WHK (NZ) LIMITED/WHK COOK ADAM WARD WILSON DIVISION V ALLIANZ NEW ZEALAND LIMITED HC INV CIV-2007-425-440

WHK (NZ) LIMITED/WHK COOK ADAM WARD WILSON DIVISION V ALLIANZ NEW ZEALAND LIMITED HC INV CIV-2007-425-440 10 March 2009IN THE HIGH COURT OF NEW ZEALAND INVERCARGILL REGISTRY CIV-2007-425-440BETWEEN WHK (NZ) LIMITED/WHK COOK ADAM WARD WILSON DIVISION Plaintiff AND ALLIANZ NEW ZEALAND LIMITED Defendant Hearing: 9 March 2009 Counsel: A D G Hitchcock for plaintiff M Ring QC for defendant Judgment: 10 March 2009RESERVED JUDGMENT OF DOBSON J ON INTERLOCUTORY APPLICATIONS FOR PARTICULAR DISCOVERY BY THE PLAINTIFF, AND FOR THE PLAINTIFF TO ANSWER CERTAIN INTERROGATORIES, TOGETHER WITH ORDER FOR NON-PARTY DISCOVERY[1] This decision relates primarily to contested applications for orders that the plaintiff answer certain interrogatories, and provide particular discovery of certain categories of documents. As a result of very constructive exchanges from counsel during argument, a satisfactory means of resolving the immediate differences emerged, and it ought now to be possible for the claim to be progressed relatively promptly to a substantive hearing. [2] The proceedings relate to a claim by the plaintiff firm of accountants (WHK) for indemnification in respect of losses incurred following a fire in October 2005 which destroyed a substantial part of WHK's records.[3] The defendant (Allianz) is the insurer. The relevant insurance policy had two parts, affording WHK cover for material damage to its property, and separately for business interruption costs. One important election confirmed during the hearing was that WHK's claim is pursued only under the material damage head of the policy, and that in no circumstances will WHK seek recovery for the relevant loss under the business interruption head. It is common ground that certain business records maintained by WHK, including those at a storage site other than WHK's Invercargill business premises, were covered by the material damage policy. A memorandum to the policy pertinent to the scope of the cover included the following:RECORDSThe Insured Property is deemed to include documents, manuscripts, computer system media, business books, microfilm, technical drawings and other records for their value as materials plus the cost of collecting and reproducing the information on them. The value of the information is not insured.[4] The limit on the extent of cover is $2.627 million. The relatively modest cost of replacing the physical property, comprising archive boxes, files and paper has been settled. WHK quantifies its claim for the "cost of collecting and reproducing the information on [the files]" by calculating a reconstruction of the pre-fire costs incurred in creating those files. [5] Allianz has resisted the claim pursued on this basis or (so Allianz thought) pursued on a basis of the notional cost of reconstructing all the files, were that work to be undertaken, irrespective of whether in fact it actually had been, or was going to be, done. Allianz contends that the indemnity for the "cost of collecting and reproducing the information on the files" must reflect the post-fire cost of reconstructing those of the files which WHK elects to recreate. To enable it to challenge the full extent of liability under the policy, as claimed, Allianz has sought, both by way of particular discovery and by way of answers to certain interrogatories, details of the costs actually incurred by WHK in reproducing the content of any of the files destroyed in the fire. [6] WHK's approach to the detail of its quantum claim is that, however it now recalculates the costs it invested in creating all the records before their destruction,that cost is substantially in excess of the maximum sum insured under the policy, and that therefore a minute examination of the calculations is unnecessary. A mode of calculation reflected in a brief of evidence completed by a representative of WHK suggests that a reconstruction of the average costs to WHK, per client, for the four years of records involved, would equate to approximately $9 million. Accordingly, on WHK's approach to the interpretation of the clause, minute argument on how the quantum was calculated would be irrelevant. [7] WHK has resisted providing such documents as may exist relating to the post-fire costs of file reconstruction, and has resisted interrogatories on the same topic, on the ground that such information is irrelevant to its claim and that the work required to respond to these applications would be vexatious and oppressive. [8] A second election committed to during the hearing, and critical to its disposal, is that WHK abandons any claim under the material damage policy for reimbursement of actual or estimated expenses incurred, post-fire, in reconstructing the content of all or any of the destroyed files. Mr Hitchcock describes WHK's claim as standing or falling entirely on the interpretation of the scope of cover as reflecting the pre-fire cost invested by WHK in creating the original files. Because of that single focus, he argues that how much has actually been spent in recreating files since the fire is irrelevant. [9] In pursuing the applications, Mr Ring QC had anticipated that it would at least be an alternative aspect of WHK's claim that it was entitled to some measure of the post-fire expense incurred in reconstructing files. So long as that issue was live in some form, it would be very difficult to resist the claim to relevance in what had actually been spent on that task. However, that is not the case Allianz has to meet. [10] Even when WHK's approach relied solely on a quantification reflecting pre- fire costs incurred, Mr Ring suggested the stark contrast likely to be revealed between any pre-fire quantification of the cost of creating the files, and the post-fire costs actually incurred in reconstructing the files, is likely to be relevant as context to support the argument against the reasonableness of the interpretation contended for on behalf of WHK.[11] Such information and documents could only be of peripheral relevance, once WHK is committed to pursuing the claim solely on the basis of a quantification of the pre-fire costs invested in creating the records in the first place. Such peripheral relevance would not warrant the extensive work involved for WHK to comply with the discovery and interrogatories as presently sought. Mr Ring understandably does not want to prepare for trial on a basis where Allianz has to speculate on how little has actually been spent, relative to the maximum indemnification sought under the policy. His arguments in aid of a contrary interpretation of the policy are probably sufficiently supported by global amounts of how much WHK has spent, in round terms, per annum since the records were destroyed. That could be achieved either by a much more generalised interrogatory, or possibly by a notice to admit facts contending that WHK had spent no more than specified amounts on reconstruction of files destroyed in the fire, in each of the 12 month periods since October 2005. Mr Hitchcock accepted that he could not resist notices to admit facts in such terms, and that would enable the "contextual" rather than "evidentiary" preparation that this issue will have, given the entitlement of Allianz to rely on the two elections recorded in this judgment. [12] Accordingly, I dismiss the present application. This does not preclude the issue of notices to admit facts on behalf of Allianz, in terms such as those contemplated above. [13] I further record Mr Ring's concern that, given the singular focus for WHK's approach to quantum, WHK may need to reconsider the adequacy of its discovery on documents going to the value attributed to the records by WHK, up to the time of their destruction, and how that value was reflected in WHK's financial statements. [14] Whilst the applications have been unsuccessful in formal terms, the practical outcome is that the need for them has been compromised by the constructive approach adopted on both sides to having the relevant issues adequately prepared for trial. In those circumstances, it is inappropriate to award costs to either party.Oral application for non-party discovery against Marsh Limited[15] Both parties are agreed on the need for an order for non-party discovery against Marsh Limited (Marsh), in its capacity as broker between the insured and the insurer, and the arranging of the relevant insurance cover. Counsel indicated that requests for production of the broker's file have been made, which Marsh has neither refused nor complied with. The parties are agreed that the Marsh file on arranging the cover is relevant, and Marsh's failure to respond to informal requests renders an order necessary. Neither party considered it necessary for Marsh to do an affidavit of documents. Mr Hitchcock was inclined to suggest that one party or other to the litigation has probably already discovered the majority of documents held on a file maintained by Marsh, but that both sides recognise the necessity to check for any omissions from that. Rather, the parties sought a simple formal acknowledgement by way of affidavit on behalf of Marsh as to whether it retained a file for insurances arranged for WHK prior to the October 2005 fire, and deposing to the circumstances of destruction if such file is no longer available. Assuming that it is available, then the parties anticipate that Marsh would simply make a photocopy of all the contents of the file available to both parties. [16] I was reluctant to make an order in the absence of service on Marsh of a formal application warning them, but the case for non-party discovery is clearly made out. Resistance from a non-party in such circumstances is generally to protect their own position in respect of the reasonable costs of preparation of an affidavit. That responsibility does not appear to be extensive in this case. However, to protect the position of Marsh, I make the order in the terms sought by the parties, with the qualification that each party to the litigation is to be responsible in the first instance for one half of the reasonable costs incurred by Marsh. I reserve the entitlement of the parties to question whether they ought to have been liable for such costs once the provision of discovery by Marsh has been concluded and the parties are afforded an opportunity to consider any grounds that arise for variation from the default position that the parties to the litigation are to be responsible for the costs incurred by the non-party. [17] Accordingly, I order Marsh within 21 days:a) To file an affidavit stating: i) Whether the file(s) for WHK (NZ) Limited/WHK Cook Adam Ward Wilson division concerning its insurance arrangements with Allianz prior to the fire which occurred in October 2005 is or has been in the control of Marsh; ii) If the file(s) have been but are no longer in the control of Marsh, their best knowledge and belief as to when the documents ceased to be in the control of Marsh, and who now has control of them; b) To serve the affidavit on the plaintiff and defendant; c) If the file(s) are in the control of Marsh, to make those documents available for inspection to the plaintiff and defendant in accordance with r 8.33 High Court Rules. [18] The plaintiff and the defendant are each to be liable for one half of the reasonable costs incurred by Marsh in complying with this order, subject to the entitlement of the parties to revisit the appropriateness of their being liable in this respect, given the reasonableness of conduct on behalf of Marsh up to the making of this order, and the circumstances of its compliance with it.Dobson JSolicitors: AWS Legal, Invercargill for plaintiff McElroys, Auckland for defendant