GDF I LLP v Melview (Kawarau Falls Station) Investments Limited (in receivership)

[2012] NZHC 1432

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2010-404-7701 [2012] NZHC 1432

BETWEEN  GDF I LLP Plaintiff

ANDMELVIEW (KAWARAU FALLS STATION) INVESTMENTS LIMITED (IN RECEIVERSHIP)

Defendant

CIV-2010-404-7702

AND BETWEEN            ALAN FALL Plaintiff

ANDMELVIEW (KAWARAU FALLS STATION) INVESTMENTS LIMITED (IN RECEIVERSHIP)

Defendant

Hearing:         25 May 2012

Counsel:         NT Davies and NMH Whittington for Plaintiff

NG Colson and J Cochrane for Defendant

Judgment:      22 June 2012

JUDGMENT OF RODNEY HANSEN J

This judgment was delivered by me on 22 June 2012 at 11.00 a.m., pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date: ………………………….

Solicitors:           Meredith Connell, P O Box 218, Auckland for Plaintiff

(Email:  [email protected])

Bell Gully, P O Box 1291, Wellington 6140 for Defendant

GDF I LLP V MELVIEW (KAWARAU FALLS STATION) INVESTMENTS LIMITED (IN RECEIVERSHIP) HC AK CIV-2010-404-7701 [22 June 2012]

(Email:  [email protected])

Introduction

[1]      In these proceedings the plaintiffs sue to recover losses suffered following the collapse of a development at Kawarau Falls Station near Queenstown.  The trial is to begin on 29 October 2012.

[2]      The plaintiffs are dissatisfied with aspects of the discovery provided by the defendant (MKFSI). They apply for orders for discovery and inspection of particular classes of documents not discovered to date and for inspection of documents over which disputed claims of privilege have been made.

[3]      At the conclusion of the hearing, I made orders for discovery of documents in some of the classes identified.  I reserved my decision on the balance of the orders sought.   This judgment gives my reasons for the orders made on the day of the hearing and my decision on the remaining matters.

Factual background

[4]      Kawarau Falls Station was to be a one billion dollar world-class village resort containing 13 luxury hotel and serviced apartment complexes supported by a range of associated infrastructure.  It was to be constructed in three overlapping stages over a single master plan. The development was conceived by Nigel McKenna.

[5]      In April and May 2007, the plaintiffs entered into agreements to purchase eight of the complexes.   The vendor was Peninsular Road Limited (PRL) which subsequently assigned its interest in the agreements to MKFSI.  Mr Falls agreed to buy the hotel that was to be constructed as part of stage one, to be operated as a Westin.  GDF I LLP (GDF) bought seven buildings to be constructed in each of the three stages of the development.  Two of those were hotels in stage two and stage three which were to be operated under the Intercontinental and Quay West brands.

[6]      Construction  of  the  development  continued  through  2008  and  into  2009 when, in May, MKFSI was placed in receivership by the Bank of Scotland (BOSI). The receivers decided to continue construction of the five stage one buildings but the second and third stages came to a halt with only preliminary excavation work having been undertaken.

[7]      In mid-2010 Westin was removed as the flagship operator brand of the stage one hotel and MKFSI introduced Hilton as the operator of all buildings in stage one. The plaintiffs cancelled the stage one agreements in August 2010.  GDF had earlier cancelled the stage two and three agreements.

[8]      These  proceedings  were  filed  in  November  2010  seeking  the  return  of deposits  totalling  more  than  $20m  and  damages.    In  February  2011,  MKFSI purported to treat the plaintiff’s cancellations as repudiatory and asserted a right to cancel the agreements on that basis.

History of discovery

[9]      A  discovery  order  against  MKFSI  was  made  on  April  2011,  requiring discovery to be made by 15 July 2011.   There was default in compliance and an affidavit of documents was not served until 16 November 2011 after unless orders had been made requiring an affidavit to be filed by that date.

[10]     The plaintiffs have persistently complained of deficiencies in the discovery. They have obtained non-party discovery from BOSI which has exposed gaps in MKFSI’s discovery.

[11]     Since the application was filed, MKFSI has instructed new solicitors.  It has been possible for agreement to be reached on additional discovery of some of the groups of documents identified in the application.   Those that remain are in the following categories:

(a)      Documents relating to arrangements between BOSI, MKFSI and subsidiary companies relating to a restructure of the ownership of stage one of the development.

(b)Documents relating to the projected and actual performance of hotels in Queenstown and in the Kawarau development.

(c)      Documents relating to the valuation  of assets in stage one of the development.

Particular discovery

Principles

[12]     The application for further discovery is made under r 8.19 which provides:

Order   for   particular   discovery   against   party   after   proceeding commenced

(1)       If at any stage of the proceeding it appears to a Judge, from evidence or  from  the  nature  or  circumstances  of  the  case  or  from  any document  filed  in  the  proceeding,  that  there  are  grounds  for believing that a party has not discovered 1 or more documents or a group of documents that should have been discovered, the Judge may order that party—

(a)      to file an affidavit stating—

(i)        whether  the  documents  are  or  have  been  in  the party's control; and

(ii)      if they have been but are no longer in the party's control, the party's best knowledge and belief as to when the documents ceased to be in the party's control and who now has control of them; and

(b)      to serve the affidavit on the other party or parties; and

(c)      if the documents are in the person's control, to make those documents available for inspection, in accordance with rule

8.27, to the other party or parties.]

[13]     In order to obtain an order under the rule, the plaintiffs must establish:

(a)       Grounds for belief that MKFSI is or has been in control of a document or group of documents that have not been discovered; and

(b)That the document or group of documents relate to the matter in question in the proceeding.

[14]     As  the  pleadings  were  filed  and  discovery  orders  were  in  place  before

1 February 2012, the test for relevance is the traditional Peruvian Guano test of whether the documents would be evidence or may contain information which would either directly or indirectly enable the plaintiffs to advance their case or damage the case of the defendant.1

(a)      “Hive down” documents

[15]     As  earlier  mentioned,  the  hotel  in  stage  one  which  Mr  Falls  agreed  to purchase was to be operated as a Westin hotel.   Mr Falls’ agreement with PSR provided that the vendor would not cancel the Westin operating agreement other than for breach or default by Starwood Asia Pacific Hotels and Resorts Pty Ltd (Starwood), Westin’s parent company.  One of Mr Falls’ causes of action alleges that the Westin operating agreement was “induced and/or allowed” by the vendor in breach of cl 16.6.   The circumstances in which the operating agreement was terminated and Hilton was introduced as its replacement will therefore be a focus of evidence in the proceedings.

[16]     The  plaintiffs  say  that  Hilton  were  encouraged  to  present  a  proposal  to replace Westin as the hotel operator. As a condition of its involvement, it is said that Hilton required a restructure of the ownership of stage one of the development in order to ensure that it was not exposed to any development risk.  The plaintiffs say that the receivers of MKFSI and BOSI acceded to Hilton’s request and MKFSI and Hilton entered into an agreement whereby all security property owned by MKFSI would be transferred to a new and solvent entity with which Hilton would contract.

The restructuring process is described as the “hive down”.

1      Compagnie Financiere et Commerciale du Pacifique v Peruvian Guano (1882) LR 11 QBD 55 (CA).

[17]     Non-party  discovery  by  BOSI  disclosed  the  existence  of  a  number  of documents relating to the hive down.  They included documents which would also have been in MKFSI’s control but had not been listed in its affidavit of documents.

[18]     For MKFSI, Mr Colson submitted that the hive down documents are not relevant to the plaintiff ’s claim.  He argued that the cause of action relied on by the plaintiffs does not focus on arrangements with Hilton at all.  He said that MKFSI is prepared to adopt a pragmatic approach and discover the key restructuring documentation, but is not prepared to extend discovery to all documents associated with the restructuring as they are not relevant and would require an extensive and time-consuming review of files held by the solicitors acting and the employer of the former receivers of MKFSI.

[19]     I am satisfied that documents generated as part of the hive down process have relevance to Mr Falls’ claim for breach.  While the arrangements with Hilton and the consequential restructuring are not directly in issue, they are an integral part of the chain of events that included the termination of the Westin operating agreement.  I accordingly  determine  that  the  following  class  of  documents  formulated  by Mr Davies at the hearing were relevant and that it would not be unduly burdensome for the defendant to discover:

Any internal or external communications in the possession or power of the defendant in relation to the hive down that relate to the allegations in the statement of claim surrounding the termination of the Westin operating agreement, including documents which comment specifically on aspects of the hive down that facilitated Hilton’s engagement.

I directed that:

Compliance can initially be achieved with reference to the files of the receivers first with the plaintiffs having leave to revert to the Court if it is considered necessary.

Hotel performance material

[20]     The plaintiffs seek discovery of financial information in categories identified as follows in the application:

[d]       All financial projections in relation to the Queenstown Hilton Hotel and Kawarau Hotel, Queenstown (together the Hotels);

[e]       Budgets for the Hotels as defined in the management agreements for the Hotels between Entity Q Limited and Hilton (management agreements);

[f]      Capital budgets for the Hotels, as defined in the management agreements;

[g]       Financial Statements and Audited Financial Statements as defined in the management agreements;

[h]       Any other documents relating to the financial performance of the Hotels provided in accordance with the management agreements or otherwise.

[21]     The application  also  included  amended  financial  projections  and  updated financial  projections  from  Hilton  referred  to  in  document  MEX014.21148  of MKFSI’s discovery.

[22]     It is not disputed that documents in the categories identified are in existence. Hilton is required to produce those documents and provide them to a subsidiary of MKFSI pursuant  to  the  management  agreements.    Discovery  is  resisted  on  the grounds of relevance.

[23]     The plaintiffs say the documents are relevant to the issue of whether they were entitled to cancel the agreements for sale and purchase and also to MKFSI’s counterclaim   for  damages.      MKFSI  alleges   that   the  plaintiffs’  cancellation constituted a repudiation of the agreements entitling it to cancel itself.   MKFSI responds that the financial information post-dates cancellation and cannot be taken into account.

[24]     I accepted that the information contained in the documents is relevant to the plaintiffs’ claimed entitlement to cancel for the anticipated breach of MKFSI arising from its expected failure to complete stages two and three. The plaintiffs will seek to establish under s 7(4)(b) of the Contractual Remedies Act 1979 that the effect of the breach “will be” to substantially reduce the benefit of the contracts to the cancelling parties.  For that purpose, I accept that the plaintiffs are entitled to take into account

matters  arising  after  cancellation  as  the  following  passage  from  Yu  v  T&P

Development’s Ltd shows:2

[59]     ... It was not seriously in dispute on the appeal that in confining herself to the matters identified in the correspondence which preceded the cancellation, in reliance on Mercurius Ventures Ltd v Waitakere City Council, the Judge was in error.   In Thompson v Vincent [2001] 3 NZLR 355 this Court overruled Mercurius Ventures Ltd.   It is clear that the grounds for cancellation in s 7 are objectively assessed and may be justified by information obtained after cancellation.

[60]    It was appropriate therefore for the determination of whether cancellation was properly available to the Yu family to take into account the deficiencies subsequently identified through the Joyce report, to the extent that they were found to be substantiated. ...

[25]     Mr Colson sought to argue that matters post-dating cancellation may not be taken into account.  However, I am satisfied that the cases he relied on3  are not on point and that his submission that valuers cannot take into account future events is far too sweeping.  In the cases cited by Mr Colson, the cancellation was based on a breach of what the plaintiffs claimed was an essential contractual term.  As the term was not in dispute, the only relevant evidence pertained to the purported exercise of cancellation rights based on the contract.  Post-cancellation evidence was simply not relevant.

[26]     The issue here is whether the material the plaintiffs are seeking could assist in the assessment of the value of the development and especially the effect of stages two and three not proceeding.  The evidence of a registered valuer, Dean Humphries, who swore an affidavit in support of the application, satisfied me that the hotel performance document would indeed be helpful.   He explained that the failure to deliver stages two and three is likely to adversely impact on the economic viability of stage one, including the actual performance of the stage one hotels.  In order to test any propositions around these issues, Mr Humphries said it would be useful to have access to the original forecast performance budgets and any data recording the actual performance of stage one hotels.  He said the documents would also greatly

assist his understanding of the operational structure of the assets concerned.

2      Yu v T&P Development’s Ltd [2003] 1 NZLR 363 at [59]–[60].

3      Tinnock v Birkenhead Heights Ltd (2004) 6 NZCPR 1(HC) and McIndoe v Mainzeal Group Ltd

[1991] 3 NZLR 273.

[27]     I accordingly concluded that the hotel performance documents should be discovered and made orders that within 14 days the defendant provide copies of any documents in the categories set out in paras [20] and [21] above.

Documents of valuation

[28]     Between March and June 2011, BOSI negotiated to sell its debt position in relation to the Kawarau Falls development to a vulture fund, Pacific Asia Special Situations Fund LP (Pacific Asia).  In July 2011, an agreement was concluded for the sale and purchase of BOSI’s advances to MKFSI.  The plaintiffs say that valuation reports would have been commissioned either by MKFSI or BOSI to assist with price negotiations and that, for the reasons advanced in relation to the hotel performance material, such valuations are relevant.   On this issue Mr Humphries said that any valuations will be potentially helpful as likely to contain information as to the physical, legal and financial statement of the assets and because it would assist in understanding how the price paid was reached.  As the sale price is one of the few pieces of hard sale data available to consider, an understanding of how the price was reached is necessary in order to assess the weight to be given to it.

[29]     As  MKFSI  had  not  had  sufficient  time  to  respond  to  the  affidavit  of Mr Humphries, I gave leave to file an affidavit in answer to his evidence on this issue, together with supplementary submissions relating to matters arising out of the affidavit.  No further evidence has been filed.  The principal ground of opposition is, accordingly, that advanced at the hearing by Mr Colson that the plaintiffs have not established a ground for believing that MKFSI had possession or control of documents in this category.  He said the plaintiffs are relying on bare assertion.  He also repeated the submission advanced in relation to the hotel performance material that evidence coming into existence well after the date of cancellation could not be relevant.

[30]     Although there is no direct evidence that valuations were prepared, I consider it a matter of necessary inference.   For the reasons discussed in relation to hotel performance material and, on the basis of Mr Humphries unchallenged evidence, I

accept that the valuations could assist the plaintiffs to advance their case and meet the criteria of relevance.

[31]     Accordingly, I order MKFSI within 14 days to provide copies of documents in its possession or power relating to the calculation of the value of assets in stage one of Kawarau Falls Station generated during the process of the sale of BOSI’s underlying debt position to Pacific Asia.

Privileged documents

[32]     The plaintiffs seek orders for inspection of documents in the following two categories over which there have been disputed claims to privilege:

(a)      Documents relating to negotiations between MKFSI and Starwood relating  to  the  termination  of  the  various  agreements  between Starwood and MKFSI and/or PRL over which without prejudice privilege has been claimed.

(b)      Documents authored or received by Melview Developments Limited

(MDL) and PRL which are the subject of privilege claims.

Starwood documents

[33]     MKFSI claimed “without prejudice” privilege over the Starwood documents under ss 57 and 66(1)(a) of the Evidence Act 2006 on the basis that they were generated in connection with an attempt to settle a dispute between MKFSI and Starwood.  At the hearing Mr Colson advised that MKFSI was prepared to waive privilege over the correspondence.   However, it considers that its waiver, alone, would not be sufficient to enable inspection to take place.   MKFSI had requested Starwood to waive privilege and was awaiting a response.  It undertook to advise the Court and the solicitors for the plaintiffs of any answer to its request to Starwood for a waiver of privilege within 14 days.  By memorandum dated 8 June 2012, counsel advised that Starwood had responded on an interim basis to MKFSI’s request.  It had requested copies of the documents which are sought to be disclosed so it can make

an informed decision.  The documents in issue were to be provided to Starwood that day.

[34]     In the event that Starwood was not prepared to waive privilege, it is proposed at the hearing that the parties would file a memorandum as to the way in which the issue might be resolved.

MDL and PRL documents

[35]     MKFSI claims legal professional privilege over documents in its possession or control that were authored or received by MDL and PRL.  The liquidator of MDL and the receivers of PRL have waived privilege in the documents.  MKFSI claims that it is, nevertheless, entitled to assert privilege either because it has a joint interest in the documents or, in relation to PRL documents, as the successor in title.

[36]     Both bases for acquiring privilege are recognised by s 66 of the Evidence Act

2006 (the Act) which provides:

66       Joint and successive interests in privileged material

(1)       A person  who  jointly  with  some  other  person  or  persons  has  a privilege conferred by any of sections 54 to 60 and 64 in respect of a communication, information, opinion, or document—

(a)      is entitled to assert the privilege against third parties; and

(b)       is not restricted by any of sections 54 to 60 and 64 from having access or seeking access to the privileged matter; and

(c)       may, on the application of a person who has a legitimate interest  in  maintaining  the  privilege  (including  another holder  of  the  privilege),  be  ordered  by  a  Judge  not  to disclose the privileged matter in a proceeding.

(2)       If a person has a privilege conferred by any of sections 54 to 57 in respect of a communication, information, opinion, or document, the personal representative of the person or other successor in title to property of the person—

(a)      is entitled to assert the privilege against third parties; and

(b)       is not restricted by any of sections 54 to 57 from having access or seeking access to the privileged matter.

(3)       However, subsection (2) applies only to the extent that a Judge is satisfied that the personal representative or other successor in title to property has  a justifiable interest in maintaining the  privilege in respect of the communication, information, opinion, or document.

(4)       A personal representative of a deceased person who has a privilege conferred by any of sections 54 to 57 in respect of a communication, information, opinion, or document and any other successor in title to property  of  a  person  who  has  such  a  privilege,  may,  on  the application of a person who has a legitimate interest in maintaining the privilege (including another holder of the privilege), be ordered by a Judge not to disclose the privileged matter in a proceeding.

Joint interest privilege

[37]     The claim  to  a joint  interest  in  the documents  relies  on  the relationship between the parties, all of whom were at the relevant time companies in a group controlled by Mr McKenna.  The shares in MDL were held by a trustee company of which Mr McKenna was the beneficial owner.  PRL was a wholly-owned subsidiary of MDL and MKFSI was, in turn, a wholly-owned subsidiary of PRL.

[38]     The documents are said to record or concern legal advice relating to stage one issues.   The question of ownership of the documents arose subsequently during a dispute over MKFSI’s right to access stage two and three land for the purpose of completing the development stage one.  The issue was never finally determined.  A settlement deed provided that all parties would have access to the documents.

[39]     Joint privilege can arise in two circumstances:

(a)      Joint retainer, where two (or more) parties jointly retain the same lawyer.

(b)Joint interest, where, even though the parties have not jointly retained a lawyer, they have a joint interest in the subject matter of the communication at the time that it comes into existence.4

[40]     As  I understand  it,  MKFSI does  not  rely on  a joint  retainer but  on  the existence of a joint interest, which is elaborated as follows in Thanki:

4      Thanki The Law of Privilege (2nd ed, Oxford University Press, Oxford, 2011) at [6.01].

6.07    Joint privilege can also arise where, even though party A and party B have not jointly retained a lawyer (and only one of them is party to the relevant lawyer-client relationship), they have a joint interest in the subject matter of the communication. The defining characteristic of this aspect of joint privilege is that the joint interest must exist at the time that the communication comes into existence.   So joint privilege will only arise in respect of a document created during the period when the joint interest subsists; in other words, the documents must have come into being for the furtherance of the joint purpose or interest.   This  can be contrasted  with the  position in relation  to common interest privilege, where, as considered further below, the better view is that the relevant date is that on which the document was disclosed by the primary party to the incidental party.

[41]     Mr  Colson  submitted  that  a  joint  interest  may  exist  between  a  parent company and its wholly-owned subsidiary, an example of which, Surface Technology Plc  v Young,5   is  referred  to  by  Thanki.6      However,  this  aspect  of  the  Surface Technology case (which will be discussed in more detail in relation to successor interests) involved a joint retainer between the parent and its subsidiary.7   I have not been referred to any case in which the relationship of parent and subsidiary alone has established a joint interest.

[42]     Mr Davies submitted that MKFSI could not show a joint interest with MSL and PRL as they were under no duty to disclose the documents to MKFSI.   He submitted that condition is necessary to the existence of a joint interest, relying on Farrow  Mortgage  Services  Pty  Ltd  v  Webb,  where  Sheller  JA  said  (emphasis added):8

Two or more persons may join in communicating with a legal adviser for the purpose of retaining his or her services or obtaining his or her advice.  The privilege which protects these communications from disclosure belongs to all the persons who joined in seeking the service or obtaining the advice. The privilege is a joint privilege.  So is it also if one of a group of persons in a formal legal relationship communicates with a legal adviser about a matter in which the members of the group share an interest.  Communications by one partner about the affairs of the partnership or a trustee about the affairs of  the  trust  are  examples.    Implicit  in  the  relationship  is  the  duty  or obligation to disclose to other parties thereto the content of the communication.  Accordingly no privilege attaches to such communications as against others who, with the client, share an interest in the subject matter of communication.   But the parties together are entitled to maintain the privilege “against the rest of the world”: Phipson, par 20-28 and par 28-29.

5      Surface Technology v Young [2002] FSR 387.

6      At [6.09].

7      Surface Technology at [17].

8      Farrow Mortgage Services Pty Ltd v Webb (1996) 39 NSWLR 601 at 471.

Logically the joint nature of the privilege means that all to whom it belongs must concur in waiving it. Theirs is one inseverable right.

[43]     Farrow Mortgage Services was referred to by the Supreme Court of South Australia in Heathgate Resources Pty Ltd and Anor v Alliance Craton Explorer Pty Ltd9 where the Full Court cited with approval the following passage from the judgment at first instance:

[61]      In these circumstances, I do not accept the submission of alliance that, in relation to the second of the two alternatives identified by Sheller JA, the Court’s satisfaction that two persons were in a formal legal relationship and that the communication of one concerned a matter of common interest, will be sufficient for the privilege to be joint.  I will proceed on the basis that a joint privilege will arise when one of a group of people in a formal legal relationship communicates with a lawyer for the purpose of obtaining or receiving legal advice about a matter in which the member of the group share an interest, and when there is implicit in the relationship between the group members a duty or obligation to disclose to the other members the content of the communication.

[44]     Mr Davies placed special emphasis on the need for a duty or obligation to disclose to other parties the content of the communication.  He submitted that such a duty does not normally arise in the context of a relationship between parent and subsidiary as they do, for example, in the case of joint ventures, partnerships and trustee relationships.   He argued that the legal relationship between MKFSI, PRL and MDL was not of a kind that imposed a duty on either MDL or PRL to disclose to MKFSI the content of communications with their legal advisers.

[45]     The  passage  in  Thanki  earlier  referred  to10   does  not  make  explicit  the existence of a duty to disclose before a joint interest can arise.   But the passage immediately following makes clear that a qualifying joint interest will give rise to a right to obtain disclosure of relevant documents:

6.08If a joint interest exists then the same principles as those set out above in relation to joint retainers will generally apply. Accordingly, neither party can assert privilege as against the other in respect of communications coming into existence at the time the joint interest subsisted; hence, each party to the relationship can obtain disclosure of  the  other’s  (otherwise  privileged)  documents  so  far  as  they concern the joint purpose or interest.   However, both parties are entitled to maintain privilege as against the rest of the world.   As

9      Heathgate Resources Pty Ltd & Anor v Alliance Craton Explorer Pty Ltd [2011] SASCFC 64.

10     Thanki at [6.07].

with a joint retainer, the privilege is not lost simply because the parties subsequently fall out. ...

[46]     It will be a question of fact in each case whether the relationship creates a joint interest in the subject matter of the communication at the relevant time.   In cases where the parties are bound by a joint venture, partnership or a relationship of trust, a joint interest will not be hard to find.  Reciprocal rights and obligations are not, however, necessary incidents of the relationship of companies in a group, including parent company and subsidiary.  Whether or not a joint interest will arise in a communication will depend on its subject matter and the respective roles of the parties, all to be considered at the time the advice is given.

[47]     The evidence falls well short of establishing that MKFSI has a joint interest which entitles it to assert privilege in respect of the documents.

Successor interest privilege

[48]     MKFSI claims, in the alternative, privilege over PRL documents on the basis that it is PRL’s successor in title to the stage one assets.  The plaintiffs contend that the transfer of title to the assets and the assignment of benefits and obligations of agreements associated with the land is insufficient to confer privilege on MKFSI. They distinguish between a simple transfer of property and the situation in which the transferee succeeds to the entire estate of the former owner.

[49]     The question is primarily one of statutory interpretation.  In order for MKFSI to assert privilege in respect of the documents, it must come within the description of a “successor in title to property of [PRL]”.  That raises the question of what is meant by “property”, specifically whether it refers to (and is restricted to) the title to the relevant communication, information, opinion, or document.

[50]     For MKFSI it is submitted that, because the Act does not define “property”, s 66(2) can cover any property.  It is accordingly submitted that MKFSI, as successor in title to the stage one assets, can claim privilege in legal documents generated or received by the original owner in relation to the property.

[51]     Consistency with  the  first  limb  of  s  66(2)  would,  however,  suggest  that “property” must include the rights to which privilege attached in the first place, as would be acquired by a personal representative who succeeds to a person’s estate. On this interpretation, s 66 would give uniform effect to the principle of “once privileged, always privileged”. As stated in B v Auckland District Law Society:11

As privilege is a substantive right, if the circumstances of the creation of the document are such as to attract privilege, whether legal advice or litigation privilege, privilege will be an answer to any subsequent request for the document, whether in proceedings or otherwise.   The principle “once privileged always privileged” applies.   This means that if a document is privileged in one action, the party entitled to assert that privilege or his successor in title may assert the same privilege in a subsequent action in which the document is relevant.

[52]     The  issue  has  not  been  considered  in  New  Zealand  but  there  is  helpful English authority to which I was referred by counsel.   The first case is Crescent Farm (Sidcup) Sports Ltd v Sterling Offices Ltd & Anor12  where the plaintiff sold property to the first defendants and, when they sold to the second defendants, sued them for conspiracy and breach of contract.   The plaintiff sought production of counsel’s opinion obtained by the first defendants which had been sent to the second defendants as part of the conveyancing documents.  The second defendants opposed the application, submitting that they were entitled to the same privilege as the first

defendants as successors in title.  Goff J began with the basic premise that the legal professional  privilege  of  a  predecessor  in  title  enures  for  the  benefit  of  his successor.13   He said that it was impossible to say that the second defendants did not receive the documents as successors in title.  They were prospective purchasers, had entered into a conditional contract and the documents were sent to them with a view to persuading them to complete the purchase.  He described the nexus between the predecessor and the successor as “altogether too close”.14

[53]     Crescent Farm Sports was applied in Surface Technology v Young, where it was held that the purchaser of the assets of a company was entitled to assert privilege

in  relation  to  legal  advice obtained  by the vendor in  relation  to the assets  and

11     B v Auckland District Law Society [2004] 1 NZLR 326 at [44].

12     Crescent Farm (Sidcup) Sports Ltd v Sterling Offices Ltd & Anor [1967] Ch 553.

13     At 652.

14     At 564.

property sold.   Pumfrey J said that the successor in title to identified property is entitled to assert the privilege of the vendor at least in respect of documents prepared for the purpose of obtaining legal advice in relation to the property transferred in relation to the advice given.15   He went on to say:

Obviously the first question is what was transferred to the claimants in this case.  Undoubtedly it seems to me the intellectual property in so far as title subsisted to it including the patents if the Vendor owned them.  So it seems to me that the claimants can claim privilege to this extent.  I would hold also that it is implicit in this proposition that the claimant is entitled to copies of the privileged material from the solicitors at its own expense.  This follows, it seems to me, because otherwise the privilege is valueless, since the claimants  have  no  means  of  knowing  that  material  they  are  asserting privilege in.   It seems to me that this follows from the existence of the privilege itself and not from any entitlement to the documents in question under the Agreement.

[54]     Crescent Farm Sports and Surface Technology show that a particular interest in the legal advice given to the predecessor in title is a prerequisite to an assignee or purchaser asserting privilege in the communication.   That may arise from the particular way in which the advice was used (as in Crescent Farm Sports) or the linkage between the advice and the property acquired (as in Surface Technology).

[55]     In the context of s 66(2), a particular interest would also have to be shown, sufficient to confer on the successor a right of property in the advice.   That will plainly arise when the successor in title acquires the same interest as the original titleholder.  On the other hand, no right could arise when the interest of the successor in title in the communication is severable and potentially opposing to that of the original titleholder.   In all cases, it will be a question of fact whether s 66(2) is engaged, and will depend on, among other things, the nature of the advice, the purpose for which it was obtained, the use to which it has been put and the terms of any relevant agreement between the person who obtained the advice and a successor seeking to assert privilege.

[56]     As I understand it, MKFSI asserts its claim for privilege simply on the basis

that it is PRL’s successor in title to the stage  one assets.    In my view, that is

insufficient to establish rights under s 66(2) to assert privilege against the plaintiffs.

15     At 395.

Something more is required before it could establish the necessary title to the document.

Justifiable interest

[57]     Even if MKFSI had established a right to assert privilege, it would have had to satisfy me pursuant to s 66(3) that it had a justifiable interest in maintaining the privilege.   There is no indication of what should be regarded as justifiable but it would plainly be relevant that the parties to the communications have waived privilege.  It may be difficult for a stranger to the advice given to maintain a claim of privilege when the original privilege-holder has declined to do so.

Conclusion

[58]     As MKFSI has failed to substantiate its claim to privilege, the plaintiffs are entitled to the orders for inspection sought.  However, in view of the complexity of the issues and the evidence and the somewhat piecemeal way in which the issues have been addressed, I will defer making formal orders.

[59]     The  parties  have  leave  to  file  further  memoranda  within  seven  days addressing issues arising in relation to the application for inspection of documents over which there are disputed claims to privilege.