Abdee v New Zealand Law Society HC Wellington CIV-2004-485-2643

[2005] NZHC 1640

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

CIV-2004-485-2643

IN THE MATTER OF     The Judicature Act 1908

AND IN THE MATTER OF an application for judicial review

BETWEEN

GRANT LINDSAY ABDEE & OTHERS

Plaintiff

AND

NEW ZEALAND LAW SOCIETY

Defendant

Hearing:         15 March 2005 Appearances: G. Turkington for Plaintiffs

P. Collins for Defendant Judgment:     1 April 2005 at 1.00pm

JUDGMENT OF ASSOCIATE JUDGE D.I. GENDALL

Introduction

[1]   This is an application by the plaintiff for particular discovery against the defendant. It is brought under s 10(2)(i) Judicature Amendment Act 1972.

Background Facts

[2]   The plaintiffs seek discovery of documents relating to the Law Society’s refusal to consider their claim against the Solicitors’ Fidelity Guarantee Fund (“the fund”).

[3]   Mr Wayne Stuart Ross, a solicitor, was a principal in Ross Partners, a law firm. On 19 June 1998 Mr Ross was convicted of charges of fraud in relation to client funds taken from the firm’s nominee company.

ABDEE & OTHERS V NEW ZEALAND LAW SOCIETY HC WN CIV-2004-485-2643 1 April 2005

[4]   The plaintiffs were investors in the Ross Partners nominee company. They wished to claim against the fund (administered by the defendant) for losses resulting from the fraud. On 27 January 1999 the plaintiffs wrote to the defendant and to the Wellington District Law Society (“WDLS”), giving notice of their intention to claim, pending investigation of their losses. The WDLS replied by letter the same day, stating that this letter would be treated as a possible claim, but that the WDLS  looked forward to receiving a formal notice of the plaintiffs’ claim.

[5]   The WDLS was prepared to accept claims until 19 June 1999, being 12 months after the date of Mr Ross’ fraud convictions. It did not advise the plaintiffs of this deadline.

[6]   In the meantime, the plaintiffs’ accountant was employed jointly by the plaintiffs and the defendant to investigate the securities involved in the fraud. In September 2000, the plaintiffs filed two formal notices of claim with the WDLS, based on the information obtained from their accountant.

[7]   On 20 October 2000 the WDLS declined the plaintiffs’ claims, on the grounds that they had been filed outside the 12-month limitation period in s 169(2) Law Practitioners Act (“LPA”). Under that provision, written notice of a claim  against the fund must be given “within 12 months after the claimant has become aware of the theft, or within such further time as the Council or Committee may in its discretion allow”.

[8]   The plaintiffs seek judicial review of the defendant’s refusal to consider these claims.

The Judicial Review Proceedings

[9]   Essentially, the plaintiffs assert that the defendant imposed a ‘cut-off date’ of 19 June 1999, without considering that the plaintiffs became “aware” of the particular losses caused by the fraud only after the accountant’s report was completed. The defendant is said to have waived any delay by jointly engaging the accountant.

[10]      The plaintiffs also allege unfairness, in that the plaintiffs were treated inconsistently with other claimants. As to this, they contend that the defendant continued to accept, negotiate and compromise claims from other parties relating to Mr Ross’ fraud (including informal and less detailed claims) through to late 2001.

[11]      Specifically, the plaintiffs’ allegations in the Statement of Claim may be summarised as follows:

Unfairness: The defendant treated claimants inconsistently and discriminated against the plaintiffs. The defendant refused to consider the plaintiffs’ claims, but accepted similar and even less detailed claims around the same time (in particular, a claim by one Marion Jones, filed in September 2000).

Error of Law: The 12-month limitation period runs from the time at which the claimant “become[s] aware of the theft”, and it was not until July 2000 that the plaintiffs were able to ascertain which specific losses had resulted from Mr Ross’ theft.

Error of Law: In any event, the plaintiffs’ letter of 27 January 1999 was sufficient notice of the claim.

Legitimate Expectation: The defendant’s reply to the plaintiffs’ initial letter created a legitimate expectation that the later, formal claim would be accepted.

Waiver: By engaging an accountant jointly with the plaintiffs to investigate the claims, the defendant waived the right to protest about any delay on the part of the plaintiffs consequent on the time spent on this investigation.

[12]      The defendant identifies three principal issues arising from the judicial review proceedings:

a)Whether the plaintiffs’ letter of 27 January 1999 was sufficient to constitute “notice” of their claim, under s 169(2) LPA?

b)If the answer to this question [a] is “no”, whether the formal claims filed in September 2000 were within the 12-month limitation period under s 169(2)?

c)If the answer to this question [b] is “no”, whether the WDLS’s refusal to exercise its discretion to consider the plaintiffs’ claims amounts to a reviewable error.

Legal Principles

[13]      The obligation of discovery extends to all documents “relating to any matter in question in the proceedings” (High Court Rule 295(2)(b)). In other words, to be discoverable, documents must be relevant to an issue before the Court.

[14]      The classic formulation of the test for relevance is contained in Compagnie Financière et Commerciale du Pacifique v Peruvian Guano Co (1882) 11 QBD 55 (CA) at p 63 per Brett LJ:

It seems to me that every document relates to the matters in question in the action, which not only would be evidence upon any issue, but also which, it is reasonable to suppose, contains information which may – not which must
– either directly or indirectly enable the party requiring the affidavit either to advance his own case or to damage the case of his adversary. I have put in the words ‘either directly or indirectly’ because, as it seems to me, a document can properly be said to contain information which may enable the party requiring the affidavit either to advance his own case or to damage the case of his adversary, if it is a document which may fairly lead him to a train of inquiry, which may have either of those two consequences: . . ..

[15]      This “train of enquiry approach” from the Peruvian Guano test has been the subject of some criticism by a number of Judges and commentators, and indeed the Rules Committee in 2003 unsuccessfully recommended that discovery should be confined to documents “directly relevant” to a matter in question in the proceeding. Some have suggested that the Peruvian Guano test results in a “monumentally inefficient” process, and indeed the test has been the subject of judicial criticism in New Zealand in Air New Zealand Limited v Auckland International Airport Limited (HC AK, M1634-SD00, 30 April 2001, Priestley J). In this case Priestley J noted

that the documents under scrutiny in the Peruvian Guano case were few in number and significantly fewer than were likely to be involved in the case before him.

[16]      Notwithstanding this, the Court of Appeal in M v L [1999] 1 NZLR 747, 750 have referred to and implicitly adopted this test for relevance in New Zealand as set out in Peruvian Guano, although in doing so, it was noted that it is an “expansive” test.

[17]      And, the present position is clearly that the scope of a party’s obligation to discover, remains with the traditional wide Peruvian Guano test formula.

[18]      Under R.300, to grant an order for particular discovery, the Court needs to be satisfied that:

(1)There are grounds for believing that the plaintiff has not disclosed one or more discoverable documents or a group of documents, and

(2)That it is satisfied that the order is necessary at the time the order is made.

[19]As McGechan on Procedure states at paragraph HR300.3(4):

The Court has a discretion whether to make an order under R.300. In addition, any order is subject to the requirement of subclause (2) that it be necessary at the time.

The Discovery Sought

[20]      In their application, the plaintiffs seek an order for discovery, listing a range of documents in the following terms:

Documents relating to claims including the plaintiffs’ after the beginning of June 1998 (being the month in which the criminal proceedings were concluded against Wayne Stuart Ross) to the present time.

Any report of any investigation of the securities at any time that gave rise to the claims of theft against the Solicitors Fidelity Guarantee Fund that includes but are not limited to documents held by or under the control of the defendant on behalf of the WDLS.

All documents including file notes of matters that arose between the solicitors for the defendant, the plaintiffs’ accountant and the plaintiffs’ solicitor at any time.

[21]      In response, the defendant’s view is that an appropriate order for discovery should only extend to:

Documents prompted by or otherwise relevant to the letter from the plaintiffs’ solicitor dated 27 January 1999;

Documents arising in response to or as a result of the plaintiffs’ claims submitted in September 2000;

Documents comprising notification of claims whether in Form 1 in the Schedule to the Rules, or by informal communication; including the Marion Jones notification at any time from June 1998;

Documentation relating to claims (other than the plaintiffs) notified on or after 19 June 1999.

Counsels’ Arguments and My Decision

[22]I will deal with each order sought in turn.

(1)Documents relating to Claims

[23]      The documentation sought here is said to be relevant to the allegations of discriminatory and inconsistent conduct on the part of the defendant. The plaintiffs submit that this category of documents is also relevant to the WDLS’s response to

the plaintiffs’ letter of 27 January 1999, and the defendant’s decision to impose the 12-month deadline.

[24]      The plaintiffs note that under r 3(4) Solicitors’ Guarantee Fund Rules, the formal requirements of a claim may be relaxed “as the exigencies of the particular case may require”.

[25]      The defendant responds that the order sought is too wide and covers irrelevant material. The plaintiffs challenge an aspect of the process which was followed in relation to their claims; this is not a case about the merits or subject matter of individual claims. The order, as currently sought, would cover documents relating to the substantive merits of claims made by parties other than the plaintiffs. The defendant submits that these are irrelevant to the current proceedings.

[26]      The defendant’s further argument is that the time frame sought is too wide and is uncertain as to its content. As I understand the position, it seems that the  order now sought was intended to cover claims made after June 1998. Mr Collins, for the defendant, indicated to me that an order to reflect this would address his concerns as to its time span.

[27]      Before me, it was apparent that the defendant is prepared to concede discovery to the extent of “documents comprising claims notifications (whether by informal communication or in a prescribed form, or both) relating to claims, including those of the plaintiffs, received by the defendant at any time from June 1998”.

[28]      I think there is merit in the argument from the defendant that the order sought by the plaintiffs is too wide in terms of its subject matter. The categories of discovery documents suggested by the defendant, in my view, would properly cover all documentation that could assist the plaintiffs in establishing inconsistent treatment, or that could shed light on the defendant’s approach to processing late claims. However, this category ought to cover only documentation relating to the defendant’s acceptance or rejection of other claims, rather than its consideration of

the subject matter or the substantive merits of those claims. With this modification, discovery will be ordered in the terms accepted by the defendant.

(2)Report on Investigation of Securities

[29]      The accountant’s report sought is said to be relevant to the question of whether, in light of the information that was before the defendant, the plaintiffs’ letter of 27 January 1999 ought to be regarded as formal notice.

[30]      The defendant responds that the material sought in this category is irrelevant. Again, the judicial review proceedings challenge the process applied by the defendant in considering the plaintiffs’ claims. A report on the particular securities involved can be relevant only to the merits of their claim. Neither will the report shed light on the validity of the notice provided by the plaintiffs, or the defendant’s approach to the deadline imposed.

[31]      The defendant further submits that the materials sought are subject to statutory confidentiality. Under s 85 LPA, accountants’ reports provided to  a District Law Society for the purposes of investigating solicitors’ accounts are confidential, and may be disclosed only in limited circumstances. Moreover, Regulation 14(1) of the Solicitors’ Trust Account Regulations 1998 prevents the disclosure of information obtained in the course of inspecting a solicitor’s accounts.

[32]      The defendant says that, where relevance is marginal, the confidential nature of a document will weigh against an order for discovery - Bell v University of Auckland [1969] NZLR 1029, and McGechan on Procedure HR 307.17.

[33]      The plaintiff responds that the present situation falls within an exception to Regulation 14(1). Reg 14(3) permits disclosure of information for the purposes of proceedings relating to the trust accounts of the solicitor. In any case, under reg 14(3) the defendant has a discretion to disclose information to persons who have a beneficial or legal interest in the securities in question. It is submitted that this discretion should be exercised here.

[34]      In my view, Bell does not significantly advance the defendant’s case on this point. In that case Turner J noted that the mere fact that a report was confidential “can hardly, I think, prevent the Court from ordering the production of such a report, if its text becomes relevant in later proceedings” (at 1034), but found that in the circumstances the document was privileged.

[35]      Neither do I consider that the confidential nature of the documents assists the defendant at this early stage in the discovery process. M v L [1999] 1 NZLR 747 (CA) confirms that the Court retains a discretion to protect confidential information from disclosure if “the importance of preserving a confidence outweighs the significance of the evidence to the resolution of the dispute” (at 760). However, that case suggests that this discretion arises after discovery, once a party has challenged  a claim to confidentiality and has sought an order for inspection under HCR 307. In such circumstances the Court would have the confidential document before it, and would be well placed to balance these considerations. As the defendant notes in its submissions, the High Court Rules (particularly HCR 297(2)(e) and 298(1)(c)) assume that the confidentiality of a document will be asserted in the course of discovery as a ground for resisting inspection, rather than as a factor influencing the appropriate scope of a discovery order.

[36]      The sole consideration, therefore, is as to the relevance of the documents sought. On this point I accept the defendant’s contentions. The relevance of the report to the present proceedings is in its existence and timing, rather than its contents. Communications between the parties about this report will presumably be covered in the third order sought, to which I now turn.

(3)        Documents regarding matters between the plaintiffs, the defendant and the accountant

[37]      The plaintiffs argue that the scope of privilege where a party is jointly engaged is not clear, but “the issue is premature and may yet have to be the subject of evidence”. The plaintiff notes that accountants’ reports do not of themselves attract privilege.

[38]      The defendant takes no issue with the order sought under this head, but emphasises that privileged file notes will not be disclosed.

[39]      The information sought seems relevant, insofar as it relates to communications between the plaintiffs and the defendant during the crucial time. Questions of privilege fall to be determined after initial discovery. Since the defendant effectively does not oppose this order, it will be made in the terms sought.

Orders

[40]The plaintiffs’ discovery application has been partly successful.

[41]      An order is now made that, on or before 1 May 2005, the defendant is to discover to the plaintiffs by way of a verified list all documents which are or have been within its possession, power, custody or control, being:

Documents prompted by or otherwise relevant to the letter from the plaintiffs’ solicitor dated 27 January 1999;

Documents arising in response to or as a result of the plaintiffs’ claims submitted in September 2000;

Documents comprising claims notifications (whether by informal communication or in a prescribed form, or both) relating to claims, including those of the plaintiffs, received by the defendant at any time from June 1998, including the Marion Jones notification;

Documentation relating to claims (other than the plaintiffs’) notified on or after 19 June 1999.

Documents including file notes of matters that arose between the solicitors for the defendant, the plaintiffs’ accountant, and the plaintiffs’ solicitor at any time.

Costs

[42]      As to costs, it is appropriate here, in my view, that costs lie where they fall. There is to be no order as to costs.

Associate Judge D.I. Gendall

Delivered aton 1 April 2005.

Solicitors:

Izard Weston, Wellington for Plaintiffs Glaister Ennor, Auckland for Defendant