Minister of Education v H Construction North Island Ltd
[2017] NZHC 3147
•15 December 2017
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2013-404-1504 [2017] NZHC 3147
IN THE MATTER OF BOTANY DOWNS SECONDARY
COLLEGE
BETWEEN
MINISTER OF EDUCATION First Plaintiff
SECRETARY FOR EDUCATION Second Plaintiff
BOARD OF TRUSTEES OF THE BOTANY DOWNS SECONDARY COLLEGE
Third Plaintiff
AND
H CONSTRUCTION NORTH ISLAND LIMITED
Defendant
Hearing: 24 November 2017 at 10:00am Appearances:
M Davies with W Potter and R Gibson for the Plaintiffs
A Skelton and M L E Broad for the DefendantJudgment:
15 December 2017
JUDGMENT OF ASSOCIATE JUDGE R M BELL
This judgment was delivered by me on 15 December 2017 at 11:30am
pursuant to Rule 11.5 of the High Court Rules
Solicitors:
………………………………………………….
Registrar/Deputy Registrar
Meredith Connell, Auckland, for the Plaintiffs
MINISTER OF EDUCATION v H CONSTRUCTION NORTH ISLAND LIMITED [2017] NZHC 3147 [15 December 2017]
Kensington Swan, Wellington, for the Defendant
Copy for:
Andrew Skelton, Wellington, for the Defendant
[1] The defendant applies for these interlocutory orders:
(a) further discovery by the plaintiffs;
(b)setting aside the plaintiffs’ claim to privilege in some discovered documents;
(c) requiring the plaintiffs to file an amended reply to the statement of defence; and
(d) leave to file and serve a counterclaim.
At the start of the hearing, counsel advised of an agreed arrangement for the further discovery. I issued a separate minute for that application.
The defendant’s application under r 8.25 to set aside the plaintiffs’ privilege claims
[2] A schedule to the defendant’s application listed documents for which the defendant challenged litigation privilege claimed by the plaintiffs. At the hearing, I was advised that the plaintiffs no longer claimed privilege for these documents:
BOT.01.009, BOT.01.0010, BOT.01.0015, BOT.01.0016, BOT.01.0018, BOT.01.0019, BOT.01.0025, BDS.01.1653.
That left four groups of documents:
(i) a report by Babbage Consultants Ltd dated 18 December 2009;
(ii)eight reports by Alexander & Co Ltd to the Ministry of Education made between September 2012 and December 2013;
(iii) a report by ACH Consulting Ltd to the Ministry dated 11 February
2013; and
(iv)schedules of defects prepared by Alexander & Co Ltd sent to the plaintiffs’ lawyers in July 2014.
[3] I was asked not to rule on privilege for the report by Babbage Consultants Ltd in this decision. That is to be dealt with later. That document was not subject to a claim for litigation privilege, but settlement negotiations privilege under s 57 of the Evidence Act. It was apparently sent for the purpose of without prejudice negotiations. The defendant contests that the document can be subject to litigation privilege.
[4] Documents in the second and fourth groups were provided for my inspection, but not the report by ACH Consulting Ltd dated 11 February 2013. It was agreed that privilege for that document would stand or fall with any ruling on privilege for the reports by Alexander & Co Ltd. Curiously, the defendant provided copies of the documents in the second group. The plaintiffs had provided those documents to the defendant on a without prejudice basis at the start of the proceeding. The defendant accepts that it received these documents on a without prejudice basis and that it cannot use those documents in the hearing unless the claim for litigation privilege is set aside. Accordingly, the argument as to privilege for that group of documents goes to whether the defendant will be able to use the documents at the substantive hearing. If the privilege is upheld, the defendant will not be able to cross-examine the plaintiffs’ witnesses on the contents of those reports.
[5] The plaintiffs provided the documents in the fourth group for inspection. The defendant has not seen them.
[6] The plaintiffs claim litigation privilege under s 56 of the Evidence Act 2006:
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.
[7] The Evidence Act is concerned with what evidence may be given in a court hearing to determine facts in issue. Part 2 subpart 8, entitled “Privilege and Confidentiality”, deals with evidence, documents and communications which, while relevant, may not be used to prove facts because they are protected from disclosure on grounds of privilege and confidentiality. Strictly then, the privilege provisions of the Evidence Act do not apply directly to whether documents are protected from inspection under procedural discovery. All the same, the test under s 56 is regarded as largely codifying the common law as to litigation privilege. In Dinsdale v Commissioner of Inland Revenue, decided before the Evidence Act 2006, the Court of Appeal said:1
This appeal concerns the type of legal professional privilege often called “litigation privilege”: the privilege which applies to communications between a legal professional advisor and a third party and between a client and a third party, made with a view to obtaining information to be submitted to a legal professional adviser. It protects the process of gathering evidence for consideration by a lawyer acting for a party in civil or criminal litigation or threatened with such litigation. The Law Commission has said in its Discussion Paper on Evidence Law: Privilege (1994) NZLC PP23, that the central feature of litigation privilege “is that it represents the fruits of effort on the part of the litigants in preparing for the case” (para 109). The evidence may have been gathered by the lawyer, the client or an agent for either of them, but the work must have been carried out with the dominant purpose of conducting or advising on actual or reasonably anticipated litigation: Guardian Royal Exchange Assurance of NZ Ltd v Stuart [1985] 1 NZLR 596 (CA). The privilege is thus one which is related to:
“The right of a litigant or potential litigant to seek and obtain legal advice on his prospects and the conduct of proceedings under the seal of confidence [and to] the right of such a litigant and his legal adviser to prepare for and conduct his case without, directly or indirectly, revealing the effect of that advice.”
(Ventouris v Mountain [1991] 1 WLR 607, 612; [1991] 3 All ER 472,
476 per Bingham LJ.)
If litigation is but one of two or more equally important purposes, it is not the dominant purpose. It is a question of fact what is the dominant purpose.
[8] In some cases the courts have found that purposes are inseparable and it is impossible to distinguish between dominant and secondary. An example is Re High Grade Traders Ltd:2
What, then, was the purpose of the reports? The learned Judge found a duality of purpose because, he said, their insurers wanted not only to obtain the advice of their solicitors but also wanted to ascertain the cause of the fire. Now, for my part, I find these two quite inseparable. The insurers were not seeking the cause of the fire as a matter of academic of interest in spontaneous combustion. Their purpose in instigating the enquiries can only be determined by asking why they needed to find out the cause of the fire. And the only reason that can be ascribed to them is that of ascertaining whether, as they expected, it had been fraudulently started by the insured. It was entirely clear that, if the claim was persisted in and if it was resisted, litigation would inevitably follow. The claim had been made and there was no indication that it was not going to be pressed, particularly after Mr MR’s acquittal. It is, as it seems to me, entirely unrealistic to attribute to the insurers an intention to make up their minds, independently of the advice which they received from the solicitors, that the claim should or should not be resisted. Whether they paid or not depended on the legal advice which they received, and the reports were prepared in order to enable that advice to be given. The advice given would necessarily determine their decision and would also necessarily determine whether the anticipated litigation would or would not take place.
… there was no purpose for bringing the documents into being other than that of obtaining the professional legal advice which would leave to a decision whether or not to litigate. That, in my judgment, was a sufficient purpose on its own to entitle them to privilege quite apart from any subsidiary purpose which they might serve in any litigation which might ensue as a result the decision.
[9] The parties agreed that the decision on litigation privilege in this case involves two questions: whether litigation was reasonably apprehended at the time of the relevant communication of information and whether the communication or information was made, compiled or prepared for the dominant purpose of preparing for a proceeding or apprehended proceeding. It was also common ground that the plaintiffs have the onus of proving the litigation privilege.
The reports by Alexander & Co to the Ministry
[10] The plaintiffs began this proceeding in March 2013. The Ministry of Education’s project manager, claims and assessments, says that she began that job in October 2010. There had been discussions and negotiations with the defendant over
defects in the school, but nothing had been resolved. She was given responsibility for the school in early 2012. She formed the view that there was potentially a substantial legal claim against the defendant for the school. She considered that the negotiations with the defendant and with architects had stalled. She regarded litigation as highly likely and was conscious of pending limitation deadlines. In 2012 she instructed Alexander & Co Ltd, building surveyors, to investigate the gymnasium and performing arts building. She says that the purpose in engaging Alexander & Co was to confirm that the Ministry should issue legal proceedings and obtain further information to be used in drafting the proceeding.
[11] On 28 September 2012, a building surveyor at Alexander & Co emailed her:
Regarding the above, I spoke to Craig as the report is slightly delayed in the peer review process. The report should be out by the middle of next week, but I am concerned that the limitation dates are fast approaching.
This is likely to be a large value/high profile plan with Andrew Scott Cotton Architects Ltd and Hawkins Construction Ltd, responsible for the design and construction respectively. In order to give the heads-up and enable you to commence the legal proceedings, I have got the surveyor responsible to prepare a draft extract of a report which I have attached. You will note that the first date is the completion of architectural drawings on 8 November 2002. If you or your legal team have any questions regarding the investigation please do not hesitate to contact the reporting surveyor, Peter Gillingham.
[12] Alexander & Co provided their first report on the gym and performing arts centre in September 2012. The project manager says that she forwarded it to the Ministry’s lawyers to progress the legal claim against the defendant. As further reports on stage 1 buildings came in she forwarded them to the lawyers for further litigation advice.
[13] The defendants’ attack on the reasonable apprehension of litigation touched on records as far back as 2010 involving communications with the defendants, internal communications within the Ministry, and between the Ministry and the school. Those records went up to 7 March 2011. They are irrelevant to determining whether litigation was reasonably apprehended in September 2012.
[14] The defendant also submitted that to be reasonably apprehended, litigation must be a real likelihood rather than a mere possibility. That submission does not
make any sense in this case. The Ministry was considering making a claim against the defendant. Before it did so, it needed advice from building surveyors. Its lawyers would not be able to prepare a claim without appropriate expert advice as to defects, damage and remedies. When reports were obtained for this purpose the person commissioning the report might not know whether the reports would show a basis for a proceeding. With that uncertainty it is not possible to say that a proceeding is probable rather than possible. But when a party commissions such a report, it clearly contemplates litigation under s 56 of the Evidence Act.
[15] On the basis of the project manager’s evidence and in the absence of any significant countervailing evidence from the defendant, I find that in 2012 the Ministry apprehended litigation against the defendant and the architect for building defects in the school and commissioned reports from the building surveyors for that purpose. The Ministry continued to apprehend litigation for all the reports by Alexander & Co from September 2012 to November 2013 – that is, up to and after the start of the proceeding
[16] The defendant also put the purpose of the reports in issue. It contended that litigation was not the dominant purpose. It referred to passages in the reports which suggested that the reports were to record defects without dealing with litigation. For example, the first report is said to read generally as the report of an investigation of certain defects leading to water ingress. The defendant says that a report about investigations into defects, including references to the need for further investigations of the defects or of remedial options, cannot have the dominant purpose of preparing for litigation. Even if litigation was in prospect, it was not the dominant purpose.
[17] On the other hand, the plaintiff relied on the project manager’s evidence that the only reason for requiring the reports was for suing the defendant and the architect. It pointed to schedules in the reports where the surveyors identified various limitation deadlines under s 91 of the Building Act 1991 and s 393 of the Building Act 2004. The email from Alexander & Co clearly showed that they had litigation in mind in reporting building defects.
[18] The plaintiffs accept that the reports could be used to establish remedial works to be carried out. They say that that is part and parcel of the litigation purpose. For this, they rely on Randerson J’s decision in Carter Holt Harvey Ltd v Genesis Power Ltd. There the plaintiffs had obtained reports from consultants when litigation was reasonably apprehended. The reports dealt with proposed remedial steps. Randerson J said:3
… Carter Holt is not obliged to disclose the advice it receives from its expert advisors as to the remedial steps proposed and their efficiency. This advice could include a range of options, reasons for or against the selection of an option, comparative costs and advice as to the anticipated outcomes. Advice of this kind is critical to the conduct of the litigation and is obtained so the plaintiff is able properly to assess the options available and obtain advice from legal counsel as to the steps necessary to fulfil the plaintiff’s duty to mitigate. Advice of this nature cannot sensibly be differentiated between advice in connection with the litigation and advice on the remedial work required. The two are inextricably linked.
That is similar to the point made by Oliver LJ in the High Grade Traders case above.4
There is the same duality of purpose in this case.
[19] The defendant referred to Dinsdale v Commissioner of Inland Revenue as authority that there must be a single dominant purpose.5 The circumstances of that case are far removed from the present. The ANZ Banking Group was threatened with prosecution by the Inland Revenue for failure to disclose certain documents. The bank’s lawyers commissioned a report from a firm of accountants to establish the factual position. The issue was whether notes of interviews by the accountants were subject to litigation privilege. On the facts of that case, the Court of Appeal found that the notes were made without the dominant purpose of submitting them to the bank’s lawyers for the purpose of a proceeding and accordingly litigation privilege did not apply. That case stands on its own facts and does not apply here.
[20] In this case I am satisfied that the dominant purpose of the Alexander & Co reports was anticipated litigation, even though the reports dealt with the investigation
of defects. Accordingly, litigation privilege applies to the Alexander & Co reports
3 Carter Holt Harvey Ltd v Genesis Power Ltd (No 7) HC Auckland CIV-2001-404-1974, 6 May
2008 at [29].
4 Re High Grade Traders, above n 4, at 173 and 174.
5 Dinsdale v Commissioner of Inland Revenue, above n 3, at 326.
prepared between September 2012 and November 2013.
Report of ACH Consultants Limited
[21] Because litigation privilege applies to the reports of Alexander & Co, it also applies to the report of ACH Consultants Limited.
The defects schedules
[22] In July 2014, Alexander & Co sent defects schedules to the plaintiffs’ lawyers. The schedules provide information as to defects in the school buildings and information to assist the lawyers in formulating the plaintiffs’ claims against the defendant. They were sent to the lawyers after the proceeding had started and were clearly made for the purpose of the proceeding. They also are subject to litigation privilege under s 56 of the Evidence Act.
Report by Babbage Consultants Ltd
[23] As mentioned above, the report by Babbage Consultants has been left for later determination.
Have the plaintiffs waived privilege?
[24] The defendant says that the plaintiffs have waived any privilege in the reports by Alexander & Co by referring to them in pleadings. That is waiver under s 65(2) and (3) of the Evidence Act 2006:
65 Waiver
(1) A person who has a privilege conferred by any of sections 54 to 60 and
64 may waive that privilege either expressly or impliedly.
(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
(b) institutes a civil proceeding against a person who is in possession of the privileged communication, information, opinion, or document the effect of which is to put the privileged matter in issue in the proceeding.
[25] The defendant relies on these pleadings by the plaintiffs:
(a) The statement of claim of March 2013:
5.3ACL (Alexander & Co Ltd) carried out investigations into the building work, including visual and destructive testing;
5.4In around September 2012 ACL issued a report to the plaintiffs which identified significant defects with the design and construction of the building work.
(particulars of the defects given)
(b)The first amended statement of claim filed in September 2013 repeated those allegations and added:
5.6ACL continues to carry out investigations and destructive tests on the buildings, full particulars of the balance of the Building Works will be provided following receipt of the reports. Despite no formal reports having been provided, ACL confirm that they have identified defects in respect of Blocks A, B, C, D and F that include, but are not limited to …
(particulars of the defects given)
(c) The second, third and fourth amended statements of claim are in broadly similar terms. The fourth amended statement of claim says:
64.In or around 2012, the plaintiffs engaged expert building surveyors to inspect and investigate the Stage 1 Building Work, the Stage 2 Building Work and the Stage 3 Building Work.
65.The inspections and investigations identified defects in the construction of the Stage 1 Building Work, the Stage 2
Building Work and the Stage 3 Building Work (the Defects).
(particulars of the defects given)
[26] The defendant says that the references to reports by the building surveyor in the first two pleadings and the references to investigations by building experts in general in the later pleadings involve voluntary disclosures under s 65(2) that are inconsistent with a claim of confidentiality because the reports have been put in issue.
[27] In Ophthalmological Society of New Zealand Inc v Commerce Commission, the Court of Appeal dealt with arguments as to waiver of privilege in the context of an expert report which was referred to in an affidavit for an interlocutory application. The headnote accurately summarises:6
When a claim of waiver of privilege was made the Court had to make an objective judgment as to whether the conduct of the party was consistent with maintaining the privilege or constituted an abuse of the privilege. That required close analysis of the particular context: what was in issue in relation to the privilege; how the evidence related to that issue; and whether there was inconsistency with the privilege which would lead to injustice if the privilege were upheld. The weight to be given to fairness would differ according to the circumstances, including the character of the privilege in question, in this case litigation privilege.
The Court said:7
Ultimately, under the processes of case management and in accordance with their policy, the briefs of witnesses to be called in the present case will be disclosed to opposing parties prior to trial. That will not, however, of itself destroy the confidentiality of privileged material associated with the preparation. Nor does the use of that material for other purposes prior to trial necessarily involve any unfairness or breach of natural justice indicating a use inconsistent with maintaining the privilege.
… In the present case, the appellant’s complaint is essentially that the Court hearing the application to amend the pleading will be told of the contents of an intended brief, to the commission’s significant advantage, in its application to amend its pleadings. That use of privileged material on the High Court’s decision will be made without having to disclose at this point the brief itself or ever disclose the source communications made with the witness in the briefing process. It is not, however, unusual for counsel to indicate to their opponents, prior to formally serving briefs, the content of the evidence they intend to call. By doing that for their own purposes they do not intend to nor, considered objectively, do they act in a manner that is inconsistent with maintaining their client’s privilege in material associated with the briefing process.
6 Ophthalmological Society of New Zealand Inc v Commerce Commission [2003] 2 NZLR 145 at
145-146.
7 At [41]-[42].
The Court of Appeal referred approvingly to this dictum of Gallen J in Corry-Wright
& Salmon Ltd (in rec and in liq) v KPMG Peat Marwick:8
I accept that by placing some reliance on the fact that advice has been obtained, the second plaintiff could be said to have come within the ambit of the formulation of the principle as it appears in the decision of Deane J in A- G v Maurice (supra), but I think that those comments need to be considered in context. There is nothing intrinsically unfair in saying “I have brought these proceedings because I have obtained legal advice to support such action”. That must apply in almost every case.
While the Ophthalmological Society case was decided before the Evidence Act, it offers useful guidance in applying s 65(2).
[28] In this case, references in pleadings to investigations by experts, including identification of those experts, does not involve any waiver under s 65(2). Just as there is nothing intrinsically unfair in a litigant saying that they have brought a proceeding because they have obtained legal advice to warrant it, there is likewise no unfairness in a litigant in a leaky building proceeding saying that they have brought a proceeding because they have obtained expert advice from building surveyors to support their allegations. It almost goes without saying in any leaky building proceeding that the plaintiff will have obtained such advice. The plaintiffs lose nothing by stating in the pleadings that experts retained by them have identified defects.
[29] The plaintiffs referred to the English Court of Appeal’s judgment in Buttes Gas and Oil Co v Hammer (No 3) for authority that a mere reference to privileged documents in pleadings is not by itself a waiver.9 The decision does not, however, consider any fairness questions which our Court of Appeal emphasised in The Ophthalmological Society decision.
[30] In my judgement, there is no significant difference between the pleadings in the first two statements of claim and the last three. In the hearing, it was submitted
that whereas the earlier pleadings expressly referred to investigations by Alexander &
8 Corry-Wright & Salmon Ltd (in rec and in liq) v KPMG Peat Marwick (1992) 5 PRNZ 518 at 522 cited in Ophthalmological Society of New Zealand Inc v Commerce Commission, above n 8, at [27].
9 Buttes Gas and Oil Co v Hammer (No 3) [1980] 3 All ER 475 (CA) at 494 per Donaldson LJ and at 502 per Brightman LJ. Lord Denning MR at 486 took a stricter view.
Co, later pleadings were more general. That argument was run to suggest that even if there had been a waiver in the earlier pleadings, the waiver was reversed in the later pleadings. The point does not directly arise but if there were anything in the distinction I accept that the plaintiffs could retain the privilege by appropriately amending their pleadings.10
[31] Evidence has been exchanged. The author of the Alexander & Co reports will give evidence at trial. His brief of evidence does not deal with any of the matters addressed in his reports. It deals only with the gathering of samples which were sent to a testing laboratory. His statement of evidence does not establish any waiver of privilege in his reports.
[32] As to whether there has been waiver under s 65(3)(a) by putting communications in issue, Panckhurst J’s decision in AstraZeneca v Commerce Commission offers helpful guidance:11
To my mind the judgments in Ophthalmological Society and Shannon indicate where the boundaries of s 65(3)(a) lie. While the former espouses a test based on the Court’s objective judgment as to the consistency of the claimant’s conduct with maintaining the privilege, the discussion in Shannon elucidates the principles which underpin that test. The mere relevance of a privileged communication to an issue in the case provides no basis for waiver. Even a party’s asserted reliance upon a privileged communication is generally insufficient. 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 the 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.
[33] In the AstraZeneca case the Commerce Commission had attached to an affidavit a memorandum by a legal advisor, but had redacted parts containing legal advice. Panckhurst J held that the Commerce Commission had not asserted reliance upon the privileged communication. It had done no more than assert that legal advice was obtained. That did not amount to injecting the substance of the advice into the
proceeding. He held that privilege had not been waived under s 65(3)(a).
10 Lord Denning MR recognised this in Buttes Gas Ltd v Hammer at 486. See also Capital & Merchant Finance Ltd v Perpetual Trust Ltd [2015] NZHC 1233 at [24].
11 AstraZeneca v Commerce Commission (2008) TCLR 116 at [39].
[34] A similar approach applies here. The plaintiffs have referred in their pleadings to having obtained reports from consultants who have carried out investigations. But that is not by itself enough to inject the substance of the communication into evidence. There is no abuse of the privilege in showing in the pleading that expert advice has been obtained. There has therefore been no waiver under s 65(3)(a). The waiver arguments fail.
The plaintiffs’ reply to the defendant’s statement of defence
[35] The defendant takes the plaintiffs to task for evasive pleading in their reply to its statement of defence. It seeks an order requiring the plaintiffs to file an amended reply. In reply to the defendant’s 132 paragraph statement of defence, the plaintiffs filed a reply of 100 paragraphs. The defendant says that many paragraphs do not meet the requirement to answer pleading in substance.
[36] Under r 5.63 of the High Court Rules, replies must be limited to answering affirmative defences and positive allegations and otherwise must comply with the rules governing statements of defence so far as they are applicable. An affirmative defence or positive allegation in a statement of defence that is not denied is treated as admitted. The defendant relies on r 5.48(2):
A denial of an allegation of fact in the statement of claim must not be evasive. Points must be answered in substance. If, for example, it is alleged that the defendant received a sum of money, it is not sufficient to deny receipt of the particular amount. Rather, the defendant must deny receipt of that sum or any part of it, or set out how much was received. When a matter is alleged with circumstances it is not sufficient to deny it as alleged with those circumstances. In all cases a fair and substantial answer must be given.
The defendant’s complaint is that in those parts complained of, the denials by the plaintiffs are evasive because they do not answer the pleading in substance.
[37] I will not go through each paragraph. Instead, I address one matter that the defendant focused on: pleading of terms of contract for the Stage 1 building work. Paragraph 24 of the fourth amended statement of claim pleads that in December 2002 the defendant was awarded the tender to construct the Stage 1 building work. In its statement of defence, the defendant admits paragraph 24. It then goes on to say that
the acceptance is set out in a letter from the architects to it dated 20 December 2002. It also says that the contract documents were the documents issued for tender plus additional documents listed in paragraph 2.1 of the letter (including the architect’s specifications, standard terms of contract with NZIA), specific and special conditions, details regarding warranties and a form of warranty to be provided by the contractor. In their reply, the plaintiffs admit that an undated tender acceptance documents was sent to the defendant dated 20 December 2002, and that the document recorded the contract sum. But they deny that the document referred to the NZIA standard conditions of contract, any specific or special conditions or any details regarding warranties. They otherwise repeat paragraph 24 of the fourth amended statement of claim and deny any positive allegations inconsistent with it.
[38] The defendant says that this is evasive. The plaintiffs admit there was a contract but deny that the terms of contract are what the defendant contends. It says that if the plaintiffs deny its terms of contract, they must accept that there are other terms of contract. To answer the pleading in substance they must therefore state what those terms of contract are.
[39] There might be something in that if the parties had found and disclosed a signed building contract. One of the odd features of this case is that neither side seems to have a complete set of signed contract documents for any of the contracts for any of the building stages. The plaintiffs say that for their case that does not matter too much. It is common ground that the defendant worked for the plaintiffs under contract but their claims are in negligence. They therefore do not have to rely on the terms of the contract to sue the defendant. Their claim is in tort for negligence in carrying out contractual works. They may have to prove by other means the scope of those works undertaken by the defendant. On the other hand, the defendant may wish to rely on contractual terms so as to show the limits of its responsibility and any exclusions from liability.
[40] Against that background, it is not evasive for the plaintiffs to put the defendant to proof on the terms of contract. They are doing no more than requiring the defendant to prove the case it has pleaded. Their bare denials will prevent them from contending
that there were other terms of contract. Putting the defendant to proof on the terms of contract is understandable, given the absence of signed contract documents.
[41] That was the defendant’s strongest point on the attack on particulars. A similar result is reached for all the other particulars requested. The defendant should assume that where the plaintiffs have denied positive allegations it has been put to proof of those allegations. At this stage of the case, where the plaintiffs have already delivered their evidence and the time for the defendant to serve its evidence is fast approaching, no useful purpose can be served by requiring the plaintiffs to amend their reply. That application is dismissed.
Counterclaim
[42] In its statement of defence of 16 October 2017, the defendant pleaded indemnity as an affirmative defence and counterclaim. That was filed before the close of pleadings date. It seeks leave to file the counterclaim, because it was not filed “within the time stated in the notice of proceeding for filing a statement of defence” as required under High Court Rule 5.55. That was in 2013.
[43] In its indemnity defence, the defendant pleads that cl 51 of the Stage 1 building works contract indemnifies it against any loss or liability or damage referred to in cl
50.1 of the Stage 1 building work contract, including any damage due to any act or omission in respect of the architect or other contractor employed by the Ministry that arises from defects in the design or fair wear and tear of the contract works. It also
indemnifies the defendant against any costs necessarily incurred by it in relation to these matters. The defendant pleads that any of the defects or damage in the Stage 1 building works are attributable to acts or omissions of the Ministry, of the architect or other contractors employed by the Ministry or arise from defects in the design of the works or fair wear and tear of the contract works. It says that to the extent it is found liable for any damages claimed by the plaintiffs, it is entitled to set off against those damages, for whatever amount the Ministry is required to indemnify it.
[44] The defendant has pleaded the indemnity as both an equitable set off and a counterclaim. It was entitled to amend its statement of defence and to raise fresh
affirmative defences up until the close of pleadings date, 31 October 2017. It was therefore entitled to plead a set off defence for the first time in its statement of defence of 16 October 2017. The defendant relies on the same matters for both its set off defence and for its counterclaim. The counterclaim is in the nature of a defence. The indemnity applies only if the defendant is found liable. The defendant alleges that under the indemnity its liability can be reduced or eliminated. That makes the indemnity suitable for equitable set off under the principle in Grant v NZMC Ltd.12 It would therefore be perverse to allow the defendant to run a defence of equitable set off based on the indemnity, but refuse to allow the same matter to be run as a counterclaim.
[45] Having said that, I doubt that the indemnity pleaded will operate in this case. The defendant is being sued in tort for negligence. Any finding of liability will turn on an assessment of the defendant’s own fault. Its liability may be reduced on account of other affirmative defences it has pleaded: contributory negligence, mitigation and betterment. If it establishes contributory negligence by the plaintiffs, liability will be reduced so that it does not have to bear the consequences of the plaintiffs’ own negligence. It does not have to carry the consequences of any failure by the plaintiffs to mitigate their losses. That means that it will not be liable for any damage owing to any act or omission of the Ministry, the architect or other contractors employed by the Ministry, or that arises from defects in design, or fair wear and tear. There will therefore be no liability for which it can be indemnified under the clause.
[46] Besides, the indemnity clause appears to serve another purpose. Indemnity provisions typically apply for liabilities to a third party, not liabilities to the other party to the contract. The likely purpose of the pleaded cl 51 is to allocate ultimate liability between the plaintiffs and the defendant in the event that either of them is found liable to a third party. The defendant might incur liability to a third party for which it might wish to invoke the indemnity in cases of strict liability, for example for nuisance, under Rylands v Fletcher,13 breaches of workplace safety legislation and resource management legislation. If the parties wished to allocate responsibilities between each
other for their respective performance under the contract, they would not use
12 Grant v NZMC Ltd [1989] 1 NZLR 8 (CA) at 8-12.
13 Rylands v Fletcher [1868] UKHL 1, (1868) LR 3 HL 330.
indemnity provisions but are more likely to stipulate what matters would amount to breaches of contract.
[47] The plaintiffs complained that the counterclaim would require more extensive evidence. I cannot see that. They suggested that expert evidence would be required as to the operation of the indemnity clause, but it appears to involve little more than contractual interpretation for which the trial judge is more likely to be assisted by submissions.
[48] The counterclaim might be vulnerable to a strike-out application, but in the circumstances of this case, it is inefficient to allocate further hearing time to deal with an application to strike out part of the pleading of one party. The close of pleadings date has expired. The parties are exchanging evidence. There is only a short time to the hearing. There is already too much interlocutory skirmishing. The matter can be dealt with more conveniently at trial.
[49] For these reasons, I extend the time for filing the counterclaim. It is to be treated as having been filed within time. That is a procedural ruling which does not bar the plaintiffs from arguing at trial that there is no merit in the counterclaim.
Outcome
[50] I dismiss the application under r 8.25 to set aside the privilege for the documents identified in paragraph [2] above, but record that the claim for privilege for document BDSUPP 0056 (the Babbage report) has still to be decided.
[51] I dismiss the application requiring the plaintiffs to file an amended reply.
[52] I grant leave to the defendant to file and serve its counterclaim in its statement of defence and counterclaim dated 16 October 2017. The counterclaim is to be treated as having been filed on 16 October 2017.
[53] The application for further and better discovery will be heard on 14 December
2017 for one half day.
[54] The plaintiffs have substantially succeeded and are entitled to costs. I certify for second counsel. If the parties cannot agree costs, memoranda may be filed and I will decide costs on the papers.
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Associate Judge R M Bell
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