IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2012-404-4602 [2015] NZHC 1233

BETWEEN	CAPITAL + MERCHANT FINANCE
LTD Plaintiff	

AND	
PERPETUAL TRUST LTD Defendant	

CIV-2012-404-7534

BETWEEN	CAPITAL + MERCHANT FINANCE LTD
Plaintiff

AND	STACE HAMMOND Defendant

Hearing:	13 April 2015	

Counsel:	
M D Arthur and L Fraser for Plaintiff
D J Cooper and J Standage for Perpetual Trust Ltd
P J Napier for Stace Hammond	

Judgment:	
4 June 2015	

JUDGMENT OF KATZ J [Application for further discovery]

This judgment was delivered by me on 4 June 2015 at 4:00pm
Pursuant to Rule 11.5 High Court Rules

Registrar/Deputy Registrar

Solicitors:	Chapman Tripp, Auckland
Bell Gully, Auckland
Keegan Alexander, Auckland

CAPITAL + MERCHANT FINANCE LTD v PERPETUAL TRUST LTD [2015] NZHC 1233 [4 June 2015]

Introduction

[1]       The plaintiff, Capital + Merchant Finance Ltd (“CMF”) formerly operated as a finance company.  It is now in receivership and liquidation.  With the benefit of a litigation funding arrangement, it issued proceedings against its former trustee, Perpetual Trust Ltd (“Perpetual”) and its former solicitors, Stace Hammond, alleging breach of contract and negligence.

[2]       The hearing of CMF’s claims was due to commence on 25 September 2014. As is often the case, settlement negotiations took place in the week leading up to trial.  The defendants say that those negotiations resulted in a conditional settlement agreement.   CMF disputes that, and says that no settlement was reached.   In the circumstances, the trial was adjourned.  The issue of whether or not the proceedings have conditionally settled has been set down for hearing in September 2015.

[3]       The parties have now  served  their  briefs of  evidence on  the  conditional settlement  issue.  CMF  has  served  briefs  of  evidence  from  Bruce  Stewart  QC, Michael Stiassny and Neil Jackson.   Mr Stewart was formerly CMF’s counsel and represented it in the settlement negotiations.  Messrs Stiassny and Jackson are both from KordaMentha, CMF’s receivers.  Campbell Walker, who was then counsel for Perpetual, represented the defendants in the settlement negotiations.

[4]     The parties have each provided discovery of documents relating to the conditional   settlement   issue.  The   defendants,   however,   believe   that   CMF’s discovery is incomplete.   They say that CMF is not entitled to claim privilege in documents relating to settlement, because it has referred extensively to privileged communications (primarily telephone calls and meetings) regarding settlement in its briefs of evidence.  CMF is therefore said to have waived privilege in relation to all settlement  documentation  during  the  period  18  to  24  September  2014.  The defendants also claim that CMF has improperly redacted certain names from two of the emails it has discovered.

[5]       CMF says that it has provided full and complete discovery of all relevant documents and has not waived privilege.   Further, if the contents of its briefs of evidence do potentially give rise to any waiver of privilege, it says that such waiver

would only occur when the relevant witnesses give evidence in court, not when CMF’s briefs are served.   In relation to the redacted emails, CMF says they were appropriately redacted, for reasons of relevance.

[6]       Against this background, the defendants have applied for further discovery from CMF of:1

(a)       all documents containing or recording communications in relation to the settlement of the proceeding dated between 18 September 2014 and 24 September 2014, but excluding those parts of such documents which contain or record legal advice as to the merits of CMF’s claim in this proceeding (category 1 documents); and

(b)      unredacted copies of two emails discovered by CMF (category 3 documents).

[7]       I will consider each category of documents in turn.

The category 1 documents

[8]       The defendants  submit  that  CMF has  waived  privilege  in  respect  of  the category 1 documents, on the basis that the briefs of evidence of Messrs Stewart, Stiassny   and   Jackson   all   refer   extensively   to   the   content   of   privileged communications regarding settlement, during the relevant period.

[9]       The voluntary disclosure of any significant part of privileged material, in circumstances that are inconsistent with a claim of confidentiality, will waive privilege in that material.2    Further, privilege will be waived if the privilege holder
acts so as to put the privileged material at issue in a proceeding.3    Disclosure of the

mere fact that privileged material exists is not sufficient.4

1	Agreement has been reached between the parties regarding a further category of documents, the
“Category 2 documents”.
2	Evidence Act 2006, s 65(2).
3	Evidence Act, s 65(3).
4	Houghton v Saunders (2009) 19 PRNZ 476 (HC) at [55]; and Shannon v Shannon [2005]
3 NZLR 757 (CA) at [58].

Has CMF voluntarily disclosed  significant parts of privileged material in its briefs of evidence?

[10]     The first issue I must determine is whether CMF has voluntarily disclosed significant parts of privileged material in its briefs of evidence, in terms of s 65(2) of the Act.  The defendants say that it has, because CMF’s witnesses refer extensively to  the  content  of  privileged  communications  between  Mr Stewart,  KordaMentha (Messrs Stiassny and Jackson), Chapman Tripp, and its litigation funder.   In particular:

(a)       Mr Stewart’s brief of evidence describes the content of his discussions with Mr Stiassny and Mr Jackson regarding settlement strategy and the settlement negotiations, including instructions provided to him and his reports on discussions with the defendants.5

(b)	Mr   Stewart   also   describes   his   communications   (and   those   of

KordaMentha) with the funders.6

(c)     Mr Stiassny’s brief of evidence is mostly a description of his communications with Mr Stewart in relation to settlement.7  He also refers to his communications with the litigation funder.8

(d)       Mr Jackson’s brief of evidence is similar and consists of a description of his communications with Mr Stewart, the funder and internally within KordaMentha.9

[11]     Counsel for CMF submitted that CMF has not waived privilege by including evidence on the above (or similar) matters in its briefs of evidence.  CMF’s argument was, essentially, that the only form of privilege brought into play by its briefs of evidence was settlement privilege.  Any documents potentially subject to settlement
privilege have, however, already been discovered.

5	At [18], [37], [39], [46], [60], [62], [63], [65] and [69].
6	At [17], [32], [37], [39] and [63].
7	At [9] - [18] and [21].
8	At [20].
9	At [9] to [25].

[12]      Settlement privilege is provided for under s 57 of the Act.   It is a fairly narrow category of privilege that protects confidential communications between parties to a dispute, made in connection with an attempt to settle the dispute. Documents recording the content of such communications (for example a subsequent email recording what happened at a settlement meeting) will also be subject to settlement  privilege.   Prior  to  the  passage  of  the Act,  this  privilege  was  often referred to as “without prejudice” privilege, as it covered without prejudice communications between the parties made for the purposes of settlement.

[13]     Settlement privilege cannot be claimed where there is a dispute as to whether settlement has been reached, or a dispute regarding the terms of settlement.  That is because, in such circumstances, it will be necessary for the court to look at the settlement communications between the parties to determine the existence and terms of any settlement they may have reached.

[14]     CMF’s briefs of evidence do refer to some communications between the parties that would have fallen within the scope of settlement privilege, if a dispute had not subsequently arisen as to whether settlement has been reached.   CMF’s briefs of evidence also refer, however, to privileged communications between its receivers, funder and legal advisers that do not fall within the scope of settlement privilege.  Rather, they are communications that appear to fall within the scope of either litigation privilege or, possibly, legal advice privilege.

[15]     The defendants do not seek discovery of CMF’s legal advice.   They do, however, submit that CMF has waived any right to claim litigation privilege in relation to any documents regarding settlement.

[16]    I am satisfied that CMF’s witness briefs, in their current form, disclose significant privileged communications, as summarised at [10] above.   It is therefore necessary to consider whether the second limb of s 65(2) is satisfied.  In other words, have those communications been disclosed in circumstances that are inconsistent with a claim of confidentiality?

Have privileged communications been disclosed in circumstances that are inconsistent with a claim of confidentiality?

[17]     If the privileged communications have been disclosed in circumstances that are inconsistent with a claim of confidentiality, then a waiver has already occurred and cannot now be “undone.”

[18]     The  defendants  submitted  that  service  of  briefs  of  evidence  containing privileged material on an opposing party is inconsistent with a claim of confidentiality.  As a result, any waiver occurred when CMF’s briefs were served. CMF, on the other hand, submitted that any waiver would not occur until the relevant evidence was actually given in open court.

[19]     The test to be applied is whether in all the circumstances CMF’s conduct is inconsistent with maintaining the confidentiality of the privileged material, in a way that could lead to injustice if the privilege is upheld.10     Although this test was enunciated in a pre-Evidence Act decision, it remains applicable under s 65.11

[20]     Rule 9.14(a) of the High Court Rules provides that nothing pertaining to the exchange of briefs in the High Court Rules “deprives any party of that party’s right to  treat  any  communication  as  privileged”.    Briefs  can  be  amended,  including to avoid waiver of privileged materials from occurring.  Thus, in relation to r 9.14, McGechan on Procedure states that:12

Presumably, if a brief indicates that the witness intends to waive privilege in a document in the course of giving evidence, the privilege remains until the evidence is actually given.

[21]     This view is consistent with the English position, as set out in a number of leading academic commentaries on privilege.13   For example, the learned authors of

10	Ophthalmological Society of New Zealand Inc v Commerce Commission [2003] 2 NZLR 145 (CA) at [38] subsequently endorsed in Shannon v Shannon, above n 4, at [30], [43]-[44].
11	Astrazeneca Ltd v Commerce Commission (2008) 12 TCLR 116 (HC) at [38] - [39]; see also
Body Corporate 191561 v Argent House Ltd (2008) 19 PRNZ 500 (HC) at [31]-[33]; Marriott v
Attorney-General HC Auckland CIV-2008-404-1437, 15 February 2010 at [10]-[11].
12	Andrew Beck and others McGechan on Procedure (online looseleaf ed) at [HX8.31.12(2)].
13	Hodge M. Malek (ed), Phipson on Evidence (17th ed, Sweet & Maxwell Ltd, London, 2010) at
[26-28]; Paul Matthews and Hodge M. Malek Disclosure (4th ed, Sweet & Maxwell, London,
2012) at [16-24]-[16-25]; Bankim Thanki (ed) The Law of Privilege (2nd ed, Oxford University
Press, London, 2011) at [5.34].

Phipson on Evidence observe that there is “unlikely to be a problem if the party withdraws  his  reference  to  the  [privileged]  document  in  his  pleading”.14         The English authorities must be treated with some caution, however, as the comparable English provision provides that privilege will be waived if  the relevant material is “deployed in Court.” This clearly differs from the s 65(2) test, which simply requires that the privileged material be disclosed “in circumstances that are inconsistent with
a claim of confidentiality.”

[22]     Nevertheless, I am satisfied that, in the circumstances of this case, CMF’s reference to privileged material in its briefs of evidence is not inconsistent with maintaining the confidentiality of the privileged material in a way that could lead to injustice if the privilege is upheld.

[23]     Mr Stewart’s brief of evidence makes it clear that CMF has not agreed to waive any privilege and that he was “accordingly unable to divulge any privileged communications that [he] had with CMF or its representatives.”  Accordingly, to the extent that Mr Stewart does divulge the content of at least some such communications, it is arguable that such disclosures have been made without CMF’s approval or authority.  Consistently with this position, counsel for CMF has advised the court that if CMF’s briefs (in their current form) will potentially result in a waiver of privilege, the briefs will be edited prior to trial to remove the offending material.

[24]     No injustice will arise if CMF is given an opportunity, prior to trial, to amend its briefs to remove any references to privileged communications.   CMF will, in effect, be put to an election.  If it decides to proceed with its briefs of evidence in their current form it will be required to give disclosure of any documents in respect of which privilege has been waived.  Alternatively, it may edit its briefs to remove references to some or all of the privileged communications referred to.

[25]     Clearly, injustice could arise if CMF were able to defer that election until trial.   Such a course would be inefficient and potentially unfair to the defendants. Rather, the appropriate course is for the court to require CMF, well prior to trial, to

elect  to  either  amend  its  brief(s)  or  disclose  any  material  in  respect  of  which privilege has been waived.  This will ensure that the defendants are on proper notice of the case they are required to meet.

How wide is the scope of any potential waiver?

[26]     In order for CMF to be able to make the required election, it is necessary to determine the scope of any waiver of privilege arising from the current form of its briefs.

[27]     At the risk of stating the obvious, it is not open to a party to give evidence regarding privileged telephone conversations or meetings, but to then refuse to disclose any documents that relate to those meetings or discussions.  Accordingly, if there are any documents relating to the content of the specific discussions or communications  between  CMF’s  receivers,  funder  and  legal  advisers  that  are referred to in CMF’s briefs, these must be discovered, as counsel for CMF accepted. The only qualification is that any portions of such documents that record legal advice may be redacted.

[28]     The more difficult issue is how much wider than this any waiver of privilege extends.  CMF’s position was that it is simply required to provide discovery of any documents  that  relate  to  the  specific  communications  referred  to  in  its  briefs, which it says it has already done.  The defendants, on the other hand, submitted that the effect of CMF’s briefs in their current form is to waive privilege in all of its documents  relating  to  settlement  during  the  period  18  to  24  September  2014, other than those parts of such documents that are subject to legal advice privilege.

[29]     In my view the correct position lies somewhere between these two extremes. CMF has chosen to provide evidence regarding a number of privileged telephone conversations and meetings.  The principle of collateral waiver accordingly applies. In Nea Karteria Maritime Co v Atlantic and Great Lakes Steamship Corpn it was held that collateral waiver can occur where a privileged item has been “plucked out of context”.15   This principle, sometimes known as the “cherry-picking rule”, aims to

prevent a party from presenting the court with a selective view of the relevant evidence.  This will occur if a party is able to waive privilege in relation to helpful portions of evidence, while hiding behind privilege in order to avoid disclosing other parts of evidence that are potentially unhelpful.   In such circumstances, privilege is waived in relation to all the material relevant to the issue in question, as there would otherwise be a risk of injustice as to the real weight or meaning of the
document or evidence that has been disclosed.16   Where collateral waiver applies, a

party will be required to disclose any further privileged material that is relevant to the same issue for which the privileged material was deployed.

[30]     To give an example, Mr Stewart refers to a phone call he had with the funder on 23 September 2004, in which he expressed concern that he had been unable to advance settlement initiatives as the funder had not given him a settlement figure (or range of figures).   This evidence will presumably be deployed at trial in support of  the  proposition  that  Mr  Stewart  could  not  have  entered  into  a  conditional settlement agreement, as alleged by the defendants, because he did not have the necessary support or instructions from the funder to do so.

[31]     Pursuant  to  the  principle  of  collateral  waiver,  any  documents  relevant to the general  proposition  that  the  funder  did  not  approve  a  settlement  figure (or settlement range)  would  be discoverable, to  ensure  that  the  reference to  this particular conversation has not been taken out of context.  It would not be sufficient to simply disclose any documents relating to the specific phone call with the funder on 23 September 2004.

[32]     CMF submitted that the relevant “issue” in respect of which the privileged material  has  been  deployed  in  CMF’s  briefs  is  “settlement  of  the  claim”. Accordingly all documents relating to settlement (regardless of whether they relate to specific matters covered in CMF’s briefs) must now be discovered.  In my view,
however, such an approach defines the “issue” in respect of which the privileged

LR 138 at 139.  For New Zealand examples of this principle see Cedco Publishing Co v Hodder Moa  Beckett  Publishers  Ltd  HC  Auckland  CL33/00,  29  May  2001  at  [58];  Stickland  v Drummond  HC  Auckland  CIV-2006-404-3078  29  May  2008  at  [65]-[74];  Messenger  v Stanaway Real Estate Ltd [2014] NZHC 2103 at [22] onwards.
16	See Hodge M. Malek (ed) Phipson on Evidence (18th ed, Sweet & Maxwell Ltd, London, 2013)
at [26-09]-[26-10]; and Nea Karteria Maritime Co, above n 15, at 139.

material has been deployed too broadly.  Rather, it is necessary to attempt to identify the particular propositions that CMF seeks to support with reference to privileged communications.   The interests of justice require that all privileged documents relating  to  those  propositions  or  issues  be  discovered,  to  avoid  any  risk  of selectivity. Requiring discovery of all CMF’s “internal” documents relating to settlement  would,  however,  go  further  than  the  principle  of  collateral  waiver requires.

[33]     I have accordingly analysed the relevant briefs of evidence to attempt to distil the specific “issues” in respect of which the privileged material has been deployed. If CMF’s briefs are to be given at trial in their current form, all documents relating to those  issues  must  be  disclosed,  save  that  any  portions  subject  to  legal  advice privilege may be redacted.     On this approach, the principle of collateral waiver requires the disclosure of any documents during the period 18 to 24 September 2014 relating to, regarding or recording:

(a)       whether Mr Stewart, at any stage, received instructions to make or confirm an offer to settle the proceedings;

(b)       any communications between Mr Stewart (on the one hand) and one or more of Mr Stiassny, Mr Jackson, Chapman Tripp and the funder (on the other) regarding possible settlement figures;

(c)       whether Mr Stiassny provided Mr Stewart with instructions to receive or indicate a specific settlement figure to the defendants;

(d)       whether the funder had provided to Mr Stewart or Mr Stiassny a figure or range of figures within which a settlement could occur;

(e)       whether CMF intended to make a settlement offer itself, or rather invite the defendants to make a settlement offer;

(f)	the	settlement	strategy	discussed	between	Mr	Stiassny	and

Mr Stewart,  including  in  particular  whether  it  would  be  best  to

negotiate separately or jointly with the defendants and the ways in which the defendants could be persuaded to offer more;

(g)       whether any potential settlement figure was intended to relate to only one or both defendants;

(h)       whether a conditional settlement agreement may or may not have been reached and any communications regarding the draft conditional agreement prepared by the defendants;

(i)        Mr Stewart’s instructions (or lack thereof) to approach Alan Galbraith QC  regarding  his  potential  availability  to  accept  instructions  to resolve a potential difference between the funder and the receivers in terms of the process set out in the litigation funding agreement;

(j)	any communications with Alan Galbraith QC regarding settlement

issues and the “QC process” under the litigation funding agreement.

[34]     It may well be that all documents falling within these categories have already been discovered.  If not, however, they must now be discovered if CMF intends to give evidence at trial in the form of its current briefs of evidence.

Was CMF entitled to redact the two category 3 documents?

[35]     I now turn to consider the other limb of the defendants’ discovery application, namely their challenge to the redactions made to two of the emails that CMF has discovered and referred to in its briefs of evidence.

[36]     The first document is an email dated 23 September 2014 from Mr Stewart to Mr Stiassny regarding a meeting that had taken place that day between Mr Stewart and the litigation funders.  It reads as follows:

1.  As  discussed  yesterday,  I  today  met  with  the  funders  ([Irrelevant] Michelle, Tim Storey and [Irrelevant] [Irrelevant] at 10 am this morning.

2. We commenced with a discussion about settlement as a result of me advising  them that  I have  been  unable  to  advance  settlement  initiatives without a figure or at least a range within which settlement could occur.

[Redacted- privilege]

[37]     Counsel for CMF submitted that the redacted names were irrelevant, but was unable to take matters further or explain precisely why that was so.  Nor did CMF assert any prejudice from disclosure of the redacted information or make any claim of confidentiality.

[38]     The meeting itself is clearly relevant, as evidenced by the fact that it is specifically referred to in Mr Stewart’s brief.  Further, CMF clearly recognises that the email is relevant, as it has discovered it.   If the meeting was relevant, then it would be somewhat unusual for the names of some of the meeting attendees to be irrelevant.   Some evidential foundation would need to be provided to  support a claim of irrelevance in such circumstances.  No such foundation has been provided.

[39]     Mr Stewart’s brief appears to rely on the 23 September 2014 email to support the general proposition that he could not have agreed to conditionally settle the proceedings because the funder had not provided him with a settlement figure.  That is a matter that the defendants are entitled to fully explore at trial (or prior to trial) whether   through   discovery,   subpoena   of   witnesses   or   cross-examination   of Mr Stewart and other witnesses.  The defendants’ ability to fully test the proposition being advanced, however, may be undermined if they are not provided with the names of the attendees at the meeting where the issue was allegedly discussed.

[40]     The second category 3 document contains two emails from Mr Jackson to the funder,  both  relating  to  settlement.    The  Listing  and  Exchange  Protocol  in  the High Court Rules provides that, in respect of each relevant document, the names of the author(s) and recipient(s) are to be listed.   The recipients of each email are, however, listed as Michelle Silvers (of the funder) and a second person whose name has been redacted on the grounds of irrelevance.   Both emails have been copied to Messrs Stiassny, Graham, Garrett, Stewart and a fifth person whose name has also been redacted on the grounds of irrelevance.

[41]     The  emails  are  referred  to  in  the  evidence  of  both  Mr  Stiassny  and Mr Jackson.  CMF has not made any claim to confidentiality in respect of the email or the redacted names, or submitted that it would be prejudiced in some way by disclosure of the redacted information.   Nor has it offered any explanation as to why the names of two recipients of the email are irrelevant.

[42]     The names of the parties to relevant communications will generally not be collateral or unrelated matters of the type that can properly be redacted for irrelevance.   Given that CMF refers to and relies on these communications in its briefs of evidence, the names of the parties to the communications are prima facie relevant.   No evidence or information has been provided that would justify the redactions that have been made to this document, on relevance grounds.

Result

[43]     I direct that:

(a)       If CMF intends to call evidence from Messrs Stewart, Stiassny and Jackson in the form set out in their current briefs of evidence, it is to provide discovery of:

(i)        any  documents  relating  to  or  recording  the  content  of  the specific discussions or communications between CMF’s receivers, funder and legal advisers that are referred to in CMF’s briefs, excluding any parts of such documents that contain or record legal advice as to the merits of CMF’s claim in this proceeding; and

(ii)	any documents created between 18 September 2014 and 24

September 2014 relating to, regarding or recording the various matters set out at [33](a) to [33](j) above,  excluding any parts of such documents that contain or record legal advice as to the merits of CMF’s claim in this proceeding.

(b)	Such  discovery  (if  any)  is  to  be  provided  by  18  June  2015.

Alternatively, amended briefs of evidence are to be served by that date.

(c)      CMF is to forthwith provide the defendants with unredacted (for relevance) copies of documents CMF.PTL.437.00064 and CMF.PTL.437.00057.   For the avoidance of doubt, CMF is entitled to retain the existing privilege redactions to those documents.

[44]	If costs issues cannot be agreed between the parties the defendants have leave to file a memorandum by 18 June 2015, with any response from CMF to be filed by
1 July 2015.

Katz J