her to her employer client is not privileged, even if she provides non-legal services also.3 However, only the legal advice given by the solicitor-manager is privileged. Managerial direction is not.4If there is uncertainty in the application of these principles, leave is reserved to apply further to the Court for a ruling on the particular document.Costs[28] The Council is entitled to costs. In accordance with r 14.8(1) those should be fixed now. The Council is entitled to costs on a category 2 band B basis.Result[29] Orders accordingly.Stephen Kós JSolicitors:Simpson Grierson, Wellington for PlaintiffMahony Burrowes Horner, Wellington for Defendant2 See for example Reid v Crown Law Office HC Wellington CIV 2008-485-1203, 21 April 2009 at [44]–[47].3 Robert v Foxton Equities Ltd [2014] NZHC 726 at [30].4 Robert v Foxton Equities Ltd [2014] NZHC 726 at [32].