Lyttelton Port Company Ltd v Aon New Zealand
[2016] NZHC 2996
•12 December 2016
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
CIV-2015-409-000428 [2016] NZHC 2996
BETWEEN LYTTELTON PORT COMPANY
LIMITED Plaintiff
AND
AON NEW ZEALAND Defendant
Hearing: 5 December 2016 Appearances:
Z G Kennedy and J M Embling for Defendant/Applicant
M R Campbell QC and S D Williams for Plaintiff/RespondentJudgment:
12 December 2016
JUDGMENT OF ASSOCIATE JUDGE OSBORNE
on discovery
Introduction
[1] The plaintiff, Lyttelton Port Company Ltd (LPC) sues its insurance broker, Aon New Zealand (Aon). Aon had acted on the insurance arrangements which LPC had in place at the time of the Canterbury Earthquake Sequence (the Earthquakes). Vero Specialist Risks Ltd (Vero) was the lead insurer for LPC. For convenience, I refer to Vero as if it were the only insurer.
[2] LPC through the Earthquakes suffered massive damage to its property and business. Disputes arose between LPC and Vero which were mediated in December
2013. LPC and Vero entered into a settlement agreement by which Vero paid:
· $445,969,300 (plus GST) in respect of LPC’s disputed claims for
earthquake damage and resulting business interruption losses; and
· $3,291,984 (plus GST) in respect of LPC’s claim in relation to contract
LYTTELTON PORT COMPANY LIMITED v AON NEW ZEALAND [2016] NZHC 2996 [12 December 2016]
works.
[3] On 29 June 2015, LPC issued this proceeding against Aon. LPC alleges that Aon failed to exercise reasonable skill and care in particularised ways. LPC alleges that it recovered less from Vero than it would have done had Aon complied with its duties. It says that the various losses which Aon caused total $184,810,615.
Aon’s discovery application
[4] Aon applies in the alternative for orders by way either of particular discovery1 or variation of existing orders.2 LPC opposes the application both on jurisdictional grounds and for other reasons I will address.
The jurisdiction to order further discovery
[5] At an early stage of the proceeding counsel, implicitly recognising the sheer scale of potential discovery should discovery not be tailored, agreed upon tailored discovery orders with a staged approach. The tailored discovery to occur at stage 1 was the subject of a consent order in December 2015 (“the discovery order”). At the hearing, counsel addressed me in differing terms as to the expectation (in December
2015) of the scope of what might be a second stage of discovery.
[6] Against that background, I do not find it helpful to focus on the jurisdictional basis for considering further discovery. The litigation was at a very early stage when the first stage of tailored discovery was responsibly sought. This was not a case where the Court or the parties were anticipating that that first stage would be, if fully complied with, the end of discovery. Whether or not the requirements of r 8.19 have been satisfied (in particular whether there remain undiscovered documents which “should have been discovered”) is not a matter which requires determination. Given the circumstances in which the discovery order was made, there is clearly jurisdiction to now vary the order by adding a stage 2 requirement if the Court considers that the applicable discovery tests are otherwise established.
[7] Whichever the basis of jurisdiction to be invoked, both counsel considered the four-stage analysis enunciated by Asher J in Assa Abloy New Zealand Ltd v Allegion (New Zealand) Ltd to be a correct and useful approach in this case.3
Although the Assa Abloy decision was in relation to a r 8.19 application, I view it as a principled approach applicable to both r 8.19 and r 8.17. The four-stage approach involves the following questions:4
(a) Are the documents sought relevant, and if so how important will they be?
(b) Are there grounds for belief that the documents sought exist? This will often be a matter of inference. How strong is that evidence?
(c) Is discovery proportionate, assessing proportionality in accordance with Part 1 of the Discovery Checklist in the High Court Rules?
(d) Weighing and balancing these matters, in the Court’s discretion
applying r 8.19, is an order appropriate?
[8] For LPC, Mr Campbell QC stressed (correctly) that the first three issues (relevance, existence and proportionality) are each necessary but not of themselves sufficient conditions of jurisdiction. They must all be established before the Court makes an order for additional discovery through the balancing exercise required under Asher J’s fourth question.
[9] I now turn to consider the basis of Aon’s application in the two categories of
documents sought.
First category – the insurance claim documents
Aon’s application
[10] The first category of documents sought by Aon are documents which arose after the Earthquakes as LPC instructed consultants for the purposes of its insurance claims.
[11] In its application, Aon identifies this first category as being, “All correspondence and documents produced by or exchanged between LPC and its consultants”.5
Existence and control of documents
[12] LPC does not dispute that further documents exist in either of the categories sought by Aon. However, it disputes that it has control of those documents which may physically be possessed by LPC’s consultants.
[13] The documents which a party may be ordered to discover are limited to those which are or have been in that party’s control. This requirement arises in relation to standard discovery under r 8.7 High Court Rules and flows through to other approaches to discovery.6 It is for the applicant generally to establish a prima facie indication that the documents are or have been in the respondent’s control.7
[14] The concept of “control” is defined under r 1.3(1) High Court Rules to mean:
(a) possession of the document; or
(b) a right to possess the document; or
(c) a right, otherwise than under these rules, to inspect or copy the document.
[15] Where the documents sought by Aon are those produced by LPC’s consultants (other than those which have been exchanged between the consultants and LPC), LPC opposes the application upon the basis (amongst others) that it does not control the documents produced by its consultants.
[16] One of LPC’s deponents has exhibited the Short-Form Agreement for
Consultant Engagement used by Acenz and Ipenz. The March 2010 edition contains
5 Aon attached to its application a schedule identifying the consultants ranging across the disciplines required to identify, damage, scope reinstatement methodology and quantify costs, together with LPC’s legal advisers.
6 Including r 8.19, High Court Rules.
a clause (15) which expressly deals with ownership of material prepared or produced by the consultant. The evidence does not establish as a probability that any particular consultancy agreement involving LPC was subject to the Ipenz/Acenz form (the highest it is put by one consultant in evidence is that the form was “commonly” used in contracts between LPC and that consultant). There is reference to a general “knowledge and belief” of engagement on those or similar terms but the actual contractual documents (if any) are not exhibited.
[17] It may be that the relationship between LPC and its consultants is governed by a particular contractual provision or by the general law of contract (and in particular, agency).8 Mr Kennedy and Mr Campbell presented informed but contrasting submissions as to whether LPC has “control” of particular documents sought by Aon.
[18] Given the conclusions I will reach in relation to both categories of documents sought by Aon, it is unnecessary that I determine the control issue in relation to either category. I do not do so.
Relevance and importance
[19] In Assa Abloy Asher J identified the dual importance of relevance and importance. The principal evidence provided in support of Aon’s application was that of Jonathan Embling, a solicitor employed by Aon’s solicitors’ firm.9 Mr Embling referred in detail to documents already discovered by LPC in relation to its No 3 Wharf in order to illustrate the relevance of the further documents sought in Aon’s first category. He referred in particular to five discovered documents ranging
in date from 17 June 2011 to 11 December 2013. His analysis of those documents
identified figures for “reinstatement costs” or “reinstatement estimates” of the No. 3
Wharf ranging from $9,390,000 to $24,120,000. In his evidence, Mr Embling concluded:
8 Both counsel refer to Guttenbeil v Tower Insurance Ltd [2012] NZHC 2106 at [29] as containing an accurate statement of law as to when documents produced by an agent are within the control of the principal and therefore discoverable.
9 Mr Embling attended Court as Mr Kennedy’s junior at the hearing. In view of the fact that Mr Embling had provided the principal evidence in support of the application, Mr Kennedy sought leave for Mr Embling to appear, which I granted subject to the reservation that I would hear submissions only from Mr Kennedy.
The reasons for the fluctuations identified … are insufficiently explained on
the basis of my review of the documents discovered by LPC to date.
Similar inconsistencies in reinstatement prices are apparent in respect of
many other insured assets forming part of LPC’s claim.
[20] For LPC, Katherine Meads provided the principal evidence in response to that of Mr Embling. Ms Meads was until July 2016 the Executive Manager of LPC and was responsible for overseeing the earthquake-related insurance claims. She has since resigned and is an independent consultant, still consulting to LPC and with responsibility for oversight of this proceeding. She is clearly a person with intimate knowledge of the progress of claims and an understanding of where reports and draft reports fitted in.
[21] In addition to dealing with a range of other matters, Ms Meads responded directly to Mr Embling’s evidence concerning the No. 3 Wharf. When one undertakes the analysis of the various documents relating to the No. 3 Wharf (as Mr Campbell took me through in the course of his submissions), it becomes “readily apparent” (as Ms Meads deposes) that the “variations” in estimated reinstatement costs have explanations which are evident in the discovered documents. In one early document, the measure and analysis phases of reinstatement planning are expressly excluded. Rates and estimates provided in later Opus reports are amended to take into account tender pricing which had been received. A later LPC assessment increased as additional costs such as escalation (which had previously been identified only in relation to global figures) were broken down and applied to the No.
3 Wharf in particular.
[22] Mr Embling chose to illustrate the need for the first category documents by reference to what he perceived to be unexplained increases or discrepancies in the documentation already discovered concerning the No. 3 Wharf. While I recognise that documents from 2011 to 2013 containing LPC’s instructions or consultants’ further draft reports might have relevance, at least in the Peruvian Guano sense, I am
not satisfied on Aon’s evidence that they have significant importance.10 What the
exchange of evidence between Mr Embling and Ms Meads has demonstrated is that a
10 Compagnie Financière et Commerciale du Pacifique v Peruvian Guano Co (1882) 11 QBD 55 at
63.
detailed, technical understanding of discovered documents may resolve many if not all of the concerns which Mr Embling’s present reading of such documents has raised. Mr Embling did not reply to Ms Meads’ evidence as to the No. 3 Wharf documents.
[23] There is a further matter relating to the correct understanding of LPC’s already-discovered documents which is particularly relevant to the Court’s exercise of the discretion (the 4th Stage of Assa Abloy approach). In the course of his submissions for Aon, Mr Kennedy explained that Aon has elected to this point not to retain for the purposes of analysis the expert witnesses who would ultimately undertake the evidential analysis which is at this point represented by Mr Embling’s analysis.
[24] In relation to requested discovery which is likely to involve substantial cost, applicants not infrequently provide to this Court the evidence of a relevant expert (such as an engineer and/or a quantity surveyor) who speaks directly to the documents he or she would need to give fully informed evidence on the issues for trial. The absence of such evidence is notable in this case. That is not to say the absence is of itself determinative. But, combined with the detail of Ms Meads’ response to Mr Embling’s evidence, (and the subsequent lack of a reply by Mr Embling to Ms Meads’ evidence on the points), leaves me unsatisfied that the first category of documents will be of significant importance.
Proportionality
[25] Mr Campbell sought to place the present discovery application in the context of existing discovery. He referred to LPC’s existing discovery of 6,000 documents which includes 500 reports spanning some 10,000 pages. Through Ms Meads’ evidence, LPC identifies the initial work it has undertaken to understand the likely scope of the additional discovery now sought by Aon. Ms Meads deposes:
1.A number of broad search terms resulted in the creation of a database of 160,000.
2.Based on LPC’s experience in discovery to date, Ms Meads’ estimate is that LPC would incur “upwards of $1,000,000” in providing the requested discovery.
· reviewing documents and preparing an affidavit for the
requested documents would take “many months”
[26] Ms Meads deposes that she arranged for a sample of relevant search terms (arising from Aon’s requested discovery) to be applied to the main database of approximately 8,000,000 electronic records. The following search terms producing the following “hits”:
· “earthquake” or “natural disaster” – 200,202 documents
· “earthquake damage” – 26,910 documents
· “Opus” – 252,758 documents
· “Valuation” – 52,528 documents
[27] Ms Meads deposes that she also arranged for a sample of relevant search terms to be applied to the smaller database of 160,000 documents (as previously narrowed). That produced “hits” in relation to the following search terms:
· “Opus” – 24,090 documents
· “Pedersen Read” – 1,847 documents
· “MWH” – 1,806 documents
· “SKM” – 4,101 documents
· “Darroch” – 266 documents
· “Darrochs” – 190 documents
· “Colliers” – 2,171 documents
· “Earthquake” – 29,148 documents
· “Earthquakes” – 12,857 documents
· “EQ” – 7,144 documents
· “Damage” – 41,496 documents
· “Damaged” – 17,633 documents
[28] For Aon, Mr Kennedy submits that a consideration of the circumstances of LPC’s claim and the evidence establishes the proportionality of the discovery application. Mr Kennedy particularly emphasises the extent of the claim ($184,810,615) as against Ms Meads’ estimate of costs of “upwards of $1 million”). Mr Kennedy also critiqued Ms Meads’ attempt at a general assessment of the potential scope of requested discovery by reference to a failure to combine some search terms and a failure to search in relation to identified assets.
[29] For LPC, Mr Campbell did not suggest that a $1 million cost would of itself constitute disproportionality in the context of a claim as large as $184 million. Rather, Mr Campbell emphasised that consideration of proportionality must also take into account the impact that ordering the requested discovery and inspection would have on the progress of this proceeding.
[30] I have no doubt that, through cooperation between counsel and expert witnesses, the parties might identify particular search terms which would enable a second tranche of closely-tailored discovery. But in the terms in which Aon’s application was drafted (including such concepts as “all correspondence … relating to the assessment … of LPC’s loss and damage… arising out of … the Canterbury earthquake sequence”), Ms Meads was justified in presenting to the Court figures relating to a search to meet the requirements of the broad categories identified. The narrowing of a search to particular assets as suggested in Mr Kennedy’s submissions would (assuming relevance and importance are established) present a sensible approach, but it is not one sought in Aon’s application. The focus which Mr Kennedy invited in relation to the No. 3 Wharf is not a focus which is identified in the terms of the orders sought by Aon.
[31] I am not satisfied that discovery of the breadth sought in Aon’s first category is proportionate. I do not discount the possibility that Ms Meads’ estimates of a cost of “upwards of $1 million” and “many months” for completion may prove to be overstated. On the other hand, they are necessarily broad-brush estimates. The Court’s own experience of substantial discovery requirements in the context of both earthquake litigation and general civil litigation is that estimates of the time required for discovery of large amounts of electronic records frequently prove to be light.
The balancing and the discretion
[32] As I am satisfied that an order for the discovery and inspection of the first category of documents sought by Aon would be disproportionate, it follows almost inevitably that the Court is left with little or no discretion in relation to the refusal of the order sought. I have considered whether the Court might itself undertake an exercise of narrowing the orders sought, but such a task would require a degree of knowledge and understanding which at present only counsel and their expert advisers could possess. On the limited evidence before the Court (in particular the limited understanding of issues which arise in relation to particular assets), the Court cannot justly narrow the scope of the application.
Outcome in relation to first category
[33] The application for the discovery of the first category of documents sought will be dismissed. That said, I recognise that, as Aon’s understanding of LPC’s case grows and as its own expert advice accrues, there may well be within the first category of documents issues in relation to some particular assets or other subject- matter which would justify a variation of the December 2015 discovery order. I will accordingly be reserving leave to Aon to file an amended application in relation to the first category if that point is reached.
Second category – the 2010 insurance material
The application
[34] In relation to the second category of documents, Aon seeks discovery of:
[A]ll correspondence and documents produced by or exchanged between LPC and its consultants, including all instructions and draft reports, relating to the assessment and quantification of estimated reinstatement cost values for the assets identified in the MD Spreadsheets11 produced for LPC’s
2010/2011 material damage and business interruption insurance policies.
Relevance and importance
[35] Historically LPC’s claim against Aon relates back to Aon’s involvement in
2010 as LPC’s insurance broker. Aon arranged cover for LPC for the period 30 June
2010 – 30 June 2011 (which covered three significant earthquake events).
[36] By the wording of its application for the second category of documents, Aon sought those documents which relate to the “assessment and quantification of estimated reinstatement costs values” (as produced by or exchanged between LPC and its consultants in 2010).
[37] By its notice of opposition, LPC asserted that the second category documents are irrelevant to the matters in issue in the proceeding. LPC refers to the application in relation to the second category as “a fishing expedition”.
[38] Mr Kennedy for Aon developed Aon’s argument as to relevance on four
specified grounds, which I now examine.
(a) Causation
[39] Mr Kennedy notes that the primary breach of duty pleaded by LPC against Aon is a failure to place a material damage policy without asset specific sub-limits. By its statement of defence, Aon has denied that alleged breach of duty.
[40] Mr Kennedy submits, however, that “a causation issue arises” in that, if Aon is found at trial to have breached a duty in relation to having no asset specific sub- limits, then the loss has been caused or contributed to by LPC or its consultants and
Aon will be entitled to issue a third party notice.
11 The term “MD Spreadsheets” is taken from LPC’s statement of claim in which the term is defined to referred to the updated underwriting information (including valuations) which were compiled into Excel spreadsheets entitled “2010 Master Schedule” All Assets Renewal 2010
LPC copy.XLS. (As compiled by Aon).
[41] It is the latter argument (as to what further defences or joinder Aon might pursue) that Mr Campbell responded with the “fishing” characterisation. In turn, Mr Kennedy referred to the observation of Asher J in InterCity Group (NZ) Ltd v Nakedbus NZ Ltd, wherein his Honour stated:12
Fishing is permissible if the categories of documents sought can be assumed to relate to a matter at issue. Such fishing becomes impermissible where what is sought is not relevant to any pleaded cause of action, but might reveal material that could be the basis of a new head of claim.
[42] Relevantly, Asher J continued:
[35] There can be no doubt that InterCity’s decision to advertise on the Nakedbus Google site was driven by commercial considerations. It can be assumed that it decided to so advertise because it thought that by doing so, potential customers interested in its competitor Nakedbus would see the InterCity advertisement and decide to place their business with InterCity. It is difficult to see how further discovery could elaborate on this transparent fact. It will not advance or derogate from either party’s case. I do not consider that any discovery is required on motive, and I am not prepared to make the order sought at category 2.
[43] To similar effect were the observations of Associate Judge Doogue in NSK Ltd v General Equipment Co Ltd.13 In his judgment in that case, the Associate Judge referred to the above passage in Asher J’s Intercity Group judgment and then continued:
[35] The opposing party is obliged to provide discovery relating to causes of action which are stated in the plaintiff’s pleading. It is not required to provide discovery of other matters that the plaintiff might, if it had known about them, have included in the statement of claim. An omission to provide documents relating to matters which are not relevant to pleaded causes of action cannot give rise to an entitlement to an order for particular discovery.
[44] As indicated by these judgments, the concepts of pursuing discovery in relation to what is relevant and of avoiding “fishing” are inter-related. Analysis of both is driven by the identity of the parties and the pleadings.
[45] Documents which relate to causation (and may indicate a possible line of defence which has yet to be pleaded or the possible joinder of a new party) falls
within Asher J’s category of “impermissible fishing” because it is relevant neither to
12 InterCity Group (NZ) Ltd v Nakedbus NZ Ltd [2013] NZHC 1054 at [34].
13 NSK Ltd v General Equipment Co Ltd [2015] NZHC 1979.
an existing defence (there being no pleading that LPC caused or contributed to its own loss) nor to a claim against an entity other than LPC (no such entity having been joined in the proceeding).
(b) Non-insurance of the reclaimed land
[46] The insurance cover put in place in 2010 did not cover LPC’s reclaimed land. LPC alleges that Aon advised LPC that the reclaimed land was uninsurable and that, as a result, LPC did not obtain valuations for the reclaimed land. Mr Kennedy explained the need for the second category of documents as relating in part to Aon’s intention to establish whether:
(a) LPC advised Opus to not value its reclaim land; or
(b)Opus ought to have valued the reclaimed land and to have included it within the relative reinstatement estimates.
[47] As to the first purpose of the documents, I accept the submission of Mr
Campbell that documents in that category were encompassed by the (December
2015) discovery order. In particular, discovery was required of documents concerning Aon’s advice to LPC in relation to “the insurability of land and the pre- condition to cover set out in the land memorandum”. Through Mr Campbell’s submissions, LPC accepts that the ambit of that order would have included any related instruction by LPC to Opus to not value the reclaimed land. LPC is to be taken as having complied with the scope of the order (as identified in Mr Campbell’s submissions).
[48] In relation to the second purpose of the documents relating to the reclaimed land, Mr Campbell correctly submits that whether Opus “ought to have valued the reclaimed land” has not been put in issue by either party on the existing pleadings. That purpose is appropriately viewed either as “fishing” or “irrelevant”.
(c) “Excluded as agreed” assets
[49] Mr Kennedy identified as the third relevant purpose of the second category of documents matters flowing from LPC’s allegation that Aon failed to ensure that reinstatement estimates were obtained for assets marked on the Asset Schedule as “excluded as agreed”. Mr Kennedy submitted that such documents are likely to establish what instructions were given by LPC to Colliers and Darroch in relation to those assets.
[50] In parallel with his submission relating to correspondence with Opus over the reclaimed land, Mr Campbell referred to the discovery order. The requirement he relies upon was that the parties give discovery of documents concerning Aon’s advice to LPC in relation to the preparation and provision to insurers of the Material Damage and Business Interruption Spreadsheets and/or underwriting information, including advice in relation to procuring updated asset valuations. By his submission, Mr Campbell accepted that the consent order required LPC to identify any documents containing instructions given by LPC to Colliers and Darroch in relation to the “excluded as agreed” assets. LPC is to be taken to have complied with that obligation.
(d) Basis of valuation for reinstatement purposes
[51] The fourth and final purpose identified by Mr Kennedy for seeking the second category of documents is that they will establish the basis upon which LPC’s assets were valued for reinstatement purposes at inception and will assist in determining whether LPC’s subsequent reinstatement estimates amount to reinstatement or betterment.
[52] I accept Mr Campbell’s submission that this is a variation on the relevance argument advanced by Aon in relation to the first category of documents. It fails for the same reasons.
Proportionality
[53] Even were I satisfied that Aon has established the relevance of the second category of documents, Aon has failed to establish that the scope of discovery in the terms sought would have been proportionate.
[54] It may be that a more tailored form of order (particularly if supported by pleadings which specifically identify matters of affirmative defence) may be justified (as envisaged when the (December 2015) discovery order was made). As matters stand and as with the first category of documents, it would not be appropriate for the Court to seek to formulate some narrower form of order.
Costs
[55] Counsel addressed me in relation to the costs orders which would be appropriate depending upon the outcome of the application. It was common ground that costs should follow the event as in relation to a Category 3 proceeding.14
[56] While I will be reserving leave to Aon to pursue an amended application for discovery, it is just to regard LPC as the successful party to date and to award it costs and disbursements on that basis.
Way forward
[57] A legitimate concern of LPC giving rise to some content of this judgment is the risk that unnecessarily broad discovery would unduly extend the time required for the parties to have this proceeding ready for trial. The approach by Aon of having a solicitor analyse documents of some technical complexity in order to identify further relevant information, which is sometimes of assistance, has not in this instance provided the shortcut to satisfactory analysis that it may sometimes provide. It was of surprise to the Court to be advised by Mr Kennedy in the course of his submissions that Aon had not yet retained the relevant expert or experts to provide an analysis of exchanged information with a view to identifying gaps in the
information.
14 The proceeding having been categorised as a Category 3 proceeding in terms of r 14.3 High
Court Rules by Minute dated 2 June 2016.
[58] Given the expectation of the Court that experts will cooperate and given the quantum of LPC’s claim, I encourage Aon and its advisers to consider the prompt engagement of a relevant expert or experts who may be able, with their counterparts engaged by LPC, to move the identification of any further tailored discovery forward without the need for an amended application and consideration by the Court. If Aon at that point considers that an amended application is required, it is likely that the Court would be assisted by evidence as to the information which one or more experts considers necessary to properly confirm issues in the proceedings.
Orders
[59] I order:
(a) the application of the defendant for further discovery orders in its present form is dismissed;
(b)leave is nevertheless reserved to the defendant to amend the application;
(c) the defendant is in any event to pay to the plaintiff the costs of the application to date on a Category 3 Band B basis, together with disbursements (with a certificate for the reasonable travelling and accommodation costs of one counsel).
Associate Judge Osborne
Solicitors:
Markit Law, Christchurch.
Minter Ellison Rudd Watts, Auckland.
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