Cedco Publishing Company v Hodder Moa Beckett Publishers Ltd HC Auckland Cl 33/00

[2001] NZHC 419

IN THE HIGH COURT OF NEW ZEALAND
AUCKLAND REGISTRY
COMMERCIAL LIST CL 33/00 FORMERLY CP.464/00

BETWEEN: CEDCO PUBLISHING COMPANY a duly incorporated company having its registered office at 1000 Bible Way #39, Reno, Nevada, USA, Publisher and Distributor
Plaintiff

AND: HODDER MOA BECKETT PUBLISHERS LTD a duly incorporated company having its registered office at 4 Whetu Place, Mairangi Bay, Auckland, New Zealand, publisher
First Defendant

AND GEDDES GROUP LICENSING (UK) LTD a duly incorporated company having its registered office at St Pauls House, Warwick Lane, London, United Kingdom, Publisher
Second Defendant

Hearing: 25 May 2001

Judgment: 29 May 2001

Counsel: Stephen Mills with Graeme Austin and Sarah Jane Udy for plaintiff
David Chisholm with Meenal Rana for first defendant
Paul Davison QC with Peter Spring for second defendant

JUDGMENT OF WILLIAMS J

[1] This judgment deals with a number of interlocutory applications requiring resolution in order to advance this litigation and prepare it for hearing.

[2] The claim revolves round a distribution agreement made between the plaintiff, Cedco Publishing, and the first defendant, Hodder Moa Beckett Publishing, dated 5 May 1997 which granted Cedco the exclusive right to distribute certain works published by Anne Geddes and any new book publications in the United States of America between 1 January 1998-31 December 2000.

[3] Cedco and Hodder Moa Beckett were also parties to a book contract dated 8 February 1997 giving Cedco the exclusive right to distribute certain Anne Geddes publications in the United States of America between 1 January 1995 and 31 December 1997 pursuant to which Cedco had a first right of refusal for distribution in that country of “all Anne Geddes related book publications” during the currency of the contract.

[4] The parties are in dispute as to the ambit of the “new works” and as to how Cedco might become entitled to their distribution and in particular whether Cedco was entitled to distribute an Anne Geddes publication called, for the purpose of this litigation, the “Portal Notebooks” or the “Spirals”.

[5] Cedco also pleads that it is party to a third contract, a licence agreement dated 1 July 1994 with, now, the second defendant, Geddes Group entitling it to sell Anne Geddes calendars and date books in the United States of America from 1 July 1994 to, now, 30 June 2001. Geddes Group pleads that licence agreement was terminated on 30 October 2000 as a result of Cedco’s unremedied breaches.

[6] As noted, Cedco claims that it was entitled to a first right of refusal to distribute the Portal Notebooks, a right which it would have exercised. Its claim for lost profits arising out of alleged breach of its first right of refusal, flow-on effects to the Anne Geddes works which it distributed and lost costs amount to something over $US7.5m. Hodder Moa Beckett pleads that it never had the right or the obligation to offer distribution rights in relation to the Portal Notebooks to Cedco and that in any event they did not come within the terms of the distribution agreement.

[7] Cedco further pleads that under the licence agreement Geddes Group was to supply it with film for use in the production of calendars and diaries at a cost to be mutually agreed, that agreement has never been reached and that it has paid Geddes’ invoices over the years 1996-2001 under protest and seeks a refund of at least $US66,103 being the difference between invoice and reasonable costs. Geddes Group pleads that the invoice charges were reasonable and denies payment under protest. An additional aspect of this clause of action includes an allegation by Cedco that Geddes was required to provide it with film and chromalins for Cedco’s use in the production of Anne Geddes calendars and diaries but that the Geddes Group insisted that the calendars and diaries would be prepared in Hong Kong for Geddes and shipped to Cedco for the 2000 and 2001 years. This, Cedco pleads, caused it losses through the necessity to order prematurely resulting in over-ordering and the loss on unsold items of $US300,000. Geddes Group says the decision to publish in Hong Kong was a joint one.

[8] The fourth cause of action asserts that the licence agreement required Anne Geddes to make two author tours of the United States to promote the works but that although she toured the United States in 1996 she failed to make a return tour in 1998. Cedco claims that it ordered a large number of Anne Geddes works in expectation of increased sales following the 1998 tour but that sales were less than expected as a result of the lack of such a tour, causing Cedco losses exceeding $US 4.7m. or, as an alternative, expectation losses of $US5.28m. and reliance losses of $US2.285m. Geddes Group denies any obligation to arrange a second tour and says that in any event it arranged an appearance by Anne Geddes on the “Oprah Winfrey Show” which should have been at least as effective as a tour.

[9] Cedco’s final claim alleges unlawful interference with contractual rights arising out of the Geddes Group authorising Portal to sell its Spiral Notebooks thus preventing Hodder Moa Beckett from offering it the first right of refusal for those works. Lost profits exceeding $US7.5m. are claimed. Geddes Group denies it gave Portal authority to distribute its notebooks in the United States as its approval was limited to spiral-bound works.

[10] In addition, Hodder Moa Beckett raises the positive defence of accord and satisfaction arising, it pleads, out of an agreement reached in February 1999. Cedco acknowledges the meetings and correspondence but denies that agreement was reached and asserts that necessary pre-conditions were not met.

[11] Geddes Group has counterclaimed against Cedco for unpaid royalties of $US331,000 plus future royalties payable under the licence agreement. Cedco denies that any failure to pay royalties constitutes a breach of the licence agreement, denies liability for future royalties on the basis that it cancelled the contract between Geddes Group and itself on 6 November 2000 and asserts an entitlement to set-off any sums due by it to the Geddes Group against Geddes Group’s liability to Cedco.

[12] Against that background, the Court turns to consider the applications.

[13] Four were disposed of by consent and are included in the judgment solely for record purposes.

Cedco’s application for order that Letter of Request be issued to Federal District Court for the Northern District of California

[14] Cedco applied for an order that a Letter of Request be sent to the Federal District Court for the Northern District of California requesting that court to order Portal Publications to, in New Zealand terms, discover all documents which it holds and produce the same for inspection by the plaintiff. The classes of documents sought were set out in the application and related, broadly put, to documents relating to the Portal Notebooks and their sales. Cedco also sought leave to apply directly to the District Court for an order for discovery against Portal in relation to those documents.

[15] Cedco accepted that this Court has no express statutory power to order discovery against a non-party in a foreign jurisdiction notwithstanding that r 369 of the High Court Rules provides that where a party to a proceeding wishes to obtain evidence of a person other than at trial the Court may make orders, so far as is relevant to this proceeding, “for the sending of a Letter of Request to the judicial authorities of another country to take, or cause to be taken, the evidence of any person”.

[16] As is clear from the summary of the proceedings set out earlier, evidence of the authority of Portal to produce and sell the Notebooks is plainly of importance in the resolution of this case. The Court was advised that Portal has no objection to discovery and inspection of the relevant documents provided that appropriate legal procedures are complied with. In those circumstances, and the defendants not opposing, at the hearing on 25 May 2001 the Court made orders in terms of the application directing that the form of the Letter of Request be lodged in Court for the Court’s approval prior to its despatch.

[17] In preparing this judgment, however, three consequential matters arise.

[18] The first is that, in the usual way of discovery against a non-party, the party applying for such an order should, at least in the first instance, meet the non-party’s costs of compliance.

[19] The second is that it would appear appropriate for the Court to direct that a copy of the Portal’s verified list of documents be filed in this Court, perhaps by being exhibited to an affidavit filed in this Court as to compliance with the order.

[20] The order made directs Portal to produce its documents, or copies, to Cedco. The defendants should also have access to those documents. As a consequence of the direction that Portal’s list be directly or indirectly filed in this Court, it will presumably be open for the defendants to obtain copies of its documents pursuant to rr 306, 307 and 309.

Geddes Group’s application for an order to send Letter of Request to Federal District Court for examination of witnesses

[21] Geddes Group applied for orders for sending a Letter of Request to the Federal District Courts in California and Florida for the examination of a Ms Daniel and a Mr Burrows on oath before a Registrar at a time, date and place to be appointed by that court, the examination to cover a number of topics appearing in the application. Alternatively, Geddes Group sought an order granting it leave to apply directly to the appropriate court.

[22] Both Ms Daniel and Mr Burrows are former employes of Cedco who signed employment agreements containing confidentiality clauses and who were accordingly unwilling to give evidence without a Court order to that effect.

[23] All parties accepted that the evidence of Ms Daniel and Mr Burrows especially the former - was relevant to matters raised in the pleadings, particularly Portal’s distribution of the spiral publication, the arrangements for the second author tour, whether the decision to print calendars and desk diaries in Hong Kong was agreed and whether all issues between the parties were compromised.

[24] Accordingly, the plaintiff and the first defendant not opposing, at the hearing on 25 May 2001 the Court made orders in terms of the application again directing that the form of the Letters of Request be lodged in Court for approval prior to their despatch.

[25] The application provided for Geddes Group to meet the costs of the examinations in the first instance.

[26] In discussions later in the hearing, the Court was advised that the parties intended that the examination should be recorded on videotape and the videotapes and transcripts would be lodged in this Court and played to the Judge in the event that any party wished to “call” Ms Daniels or Mr Burrows to give evidence.

Other applications

[27] Cedco applied for further and better particulars of Geddes Group’s defence and for further and better discovery against Geddes Group.

[28] Counsel advised the Court that they had resolved the issues raised in those applications and that no orders were necessary.

Cedco’s application for directions in respect of production of commercially sensitive documents, Geddes Group’s application for an order that such documents be produced for inspection, and Hodder Moa Beckett’s opposition to Cedco’s application for directions

[29] These complementary applications centred around what was called “File 33” in Cedco’s list of documents.

[30] File 33 is described in Cedco’s verified list as including extracts from its statements of income and operations for the years ended 30 April 1996-1999 and for the eight months to 31 December 1999, together with income comparison figures for the twelve months ended 31 December 2000, its three independent auditors’ reports and extracts from its inventory valuation reserve and liquidation report of January 1999-March 2001, all of which were claimed to be commercially sensitive.

[31] By the time of the hearing, negotiations between the parties had reached the point where Cedco’s solicitors were agreeable to File 33 being disclosed to Geddes Group’s solicitors and forensic accounting experts on suitable confidentiality undertakings being given. The remaining dispute was to whether others, particularly Mr McGrath, Geddes Group’s Chief Executive Officer, and Mr Kel Geddes, should be able to inspect the contents of File 33 on similar undertakings.

[32] Cedco’s opposition to inspection outside Geddes Group’s legal and accounting advisors was on the basis of an oral confidentiality agreement between Cedco and a Mr Preger, Cedco’s Chairman and the direct or beneficial holder of 42% of its stock. Mr Preger said that directly or indirectly he has been a major source of Cedco’s capital funding and is a personal guarantor of its Bank loans and he was concerned that an inspection of File 33 by persons other than Geddes Group’s legal and accounting advisors would be in breach of the confidentiality agreement and might give them information about his confidential personal financial circumstances. Mr Preger’s stance was supported by Mr Ditlefsen, Cedco’s President and Chief Executive Officer, who also asserted that making File 33 more widely available would prejudice Cedco’s commercial position in the highly competitive United States publishing business, a business in which competition for distribution rights for the Anne Geddes works is fierce. He averred that making file 33 more widely available, particularly to officers of Geddes Group, may result in disclosure of Cedco’s financial position to its competitors who might be licensees of or distributors for Geddes Group and Hodder Moa Beckett. He made the point that, were Cedco’s competitors to be distributors or licensees for the defendants, Geddes Group and Hodder Moa Beckett would have a “direct financial interest in the performance of their licencees in the US market” and would derive income from their licencees’ performance. Mr Ditlefsen also made the point that Cedco is a private company so its accounts are not publicly available.

[33] Mr Mills, leading counsel for Cedco, drew attention to a number of authorities as to balancing prejudice from disclosure against relevance of the documents to the issues in dispute, the potential competition between the parties or their agents, potential damage to third parties such as Mr Preger and terms on which disclosure might be made (New Zealand Railways Corporation v Auckland Regional Council (1990) 3 PRNZ 332; Port Nelson Ltd v Commerce Commission (1994) 7 PRNZ 344; T D Haulage Ltd v New Zealand Railways Corporation (1986) 1 PRNZ 668). There is force in the observations of Fisher J in Walker Data Vision Ltd v Radiola Corporation Ltd (21/6/94 HC Auckland CP.153/94 p 4) that where the competing parties in litigation are trade competitors “with the best will in the world they will find it difficult later to blot from their minds information provided solely for the purpose of the proceedings” though there is also force in the observations of Master Thomson in Mobil Oil New Zealand Ltd v Ellison (1999) 13 PRNZ 177, 180 that where the parties are not direct competitors “information would only become available to a trade competitor if the [parties] breached a confidentiality order of the Court which they are willing to have imposed on them”.

[34] Whilst the views of Messrs Preger and Ditlefsen warrant significant weight, it is nonetheless the case that they are officers of a company which has chosen to sue the defendants in New Zealand and accordingly must be taken to have accepted that Cedco will subject itself to the inevitable process of discovery, an intrinsic aspect of which is that it enables inspection, often by competitors, of what would otherwise be private documents and to which those persons would ordinarily have no access. However, as has been often said, discovery and inspection is a vital aspect of pre-trial procedure which enables parties and their advisors better to assess the strengths and weaknesses of each other’s cases and thus the likely outcome of the trial. It promotesearlier settlement. It ensures that the Court has all relevant information before it in order to deal with the issues in the case.

[35] In this instance, in the Court’s view, it is important for the defendants to be able to inspect File 33 subject to strict safeguards, to balance the defendants’ ability better to assess their case and conduct their cross-examination of Ms Daniel and Mr Burrows and enable their counsel to obtain instructions from their client with measures designed to produce the possibility of inappropriate disclosure of the contents of File 33.

[36] In those circumstances there will be orders that File 33 be made available for inspection by the defendants on the following terms:

[a] As far as the defendants’ solicitors, counsel and forensic accounting experts are concerned, inspection is to be in terms of a confidentiality undertaking between the parties on terms similar to that appearing in Exhibit N to the affidavit of Mr McGrath sworn on 3 May 2001;

[b] As far as other disclosure is concerned, subject to the leave reserved in para 34[c] it is to be limited to one named officer of each of the defendants and is to enable the defendants’ solicitors, counsel and forensic accounting experts to obtain instructions. It is to be on the basis of a confidentiality undertaking given by that person to the Court containing terms to be agreed between the plaintiff and each defendant and generally to follow the form of Exhibit N to Mr McGrath’s affidavit sworn on 3 May 2001. The undertaking is to contain express reference to that person’s understanding that he or she is not to copy, disclose or use the information in File 33 other than in relation to this proceeding and for the giving of instructions to the defendants’ solicitors, counsel and forensic accounting experts and that the person giving the undertaking is aware of the terms of r 317A.

[c] That leave is reserved to the parties to apply further, particularly in the event of disagreement as to the terms of the confidentiality undertakings and any extension of the right to inspect beyond the defendants’ solicitors, counsel and forensic accounting experts and the person nominated in terms of para 34[b].

[37] The Court records that at the invitation of the parties and pursuant to r 311 it inspected File 33 before making the above orders.

Application by Geddes Group for order requiring persons to be present for cross-examination and for further and better discovery against Cedco

[38] Geddes Group sought an order that Mr Ditlefsen and a Mr Lejsek be available to be cross-examined on the former’s affidavit in opposition to Geddes Group’s application for further and better discovery and the latter as to the correctness of his verifying Cedco’s list of documents. Geddes Group initially also sought an order for the cross-examination of a Ms Regler in relation to Cedco’s list of documents but did not proceed with that application acknowledging that since Ms Regler has made no affidavit in this proceeding she was not subject to r 254. Initially, Geddes Group also threatened to seek orders for cross-examination of the partners and staff in Cedco’s solicitors’ office who were involved in preparation of Cedco’s list of documents but, sensibly, made no such application.

[39] Acknowledging that in terms of r 254 the cross-examination of deponents in relation to interlocutory proceedings is only permitted in “special circumstances” particularly where, as here, both Mr Ditlefsen and Mr Lejsek reside in the United States - Mr Davison QC, senior counsel for Geddes Group, nonetheless submitted that an order was appropriate in the circumstances.

[40] When Mr Lejsek came to swear Cedco’s list of documents he said, in the section dealing with documents no longer in Cedco’s possession or power, that

“Documents contained in the files of Robert Burrows and Janis Daniel during the time they were employed by the plaintiff which have not been located, a diligent search having been made for these documents, including in warehouse storage boxes and all pertinent files and by way of scrutiny of data stored in computer files held by the plaintiff. I believe these individuals either took these files with them when they ceased their employment with the plaintiff, or the files were destroyed when they left.”

[41] Challenged on that topic and asked to produce Cedco’s internal communications including emails involving a number of employees or former employees including Ms Daniel and Mr Burrows, Cedco’s solicitors said that all available documents would be open to inspection but that:

“Our client has been unable to locate communications between Rob Burrows and management. In addition, much of Janis Daniel’s correspondence is no longer in the possession or control of our client.”

[42] Mr McGrath, Chief Executive Officer of Geddes Group and Kel Geddes Management Ltd, said that when Cedco’s documents were inspected there were some thirty or so emails coming from her files but no other documents plainly derived from that source notwithstanding Ms Daniel’s participation in Cedco’s business over the years of her employment and her presence at a number of the meetings where pleaded events were said to have occurred.

[43] Ms Daniel made an affidavit on Geddes Group’s behalf in support of its application for further and better discovery. She was Vice-President/Director of Sales and Marketing at the time she left Cedco’s employment and was at pains to refute what she saw as an assertion by Mr Lejsek in Cedco’s list of documents that she “may have been responsible for the removal or destruction of the plaintiff’s files relating to its business dealings” with the defendants. She denied removing or destroying any of the files saying that, of those in electronic form, her practice was to print out memoranda and emails that she considered of enduring importance and to delete the balance. She said that she had six files in a two-drawer cabinet, five of which contained correspondence, public relations material, sales material and sales numbers and reports relating to the Geddes books and calendars and the sixth of which contained “Portal Publications stationery books”. She said that all the Geddes files were left in her office when she departed and she recalls Mr Ditlefsen asking for the Portal Publications stationery books which she handed him upon or prior to her leaving.

[44] Mr Ditlefsen said that he knew of the defendant’s interest in Ms Daniel’s files so that “as a result a very substantial search was undertaken to locate any of her files” including “warehouse storage boxes and electronic data”. Those discovered were included in File 24 in Cedco’s verified list - almost wholly limited to emails. He refuted any implication of impropriety in Cedco’s list. Of the Portal Publications stationery files Mr Ditlefsen says

“This file was incorporated into my own files and documents contained in it that are relevant to the proceeding have already been discovered by the plaintiff. The fact remains that we have been unable to locate any relevant files or documents other than those that have already been discovered.”

[45] Mr Davison QC was critical of events disclosed in Mr Ditlefsen’s affidavit pointing out that Mr Ditlefsen did not, it seems consult Ms Daniel about the adequacy of Cedco’s discovery of her files, about the fact that even the material discovered by Cedco as coming from Ms Daniel and Mr Burrows was not in the original files (and did not include any file covers) and thus was difficult to source and of the suggestion in Cedco’s list that files held by Mr Burrows and Ms Daniel had been destroyed when they left Cedco’s employment, presumably, in light of Ms Daniel’s affidavit, by Cedco itself. Mr Davison drew attention to the evidence filed on those points by Geddes Group to the effect that as a result of the events discussed Geddes Group had become suspicious as to the adequacy of Cedco’s discovery. In particular, in light of Cedco’s apparent acknowledgment of having destroyed some files, Geddes Group had inferred that Cedco may well have destroyed material which was relevant to the issues arising in this case which was inconvenient so far as Cedco’s case was concerned. Hence its application to cross-examine.

[46] The question of arrangement of the documents held by Ms Daniel can be reasonably quickly dealt with since Mr Mills explained that it is his firm’s practice, in assisting clients to prepare lists of documents, to break up files received from clients and re-arrange the contents chronologically for inclusion in the list.

[47] That explanation may perhaps run counter to the inclusion of File 24 in Cedco’s list but, even so, whilst that practice is readily understandable and is helpful in relation to preparation of an agreed bundle of documents for the substantive hearing, there are cases - of which this is an example -where, despite it being difficult to find authority to the contrary, adoption of such a practice may be undesirable. Not only can it give rise, as here, to allegations of omission but, as is well understood, placement of documents and more particularly of undated documents on a file between dated documents can often assist in such matters as the state of persons’ knowledge at the time or in timing the creation of undated documents. Multiple copies of the same document may be annotated or filed differently by different persons thus giving rise to different implications. As the majority of the Court of Appeal put it in Hunyady v. Attorney-General [1968] NZLR 1172, 1174:

“. . . the proper course is at least to number or letter the individual pages or documents of the file or bundle, so as to enable any one of them to be specified in a subsequent application for inspection or production Taylor v. Batten (1878) 4 QBD 85; Budden v.Wilkinson [1893] 2 QB 432; Cook v. Smith [1891] 1 Ch. 509, per Kekewich J. at p.513 in the Court of first instance; per Kay L.J. in the Court of Appeal at p.522. See, as to the modern practice, 8 Atkin’s Encyclopaedia of Court Forms and Precedents (1941) 54-5; Stephens’ supreme Court Forms, 75-6; and the form of the affidavit filed in Infields Ltd v. Rosen & Son [1938] 3 All ER 591,592 .

. . .

. . . We think that having regard to all the circumstances of the case it is unnecessary that they should be enumerated one by one in the affidavit of discovery; but they must be numbered successively.

. . .

He [the appellant] suggested, indeed, that some documents had been taken off one of the files, or at least moved. Without accepting such a suggestion, we think that the mere possibility of such a contention being put forward is enough to show why the usual practice should be followed, and the documents or pages in each file should be numbered.

[48] The leading authority on what amounts to “special circumstances” under r 254 is the decision of the Court of Appeal in Kidd v. Van Heeren (1997) 11 PRNZ 422, 424 where the Court of Appeal described “special circumstances” as being “wide, comprehensive and flexible words indicating something abnormal, uncommon or out of the ordinary, but something less than extraordinary or unique”. Conflicting evidence on interlocutory applications is in general insufficient (Kidd at p.424, 425). Allegations of bad faith are normally for determination at the substantive hearing (Kidd ibid), but an order may be made if bad faith is coupled with circumstances of urgency (BurslemHoldingsLtdv.G.B. & JM Bockett Ltd [1989] 2 NZLR 238, 239) or where a refusal of leave to cross-examine may give rise to injustice (Sleeman v. ANZ Banking Group (N. Z.) Ltd (19940 7 PRNZ 508, 511).

[49] Having considered those issues, in this Court’s view, no case has been made out at this stage for the Court to find “special circumstances” under r 254.

[50] Ms Daniel’s affidavit evidence as to what she did with her files is reasonably clear but may alter as a result of cross-examination when she gives evidence pursuant to the Court’s earlier order. There is no evidence from Mr Burrows. Cedco claims there is no conflict of substance between the various versions of events. One interpretation of Mr Lejsek’s statement as to the date of the suggested destruction of the Burrows and Daniel files and the person who destroyed them is that they were destroyed by someone in Cedco because they were against Cedco’s interest in this litigation. But that is only one of several alternative innocent interpretations, particularly when Cedco’s letter before action to Geddes Group was written 15 months after Ms Daniel left its employment. Although it may be difficult to determine which, some at least of Ms Daniel’s files have, on Mr Ditlefsen’s admission, been incorporated into his own and presumably discovered and are available for inspection. At all events, on the evidence currently before the Court, the Court is not prepared at this stage to infer bad faith or impropriety on Cedco’s part.

[51] Geddes Group’s application is accordingly, dismissed although, given that Ms Daniel and Mr Burrows will give evidence before the substantive hearing which will doubtless touch on this topic, leave is granted to Geddes Group to file a further application under r 254 if it considers it appropriate after that evidence has been given.

[52] In those circumstances, Geddes Group’s application for further and better discovery concerning Ms Daniel’s files is also dismissed, but with leave similarly reserved.

Geddes Group’s application for further and better discovery against Cedco in respect of solicitor/client correspondence

[53] Geddes Group sought discovery by Cedco of all documents relating to advice tendered to it by its solicitors from 3 October 2000 onwards on the basis of an assertion that Cedco had waived privilege in relation to all such documents.

[54] On 10 May 2001 Mr Ditlefsen swore an affidavit in opposition to Geddes Group’s application for further and better discovery from Cedco to which, in order to support his statement that Cedco was fully aware of its obligations as far as discovery was concerned, he annexed a six page letter to Cedco from its solicitors dated 3 October 2000 which set out those obligations in considerable detail.

[55] Cedco accepted that in so doing it waived solicitor/client privilege in relation to that letter but Geddes Group asserted that Cedco’s use of the 3 October letter also waived solicitor/client privilege in relation to any other document concerning the advice given to Cedco by its solicitors concerning discovery.

[56] In this Court’s experience, such applications, once only infrequently encountered, now seem to be filed much more often. This Court endeavoured to summarise what it understood to be the law on imputed waiver in Registered Securities Ltd v. C (24.5.99, HC Auckland, CP.593/97), amended those views to confirm with the circumstances of the case in Commerce Commission v. Carter Holt Harvey Building Products Ltd (21.11.99, HC Auckland, CL.27/95), and reviewed and refined those remarks to accommodate the circumstances of the case in Streetsmart v. Far North District Council (14.5.2001, HC Whangarei, CP.30/00).

[57] Though this case is a little unusual in that privilege has been waived in respect of the 3 October letter, this Court sees no reason to reconsider its earlier views to any major extent. But, tailoring its views to the circumstances of this case, the Court repeats its view of the law as set out in Commerce Commission (paras 27-32 p 12-18) (referring to the first edition of Matthews & Malek as to which see below):

“[27] . . .after referring to the importance of legal professional privilege and confidentiality between lawyers and their clients, the Court set out the general principle in the following passage.

“Waiver is helpfully discussed by the learned authors of Matthews & Malek: ‘Discovery’ (1992) chap 9. In particular, after discussing the question whether privilege in a document referred to expressly in pleadings is thereby waived, the learned authors conclude (para 9.11 p 226-227) that:

‘. . . a mere reference to privileged document in a pleading does not of itself constitute an implied waiver of privilege. However, if a party, by his pleading or otherwise, shows that he intends to rely upon such document, then that pleading (like any other communication with the opposing patty) will normally amount to such a waiver.’”

As to references in witness’ statements, the learned authors conclude (para 9.17 p 230) that:

“On principle it seems that the same rule should apply as with affidavits, ie that references to privileged material in a witness statement or expert’s report will amount to a waiver if they amount to a ‘deployment’ of such material.”

The reference in that passage to ‘deployment’ refers back to the passage on reference in affidavits which reads (para 9.15 p 228):

“The general rule is that where privileged material is deployed in Court in an interlocutory application, privilege in that and any associated material is waived, on the basis that:

‘. . . the opposite party . . . must have the opportunity of satisfying themselves that what the party has chosen to release from privilege represents the whole of the material relevant to the issue in question.’

The key word is ‘deploying,’ for a mere reference to a privileged document in an affidavit does not of itself amount to a waiver of privilege, and this is so even if the document referred to is being relied on for some purpose, for reliance in itself is said not to be the test. The test is apparently whether the contents of the document are being relied on, rather than its effect.”

[28] The Court went on to review Australian authority holding (pp9-11):

‘The earliest Australian authority relied on was Attorney-General for the Northern Territory v Maurice (1986) 69 ALR 31 where a claim book in relation to an Aboriginal land claim was given to all the lawyers involved, tendered at the commencement of the hearing and referred to in counsel’s opening address and by two witnesses. The High Court of Australia upheld a claim that the publication and use of the claim book did not amount to a waiver of legal professional privilege of field notes and working records from which the claim book had been partly compiled but which were not specifically mentioned or quoted in the book.

Mason and Brennan JJ dealt with the matter in the following way (at 39):

‘An implied waiver occurs when, by reason of some conduct on the privilege holder’s part, it becomes unfair to maintain the privilege. The holder of the privilege should not be able to abuse it by using it to create an inaccurate perception of the protected communication. Professor Wigmore explains: ‘When his conduct touches a certain point of disclosure, fairness requires that his privilege shall cease whether he intended that result or not. He cannot be allowed, after disclosing as much as he pleases, to withhold the remainder’ (Wigmore: Evidence in Trials at Common Law, (1961) Vol 8 §3437, at 636). In order to ensure that the opposing litigant is not misled by an inaccurate perception of the disclosed communication, fairness will usually require that waiver as to one part of a protected communication should result in a waiver as to the rest of the communication on that subject matter: see GreatAtlanticInsuranceCovHomeInsurance [1981] WLR 529; [1981] 2 All ER 485.

Hence, the implied waiver inquiry is at bottom focussed on the fairness of imputing such a waiver.’

Deane J’s formulation of the doctrine is (at 42-43)

‘Waiver of legal professional privilege by imputation or implication of law is based on notions of fairness. It occurs in circumstances where a person has used privileged material in such a way that it would be unfair for him to assert that legal professional privilege rendered him immune from procedures pursuant to which he would otherwise be compellable to produce or allow access to the material which he has elected to use to his own advantage. Thus, ordinary notions of fairness require that an assertion of the effect of privileged material or disclosure of part of its contents in the course of proceedings before a court or quasi-judicial tribunal be heated as a waiver of any right to resist scrutiny of the propriety of the use he has made of the material by reliance upon legal professional privilege. There are, however, no considerations of fairness which require that compliance by a party with a procedural requirement that he prepare and make available a document setting forth the case which he proposes to make before a court or quasi-judicial tribunal should be treated as a waiver of his right to claim legal professional privilege in respect of all the material upon which he has relied in the preparation of that document. If, in such a document, a party sets forth part of the contents of a particular identified document or communication or asserts the effect of or his reliance upon a particular identified document or communication, it may be that considerations of fairness might require that he be treated as having waived any legal professional privilege in relation to the whole document or communication; conference Buttes Gas and Oil Co v Hammer O 3) [1981] 1 QB 223 at 252-52. Where, however, he does not more than make use of privileged material (eg legal advice, expert opinion of statements of potential witnesses) for the purpose of formulating the statement in such a document of the details of the case which he proposes to make, it would be an affront to ordinary notions of fairness to hold that the effect of his compliance with that procedural requirement was that he has waived his legal professional privilege in relation to such material.’

[29] Referring to other Australian authority the Court considered the decision in Telstra Corporation Ltd v BT Australasia Pty Ltd (1998) 156 ALR 634, observing:

“Describing the matter as ‘issue waiver’ the joint judgment of Branson and Lehane JJ first gave examples where evidence could be called at common law of legal advice in undue influence cases, professional negligence claims against lawyers and where the state of a party’s mind was in issue and that state of mind resulted partly from such advice. The learned Judges described those cases not as ones of partial disclosure or other use of privileged communications but examples where unless waiver of privilege was imputed the fact-finding task of the Court would have been compromised. Their Honours accepted that those cases were not directly supported by Maurice in a decision to similar effect, Goldberg v Ng (1995) 185 CLR 83 but went on to hold that there was no difference in principle between the undue influence cases, the partial disclosure cases and the ‘other use’ cases such as Maurice because (at 647-648) that:

‘In the three classes of cases the law implies a consent to the use of the privileged material, or, what is in reality the same thing, a waiver of the privilege, if by reason of some conduct of the party otherwise entitled to the privilege, it would be unfair to the other party, in a way which goes to the integrity of the legal process, for the privilege to be maintained.

. . .the conduct of a party which leads to the implication of consent to the use of otherwise privileged material, or to an implied waiver of such privilege, in undue influence cases, legal professional negligence cases and, in my [sic] view, the ‘state of mind’ cases, is that of raising for determination in legal proceedings. As an element in the cause of action relied upon, an issue incapable of fair resolution without reference to that material. . . .

It is unnecessary and inappropriate, having said those things, to attempt to define exhaustively the scope of the principle. Where, however, a party relies on a cause of action, an element of which is the party’s state of mind (including the quality of the party’s assent to a transaction) the party is taken to have waived privilege in respect of legal advice which the party had, before or at the time of the relevant events, material to the formation of that state of mind.’

[30] Turning to New Zealand authority, after noting the decision in Chandris LinesLtd v Wilson & Horton Ltd [1981] 2 NZLR 600,611, the Court continued (pp13-15):

“In Commerce Commission v Fletcher Challenge Ltd (No.4) (1989) 2 PRNZ 15, Fletcher Challenge claimed privilege for a legal opinion but the plaintiff wished to cross-examine one of the defendant’s witnesses on that opinion and sought an order to inspect the opinion to enable it so to do. McGechan J dismissed the application, having regard to the circumstances concerning the document but, that notwithstanding, accepted that even though there was no New Zealand authority on the point, the approach of the High Court of Australia in Maurice should be followed in this country. Imputed waiver, he held, depends on whether it ‘would be unfair or misleading to a party to refer to or use material and yet assert that the material or material associated with it is privileged from production”.

In Equiticorp Industries Group v Hawkins (1990) 2 PRNZ 19, Wylie J’s judgment sets out the affidavits on which the implied waiver application was granted, the learned Judge taking the view that the deponents went well beyond mere references to the report of which production was sought. The learned Judge relied on Maurice, holding that a selected and a substantial part of the contested report had indirectly been disclosed in an important interlocutory proceeding to add weight to the plaintiff’s proposition. It was that reliance which made it unfair not to order the production of the entire report.

In Cory-Wright & Salmon Ltd (In Liquidation) v KPMG Peat Marwick [Privilege] (1992) 5 PRNZ 518 an order that privilege had been waived was sought on the basis that the notice of opposition to an application for security for costs said that the proceeding had been brought bona fide on legal advice, that being supported by a statement in an affidavit which expressly referred to legal advice having been part of the deponent’s assessment of the good grounds for bringing the proceeding. In dismissing the application, Gallen J held (at 521) that waiver arose where a certain part of the claim “uses particular material in such a way to give rise to unfairness in the resolution of the proceedings if that material is not available to the other side for assessment and to answer”.

In Tau v Durie [1996] 2 NZLR 190 the Waitangi Tribunal deferred the plaintiffs’ claims indefinitely and in an application for judicial review of that decision based on assertions of improper purpose, bias and unreasonableness the plaintiffs pleaded that the Tribunal had obtained legal advice before so acting. In response the Tribunal relied on an independent legal opinion, claiming privilege for it. McGechan J first enunciated the principles, after referring to the cases discussed in this judgment, in the following way (at 194):

‘A party cannot expect to put forward the existence of legal opinion, with inference invited as to favourable content, or part of a legal opinion which is favourable, and refuse to disclose the opinion document, or the remainder of it, so enabling the position to be checked. If a party positively advances it, the party must disclose it. Mere passing mention in pleadings may not suffice to call the doctrine into play. I agree immediately that the assertion of the existence of legal opinion by a plaintiff and the simple admission or denial of its existence by a defendant ordinarily would not require that defendant to disclose. There are questions of degree.’”

After reviewing the pleadings in the case before him, the learned Judge held (at 195):

“These pleadings are positive additional assertions of the existence of an opinion, claiming implicitly the opinion advised the first defendant of a power to preside as he proposed. The existence of such supporting opinion as to powers could have significance on any question of bona fides. It would, in my view, be quite unfair to permit the first defendant to blow hot as to the existence of content of opinion, but cold on disclosure. I accept there has been an implied waiver within doctrine.”

[31] For present purposes the only English authority discussed in RSL which warrants noting is the following (p 15):

“In Nea Karteria Maritime Co Ltd v Atlantic & Great Lakes Steamship Corp [1981] Com LR 139, Mustill LJ succinctly summarised the position in the following passage:

‘. . . where a party is deploying in court material which would otherwise be privileged, the opposite party and the court must have an opportunity of satisfying themselves that what the party has chosen to release from privilege represents the whole of the material relevant to the issue in question. To allow an individual item to be plucked out of context would be to risk injustice through its real weight or meaning being misunderstood.’

[32] After that review of the authorities, the Court summarised what it saw as the position concerning waiver of privilege by this means in the following passage (p 16):

“In the light of those authorities, what is required for privilege to be impliedly waived by reference to privileged material in pleadings or witness’ statements would appear to include:

(a) Mere . . . mention or reference to privileged material in the pleadings or witness statements is insufficient. What must be demonstrated is that the party asserting the privilege is relying on the privileged material and positively advances that material in support of its case to the point where the issues in the application or litigation are incapable of resolution without reference to the privileged material. If such occurs, waiver of privilege is imputed.

(b) If privilege is claimed for part only of a document to which reference is made in pleadings or witness statements, waiver of privilege in respect of the balance is likely to be imputed in order that the opposing party can check and ensure that all matters in that document material to a particular issue are before the Court.

(c) The overall test is whether it would be fair to impute a waiver of privilege in respect of the material for which privilege is claimed in order to ensure that the integrity of the Court’s process and its ability to reach a proper decision as to the rights and liabilities of the parties in the application or litigation is not impugned and the Court is not misled.””

[58] It remains to add that the reference to “associated material” in Matthews & Malek and similar phrases in the authorities is explained by the learned authors of Matthews, Malek and Bradford, Disclosure (2nd ed 2000 para 10.34 p.314-315) in the following passage:

“Where privilege in a document or documents is waived, the question arises as to the effect of this waiver upon other privileged material. There are broadly four possibilities:

(1) No effect (i.e. waiver only for the document(s) concerned).

(2) Waiver of privilege for all material dealing with the transaction the subject of the document(s) concerned.

(3) Waiver of privilege for all material covered by the same class or privilege.

(4) Waiver of privilege for all material covered by any class of privilege.

The authorities are not consistent, but the last possibility seems wrong on principle and there is authority against it. In cases where the waiver takes place pre-trial, rather than at trial, there is a conflict of authority as to whether waiver is confined to the document or documents concerned (the first possibility above), or goes wider (the second possibility above). Where the waiver takes place at trial, there is again a conflict of authority, this time as to whether the second or the third possibility is correct. In each case the second view seems more consistent with the “fairness” principle referred to above, and this view is to be preferred. There is, however, room for argument in any given case as to what constitutes the “transaction” in question.”

[59] The “wider” possibility mentioned in that passage refers to the decision of In re Konigsberg (a Bankrupt) Ex Parte Trustee of the Property of the Bankrupt v. Konigsberg [1989] 1 WLR 1257, 1264-5 where the test for waiver beyond the document in question was described as whether the documents are “sufficiently connected” for waiver of all to follow as a matter of fairness. The learned authors of Howard et al, Phipson on Evidence (15th ed. 2000 para.22-22 p.581-582) discussing the breadth of the “issue in question” as mentioned in Nea Karteria opine that:

“What constitutes “the issue in question” will always be a question of fact. It is necessary to identify the purpose of the waiver, and to see what fairness demands in the circumstances. In general, the courts have not extended the ambit of the waiver beyond what is necessary and if in doubt have taken a relatively restrictive view of “the issue in question”.”

[60] When those authorities are applied to the facts of this matter, in this Court’s view Geddes Group’s application falls somewhat short of what is required for it to be granted.

[61] The application is for waiver of all legal advice given to Cedco because it relied on a letter setting out its general discovery obligation. In this Court’s view that reliance did not “deploy” in evidence anything more than the whole of the letter of 3 October 2000. Reliance on that one letter does not, as Deane J. put it in Maurice, waive privilege “in respect of all the material upon which [Cedco] has relied in the preparation” of its list. There is nothing in Mr Ditlefesen’s affidavit supporting any suggestion that Cedco positively asserted any other aspect of its solicitor’s advice on discovery in relation to the preparation of its list. The “issue in question” in relation to this application is whether Cedco should be directed to provide further and better discovery. In reality, this application has the appearance of a roundabout method of achieving the same result as Geddes Group sought in applying for leave to cross-examine Messrs Lejsek and Ditlefsen and, since the Court has declined to grant that application or has held it, at best, premature, it would not be right to circumvent that decision by granting this particular application. Fairness does not appear to require as much particularly proceeding from the standpoint that solicitor/client privilege should be upheld unless the authorities require otherwise.

In all those circumstances, the Court declines to grant the Geddes Group’s application in this regard.

Cedco’s application under rule 438 for separate trials on liability and quantum

[63] Cedco applied for an order that trial on all causes of action other than that relating to the films and chromalins should be heard separate from issues of quantum. The defendants consented to separate trials but submitted that they should cover all causes of action.

[64] Mr Mills submitted that factually the third cause of action stood somewhat apart from the other allegations and that, the sums in issue in the third cause of action being rather less than those sought in the other claims, it would be appropriate to leave the third cause of action aside until liability was determined on the other causes of action. He submitted that determination of liability on those claims would largely determine the result on the third cause of action.

[65] The defendants accepted that there was good reason to separate issues of liability from those of quantum since the latter would require complex and lengthy evidence not otherwise required until liability had been determined, but they submitted that there was no reason to leave the third cause of action aside, particularly because it, too, would raise issues of credibility similar to those raised in the other claims.

[66] This Court agrees with the defendants. All parties having agreed that separate trials for liability and quantum are appropriate, in this Court’s view there is no reason not to try all issues of liability together. Whilst, so far as can be gleaned from the pleadings, the factual circumstances relating to the films and chromalins cause of action may be somewhat different from the other issues raised, determining liability on that cause of action seems unlikely to prolong the hearing significantly. It will, as counsel conceded, involve many of the same witnesses. Issues of credibility will arise and, the defendants submitted, should not be adjudicated upon twice.

[67] In all those circumstances, the Court grants the application under rule 438 and directs that liability of the parties on all issues should be tried separately from trial on quantum. However, since this case is likely to be assigned to a Judge and this Court’s determination is based solely on the current pleadings and submissions, it would be appropriate to reserve leave to the parties to apply further to excise the third cause of action from the trial on liability should that later appear appropriate.

Assignment

[68] The parties agreed that the complexity and scope of this litigation is such that it would be appropriate that the case be assigned to a Judge. The file is to be referred to the Executive Judge for decision on that issue. Naturally, if the file is assigned to a Judge who is not a Commercial List Judge, the case will have to be taken out of the Commercial List.

Costs

[69] If costs are to be pursued rather than reserved and if the parties are unable to agree, memoranda may be filed with counsel certifying, if they consider it appropriate so to do, that the Court may determine all questions of costs without a further hearing. If memoranda are to be filed, that from the plaintiff is to be filed within 28 days of the date of delivery of this decision, with that from the defendants within 35 days of that date.

Case Management
[70] In order to comply with the Case Management procedure, this proceeding is to be listed for mention in the Commercial List on 15 June 2001 unless it has been previously assigned to a Judge.