Drive NZ Classic Ltd v Low Volume Vehicle Technical Association Inc
[2020] NZHC 396
•4 March 2020
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV 2019-404-1250
[2020] NZHC 396
BETWEEN DRIVE NZ CLASSIC LIMITED
Plaintiff
AND
LOW VOLUME VEHICLE TECHNICAL ASSOCIATION INCORPORATED
First Defendant
AND
NEW ZEALAND TRANSPORT AGENCY
Second Defendant
Hearing: On the papers Appearances:
KI Bond for the Plaintiff
RJ Gordon for the First Defendant
KC Francis and BJ Thompson for the Second DefendantJudgment:
4 March 2020
JUDGMENT OF ASSOCIATE JUDGE SMITH
This judgment was delivered by me on 4 March 2020 at 5pm pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Solicitors / Counsel:
Braun Bond Lomas, Hamilton
Minter Ellison Rudd Watts, Wellington Meredith Connell, Auckland
Drive NZ Classic Ltd v Low Volume Vehicle Technical Association Incorporated [2020] NZHC 396 [4 March 2020]
[1] This judgment is concerned with the plaintiff’s initial disclosure under r 8.4 of the High Court Rules 2016.
[2]Rule 8.4(1) provides:
8.4 Initial disclosure
(1) After filing a pleading, a party must, unless subclause (2) applies, serve on the other parties, at the same time as the service of that pleading, a bundle consisting of—
(a) all the documents referred to in that pleading; and
(b) any additional principal documents in the filing party’s control that that party has used when preparing the pleading and on which that party intends to rely at the trial or hearing.
…
[3]There is an exception in r 8.4(5). That sub rule provides:
…
(5) Despite subclause (1), a party does not need to disclose any document in which the party claims privilege or that a party claims to be confidential.
…
[4] In this case, the plaintiff (Drive NZ) says that a company called U-Drive Mobility (NZ) Limited (U-Drive)1 was entitled to recover damages from the defendants for negligence. Drive NZ pleads in its statement of claim that U-Drive assigned its claims against the defendants to Drive NZ. Notwithstanding the pleaded assignment, Drive NZ did not include in its initial disclosure the assignment document, pursuant to which it says it acquired from U-Drive the right to sue the defendants for negligence.
[5] The validity of the alleged assignment is clearly in issue – in its statement of defence, the second defendant (NZTA) denies the alleged assignment, and goes on to plead that:
It is unable to properly respond to [Drive NZ’s] allegation that [U-Drive] has assigned its claims against the defendants to Drive NZ] until it receives a copy of the alleged assignment agreement between [U-Drive] and [Drive NZ] by way of initial disclosure.
1 U-Drive later changed its name to Beachlands Investment Group Ltd.
[6] Drive NZ has continued to resist production of the assignment document by way of initial disclosure, although it has informally provided some particulars of the assignment. By letter dated 27 September 2019, Drive NZ’s solicitors provided the following further particulars:
(a)The claims were assigned to [Drive NZ] on 24 June 2019.
(b)The assignment assigned all rights, title and interest in the claims that [U-Drive] had against [NZTA and the first defendant (LVVTA)] associated with [U-Drive’s] modification of Skoda Yeti vehicles and the certification of those vehicles.
(c)The assignment agreement was written.
(d)The parties to the signed agreement were [U-Drive and Drive NZ].
[7] Drive NZ says that those particulars are enough for the defendants to plead to the statement of claim, and that it was not required to provide a copy of the assignment document because the document is either privileged or confidential (relying on r 8.4(5), set out in paragraph 3 above.2 Drive NZ has not explained how the assignment document could be privileged, although Mr Bond suggested in his submissions that it is protected by litigation privilege.3 The only available information on the issue of confidentiality is a brief statement in an affidavit by Drive NZ’s director that the arrangements associated with the assignment are confidential and he wishes to maintain that confidentiality.
2 In its notice of opposition, Drive NZ contended that there was no requirement to disclose, “because [Drive NZ] claims both privilege and confidentiality in relation to [the assignment document]”.
3 Section 56 of the Evidence Act 2006 materially provides:
56 Privilege for preparatory materials for proceedings
(1) Subsection (2) applies to a communication or information only if the communication or information is made, received, compiled, or prepared for the dominant purpose of preparing for a proceeding or an apprehended proceeding (the proceeding).
(2) A person (the party) who is, or on reasonable grounds contemplates becoming, a party to the proceeding has a privilege in respect of—
(a)a communication between the party and any other person:
(b)a communication between the party’s legal adviser and any other person:
(c)information compiled or prepared by the party or the party’s legal adviser:
(d) information compiled or prepared at the request of the party, or the party’s legal adviser, by any other person.
…
[8] NZTA has filed an application to strike out the claims brought by Drive NZ. In its strike-out application, NZTA first pleads the statement of claim discloses no reasonably arguable cause of action against it. It then goes on to plead:
(iii) The purported assignment of the cause of action from [U-Drive] to [Drive NZ] is an impermissible assignment of a bare cause of action in tort and thus void.
[9] A further ground relied upon by NZTA in support of its strike-out application is:
(b) [Drive NZ] has failed to provide a principal document in its control that it used when preparing [the statement of claim], namely the assignment agreement relied on at paragraph 5 of [the statement of claim].
[10] LVVTA has not as yet filed a statement of defence, but it too has filed an application to strike out Drive NZ’s claim. It contends that the statement of claim discloses no reasonably arguable cause of action against it.
[11] Both defendants wish to obtain a copy of the assignment document before the strike-out applications are heard.4 The defendants raised the question of initial disclosure of the assignment document at a case management conference, and all counsel agreed that the Court should give a preliminary ruling on the papers on that question. I made directions for the filing of written submissions, and counsel have since filed their submissions.
[12] I now give judgment on the defendants’ applications for orders entitling them to inspect the assignment document.
Background
[13] Drive NZ alleges negligence by the defendants in relation to eight Skoda Yeti cars that were extensively modified, to the point that they required appropriate certification by one or both of the defendants before they could be used on a road. Drive NZ says that the vehicles were modified by U-Drive between October 2012 and June 2013.
4 The strike-out applications are set down for a two-day hearing on 28 May 2020.
[14] Drive NZ contends that both defendants owed duties of care to U-Drive in relation to the low volume vehicle certification process that was undertaken by one or both of them. It says that the alleged breaches caused U-Drive to suffer losses which are expected to exceed $5,000,000.
[15] In support of its opposition to the strike-out applications, Drive NZ’s director Mr Roger Phillips provided an affidavit. Mr Phillips said that he and his wife, Fay, had been shareholders of U-Drive, and he was also a director of U-Drive. He and his wife ceased to be shareholders of U-Drive, and Mr Phillips resigned as a director of U- Drive, in early 2016. A co-director of U-Drive at the time Mr Phillips was a director, Mr Eddie Simpson, remains a shareholder and director of U-Drive.
[16] Mr Phillips said in his affidavit that the arrangements between U-Drive, Drive NZ, himself and Mrs Phillips, and Mr Simpson, are confidential, and that he wants to maintain that confidentiality.
Submissions for NZTA
[17]NZTA made the following broad submissions:
(1)Disclosure of the assignment document was required, as it was a “principal document” for the purposes of r 8.4(1) (subject to the asserted privilege or confidentiality);
(2)The Court does have jurisdiction to consider challenges to confidentiality or privilege arising from initial disclosure under r 8.4;
(3)Drive NZ has not provided a sufficient evidential foundation for its claims to privilege and/or confidentiality;
(4)Any claim to privilege or confidentiality has been waived by Drive NZ’s reliance on the assignment document in its statement of claim and in the accompanying particulars that were later provided.
[18] On the first of those grounds, Mr Francis submitted that the assignment document, expressly referred to in the particulars provided by Drive NZ, should be regarded as a document “referred to in” Drive NZ’s statement of claim, within the meaning of r 8.4(1)(a). He also submitted that the assignment document must be a “principal document”, because Drive NZ must intend to rely on it at trial.
[19] On the second ground, Mr Francis submitted that it was not enough for Drive NZ’s solicitors to simply assert that Drive NZ has a “claim” to confidentiality and/or privilege for the assignment document. That argument would undermine the entire regime contemplated by r 8.4, which is designed, at least in part, to allow parties access to key documents at an early stage of the proceeding.
[20] It does not matter that r 8.4 does not provide any express mechanism for challenging claims to privilege or confidentiality. The Court has sufficient inherent jurisdiction to decide such claims without waiting for formal discovery to be completed at a later stage. Alternatively, the Court may deal with a case of failure to provide initial disclosure by an enforcement order made under r 7.48 of the High Court Rules 2016.5
[21] Mr Francis then referred to the fact the application for disclosure of the assignment document arises in the context of its abuse of process argument. He referred to the Supreme Court decision in Waterhouse v Contractors Bonding Ltd, where the Court held that a litigation funding agreement had to be disclosed. The Court in Waterhouse noted that assignments of bare causes of action in tort and other personal actions are, with certain exceptions, not permitted in New Zealand. Thus, if a funding arrangement amounted to an unlawful assignment of a cause of action to a third party funder, that would be an abuse of process.6 Mr Francis submitted that NZTA has a stronger case for disclosure of the assignment document in this case than defendants have had in litigation funding cases such as Waterhouse: in those cases, the key issue has been whether the funding agreements amounted to assignments of bare causes of action, while in this case Drive NZ is saying that U-Drive assigned (what may be) a bare cause of action to Drive NZ.
5 Schick Construction & Cartage Ltd v Auckland Council [2015] NZHC 2722 at [26].
6 Waterhouse v Contractors Bonding Ltd [2013] NZSC 89, [2014] 1 NZLR 91 at [57].
[22] Mr Francis submitted that, in assessing whether the assignment of a bare cause of action is permissible, the Court is required to look at the totality of the transaction, to determine whether the assignee had a genuine commercial interest in taking the assignment.7
[23] Mr Francis referred to the judgment of Associate Judge Doogue in Pankhurst v Cullinane in support of the proposition that the Court should take a “pragmatic and robust” approach to decisions relating to the scope of the initial disclosure.8 He submitted that a pragmatic and robust approach in this case would favour the disclosure of the assignment agreement.
[24] On NZTA’s third ground, relating to the alleged absence of evidence supporting the claim to privilege or confidentiality, Mr Francis submitted that there has been no mention of the grounds on which the assignment document is said to be privileged. That is not good enough in circumstances where the party claiming the privilege has the burden of establishing an evidential basis to satisfy the “dominant purpose” test for litigation privilege set out in s 56 of the Evidence Act 2006. He submitted that it is difficult to see how the assignment document could be entitled to privilege or confidentiality in any event.
[25] On his fourth ground (waiver of any privilege or confidentiality rights), Mr Francis relied on s 65(2) and (3) of the Evidence Act 2006. Those sections materially provide:
65 Waiver
…
(2) A person who has a privilege waives the privilege if that person, or anyone with the authority of that person, voluntarily produces or discloses, or consents to the production or disclosure of, any significant part of the privileged communication, information, opinion, or document in circumstances that are inconsistent with a claim of confidentiality.
(3) A person who has a privilege waives the privilege if the person—
(a) acts so as to put the privileged communication, information, opinion, or document in issue in a proceeding; or
…
7 Trendtex Trading Corp v Credit Suisse [1982] AC 679 (HL) at 703, referred to in
PricewaterhouseCoopers v Walker [2017] NZSC 151, [2018] 1 NZLR 735 at [73].
8 Pankurst v Cullinane [2016] NZHC 2774 at [9].
[26] The test to be applied under s 65(2) is whether in all the circumstances the conduct of the party asserting privilege is inconsistent with maintaining the confidentiality of the privileged material in a way that could lead to injustice if the privilege were upheld.9 In Astrazenca Ltd v Commerce Commission, Pankhurst J said:10
Waiver occurs where a party both asserts reliance upon the privileged communication and also seeks to inject the substance of the communication in evidence. At that point an abuse of privilege exists. The claimant cannot have the benefit of reliance upon the substance of the advice and still seek to shield that advice from disclosure to the other side. To permit this would give rise to unfairness in the required sense, in that the party’s conduct would be offensive to the trial process.
[27] Mr Francis submitted that Drive NZ can not be allowed to have the benefit of reliance on the assignment document and still seek to shield the document from the defendants.
Submissions for LVVTA
[28] Mr Gordon filed a memorandum generally supporting and adopting the submissions of NZTA. He noted that the assignment is expressly pleaded by Drive NZ, and the document giving rise to the assignment can only be a fundamental document. Without being prepared to prove the assignment document, Drive NZ would have had no standing to even commence the claim.
[29] LVVTA also submitted that it was difficult to see any basis on which the assignment document could be subject to litigation privilege under s 56 of the Evidence Act.
Submissions for Drive NZ
[30]Mr Bond summarised his submissions as follows:
9 Houghton v Saunders (Privilege) (2009) 19 PRNZ 476 (AC) at [55].
10 Astrazenca Ltd v Commerce Commission (2008) 12 TCLR 116 at [39].
(1)NZTA’s application is premature, and there is no jurisdiction under r
8.4 for the Court to make the order for production now sought by NZTA.
(2)There are other provisions in the High Court Rules that are specifically designed to deal with such challenges, and NZTA should be using those procedures.
(3)To allow NZTA to use r 8.4 to challenge claims of privilege/confidentiality and seek to obtain documents in these circumstances would set an unfortunate precedent, and allow parties to further increase the costs burden on opposing parties at an early stage of the proceedings.
(4)The assignment document is not covered by r 8.4 as a principal document, because it is not referred to in the pleadings and was not used in preparing the statement of claim.
(5)There is an obvious basis on which the document could be privileged and/or confidential, and that is sufficient for the purposes of r 8.4.
(6)Privilege and confidentiality have not been waived.
[31] On his first three grounds, Mr Bond submitted that initial disclosure is very much a preliminary process, and does not provide the occasion for parties to have detailed arguments about what specific documents should be disclosed. He relied on Pankhurst v Cullinane in support of the proposition that the objectives of r 8.4 are relatively modest. They are designed to achieve the overriding objective of the High Court Rules, which is to promote the speedy, just and inexpensive determination of the parties’ disputes. Taking all those matters into account, what needs to be done when a party is considering his or her obligations under r 8.4, is to make a common sense judgment as to what each party should provide by way of initial disclosure. An opposing party should not be too ambitious in its expectations of what it is going to
get (it does not need to, because subsequently it will have a full entitlement to discovery in whatever form the Court might direct)11
[32] Mr Bond contrasted the absence of any enforcement provisions in r 8.4 with what he characterised as the “blunt instrument” enforcement provisions of r 7.48. He submitted that the latter rule is only intended to deal with a flagrant and clear-cut breach, such as a total failure to provide clearly relevant documents having the effect of preventing the other party from properly pleading its case.
[33] On his fourth ground, Mr Bond submitted that the assignment document was not a “principal document”. The document was not itself referred to in the statement of claim, and reference to it in the particulars subsequently provided by Drive NZ could not make it a “principal document” for the purposes of initial disclosure. Nor was the assignment document used in preparing the statement of claim. It was not drafted until after the statement of claim had been finalised, and it did not even exist when the statement of claim was finalised. The assignment document is therefore not caught by r 8.4(1)(b).
[34] On his fifth ground, Mr Bond submitted that Drive NZ’s claim of privilege is not unparticularised or tenuous. He submitted that the potential privilege and/or confidentiality of the assignment document should be obvious. He went on to submit:
If there is a document which a party claims is privileged and confidential, then it does not have to be disclosed. There may be cases where it is patently obvious that the document concerned could never be privileged or confidential and the Court might intervene by making one of the orders permitted by r 7.48. This is not one of those cases.
[35] On the claimed basis for asserting privilege or confidentiality, Mr Bond submitted that, where the contract itself relates to litigation which is about to be commenced, and is between two entities having knowledge of the background and nature of the looming claim, the probability that it will contain information which attracts privilege is obvious.
11 Pankhurst v Cullinane, above n.8, at [8] - [9].
[36] Mr Bond submitted that Waterhouse v Contractors Bonding Ltd is distinguishable. Disclosure in that case was required to assess whether the terms of the agreement did constitute an assignment. There is no dispute in this case that there has been an assignment. Nor did the disclosure obligation in Waterhouse v Contractors Bonding Ltd arise under r 8.4.
[37] On the issue of waiver, Mr Bond submitted that there has been no waiver of Drive NZ’s entitlement to confidentiality and/or privilege. We are concerned here with a contract having a number of terms, one of which was to assign U-Drive’s claim to Drive NZ. A clause giving effect to the assignment does not necessarily depend or rely upon the other parts of the assignment document that Drive NZ claims are confidential and/or privileged.
[38] NZTA has been provided with the relevant detail of the assignment document, sufficient to both plead and make its argument that the assignment was invalid.
Discussion and conclusions
[39] I have little difficulty concluding that the assignment document is an “additional principal document” in Drive NZ’s control, which it used when preparing its statement of claim and on which it intends to rely at the trial (r 8.4(1)(b)).
[40] Drive NZ has taken too narrow a view of the expression “that that party has used when preparing the pleading”, as those words appear in r 8.4(1)(b). Mr Bond submitted that the statement of claim was in final form before the assignment document was executed, but the simple point is that the statement of claim must have been drafted in anticipation that the assignment deed would be executed, and the statement of claim could not have been “checked off” and filed unless that had occurred. Consistent with that, the Court record shows that the statement of claim was not filed until 25 June 2019, the day after the assignment document was said to have been executed.
[41] I am satisfied that the “checking off” that must have occurred before the statement of claim was filed was a sufficient “use” of the assignment document that it formed part of “preparing” the statement of claim. I therefore conclude that the
assignment document was a “principal document”, covered by r 8.4(1)(b). On that basis, it was required to be included in the initial disclosure, subject to the privilege/confidentiality exception in r 8.4(5).
[42] In my view, a party relying on r 8.4(5) must at least have some good faith basis for claiming privilege or confidentiality before it can omit from its initial disclosure a document which is fundamental to its claim. In this case, it is obvious that Drive NZ’s case simply will not get off the ground unless it produces to the Court and the defendants the document necessary to prove the assignment. It is a critical document, and in my judgment precisely the kind of document that would fall within the category of case mentioned by Mr Bond in his submissions – a case where it is patently obvious that the document could never be (at least totally) privileged or confidential.
[43] The starting point in reaching that conclusion is s 65(3)(a) of the Evidence Act 2006. That subsection provides:
65 Waiver
…
(3) A person who has a privilege waives the privilege if the person—
(a) acts so as to put the privileged communication, information, opinion, or document in issue in a proceeding;
…
[44] In pleading the assignment, Drive NZ quite clearly acted so as to put the assignment document in issue in the proceeding. Drive NZ could not succeed in the proceeding without producing the document in evidence.
[45] So, the reliance on the assignment in the statement of claim (and inevitably on the assignment document which evidences it) triggered s 65(3) of the Evidence Act. At least in the absence of evidence showing that there is some part of the assignment document that attracted privilege or confidentiality protection that was not intended to be waived, any privilege that might have attached to the assignment document was gone as soon as Drive NZ relied on the assignment in its statement of claim. No such evidence has been provided. It follows that there has been a failure to comply with Drive NZ’s initial disclosure obligation under r 8.4(1).
[46] In the absence of supporting evidence, there is no basis to conclude that the assignment document might have been protected by “litigation privilege” under s 56 of the Evidence Act. That section provides for privilege in respect of communications or information which are made, received, compiled or prepared for the dominant purpose of preparing for a proceeding or an apprehended proceeding. On the face of it, the dominant purpose of the assignment document in this case was not to “prepare” for apprehended litigation, but to acquire a cause or causes of action owned by another party. The simple acquisition of a “thing in action” (the right to sue for alleged breach of duties allegedly owed by a prospective defendant) does not in my view come within the s 56 concept of “preparing” for the court proceeding in which the prospective defendant will be sued. Rather, the acquisition is a component part of the assignee’s cause of action, which it will need to prove if it is to have a chance of succeeding at trial.
[47] I therefore accept NZTA’s submission that Drive NZ cannot have its cake and eat it – it cannot rely on the assignment document in its claim, and at the same time refuse to produce the document to the other parties by way of initial disclosure.
[48] I note also that Drive NZ contends that the statement of claim was “finalised” before the assignment document was executed. While I do not accept that submission, it appears to at least acknowledge that the assignment document was not required for Drive NZ to set out what it says are the relevant facts in a statement of claim. And Mr Phillips has provided no evidence that the assignment document constituted a communication, or provided information for the dominant purpose of assisting in preparing for some other part of the proceeding (that is, other than preparing the statement of claim).
[49] I can see no basis in the evidence and submissions for a claim to privilege on any other basis. In the end, all there is is Mr Phillips’ broad assertion that various arrangements made between U-Drive, Drive NZ, himself, his wife, and Mr Simpson are confidential, and that he wants to maintain that confidentiality. There is nothing to show that the “confidentiality” Mr Phillips wants to maintain is anything more than a mere preference on his part, not based on any recognised legal or equitable right to confidentiality.
[50] The result is that, on the pleadings and on the evidence produced, NZTA has sufficiently shown that Drive NZ has failed to comply with its initial disclosure obligation under r 8.4(1).
[51] I accept NZTA’s submission, based on Schick Construction & Cartage Ltd v Auckland Council, that a failure to comply with r 8.4 may be enforced if necessary by an order under r 7.48.12 The application of that rule is not limited to a party’s flagrant, or serious, breaches of its obligations under the rules. As the Court of Appeal noted in Kidd v van Heeren:13
The Court has broad powers to make such orders as may be required in the interests of justice where its orders are not complied with. Were it otherwise, respect for the rule of law would be seriously undermined …
Rule 7.48 is wide in scope – the judge may make any order the judge thinks just. The examples listed are just that, they do not limit the type of order that can be made.
[52] Rule 7.48 is clearly wide enough for the Court to order Drive NZ to produce the assignment document, and I think that order is appropriate in the circumstances of this case. NZTA has specifically pleaded in its notice of interlocutory application that the purported assignment of the cause of action from U-Drive to Drive NZ was an impermissible assignment of a bare cause of action in tort, and thus void, and it has further pleaded Drive NZ’s failure to provide a copy of the assignment document. I accept Mr Francis’ submission that, in assessing whether the assignment of a bare cause of action is permissible, the Court will wish to look at the totality of the transaction to determine whether the assignee has a genuine commercial interest in taking the assignment, and for that reason I accept his submission that the assignment document should be before the Court on the hearing of the strike-out applications.
[53] For all of those reasons, there will be an order under r 7.48 directing Drive NZ to produce the assignment document referred to in its particulars provided on 27 September 2019, within 10 working days of the date of this judgment.
12 Schick Construction and Cartage Ltd v Auckland Council, above n 5, at [26].
13 Kidd v van Heeren [2019] NZCA 275, (2019) 24 PRNZ 596 at [41].
Result
(1)Within 10 working days of the date of this judgment, Drive NZ is ordered to produce for the inspection of the defendants the written assignment document referred to in the further particulars provided by its solicitors on 27 September 2019.
(2)NZTA is entitled to its costs on the application for production of the assignment document. Those costs are to be on a 2B basis, plus any disbursements as fixed by the Registrar. LVVTA really acted in a supporting role, and did not carry any significant part of the argument for the defendants on the production issue. In those circumstances, I make no order for costs in favour of LVVTA at this stage. Any claim for costs it might have on the production issue can be addressed following the hearing of the strike-out applications.
Associate Judge Smith
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