Neville Holdings Limited v Chan HC Auckland CIV-2009-404-002132
[2011] NZHC 99
•18 February 2011
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2009-404-002132
BETWEEN NEVILLE HOLDINGS LIMITED Plaintiff
ANDMICHAEL CHAN Defendant
Hearing: 16 February 2011
Counsel: P T Finnigan for the Plaintiff
D R Bigio for the Defendant
Judgment: 18 February 2011
JUDGMENT OF ASHER J
This judgment was delivered by me on Friday, 18 February 2011 at 11am pursuant to r 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Solicitors/Counsel:
P T Finnigan, DX CP24059, Auckland 1140. Email: [email protected]D R Bigio, PO Box 4338, Shortland Street, Auckland 1140. Email: [email protected]
NEVILLE HOLDINGS LIMITED V MICHAEL CHAN HC AK CIV-2009-404-002132 18 February 2011
Introduction
[1] This is an application by the plaintiff for an order setting aside a claim to privilege and orders for particular discovery. The proceeding has been set down for hearing on 28 March 2011 and accordingly leave is required under r 7.18 of the High Court Rules.
[2] The claim relates to the amount payable to the plaintiff, Neville Holdings Limited (“Neville”) to the defendant Michael Chan under an agreement for sale and purchase of a commercial property at 3 Cortina Place, Pakuranga. The agreement recorded the sale price as $3,725,000. On the plain words of that agreement the sale price is stated to be inclusive of GST. Neville asserts that it should have been exclusive of GST.
[3] The amended statement of claim puts forward three causes of action: rectification, unilateral mistake and mutual mistake. Essentially the relief sought is an order directing the further payment of a sum of $465,625 being the GST at issue. Mr Chan denies that there was any mutual intention that the price should be exclusive of GST, or that there was any unilateral or mutual mistake. Indeed, he asserts that it was known by both vendor and purchaser that the price was inclusive of GST.
The application
[4] There are essentially three elements to the application. The first is an application under r 8.31 that a Judge should inspect certain documents to which Mr Chan claims privilege to decide whether the claims to privilege are valid. An order is sought that the claims to privilege be set aside to the extent that they are invalid.
[5] The second element is in respect of certain documents that have been identified in Mr Chan’s list of documents which, it is said, should also have been shown in the list of documents as being in the possession of his lawyer, Barbara
Vague, as either the author or receiver of the documents. I am also asked to first inspect those documents and order particular discovery.
[6] The third element is an application for discovery of all documents relating to any valuations of the relevant property, or correspondence relating to those valuations.
First element – Should I inspect in relation to the privilege claim?
[7] Mr Finnigan appearing for Neville argued that a number of documents identified in the application should be inspected by me, as there was a question as to whether privilege had been properly claimed. It is necessary to briefly set out the relevant circumstances relating to the documents.
[8] The final round of negotiations that led to the agreement occurred in early August 2008. An initial written offer was exchanged on 1 August. Following a series of communications, a revised offer to purchase, drafted by agents for Mr Chan, was forwarded to the vendor, Neville. It contained a purchase price shown at $3.7 million and the words “plus GST (if any) OR inclusive of GST (if any). If neither is deleted the purchase price includes GST (if any)”.
[9] There was a counter-offer by Neville at $4 million without any deletion of the words relating to GST. The counter-offer of $4 million was crossed out by Mr Chan and $3.75 million substituted. So ultimately the agreement was signed at
$3.75 million without any change to the words relating to GST. Neville will endeavour to show at the hearing that Mr Chan either knew that Neville thought that GST was to be in addition to the $3.75 million, or suffered from the same misapprehension or mutual mistake that GST was excluded. Mr Chan will say that Neville was aware that the purchase price was inclusive of GST, or that at the very least there was no mistake in relation to this issue, and no mistake or knowledge of a mistake by him.
[10] There was a variation to the agreement on 7 November 2008. Mr Finnigan will argue that any mutual intention or mistake was operative until that date.
[11] John McMillan of Neville asserts that on 12 November 2008 he realised the error as to the GST. Mr Chan was notified of this. Without conceding that privilege was initially improperly claimed, Mr Bigio advised me that Mr Chan has agreed to waive any privilege up to 12 November 2008. Thus, all documents in respect of which privilege could be claimed up to 12 November 2008 have been discovered and any privilege is waived. Mr Finnigan is therefore seeking judicial inspection and a direction as to discovery only in relation to documents for which Mr Chan has claimed privilege that came into existence after 12 November 2008.
[12] Any document that arose after 12 November 2008 is a document that arose after the battle lines had been drawn between the parties. Any new knowledge or understanding reached after 12 November 2008 is irrelevant to the three causes of action. Indeed, it is the knowledge and understanding of the parties up to, at the latest, 7 November 2008, when the variation was signed, which will be determinative of the three causes of action.
[13] Mr Finnigan argues that the reason I should inspect the documents is that there could, in the post-12 November 2008 documents, be statements of a non- privileged type by Mr Chan making admissions of his earlier knowledge over the relevant period up to 7 November 2008 of a mistake on the part of Neville or his own intention.
[14] The Court has a discretion to require documents to which a privilege or confidentiality claim is challenged to be produced for inspection. The relevant rule is r 8.31 which provides:
8.31 Challenge to privilege or confidentiality claim
(1) If a party challenges a claim to privilege or confidentiality made in an affidavit of documents, the party may apply to the court for an order setting aside or modifying the claim.
(2) In considering the application, a Judge may require the document under review to be produced to the Judge and inspect it for the purpose of deciding the validity of the claim.
(3) The Judge may—
(a) set aside the claim to privilege or confidentiality; or
(b) modify the claim to privilege or confidentiality; or
(c) dismiss the application; or
(d) make any other order with respect to the document under review that the Judge thinks just.
[15] The rule does not set out any guidelines to be applied by the Court in the exercise of its discretion. Cooke J in General Royal Exchange Assurance of New Zealand Ltd v Stuart[1] noted that in general a Judge who is in any real doubt as to the validity of a claim to privilege and is asked by one of the parties to inspect should not hesitate to do so. In Seamar Holdings Ltd v Kupe Group Ltd[2] the Court of Appeal described as the “governing consideration” that a ruling after inspection of the documents, albeit unassisted, is more likely to further the ends of justice than a ruling without inspection of the documents. In other cases the courts have inspected documents when there was doubt as to the validity of claims as to irrelevance[3] and to public interest privilege.[4]
[1] General Royal Exchange Assurance of New Zealand Ltd v Stuart [1985] 1 NZLR 596 (CA) at 599.
[2] Seamar Holdings Ltd v Kupe Group Ltd [1995] 2 NZLR 274 (CA) at 279.
[3] Christchurch City Council v Christchurch Gas Ltd (1988) 2 PRNZ 609 (HC) at 611.
[4] Green v Commissioner of Inland Revenue [1991] 3 NZLR 8 (HC).
[16] Documents should not, however, be supplied for inspection “as a matter of automatic practice”.[5] The Court will not inspect upon request. This would cause interlocutory processes to be prolonged, with attendant expense, as courts are effectively asked to check a party’s discovery. There is a threshold to be crossed. The Court must be satisfied circumstances warrant inspection. The Court of Appeal made this clear in Seamar Holdings v Kupe Group Ltd:
A Judge will not automatically inspect but as a matter of judgment will no doubt satisfy himself or herself that the circumstances warrant exercising the power of inspection and that it is likely to be of assistance. We see no reason to impose anything more.
[5] General Accident Fire & Life Assurance Corporation Ltd v Elite Apparel Ltd [1987] 1 NZLR 129 (CA) at 133.
[17] Here I have not been pointed to circumstances warranting the exercise of my power of inspection. Privilege is claimed under s 54 of the Evidence Act 2006. The documents in question cover communications between Mr Chan and legal advisors
from 23 January 2009 to 28 May 2009. Thus, the exchanges for which privilege is
claimed took place over two months after the last relevant date relating to the transaction, and well after litigation was contemplated. Although it is not relied on in the list of documents, s 56 of the Evidence Act 2006 may also apply.
[18] Mr Bigio for Mr Chan submits that there is nothing surprising or suspicious about the nature of the documents in question. I agree. It could be expected that Mr Chan would need to continue to require legal advice from his solicitor after Neville had asserted the mistake. There were ongoing issues as to conditions that had to be fulfilled under the agreement for sale and purchase, and arrangements to be made for an interim settlement whereby the parties could settle, but maintain their right to bring or defend these proceedings. In all the circumstances the fact that there were privileged communications through this period is unremarkable. Moreover, the exchanges can have had nothing directly to do with the rectification and mistake issues, as they all date from 28 January 2009, months after the relevant period of
1 August 2008 to 12 November 2008.
[19] Mr Finnigan has suggested that there may have been some sort of an admission by Mr Chan to his lawyers made in this later period. This is an observation that could be made in relation to all solicitor/client exchanges after litigation has arisen. There may always be the possibility of a non-privileged admission in correspondence between solicitor and client in relation to a dispute, but there is nothing to indicate that one was made here. There is nothing to suggest that Mr Chan and his advisers have not observed their obligations in the discovery process responsibly and properly. In the absence of any indication to the contrary, it must be assumed that the privilege has been properly claimed for these documents.
[20] In these circumstances there is no factor that exists to show that inspection by the Court is necessary. To do so would be to do little more than engage in a speculative fishing expedition, with the Judge doing the fishing.
[21] I decline to inspect the documents. As there is no basis for ordering that
Mr Chan’s claim to privilege should be set aside, I decline to make any such order.
[22] In his list of documents Mr Chan discovered certain privileged communications with Ms Vague. Not all those communications are shown in the list of documents as being part of the file of Ms Vague. In other words, documents that do exist that have been exchanged between Mr Chan and Ms Vague are not discovered by Mr Chan as being on the file of Ms Vague. Mr Finnigan argues that these documents must exist, that they may contain some relevant notes by Ms Vague, and that I should inspect them and order discovery.
[23] Mr Bigio submits in response that all the documents provided by Ms Vague, who no longer acts for Mr Chan, have been discovered. He points to the statement in Mr Chan’s affidavit that documents held by his former solicitors have been lost or destroyed. He says that this statement should be accepted as correct. Copies of these documents have been destroyed.
[24] The lack of disclosure in the Ms Vague’s file of documents of exchanges with Mr Chan is at first sight surprising. It could be expected that those exchanges would be both on Mr Chan’s file and her file. However, the documents are emails. Ms Vague does not appear to act for Mr Chan any longer and indeed another firm of solicitors took over the carriage of the transaction partway through. Ms Vague has changed her place of practice and moved away from Auckland. There is no reason to doubt the statement in the list of documents that the emails have been destroyed. There is nothing inherently suspicious about the failure by Ms Vague to retain the documents, as Mr Chan has himself disclosed the documents as part of his file. If he was trying to hide anything in Ms Vague’s file he would not have disclosed the documents himself. I see no reason not to accept the disclosure as made.
[25] I conclude that I should not inspect the file. Indeed, to do so would be futile as the documents of interest to Neville are not there. I see no reason to go behind the list of documents. I decline to make any order for further and particular discovery by Mr Chan, or for non-party discovery by Ms Vague.
[26] Neville seeks:
All documents of the first defendant giving instructions for, seeking and obtaining any valuation of the subject property at Cortina Place including any valuation and documents from the valuer ...
[27] The valuation in question is a valuation of Darrochs dated 12 August 2008 obtained by Mr Chan. It was forwarded by mistake in non-party discovery to Neville. So Neville has a copy of it. It shows a value for the property of
$4.2 million plus GST (if any).
[28] When asked why he would want formal discovery now that he has a copy of the document, Mr Finnigan responded that he also wanted the documents whereby Mr Chan sought the valuation, as he might have told the valuer the price of the proposed purchase, and disclosed his understanding of the GST position.
[29] I accept that the valuation of 12 August 2008 could be a relevant document. To obtain relief under s 6(1)(b) of the Contractual Mistakes Act 1977 the mistake must result in a substantially unequal exchange of values, or the conferment of a disproportionate benefit or imposition of a disproportionate obligation. A valuation made in August 2008 before litigation was in contemplation could be relevant in assessing the exchange of values.
[30] However, there is nothing to indicate that the failure to disclose the valuation was in any way sinister or an attempt to hide it, and as I have observed the valuation has now been given to the plaintiff. I see no reason to put Mr Chan to the expense of doing a supplementary list of documents just to put the record straight. The informal discovery that has taken place is in the circumstances sufficient.
[31] Further, there is nothing to indicate that there are any other relevant communications between Mr Chan and the valuer. The valuation in question states that the instructions from Mr Chan were “verbal”. In any event it is highly unlikely that Mr Chan in instructing a valuer would have referred to the sale price under the agreement for sale and purchase. As Mr Chan was buying it at an apparent
undervalue, such a disclosure could have influenced the valuer downwards. Mr Chan presumably wanted a valuation that was as high as possible for mortgage purposes. It would be counter-productive to disclose the low purchase price.
[32] In all the circumstances, there is nothing to indicate that there are any other relevant documents relating to the valuation, other than the valuation itself, which has already been disclosed. In those circumstances I am not prepared to make any orders for particular discovery in relation to valuations.
Result
[33] Leave is granted to make this application under r 7.18 of the High Court Rules. The application for an order setting aside Mr Chan’s claim to privilege and orders for particular discovery is declined.
[34] Neville, having failed in its application, would in the ordinary course of events pay costs to Mr Chan. It was argued for Neville that there had been late supplementary discovery by Mr Chan after submissions were drafted, and that this should mean a reduction in any costs order that might be made. However, when that supplementary list of documents was filed the opportunity was then available for Neville to abandon the application and to seek preparation costs. They chose not to do so but rather to proceed with this unsuccessful application. In the circumstances costs should follow the event.
[35] The plaintiff will therefore pay the defendants’ costs and reasonable disbursements on a 2B basis.
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Asher J
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