Macy's Motor Inn Limited v Danielsen HC Tauranga CIV 2005-470-470

[2007] NZHC 1981

IN THE HIGH COURT OF NEW ZEALAND TAURANGA REGISTRY

CIV 2005-470-000470

UNDER  the Contractual Remedies Act 1979 and

Fair Trading Act 1986

BETWEEN  MACY’S MOTOR INN LIMITED Plaintiff

ANDHANS ANTON REICHENBACH DANIELSEN, MALCOLM JOHN WEBSTER AND NEILS ERICK DANIELSEN, OF TAURANGA, AS TRUSTEES OF THE HANS DANIELSEN FAMILY TRUST

Defendants

Hearing:         9 August 2007

Appearances: K L Peebles for Plaintiff

Mr R Kettelwell

Judgment:      9 August 2007

ORAL JUDGMENT OF ASSOCIATE JUDGE DOOGUE

Solicitors:

Ms K Peebles, O’Sheas, Solicitors, Hamilton

Mr R Kettelwell, Sharp Tudhope, Solicitors, Tauranga

MACY’S MOTOR INN LTD V DANIELSEN AND ORS HC TAU CIV 2005-470-000470  9 August 2007

Background

[1]      The plaintiff has issued proceedings against the defendants arising out of the plaintiff’s purchase from the defendants of a motor inn property at Tauranga.  The defendants acquired that property in 1997.  The plaintiff acquired it pursuant to an agreement for sale and purchase in 2003.   There have been problems with water tightness.  As a result the plaintiff has brought the proceedings against the defendants seeking damages under several heads.  The plaintiff pleads a breach of the sale and purchase agreement.  The claims include an allegation that the defendants did work on the property to repair it to remedy the water tightness problems but did not do so in compliance with a building consent.  It is alleged as well that the building works did not comply with the Building Act 1991/1994.  The plaintiff also claims that the building work was carried out negligently and that it was also carried out in breach of the Building Code.  They say that as a result of those negligent breaches there has been significant water damage since the repairs were carried out.   The plaintiff includes in its statement of claim a cause of action asserting breach of s 9 of the Fair Trading Act 1986 in that they engaged in misleading and deceptive conduct towards the  “then  lessee”,  which  in  turn  caused  the  purchaser  to  be  misled  about  the condition of the building.  There are other causes of action as well, but all of them centre on the fact that the building which the plaintiff acquired from the defendants was not water tight and that as a result the plaintiff suffered damage.

[2]      In January 2000 an arbitration was convened which involved the defendants and the then lessee of the motor inn.   The subject matter of that arbitration, the plaintiff alleges, was the damage to the building due to water ingress, poor construction of the building, and failure to repair properly.  In February 2000 civil engineering consultants retained by the defendants gave a report on the building.  A copy of this report has found its way into the hands of the plaintiff.  I do not know anything about the circumstances in which that occurred.  That arbitration resulted in an award being made which it is not necessary to say anything about it in this case. The plaintiff asserts that in October 2002 further signs of water damage began to

manifest themselves and that that position has become worse since they acquired the building.

Application

[3]      The plaintiff filed and served an application dated 19 April 2006 seeking further and better discovery in which they sought further and better discovery of:

a)        Solicitor’s file pertaining to 2000 arbitration.

b)       Counsel’s file, if any, pertaining 2000 arbitration. c)        The arbitration award.

d)All  records  and  documentation,  including  any  Council  consents, relating to work done on the building subsequent to and following the arbitration award.

e)All reports from builders, engineers, and other persons relating to the building prior to or as a result of the arbitration.

[4]      The application is opposed on the following grounds set out in the notice of opposition:

a)        The first ground is to the effect that the arbitration related to the scope of maintenance obligations under a lease agreement between parties which are not the parties to the present dispute and, I infer, is therefore said to be irrelevant to this proceeding.

b)The arbitration and therefore the documents associated with it are subject to implied obligations of confidence.

c)The third ground seems to be a variation on the ground of opposition that the arbitration documents involving a previous lessee are not relevant to the current pleadings.

d)The defendants say that the solicitor’s file and reports prepared for the arbitration attract privilege.  During his submissions before me Mr Kettelwell made it clear that privilege was both claimed under the rubric of litigation privilege and also professional legal privilege.

[5]      The main issue which was the subject of argument before me concerned the question of confidentiality of documents because of their connection with the arbitration.   This privilege was said by the defendants to arise from s 14 of the

Arbitration Act 1996.   I will deal with that matter first, but also deal with other claims of privilege subsequently in this judgment.

Section 14 Arbitration Act 1996

[6]      The section in question reads as follows:

14Disclosure of information relating to arbitral proceedings and awards prohibited

(1)Subject to subsection (2), an arbitration agreement, unless otherwise agreed by the parties, is deemed to provide that the parties shall not publish,  disclose,  or  communicate  any  information  relating  to arbitral proceedings under the agreement or to an award made in those proceedings.

(2)Nothing in subsection (1) prevents the publication, disclosure, or communication of information referred to in that subsection—

(a)If   the   publication,   disclosure,   or    communication   is contemplated by this Act; or

(b)      To a professional or other adviser of any of the parties.

[7]      The effect of the enactment of s 14 is to imply into arbitration agreements, unless otherwise agreed, an obligation that the parties shall not publish, disclose, or communicate any information relating to arbitral agreements.   It essential governs relationships between those persons who were parties to the arbitration.  It does not – as its heading would suggest – impose a blanket ban on disclosure of such information.  The section has been considered in a number of circumstances.  I will make mention of one or two of the authorities shortly, but I mention an English case as a matter of background, namely D v National Society For The Prevention Of Cruelty To Children [1978] AC 171, a decision of the House of Lords. The essential conclusion of the House of Lords in that case was the fact that information has been communicated by one person to another in confidence is not of itself a sufficient ground for protecting from disclosure in a court of law the nature of the information or the identity of the informant, assuming those matters are relevant to facts in issue.

[8]      So the position at common law is that notwithstanding agreements as to confidentiality  the  policy  of  the  law  is  that  while  those  agreements  may  be

enforceable between the immediate parties to the agreement, there are proper exceptions which will apply typically in cases where a third party in litigation wishes to obtain or disclose agreements that are subject to confidentiality agreements.

[9]      The relevant New  Zealand  authorities seem to  me to  be  Television  New Zealand Ltd v Langley Productions Ltd  [2000] 2 NZLR 250, and Pot Hole People Ltd v Fulton Hogan Ltd (2003) 16 PRNZ 1023.  That is not to say s 14 has not been considered in at least one other authority, but those are the authorities that have the closest connection with the decision that I have to make in this case.   Counsel referred me to a further authority, that of A J Beattie, E R Beattie & Ors v Attorney- General and Waitemata District Health Board (HC AK, CIV 2003-404-3166, 11

June 2004 ), a decision of Heath J.  The remarks that His Honour made in that case concerning s 14 though were not the central subject of the proceeding and were in any event obiter.

[10]     I turn first to Television New Zealand Ltd v Langley Productions Ltd, a decision of Robertson J. That case was concerned with an arbitration between Television New Zealand and Langley Productions Limited which was a company incorporated by a former newsreader employed by Television New Zealand, Mr Hawkesby. The parties in that case, which included Mr Hawkesby, arbitrated their differences arising out of the termination of Mr Hawkesby’s contract of employment. The arbitrator delivered an award in 1999 and Television New Zealand applied to the High Court to appeal the decision of the arbitrator. As an interlocutory step Television New Zealand brought an application for an order that the confidentiality provisions which attached to the arbitration no longer applied. Robertson J allowed that application. He considered s 14 of the Act. He concluded at para [26] of his judgment that the requirement of openness of justice, which was a central tenet of the justice system in this country, would outweigh the importance to the parties of maintaining confidentiality with respect to their arbitration. That is obviously a different case from this, but it does make clear that the s 14 confidentiality agreement will defer in proper cases to the policy requirements of the law which militate against maintenance of the obligation of confidence. In his judgment His Honour emphasised the public interest in the issues which were the subject of the arbitration as justifying his order.

[11]     The next decision, and in my view the one with closest connection to this proceeding, which I need to consider is Pot Hole People Ltd v Fulton Hogan Ltd.  In that judgment William Young J had to determine the extent of the confidentiality provisions of s 14 of the Act in the context of Court proceedings which involved one of the parties to an arbitration.  More specifically Pot Hole People Limited (“PHPL”) had been involved in an arbitration in which it sought to recover money from a company called Downer.   PHPL subsequent to the arbitration was served with a statutory demand under s 290 of the Companies Act 1993.  It applied to set aside the statutory demand.   It wished to invoke the discretion of the Court to set aside the statutory demand.   The arbitration was relevant because PHPL had succeeded on liability against Downer.  A second phase of the arbitration was yet to occur in which quantum would be considered.  The relevance of the arbitration was that while PHPL may have been in the situation of insolvency it had a substantial claim for damages against Downer.  Downer would not consent to the arbitration being referred to in the statutory demand proceedings.  PHPL wished to produce a copy of it as part of its case.   Again, the case is not on all fours with the present, in that it was not concerned with the discovery, but it does authoritatively state that the confidentiality afforded by s 14 of the Arbitration Act 1996 is not absolute.  In his judgment at para [28] His Honour said:

[28] It was, for instance, well established that confidentiality imposed at common law prior to the Arbitration Act 1996 did not preclude a party to an arbitration  disclosing  information  associated  with  it  in  the  course  of litigation with the third party where that was necessary to promote its legitimate legal interests, see for instance Hassneh Insurance Co of Israel v Mew [1993] 2 Lloyd’s Rep 243.

[12]   The Judge went on to consider the merits of Downer’s case that the confidentiality  of  the  award  should  be  maintained.    Then,  at  para  [39]  of  the judgment the Judge returned to the matter of the limits of confidentiality of arbitrations when he said:

[39]     In order for the cloak of confidentiality which attached to the private dispute resolution of the parties to necessarily apply to subsequent proceedings in the High Court, would in my judgment require a clear and unambiguous determination of Parliament.

[13]     Having mentioned what I understood to be the thrust of the authorities, and in particular the PHPL case to Mr Kettelwell, I invited him to address me on matters which might be placed in the balance as justifying an order in this case which gave effect to the confidentiality of the parties to the arbitration.   Mr Kettelwell in his remarks suggested that the fact was that documents might be disclosed which were inimical to the interests of the defendants, I do not regard that as being a matter which would entitle the Court to close off from the plaintiff the usual right it has to call in aid the auxiliary processes of the Court, including discovery.  Indeed, that if such an approach was taken that would be available in almost every case because the Peruvian Guano test requires discovering parties to disclose documents which might hinder their own case and advance the case of the opposite party.  There was no basis that Mr Kettelwell suggested to me which would show for example that substantial harm would be done to the commercial interests of the defendants should the arbitration and associated documents become public.

[14]     I intend to apply the statements of principle contained in the PHPL case.  My conclusion is that the provisions of s 14 are no answer to the plaintiff’s application for further and better discovery.

Other bases for claiming privilege – relevance

[15]     It needs to be made clear that the order that I propose to make is concerned only with the ground of objection concerning s 14 of the Arbitration Act.  The usual grounds on which the discovering party can resist discovery remain available to the defendants.  The defendants can resist discovery on the grounds that documents are not  relevant.    It  can  also  claim  privilege  by  way  of  litigation  privilege  and professional legal privilege.   A proper basis obviously has to be made out in an affidavit of documents made in response to an order for further and better discovery before such grounds will avail it.

[16]     Subject to that any documents have to be disclosed that are relevant.  It is not to the point that some of the documents which came into existence concerned a dispute between parties who are not engaged in the present proceedings.   I repeat that the documents are relevant for purposes of discovery in accordance with the Peruvian Guano test.  That does not mean that the documents would necessarily be admissible or relevant as evidence in the proceedings between the plaintiff and the defendants.  That is not the test for discovery.

Order

[17]     The order that is sought is an order that the defendant gives discovery.  It is not an order directing the defendant to produce the documents for inspection.  Such an order may follow in due course; it may not.  The first step along the way though is that  the  defendants  are  required  to  give  discovery by means  of  an  affidavit  of documents of the documents that are relevant in the sense that I have described above.  It seems to me that all of the classes of documents which are set out in sub- paragraphs (a)-(e) of the application dated 19 April 2006 are relevant and that therefore an order should be made directing the defendants to give discovery of those documents.  I make an order accordingly.

[18]     I would hope that the parties can from this point forward resolve matters of discovery without the need for further Court orders.  The various tests for discovery and  grounds  for  privilege  are  well  known.     I  am  sure  that  if  the  parties conscientiously meet their obligations as to discovery there should be no further difficulty in clearing away this interlocutory phase of the case.

[19]     The defendants are to file and serve an affidavit of documents not later than

19 September 2007.

[20]     There is a need to timetable discovery generally because there are other third parties who have not given discovery.   They are to provide their affidavit of documents by the same date.

[21]     Inspection of documents in each case is to be given by each party 24 October

2007.

[22]     There was a discussion about the defendants requiring further discovery from the plaintiff.  There is an obligation to make a further discovery of any additional documents  that  may  have  come  into  existence  and  that  may  well  extend  to documents relating to building repair work that the plaintiff has been carrying out to the building.  The parties will no doubt come to some sensible arrangement that at least in the first instance informal disclosure of those documents can be made, but of course the plaintiff has an obligation  if  ultimately required  to  give  an  affidavit deposing as to the further discoverable documents.  It may be practical to stage that a little later in the proceeding so that the plaintiff is not taxed with having to give repetitive affidavits of documents.

[23]     The next conference will be on Monday 12 November 2007 at 2:10 p.m.  At that  conference  I  shall  wish  to  hear  from  the  parties  concerning  the  following matters:

a)        a close off date for filing interlocutory applications;

b)setting the proceeding down and allocating a trial date.   This will require the parties to come prepared to answer questions about likely duration of the proceeding, number of witnesses, number of experts, and related questions;

c)       whether  a  judicial  settlement  conference  should  be  allocated  or whether some other form of ADR is to be attempted.

[24]     The applicant seeks costs.   As the successful party it should be entitled to costs.   Mr Kettelwell referred to the fact that the applicant was late in filing its submissions which resulted in his submissions being prepared “blind”.  While this latter aspect is regrettable I do not think it entitles the defendants to an order for

costs, and accordingly I order that the defendants are to pay costs on a 2B basis.

Associate Judge J Doogue