Auckland District Law Society v Bartleet HC Auckland M1603as00

[2001] NZHC 884

IN THE HIGH COURT OF NEW ZEALAND
AUCKLAND REGISTRY M1603AS00

IN THE MATTER of the Declaratory Judgments Act 1908 and Parts IV and IVA of the High Court Rules

BETWEEN AUCKLAND DISTRICT LAW SOCIETY
Plaintiff

AND RUSSELL MCVEAGH McKENZIE BARTLEET & CO
First Defendant

AND B & ORS
Second Defendants

AND C
Third Defendant

AND FWM MCELREA
Counterclaim Defendant

Counsel: J R Billington QC and G Illingworth for the Plaintiff
R J Craddock QC, B R Latimour, R J Hollyman and A L Ringwood for the First and Second Defendants
P H Thorp for the Third Defendant
D L Mathieson QC and SBW Grieve QC for the counterclaim defendant

Date of hearing: 5 September 2001

Date of judgment: 21 September 2001

RESERVED JUDGMENT OF PATERSON J

Solicitors:
Glaister Ennor, DX CX 10236 for Plaintiff
Bell Gully, DX CP 20509 for First and Second Defendants
Sellar Bone & Partners, DX CP 32511 for Counterclaim Defendant
Craig Griffin & Lord, P O Box 9049, Newmarket, Auckland

[1] Pursuant to its powers under the Law Practitioners Act 1982 the Plaintiff (the Society) has received and is investigating complaints against the First Defendant (Russell McVeagh), the Second Defendants (the Practitioners) and the Third Defendant (C).

[2] In October 1996 the Counterclaim Defendant (Judge McElrea), a former partner in Russell McVeagh, made to the Society a confidential report under Rule 6.03 of the Rules of Professional Conduct concerning C and alleged conduct of C (the McElrea report). Subsequently on 17 May 1998 Judge McElrea, in a statutory declaration, elaborated upon matters in the McElrea report (the McElrea declaration). Russell McVeagh alleges that Judge McElrea, in the McElrea declaration, has breached legal privilege by referring to documents and communications which were provided to him in privileged circumstances when he was a former partner of Russell McVeagh and was a party in a series of litigation known as the Bloodstock litigation.

[3] The Society, in October 2000, issued the present proceedings seeking a declaration that it and one of its complaint committees were and are, empowered, justified and legally entitled to receive from Judge McElrea the information contained in both the McElrea report and the McElrea declaration. Russell McVeagh does not challenge the Society’s right to use the information in the McElrea report but does challenge its right to use some of the information contained in the McElrea declaration.

[4] Russell McVeagh counterclaimed on 1 December 2000 seeking a declaration that any information which was communicated to Judge McElrea by senior counsel acting jointly for him and the others in the Woodstock litigation or by other of his co-defendants for the purposes of that litigation or settlement thereof, was privileged jointly to all those represented in the litigation. It also seeks a declaration that Judge McElrea was not entitled to supply such privileged information to the Society and an injunction restraining him from further providing or disclosing privileged information. A final declaration sought by Russell McVeagh is that the Society and its Council and relevant complaints committee are not entitled to have regard to, use, disclose or disseminate such privileged information. Judge McElrea was named as the Counterclaim Defendant in that counterclaim.

[5] As the substantive dispute is between the largest district Law Society in New Zealand and one of, if not the largest, legal practice in New Zealand, it might be thought that the parties would be able to agree upon a realistic and economically efficient method to resolve the central issue of privilege. Unfortunately this does not appear to be so and it is now necessary to resolve several interlocutory applications which in some respects have been bitterly and personally contested.

The current interlocutory applications

[6] The applications by Russell McVeagh and the Practitioners may be summarised as follows:

(a) An application to file an amended counterclaim;

(b) The joinder of Dr R E Harrison QC, previously counsel for the Society, as a further Defendant to the amended counterclaim;

(c) The substantive fixture proceeding on 15 October be deferred and instead the preliminary question be dealt with on that date.

[7] Judge McElrea has also made various interlocutory applications. A previous application for further and better discovery, which was part heard, has been resolved between counsel. However a further application supplementary to the previous application for further and better discovery has been made and requires resolution. In addition, Judge McElrea has applied to amend his Statement of Defence and to strike out Russell McVeagh’s counterclaim.

[8] The Society has also applied to strike out the Statement of Defence and counterclaim of Russell McVeagh and the Practitioners.

[9] Many of the applications are consequential or of no importance once the central applications are resolved. The important applications are:

(a) The application of Russell McVeagh to amend its counterclaim and join Dr Harrison as a Counterclaim Defendant;

(b) The preliminary question application;

(c) Judge McElrea’s supplementary application for further and better discovery.

The proposed counterclaim amendment and joinder

[10] The relief sought by Russell McVeagh in its counterclaim has been summarised in paragraph [4] above. The proposed counterclaim for which leave is sought, repeats the allegations in the previous counterclaim and enlarges on them. It makes particular allegations of soliciting privileged material and breaching obligations of privilege. Specific allegations are made against Dr Harrison in his role as counsel for the Society and it is alleged that aspects of this privileged information were discussed with Dr Molloy QC who had initially been counsel for the Plaintiffs in the Bloodstock litigation. There are alleged breaches of privilege by Dr Harrison, the appropriate complaints committee of the Society and/or the convenor of that committee. There are also allegations that aspects of the privileged information appeared in reports to the New Zealand Law Society. The consequence of these alleged breaches is said to be a delay in resolving the complaints against Russell McVeagh and the Practitioners, the need for those parties to undertake and be involved in protracted and expensive litigation, and that some of the Practitioners and members of Russell McVeagh have faced harmful allegations and adverse views based on privileged material to which they cannot fully respond because of privilege. These Defendants are said to have suffered damage to personal and professional reputations and personal distress and anxiety.

[11] In addition to the relief previously sought, Russell McVeagh and the relevant Practitioners seek an injunction against the Society, its complaints committee and if joined, Dr Harrison, from disclosing the privileged information, an injunction restraining the Society from using such information in its investigations and seeks general and/or equitable damages against Judge McElrea, the Society and Dr Harrison. The proposed counterclaim does not state which of the Practitioners and the members of Russell McVeagh seek these damages. As specific relief is sought against Dr Harrison there is an application to join him.

[12] At a judicial conference on 19 June 2001 certain timetable orders were made. These included an order that any party wishing to amend the pleadings was to make an application for leave in the normal manner by filing and serving such application by 5pm on 20 July 2001. The present application for leave to amend was filed on 10 August 2001. It is the position of Russell McVeagh and the Practitioners that it was not possible to comply with the earlier deadline as they were making an attempt to persuade the Complaints Committee of the Society to adopt a cooperative process to resolve the outstanding complaints on their merits. When this was not possible an application for an extension of time was filed on 18 July. It is the position of Russell McVeagh and the Practitioners that the Society and Judge McElrea have not suffered prejudice by virtue of the 21 day deferral in the filing of the application.

[13] The Society’s opposition is supported by an affidavit from its Executive Officer which expresses the opinion that the application to amend is a deliberate tactical move designed to cause the greatest possible damage and inconvenience to the Society, if not to further impede the progress of the litigation. There are many other inadmissible expressions of opinion and submissions in the affidavit, which if they were to be made could have been included in counsel’s submissions. During submissions counsel for the Society tendered a written document which I was advised was in Dr Harrison’s handwriting and indicated what he would do if he was joined. His proposed action included a counterclaim against Russell McVeagh and the Practitioners, joining Mr Craddock and Bell Gully alleging conspiracy to injure and conspiracy to commit the tort of malicious abuse of process. The affidavit and the tendering of this document show the manner in which this litigation is being conducted.

[14] The essential issue in this case is whether the Society can utilise documents in which privilege is claimed by solicitors. The issue of whether or not privilege exists can be resolved without joining Dr Harrison. In my view, it will also need to be resolved without the Society being involved. If the matter is determined by me or any subsequent appellant Court in favour of the Society then the cause of action against Dr Harrison disappears. If, on the other hand, the matter is determined in favour of Russell McVeagh and the Practitioners I would be surprised if the matter could not be resolved to the satisfaction of those parties without the Joinder of Dr Harrison. While accepting that Dr Harrison will not be bound by any decision and that normally all parties and all issues should be part of the proceeding the time factors in this case are such that I am not prepared to join Dr Harrison. It is time that a pragmatic view of these proceedings is taken and an endeavour made to bring them to fruition so that the disciplinary enquiries of the Society can continue and be concluded. Joinder of Dr Harrison at this stage would in my view inevitably lead to an adjournment of the fixture for 15 October next. A further consideration is that on my assessment of the evidence, Russell McVeagh and the Practitioners were in a position several months ago to make the application. I accept that some of the information on which they base their allegations has only come to light in recent discovery but the substance of their allegations should have been apparent to their advisors several months ago. Leave is therefore declined. If Russell McVeagh and the Practitioners wish to pursue any matters against Dr Harrison now or at a later date they will have to issue separate proceedings.

[15] Leave is however given to file the amended counterclaim against the Society and Judge McElrea. All issues between the parties should if possible be determined in the one proceeding. On my assessment of the amendments, apart from the claim for damages, the amended counterclaim should be able to proceed on 15 October next. The claim for damages if pursued would in my view inevitably delay the hearing. For this reason leave is given to file the amended counterclaim on the condition that the hearing on 15 October next will deal with liability only. If Russell McVeagh is serious about the damages claim, and it is not a tactic as alleged by the Society, and the counterclaim allegations succeed a damages hearing can be scheduled at a later date.

The preliminary question application

[16] The proposed preliminary question is:

“Whether the information which was communicated to the counterclaim defendant (Judge McElrea) by senior counsel acting jointly for him and others in the bloodstock litigation or by other of his co-defendants in joint consultations on 11 April 1994 and 23 May 1996 or otherwise communicated to him by his co-defendants or other partners of the first defendant (Russell McVeagh) delegated by him and others to co-ordinate the conduct of the defence of the bloodstock litigation, was privileged jointly to all those jointly represented in relation to that litigation.”

[17] Experience shows that in many cases a preliminary question prolongs rather than shortens the litigation. One of the reasons for requesting a preliminary question was the belief that the hearing was set down for three days only. Another reason was possibly the expectation that Dr Harrison would be joined and that liability and damages (if appropriate) would be resolved at the same time. The decision not to join Dr Harrison and to proceed on a liability action alone will mean in my view that it should be possible to dispose of this matter in five days. Five days will be available from 15 October.

[18] In the circumstances the application to consider a preliminary question is declined.

Judge McElrea’s discovery application

[19] The further discovery requested by Judge McElrea comprises all memoranda and/or minutes of Russell McVeagh or any committee or partner thereof, correspondence, file notes and other documents of any type bearing on the settlement of the bloodstock investors’ claims, the insurance cover with FAI and dealings and negotiations leading to the abandonment of any insurance claim, and the proposals and arrangements for funding of the settlements including the decisions to approach partners and former partners for contributions.

[20] The written application states that the documents are relevant to the issue of the purposes of the meetings with A A Lusk QC on 11 April 1994 and 23 May 1996 and the intervening meetings of J C King and J O Lusk with Judge McElrea. It also states that the timing and costs of the settlement of the bloodstock litigation, the extent to which and the times at which Russell McVeagh decided to:

[a] Withhold from former partners information relevant to them, and

[b] Fund the bloodstock settlements themselves,

[c] To claim or not to claim indemnity from their insurer FAI, and

[d] To seek or not to seem indemnity from former partners of Russell McVeagh

are all part of the background and are relevant to that issue. Further, it is submitted that Judge McElrea was, and is entitled without qualification to many of those documents as one of the defendants represented by counsel in the bloodstock litigation.

[21] Russell McVeagh opposes the application on the grounds that the documents sought are not relevant, the orders are not reasonably necessary, and the orders would be oppressive.

[22] In a memorandum filed subsequent to the hearing, Mr Mathieson modified the application for further discovery by advising that Judge McElrea would accept discovery of the following:

1. Minutes of the Ethics Committee and Wicklow Committee for the periods:

(a) Three months prior to and one month after the meeting of 11 April 1994 (ie 11 January to 11 May 1994), and

(b) Three months prior to the meeting of 23 May 1996, through to one month after Judge McElrea’s payment of $125,000 on 9 September 1996 (ie 23 February to 10 September 1996)

2. All correspondence of RMMB or its advisors with FAI or its advisors.

3. All internal RMMB memoranda about the bloodstock litigation and its settlement and consequences.

4. All memoranda prepared for any meeting of either of the Committees referred to in paragraph 1 above.

[23] The modified suggestion is resisted by Russell McVeagh because, it was submitted that it does not confine discovery to a limited scope, the scope of the discovery sought in the four categories listed remains voluminous and it is unnecessary and oppressive. Further, none of the other four categories of documents sought has any relevance to the matter at issue.

[24] Both Russell McVeagh and counsel hold a significant number of documents and I accept that there must be many documents falling within the category suggested. Discovery should be restricted to within reasonable limits.

[25] The central issue is relevance. The position of Russell McVeagh is that the essential issue to be determined is whether the material that Judge McElrea provided to the Society is privileged. That turns on whether the counsel’s communications with Judge McElrea were “for the purpose of giving legal advice and assistance”. The evidence of those present at the meeting as to what counsel said and the purpose of his communications would be principally relevant in determining that issue. Russell McVeagh claims that it has discovered all relevant documents. They have discovered all of the contemporary written material relating to the recording of the two meetings, including the background correspondence between Judge McElrea and the First Defendant regarding the litigation which led to the meetings, the firm’s internal communications regarding the meetings, and the notes of and for the meeting which were made by Judge McElrea and by counsel.

[26] Discovery must be kept within bounds and it may be that Russell McVeagh has discovered all relevant matters on the essential issue. This is a matter upon which counsel must satisfy themselves. It is not sufficient for counsel to rely upon assurances from a client if counsel themselves have not checked the relevance of some possible relevant material. The purposes of the meetings between Judge McElrea and both counsel and members of Russell McVeagh are obviously relevant to the determination of whether the communications to Judge McElrea were privileged. If the documents referred to in paragraph [22] above include information relevant to the purpose for the meeting and in particular when and whether or not settlements had been effected, then they would in my view be relevant. If there is any such material it should be discovered. Russell McVeagh, at least for the purposes of this application, would be entitled to cover up portions of documents which are not relevant to the present proceeding. There will therefore be an order that Russell McVeagh give discovery of the following:

[a] Those portions of the minutes of the Ethics Committee and Wicklow Committee for the specified periods which contain relevant information.

[b] Those portions of the correspondence of Russell McVeagh or its advisors with FAI or its advisors within the specified periods which contain relevant information.

[c] The relevant information contained in internal Russell McVeagh memoranda prepared during the specified periods insofar as they relate to the bloodstock litigation and its settlement and consequences.

[d] The relevant information from any memoranda prepared within the specified periods if the memoranda was prepared for any meeting of either the Ethics Committee or the Wicklow Committee.

For the purposes of this order the specified periods shall be the period from 11 January 1994 to 11 May 1994 and the period from 23 February 1996 to 10 September 1996. “Relevant information” shall be any information relevant to the purposes for the meetings of 11 April 1994 and 23 May 1996.

Society involvement

[27] The Society wishes to be involved throughout the hearing on 15 October next. Russell McVeagh objects to the Society being present when the issue of privilege argued. It was submitted that if any of the communications which will be referred to in Court are privileged the Society will not be entitled to have access to that privileged material. Although there is apparently no direct authority on this point in this country, the Canadian case of Canadian Imperial Bank of Commerce v Bonnell et al (1998) 494 APR 28 (PEI CA) did consider a similar position. The issue in that case was whether the plaintiffs had waived their solicitor-client privilege in respect of certain documents. After noting that whether privilege has been waived can only be ascertained with reference to the document content, the Court noted at p35:

“The party who asserts waiver bears the onus of showing waiver. The presence of the Bank in a hearing where the document content is disclosed and discussed would destroy any existing client privilege over the documents. Considering the public interest in privilege, this is a justifiable reason to depart from the general principles that court hearings should be held in public and to conduct this very limited hearing in camera.”

The Court then said at p36:

“It is certainly exceptional for a party to be excluded from any part of a proceeding. The Court is extremely cautious about imposing such a constraint. In this case it is effective and fair. An open debate on waiver between Murphy and Bonnell as solicitor and client is necessary to address the competing interests which are peculiar to those parties the right of full disclosure to enable Murphy to defend herself versus the right of Bonnell and MHS to privilege. The Bank has no interest in the waiver which would arise regarding Murphy’s defence. The Bank has interest in the documents that it could not pursue on its own application. Where privilege exists and is not waived, the Bank is not entitled to the documents. The Bank will receive everything to the extent waiver is held to have occurred. The Bank will have full participation in the hearing which considers the current state of the law of privilege and its appropriate application to the documents under consideration in this case. The Bank has full access to court to see waiver on its own motion.”

[28] It is not normal when there is a challenge to privilege for a party not entitled to the privileged material to get access to that material in order to advance its contention. In my view the Canadian decision is consistent with that principle. There will thus be an order that during that part of the hearing in which there is a contest between Russell McVeagh and Judge McElrea as to whether certain communications are privileged or not, the Society shall not participate and its counsel will not be present. The Society will otherwise participate in the hearing and if it is held that the communications are not privileged, will obviously have access to those communications. Counsel are asked to liaise and to suggest the mechanism by which this order can be implemented at the hearing commencing on 15 October.

Camera hearing

[29] In the Canadian bank case there was an order that a portion of the hearing be held in camera. Such orders should only be made in my view in exceptional circumstances. At this stage I do not intend to order that any portion of the hearing be in camera but indicate that if the press were to be present I would suppress the reporting of the contents of every communication for which there was a claim to privilege. If circumstances changed during the hearing I would entertain an oral application to have the hearing continued in camera.

Other matters

[30] In view of the orders made the briefs of evidence dealing with the privilege issue should not be provided to the Society. Counsel for the other parties should now have to exchange briefs, with Russell McVeagh and the Practitioners supplying theirs as soon as possible, and Judge McElrea responding withinn 10 days.

[31] There are still outstanding issues which will need to be resolved before the hearing of 15 October. The delay in the Court of Appeal judgment in the appeal against the judgment in M 1539/99 has meant that timetable orders may need to be altered. There is an outstanding issue as to whether the Society is entitled to refer to the Ennor documents referred to in that hearing. On the face of it they are not but I would wish to hear submissions on this matter as requested by counsel. Further, there are applications to strike out various pleadings and to amend pleadings. These will need to be dealt with, although it is probable many will be dealt with at the substantive hearing.

[32] I will request the Executive Judge to make time available during the week commencing 1 October to schedule a conference at which there will be sufficient time to resolve all outstanding matters. Counsel are to fax my Associate (who hopefully will be back from Europe by Monday next) at fax [phone] details of their availability during that week.