Attorney-General v Seven Electrical Limited HC Wellington CP251/00

[2001] NZHC 1095

IN THE HIGH COURT OF NEW ZEALAND
WELLINGTON REGISTRY CP251/00

BETWEEN ATTORNEY GENERAL
Plaintiff

AND SEVEN ELECTRICAL LIMITED
First Defendant

AND MHS TECHNOLOGIES LIMITED
Second Defendant

Date of Hearing: 6 September 2001

Counsel: S J A Penlington for Plaintiff
P W Michalik for First Defendant

Judgment Date: 14 November 2001

JUDGMENT OF MASTER J C A THOMSON

Solicitors:
Jones Fee, Auckland for Plaintiff
Morrison Kent, Wellington for First Defendant

[1] There are two applications before the Court:

(a) An application by the plaintiff that the first defendant produce documents for inspection.

(b) An application by the first defendant that the plaintiff do likewise. Both applications are opposed.

Background to claim

[2] The proceedings arise out of a fire at the National Library of New Zealand on 13 December 1998 which caused losses of $1,926,024.95.

[3] The fire started in a 40kVA uninterruptable power supply unit (UPS) in the Library’s computer room.

[4] The UPS had been supplied and installed at the Library’s premises on 10 December 1998 by the first defendant, Seven Electrical Limited. The second defendant commissioned the UPS between 10 December and 13 December 1998.

[5] The first defendant purchased the UPS from the second defendant, MHS Technologies Limited. The second defendant had purchased the batteries from the third party, Century Yuasa Batteries (NZ) Limited.

Legal principles as to when litigation privilege can be claimed

[6] Counsel agree the leading case is Guardian Royal Exchange Assurance of New Zealand Limited v Stuart [1985] 1 NZLR 596 (CA) where Cooke J (as he then was) stated the principle governing whether documents attract litigation privilege:

“Where litigation is in progress or reasonably apprehended, a report or other document obtained by a party or his legal advisor should be privileged from inspection or production in evidence if the dominant purpose of its preparation is to enable the legal advisor to conduct or advise regarding the litigation.”

[7] Whether or not the dominant purpose for preparation of a report or document was to enable the legal advisor to conduct or advise regarding the litigation is a question of fact.

[8] In deciding what the dominant purpose of preparation of documents was, the Court should look at the intention of the composer of the document and the intention of the composer of the documents and the intention of the person or authority under whose direction they have been produced or brought into existence (Carlton Cranes Limited v Consolidated Hotels Limited [1998] 2 NZLR 555 at 557.

[9] When litigation is reasonably apprehended as a question of fact (General Accident Fire & Life Assurance Corp Limited v Elite Apparel Limited [1987] 1 NZLR 129.

[10] A party setting up a claim for privilege has an onus to establish its entitlement to the benefit of the privilege. That entitlement must be established clearly and unequivocally (Kupe Group Limited v Ariadne Australia Limited (1991) 4 PRNZ 135 at 138).

[11] In my view it is important to keep in mind in deciding the applications, that it is a claim between plaintiff and defendants with the first defendant (with whom we are presently concerned) having a public liability policy. It is not a case of insured against insurer. The first case dealing with a similar situation, after the Court of Appeal judgment in Stuart, appears to be the decision of Edwards & Ors v Lewis (unreported High Court, Napier Registry A 9/84, 30 June 1986, Jeffries J). Next there was Johnson & Ors v Charteris (unreported High Court, New Plymouth Registry, A 58/54, 26 May 1988, Doogue J). In Edwards, Jeffries J pointed out that the Court of Appeal in Stuart, although laying down a stricter test than had formerly been applied, confirmed that the issue was still substantially one of fact. Jeffries J said at p 5:

“On those facts the insurer of the defendant once it received a claim under the public liability policy must have carried out its investigation and obtained the assessor’s report for the dominant purpose of litigation. The approach of an insurer under an indemnity policy dealing with a claim from its own insured is different from an insurer whose insured has with it a public liability policy. There the primary duty of meeting a claim based on a contract of indemnity does not exist. What exists for that insurer is a liability to meet a claim brought against its insured if he is found, or held to be, in breach of a contractual or tortious obligation. In such circumstances, in my view, it is entitled to claim legal privilege for the report of its assessor investigating such a claim.”

[12] In Johnson, Doogue J also accepted, which of course he was obliged to do, the law as stated by the Court of Appeal in Stuart. As to Edward’s case he said at p 10:

“Mr Boon’s response to this submission was that if the approach adopted by the learned Judge in Edward’s case, supra, was held to be applicable to every case involving a public liability insurance cover, then the result would be that in every case a report obtained from an assessor would be privileged. However, the corollary of that approach would appear to be that in nearly every case where a report is sought by a public liability insurer, if Mr Boon’s submissions are correct, the report would not be privileged because it would be open to the person seeking discovery to always claim that the report was being obtained to enable the public liability insurer to determine its position viz a viz its insured.

In my view of the limited material before me, I am quite unable to say that the dominant purpose for this report as other than to obtain a report on the fire to enable the defendant’s insurer to determine its position in respect of the claim which was contemplated by its insured and by it at the time it sought the report. That report, in my view of the matter, was being sought with litigation in contemplation even though there was no notice to the defendant or to the defendant’s insurer at the particular time that litigation was being commenced or a claim commenced.”

[13] The important thing to note I think is that both Judges, after citing Stuart, specifically said they were determining the issue on the facts. In both cases the Judges very understandably, in my view, did not seem to find it difficult to come to the conclusion that the immediate reporting of the circumstances by the insured to his Public Liability Insurer, and the Insurer forthwith instructing an assessor were strong indicators that the twin tests of reasonable apprehension of litigation, and dominant purpose, had been met. The fact that privilege is more readily accepted and accorded to documents in claims between insurers and third parties by contrast with claims between insured and insurer was recognised by Master Williams QC as he then was in Harrison v AG, 4 PRNZ2 122.

[14] However after Edwards and Johnson there is the case of Tasman Forestry (Nelson) Ltd v Tasman Energy Limited, unreported, High Court Nelson Registry, CP 27/93, 27 March 1995 which was decided by Hanson J. That case again involved a plaintiff and a defendant who held a Public Liability Policy. As in Edwards and Johnson the Public Liability Insurer was not a party to the proceeding but had taken over the conduct of the case, after a claim form had been filed with it by the defendant. As to Edwards and Johnson, Hansen J said at p 6 of his judgment:

“I have difficulty reconciling those cases with the Court of Appeal principles in Guardian Royal Exchange Assurance of New Zealand Limited v Stuart. I accept that different considerations may well apply when a defendant is relying on third party insurance, and it is not a case of contractual indemnity between an insured and an insurer. I also accept what, in effect, Doogue J was saying, that formal notification of the claim is not necessary to establish reasonable apprehension of litigation. But I do not read Guardian Royal Exchange Assurance of New Zealand Limited v Stuart as saying that the test only applies in cases between insured and insurers. The test has been consistently applied in wider circumstances than that.”

[15] I agree with Hansen J where he says that he does not read Stuart as saying that the test only applies in cases between insured and insurers. The important point I think however is that in those three cases the litigation was between a plaintiff and a defendant who held a Public Liability insurance policy. The fact that the defendant was insured was of course of no concern to the plaintiff, except that knowledge that the defendant was insured would no doubt give the plaintiff comfort that it would get paid if the claim was successful. Contrary to Stuart in all three cases an insurance company was not a party to the proceedings. In Tasman Forestry, Hansen J found as a fact, in contrast to the Judges in Edwards and Johnson, that the defendant’s engineer in his affidavit did not give sufficient reasons as to why he considered litigation was reasonably apprehended and therefore the Judge did not uphold the claim of privilege. Clearly however like Edwards and Johnson the application was decided on its own facts, I do not see therefore the perceived judicial conflict identified by Mr Penlington, between Edwards and Johnson on the one hand, and Tasman Forestry on the other. The important point in Tasman Forestry appears to be that when the defendant lodged its claim with its insurer the cause of the fire, which was the basis of the litigation, had not been established and therefore at that point in time Hansen J found there could only be said to be potential liability, but not reasonable apprehension. As to that finding I have to say that, it seems to me, that where a defendant has a Public Liability Insurance policy he is clearly obliged to lodge a claim as soon as he has reason to believe a claim might be made against him, and I would have thought that a prospective defendant would immediately realise from the circumstance itself, that had occurred, that such was likely to give rise to a claim, requiring him to notify his insurer forthwith. Failure to do so might well result in his claim for indemnity being declined. In cases where a defendant has public liability insurance Jeffries and Doogue JJ had little difficulty accepting, as I have said, that the lodging of a claim with the insurer is a strong indicator that the insured reasonably apprehended he was likely to be sued. Further, the fact that an insurer immediately instructs an assessor to investigate is also, I think, a good indication that the insurer accepted that the insurer’s apprehension of being sued was justified. With respect, if Hansen J is to be taken as saying that before a reasonable apprehension of a claim can arise in cases involving a prospective defendant (who holds a Public Liability Policy) that such prospective defendant (or his insurer) must have made a decision to decline a claim made against such defendant, then I respectfully do not agree. Hansen J at page 4 of his judgment says both Edwards and Johnson “seem to concern themselves with the situation between the defendants and the insurers.” Both applications however were by plaintiffs seeking orders to inspect assessors’ reports obtained by the defendants’ insurers. That may explain the passage in his judgment I have quoted from. Apart from the issue of notification, Mr Penlington sought to persuade me that an important consideration here in deciding and distinguishing the two applications before the Court is to look at when the lawyers were instructed. While I accept that how long after the events giving rise to a claim legal advice is sought, is a factor to be taken into account, it is, in my view, certainly not decisive. Anyway, here delays occurred on both sides, in the one case in seeking legal advice and in the other in the issuing of proceedings. In that regard as Mr Michalik submitted I think rightly that it is a case of what is sauce for the goose is source for the gander. Anyway, the first defendant’s insurer says is considered litigation likely at an early stage and that legal advice would be required. It says it delayed seeking legal advice simply because there was a delay in the plaintiff issuing proceedings. I conclude both applications should be dismissed and they are dismissed accordingly. Costs will lie where they fall.