Arvida Al Holdings Limited v Lendlease Capital Services Pty Limited
[2023] NZHC 2254
•23 August 2023
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2019-404-001462
[2023] NZHC 2254
BETWEEN ARVIDA AL HOLDINGS LIMITED
Plaintiff
AND
LENDLEASE CAPITAL SERVICES PTY LIMITED
Defendant
Hearing: 14 August 2023 Counsel:
SC Trevella and BJ Ward for Plaintiff
M Eastwick-Field and AR MacDuff for Defendant
Judgment:
23 August 2023
JUDGMENT OF DOWNS J
This judgment was delivered by me on Wednesday, 23 August 2023 at 10 am pursuant to r 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Solicitors:
Bell Gully, Auckland. Russell McVeagh, Auckland.
ARVIDA AL HOLDINGS LTD v LENDLEASE CAPITAL SERVICES PTY LTD [2023] NZHC 2254
[23 August 2023]
The case
[1] Arvida AL Holdings Ltd1 sues Lendlease Capital Services Pty Ltd2 for breach of contract, following its purchase of five retirement villages. Each village has a community centre, an apartment complex, and either townhouses or villas. The sale and purchase agreement contains this warranty:
No apartment building or community centre forming part of the Business Premises has significant and systemic watertightness issues which would require remedial works which result in a Loss to the Group in excess of
$7,500,000.
[2] Arvida sues under the warranty on the basis it will suffer losses from “significant and systemic watertightness issues” well beyond $7,500,000. Trial begins 5 February 2024. Four weeks have been set aside.
[3] This judgment addresses interlocutory applications concerning discovery, waiver of legal professional privilege, and the admissibility of evidence.
Discovery and waiver of legal professional privilege
Background
[4]Only a little background is needed.
[5] Lendlease contends each community centre, and each wing of apartments, is a separate “building” under the warranty. Consequently, only losses exceeding
$7,500,000 per building are caught. Arvida disputes this interpretation. Arvida also advances a rectification argument. It says if the warranty means what Lendlease says it means, that does not reflect what the parties intended. Arvida says the parties intended the warranty to mean:
No apartment buildings or community centre buildings forming part of the Business Premises have significant and systemic watertightness issues which in aggregate would require remedial workings which result in a Loss to the Group in excess of $7,500,000.
1 Arvida.
2 Lendlease.
[6] Lendlease contests rectification relying, at least in part, on the evidence of Tony Randello. Mr Randello headed Lendlease’s mergers and acquisitions team when the sale and purchase agreement was negotiated. Mr Randello was responsible for formulating the warranty. He gives evidence of the warranty’s evolution from 25 January until 31 January 2016, when the sale and purchase agreement was executed. In so doing, Mr Randello waives legal professional privilege over a handful of related communications. Mr Randello says (in his brief of evidence):3
However, Blackstone and their lawyers continued to press for the inclusion of a watertightness warranty. There was therefore discussion internally within Lendlease on 25 January 2016 about how to best approach the warranty regarding the watertightness of the Villages. David Korman initially suggested the following (which I understood was drafted by Chapman Tripp):
14.2 The buildings on the Business Premises are not constructed in such a manner, or from such materials, that would give rise to significant and systemic watertightness issues which would cost more than $[10,000,000] in aggregate to remedy.
In my view, that proposed wording would have brought the villas into the scope of the warranty which I did not want to be included as they were constructed in a materially different fashion.
I was also concerned that the proposed wording could be interpreted as an aggregate monetary threshold. The warranty, as proposed, could be breached in circumstances where multiple buildings suffered from watertightness issues but the cost to repair each building was less than $10 million provided the total quantum exceeded $10 million.
I therefore proposed that the warranty should read:
No apartment building or Community centre building on the Business Premises have significant and systemic watertightness issues which would cost more than $10,000,000 to remedy.
I further noted that:
I don’t want to aggregate which is why I have changed buildings to building and taken out the bit about aggregating Also limited to
major buildings as we are not warranting villas which are a very different building construct.
A slightly amended version of my proposed wording was then shared with Blackstone’s counsel later that day. The proposed warranty shared with Blackstone read:
No apartment building or community centre building forming part of the Business Premises has significant and systemic watertightness issues which would cost more than $10,000,000 to remedy.
3 Brief of evidence dated 29 March 2023 at paras 73–83.
On 27 January 2016, I understand that there was a call between the legal advisors on either side following which, Blackstone provided a further version of the SPA, again, containing edits to the Watertightness Warranty:
No apartment building or community centre building forming part of the Business Premises has significant and systemic watertightness issues which would require remedial works which result in a Loss to the Group in excess of $7,500,000.
I got comfortable with reducing the threshold to $7.5 million because the proposal was for that threshold to apply on a per building basis. My rationale for this was that Ocean Shores had cost a total of $15 million; that project concerned three buildings (two apartment blocks and the community centre), which translated to an average of $5 million per building; taking into account some cost inflation since the Ocean Shores remediation had been completed and to recognise that Lendlease probably got a good deal on the construction work, a threshold of $7.5 million per building for the other Villages in the portfolio (each of which had two to three buildings) would equate roughly to an “Ocean Shores” type event. It was certainly never my intention that the warranty would respond to something less serious than “another Ocean Shores”.
I was also comfortable with the other changes to the wording, which allowed other losses from the remedial works to be captured within the monetary threshold.
No further changes were made to the wording of the Watertightness Warranty, and the SPA was executed on 31 January 2016 with the following:
14.2 No apartment building or community centre building forming part of the Business Premises has significant and systemic watertightness issues which would require remedial works which result in a Loss to the Group in excess of $7,500,000.
My clear recollection is that the intent of the Watertightness Warranty was for the $7.5 million threshold to apply per building, with each of the community centre building and apartment buildings comprising separate buildings. When circulating the final drafting for sign-off, I explained that:
In relation to 14.2 whilst the threshold is lower, you will note that a subtle change to the wording means than [sic] it is for any one building. That is, given Ocean Shores was for 3 buildings ... 2 Apartment Buildings and a community centre, the threshold is effectively $7.5m x 3 = $22.5m.
Arvida’s applications
[7]Arvida says Mr Randello’s evidence means:
Lendlease has waived privilege over documents containing or recording communications between it and its legal advisors between 15 December 2015 and 31 January 2016 that concern the parties’ understanding of the scope and purpose of the watertightness warranty clause in the parties’ agreement.
Arvida seeks discovery of related communications. Arvida also contests Lendlease’s “heavy-handed” redaction of some discovered documents.
[8] Mr Ward took me to some of the email correspondence to which Mr Randello was privy. He noted the first piece has the heading, “Ocean Shores event warranty”. Ocean Shores is one of the retirement villages purchased by Arvida from Lendlease. Ocean Shores requires significant remediation of its community centre and apartment complex as both leak; a concern animating Arvida throughout its negotiations with Lendlease. Mr Ward contends at the very least, privileged discussion of Ocean Shores is so closely connected to the terms of the warranty, such discussion should be discovered, given Mr Randello has put the evolution of the warranty in issue relying, in part, on privileged communications.
Lendlease’s response
[9] Lendlease accepts Mr Randello has waived privilege over the email correspondence identified in his evidence. Lendlease also accepts Mr Randello’s evidence constitutes “an associated collateral waiver of privilege over documents relevant to the same issue for which those privileged email exchanges were deployed”. But, on behalf of Lendlease, Ms Eastwick-Field contends no further discovery is required and its redactions are appropriate.
Analysis
[10] Section 65 of the Evidence Act 2006 provides for the waiver of legal professional privilege, and other forms of privilege recognised by the Act, when the privilege holder (a) produces a privileged communication in circumstances inconsistent with confidentiality or (b) acts to put the privileged communication in issue in a proceeding.
[11] The authors of Cross on Evidence capture the concept this way under the banner of “collateral waiver”:4
Collateral waiver will ... apply to all other privileged communications and documents dealing with the same issue. A party will not be entitled selectively
4 Mathew Downs (ed) Cross on Evidence (online ed, LexisNexis) at [EVA65].
to waive privilege for only some of the material relating to the relevant issue, and thus rely on material favourable to its case, while keeping unfavourable material confidential. The issues in the context are the specific propositions that the party offering privileged material in evidence seeks to support with the privileged material offered.
[12]Two cases are illustrative.
[13] In Capital + Merchant Finance v Perpetual Trust Ltd,5 the question was whether a settlement agreement had been concluded. The plaintiff filed evidence from its lawyers, which led to a contention it had waived privilege over all of its legal communications during the settlement negotiation period. The plaintiff argued it was required to discover only the specific communications and any obviously related ones. Katz J concluded “the correct position lies somewhere between these … extremes”.6 The Judge identified 10 discrete topics in relation to which “the principle of collateral waiver [required] the disclosure of any documents”.7
[14] In Robert Jones Holdings Ltd v McCullagh,8 the liquidators disclosed 10 privileged communications to support the contention the company in liquidation, Northern Crest Investments Ltd,9 was insolvent at the relevant time. Robert Jones Holdings argued that by doing so, the liquidators had waived legal professional privilege in relation to the balance of communications between Northern Crest and its lawyers. I reached a more confined conclusion. I held by “tendering otherwise privileged communications on discrete factual propositions, the liquidators have waived privilege on those factual propositions in undiscovered privileged communications”.10 I added:11
It will be apparent I have not accepted the entirety of RJH’s argument: Mr Chesterman contended RJH was entitled to all otherwise privileged communications between Northern Crest and its lawyers. However, the correct principle is that RJH is entitled to those communications only to the extent they deal with the factual propositions I have identified earlier. One does not police cherry-picking by harvesting the entire crop.
5 Capital + Merchant Finance Ltd v Perpetual Trust Ltd [2015] NZHC 1233.
6 At [29], citing Nea Karteria Maritime Co Ltd v Atlantic & Great Lakes Steamship Corp (No 2)
[1981] Com LR 138.
7 At [33].
8 Robert Jones Holdings Ltd v McCullagh [2016] NZHC 2529.
9 Northern Crest.
10 Robert Jones Holdings Ltd v McCullagh, above n 8, at [67].
11 At [68]–[70].
To give an example, if the privileged communications contain instances in which Mr Stapleton refers to his fees, whether paid or otherwise, those must be discovered to that extent. Similarly, if Mr Stapleton in an otherwise privileged communication refers to the threat or apparent absence of threat posed to Northern Crest by its indebtedness to RJH or Minter Ellison Rudd Watts, that communication must be discovered, again to that extent.
It is important to be clear this ruling relates only to communications made by Mr Eakin and Mr Stapleton, the two correspondents in relation to whom the liquidators have waived privilege. And as observed, only to the extent either individual refers to any of the discrete factual propositions at [58]–[60]. Legal professional privilege is protected for good reason and any incursion into that principle must be strictly proportionate. So too waiver in this context.
[15] These cases disclose a unifying principle: care must be taken in identifying the proposition, factual or otherwise, to which the privileged material has been deployed so as to ensure the scope of the collateral waiver is not broader than needed to further the interests of fairness and accuracy in policing risk of selectivity or artifice.
[16] Consequently, Arvida’s contention at [7] cannot be sustained. It is, as Ms Eastwick-Field observes, “breathtakingly broad”. Arvida’s contention at [8] must also be rejected, albeit with caveats I shall come to shortly. The privileged material (and Mr Randello’s evidence more generally) is deployed in relation to the term building, and the related idea of whether the warranty was to aggregate cover.12 The privileged material is not deployed in relation to an Ocean Shores event, or what that means. Furthermore, Mr Randello does not deny Arvida wanted cover for an Ocean Shores event, whatever that may mean.
[17] The first caveat is this. If, between 25 January and 31 January 2016, Mr Randello referred to Ocean Shores or an Ocean Shores event to define, explain, elucidate, or delimit: (a) the term building or (b) the related idea of whether the warranty was to aggregate cover, privilege has been waived over that aspect of the communications for the simple reason it falls within the scope of the collateral waiver. The caveat also applies to communications Mr Randello received in this period— within, of course, the scope identified—as Mr Randello has waived privilege on behalf of Lendlease. The privilege is held by Lendlease, not Mr Randello. Similarly, Lendlease must also discover, if it has not already, communications received by
12 As elements of what Lendlease intended the warranty to mean.
Mr Randello between 25 January and 31 January 2016 in relation to (a) the term building and (b) whether the warranty was to aggregate cover.
[18] For completeness, Ms Eastwick-Field allowed me to read, at the hearing, material withheld by Lendlease. I repeat what I said then in the hope of providing comfort: nothing withheld appears to advance, materially or otherwise, Arvida’s rectification argument.
Admissibility determinations: Dr Adrian Speirs
[19] Dr Spiers was a microbiologist. Dr Spiers examined samples of timber taken from the frames of the buildings at the villages. Dr Spiers offered an opinion about
(a) their moisture content and (b) whether the timber had suffered decay. Between 7 February and 9 July 2018, Dr Spiers prepared four associated reports. Dr Spiers has since died.
[20] Lendlease objects to the admission of the reports and reliance on them by Arvida’s witnesses. Lendlease acknowledges Dr Spiers is unavailable as a witness. However, it contends the circumstances relating to the reports do not provide reasonable assurance they are reliable. Ms Eastwick-Field says it is not known where the samples were taken from; Dr Spiers’ methodology is uncertain; and there are ambiguities in the report, most evidently, why reference to the presence of “occasional hyphae” in the timber appears to have different outcomes as to decay.13
[21] The first objection is addressed by a second brief of evidence of Kevin McLeod, a building surveyor. Mr McLeod’s evidence makes clear, or reasonably so, where the samples were taken. More significantly, but like the first, the second and third objections are not directed at the threshold index of reliability with which s 18 of the Evidence Act 2006 is concerned.14 The objections go to weight, not admissibility.
[22] In any event, it is evident the reports were made by Dr Spiers in his capacity as an expert (a point now accepted), to determine the weathertightness of the frames
13 It is not known whether the timber samples remain available.
14 Adams v R [2012] NZCA 386.
in the villages’ buildings. The reports are formal. They were prepared for litigation, or at least with litigation in mind. Dr Spiers has testified as an expert in cases of this nature. Given all this, it is beyond argument Dr Spiers was aware of the need for accuracy. So, the circumstances relating to his reports provide reasonable assurance of their reliability.
[23] Lendlease will suffer some disadvantage from being unable to cross-examine Dr Spiers. But that is something that will be apparent to the Judge, thereby ameliorating prejudice. Furthermore, Lendlease may explore with its experts, or Arvida’s experts, Dr Spiers’ likely methodology. Admission of the evidence would not, therefore, have an unfairly prejudicial effect on the proceeding.15 To exclude it would.
Other admissibility determinations
[24] On 29 May 2023, Arvida filed briefs of evidence in reply to those of Lendlease. Lendlease challenges the admissibility of the entirety of some of these briefs, as well as aspects of the remaining briefs. Lendlease contends it would be unfair to admit the evidence, and admission would needlessly prolong the trial. Indeed, Lendlease contends admission may put the trial it at risk. The last concern is this. Four weeks have been set aside for the trial. If the challenged evidence is admitted, the trial may overrun by five days. The roster cannot accommodate that. But, as it happens, it is not clear four weeks is sufficient even if none of the supplementary evidence were admitted. In other words, the trial may overrun regardless.
[25]It is common ground r 9.8 of the High Court Rules 2016 applies, which reads:16
9.8 Supplementary briefs
(1)A party wishing to offer a supplementary brief must serve it as soon as possible.
(2)The acceptance and use of the supplementary brief in court will be at the discretion of the trial Judge.
15 Evidence Act 2006, s 8.
16 Under the timetable, Arvida was confined to evidence “in reply to evidence in support of affirmative defences only”. Lendlease did not press an argument the evidence was beyond the scope of the timetable by this language alone.
[26] Supplementary evidence has been excluded when it would have been available to the plaintiff had she, he, or it turned its mind to the point earlier,17 or when the evidence does no more than anticipate a possible line of cross-examination.18 Similar considerations arise under s 8 of the Evidence Act, especially when admission of the evidence may jeopardise the fixture.
Michael James
[27] Michael James is a fire engineer. Mr James says the remediation proposed by Lendlease does not adequately address what is required in relation to “passive fire work”. Mr Ward contends Mr James’ evidence is genuinely supplementary for this reason: it responds to the remediation proposed by Lendlease.
[28] I disagree. Mr James’ evidence is really about validating the extent of fire- related works within Arvida’s proposed remediation. Mr James’ brief seeks to do so through the vehicle of an attack on Lendlease’s proposal. Admission would require Lendlease be given an opportunity to respond, in turn placing yet more pressure on an already squeezed estimate.
[29]The evidence is inadmissible.
Kevin McLeod: aspects of his brief
[30] Lendlease objects to paragraphs 62, 75, 89, 110, 131 and 160–161 of Mr McLeod’s supplementary brief, as well as the final row of the table at paragraph 178. All concern a range of matters addressed by Mr McLeod as a building surveyor.
[31]Mr MacDuff contends the paragraphs constitute obvious “backfilling”.
[32] I disagree. Much of the evidence in question is no more than a clarification or elucidation of what Mr McLeod has said earlier. It is likely the evidence would emerge in cross-examination anyway.
17 Curry v Goodwin HC Auckland CIV-2002-404-1820, 27 August 2004 at [30(a)].
18 Body Corporate 354085 v Auckland Council (No 1) [2016] NZHC 200 at [8].
[33]The evidence is admissible.
Jason Brooks and Rowan Robinson
[34] Jason Brooks is a building surveyor. Rowan Robinson is a chartered quantity surveyor. Mr Ward says the evidence of each witness is properly supplementary as it largely replies to evidence adduced by Lendlease.
[35] Some of the evidence of each is in the nature of reply evidence, but each supplementary brief is primarily offered to buttress the evidence of another expert. Consequently, the proposed evidence adds little to the extensive evidence already before the Court, while aggravating pressure on the fixture.
[36]The evidence is inadmissible.
Richard Fairhead
[37] Richard Fairhead is an engineer with expertise in relation to facades. Mr Fairhead responds to the evidence of Peter Lalas, a façade engineer retained by Lendlease. Mr MacDuff says it was “entirely foreseeable … this sort of expert opinion may be required; however, Arvida chose not to adduce his evidence as part of its primary case”.
[38] I disagree. Mr Fairhead notes Mr Lalas has, among other things, allegedly: relied on superseded standards; incorrectly calculated wind loads; and overlooked other matters. These could not have been anticipated. The evidence is genuinely in the nature of reply.
[39]The evidence is admissible.
Dr Robin Wakeling
[40] Dr Robin Wakeling is a microbiologist. Lendlease objects to paragraph 8 of Dr Wakeling’s supplementary brief, which says:
In forming my own views, I have considered the reports which I annexed with my last statement. I have also considered two further reports I prepared in
2017 for the Parklane and Peninsula Club villages for the purposes of the warranty claim. I overlooked these reports in my last statement. In addition to my reports, I have read and considered three reports prepared by the late Dr Adrian Spiers in 2018 for the Mayfair, Parklane and Peninsula Club villages.
In my opinion, my analysis demonstrates that the conditions for fungal growth and decay are prevalent and widespread throughout the property, for example:
(i)97 out of 97 samples (100%) analysed by me (Beagle) contained fungal growths;
(ii)28 out of 97 (29%) had confirmed toxigenic mould
Stachybotrys contamination; and
(iii)49 out of 97 (51%) contained fungal decay.
[41] Mr MacDuff says Arvida should not have the benefit of evidence Dr Wakeling omitted to provide earlier.
[42] Strict application of the principles articulated at [25]–[26] to this situation would be rather arid. Experts are human; they make mistakes. Dr Wakeling’s evidence is ultimately offered to assist the Court in its determination of the buildings’ weathertightness. That Dr Wakeling has prepared additional reports on this topic is likely to be of substantial assistance to the Court. Furthermore, it would be artificial to exclude the evidence.
[43]The evidence is admissible.
Edward Saul
[44] Mr Saul is the director of a company that offers building inspection services, construction advice, and project management. Mr Saul has extensive experience with building consents. Mr Saul says aspects of Lendlease’s proposed remediation do not comply with the Building Code and would not receive consent. Mr MacDuff contends Mr Saul’s evidence is not truly responsive and should be excluded for this reason.
[45] I disagree. Mr Saul’s evidence constitutes a legitimate critique of Lendlease’s remediation.
[46]The evidence is admissible.
James Alexander
[47] Mr Alexander is a building surveyor. Mr Alexander shadowed at least one of Lendlease’s experts during his examination of buildings at the villages. Mr MacDuff acknowledges this aspect of Mr Alexander’s evidence but describes it as “purportedly framed … commentary on Lendlease’s experts”, when really it is evidence of alleged damage not disclosed in Arvida’s initial evidence.
[48] I disagree. Overall, Mr Alexander’s evidence is directed at the adequacy of the examinations conducted by an expert on behalf of Lendlease. The evidence is, therefore, in the nature of reply.
[49]The evidence is admissible.
Observation
[50] These determinations may place additional pressure on the fixture. I, therefore, invite the parties to reflect on, and implement—with, of course, the trial Judge’s blessing—measures to use the available time as efficiently as possible, including, for example, time limits for opening and closing addresses, limits in relation to evidence in chief and cross-examination, and expert caucusing.
Result
[51] Arvida’s application for further and better discovery is dismissed with the caveats at [17].
[52]The contested evidence of:
(a)Michael James, Jason Brooks and Rowan Robinson is inadmissible.
(b)Kevin McLeod, Richard Fairhead, Dr Robin Wakeling, Edward Saul and James Alexander is admissible.
Costs
[53] Overall, each party has enjoyed a similar level of success. For this reason, I am inclined to let costs lie where they fall. If the parties do not agree costs, they may return with memoranda of not more than six pages each, in this sequence:
(a)Arvida on or before 13 September 2023.
(b)Lendlease on or before 20 September 2023.
……………………………..
Downs J
0
3
1