Newland v Henderson Steele Ltd HC New Plymouth CIV 2009-443-2990
[2011] NZHC 1652
•18 November 2011
IN THE HIGH COURT OF NEW ZEALAND NEW PLYMOUTH REGISTRY
CIV 2009-443-2990
BETWEEN DENISE NEWLAND Plaintiff
ANDHENDERSON STEELE LTD & ORS Defendants
ANDQBE INSURANCE (INTERNATIONAL) LTD
Third Party
CIV 2009-443-0198
AND BETWEEN ALAN KIRKHAM AND PAULINE GRETCHEN KIRKHAM
Plaintiffs
ANDMICHAEL JONATHAN COLE & ORS Defendants
ANDQBE INSURANCE (INTERNATIONAL) LTD
Fourth Party
Hearing: 3 February 2011
Counsel: Newland proceeding
K Towt for Plaintiff
E Walton for Defendants
J K Scragg for QBE Insurance (International) Ltd
Kirkham proceeding
A Hooker for Plaintiffs
C Jiang for First and Second Defendants
J K Scragg for QBE Insurance (International) LtdJ N Henderson, in person, for himself, Broadbase International Ltd and Henderson Advisory Services Ltd
No appearance by or on behalf of Broadbase Christchurch Ltd
Judgment: 18 November 2011
NEWLAND V HENDERSON STEELE LTD & ORS HC NWP CIV 2009-443-2990 18 November 2011
JUDGMENT OF HEATH J
This judgment was delivered by me on 18 November 2011 at 4.00pm pursuant to Rule 11.5 of the
High Court Rules
Registrar/Deputy Registrar
Introduction
[1] In each of the Kirkham and Newland proceedings, investment advisers are sued by disappointed investors who have lost money as a result of investing or reinvesting money in failed finance companies. In general terms, each of the plaintiffs alleges that an investment adviser provided inadequate advice, in reliance on which they made investments or reinvestments. As a result, they say that they have suffered financial loss. Damages are sought in an amount that reflects the principal advanced, together with interest that ought to have been earned.
[2] The advisers had taken out insurance policies which they believed would respond to claims such as these. When they became aware of likely claims, their insurer, QBE Insurance (International) Ltd (QBE) was notified. QBE declined cover. The investment advisers have joined QBE in each proceeding and seek indemnity under the relevant policies. The issue between the insured and the insurer
is whether endorsements to the policy exclude liability.[1]
[1] See paras [17] and [18] below. In a separate proceeding, in which similar issues arise, QBE applied to strike out the insured’s claims for cover. That application was dismissed and, subject to any appeal, the proceeding will go to trial: Fussell v Broadbase Christchurch Ltd HC Christchurch CIV 2009-
409-834, 29 June 2011 (Associate Judge Osborne).
[3] On 3 February 2011, I heard two discovery applications in New Plymouth. They were adjourned part-heard for further evidence and submissions to be provided.[2] It transpired that the relevant documents were stored in Christchurch, at premises severely affected by the tragic earthquake of 22 February 2011. It was not until September 2011 that the parties were able to progress their applications. At a
telephone conference held on 26 October 2011, counsel advised me that they were
content for me to resolve outstanding issues, on the papers. A judgment is required in anticipation of judicial settlement conferences, scheduled for 28 and 29 November
2011.
[2] Kirkham v Cole & Ors HC New Plymouth CIV 2009-443-0198, 3 February 2011 (Heath J) at paras
[4] and [7].
[4] At the 26 October 2011 conference, counsel for QBE signalled an intention to seek leave to join Marsh Ltd as a fifth party to the Kirkham proceeding and a fourth party to the Newland proceeding. I heard from counsel on that issue on 11
November 2011, having given Marsh Ltd leave to appear. I ruled that there was no realistic way in which the joinder application could be heard before the scheduled settlement conferences. Nor did I consider that course to be desirable. Because of the limited time for preparation, it was clearly impracticable for Marsh Ltd to participate meaningfully in the settlement conferences. The applications were left
for resolution in the conventional way.[3]
The applications
[3] Kirkham v Cole (Minute No 12) HC New Plymouth CIV 2009-443-0198, 11 November 2011 at para [4].
[5] The investment advisers against whom the proceedings have been brought are all (to a greater or lesser extent) associated with the Broadbase group of companies. The discovery applications were made to facilitate inspection of documents said to be relevant to the insurance issues. For convenience, I refer to all defendants in each proceeding as the Broadbase interests.
[6] Two applications were argued before me on 3 February 2011. One (in the Newland proceeding) raised questions of privilege, in respect of some documents listed in QBE’s verified list. The other (in both the Newland and Kirkham proceedings) sought further and better discovery against QBE.
[7] Subsequent to the February hearing, the Broadbase interests in the Kirkham
proceeding[4] have terminated their solicitors’ instructions. I am told that occurred
[4] See paras [10] and [12] below.
due to an inability to meet ongoing fees (at least in part) as a result of QBE having
declined cover under the relevant insurance policies. Their discovery application has been withdrawn. I deal with questions of costs on that application later.[5]
The claims in outline
[5] See para [42] below.
[8] An outline of each proceeding is necessary to understand the factual background against which the applications fall for determination. I take my summary from the pleadings filed in the Kirkham and Newland proceedings; including the claims made against QBE. For present purposes (although a number of the allegations of fact are denied by the relevant defendants and QBE) I assume that they are capable of proof at trial.
[9] Mr and Mrs Kirkham dealt with BritsNZ Ltd and its employee, Mr Cole. They were instructed to carry out an audit of Mr and Mrs Kirkham’s current holdings and to make recommendations as to their investment needs. In February 2006, specific instructions were given for BritsNZ and Mr Cole to advise on a retirement investment portfolio. The Kirkhams requirement was that a “low risk investment strategy” be developed “to provide them with an income stream sufficient to live on and to provide capital growth in the long term”.
[10] In late February or March 2006, Mr Henderson was engaged by BritsNZ and/or Mr Cole to make specific investments. Mr Henderson was a principal of some of the companies that I am describing as the Broadbase interests. Mr Henderson, in conjunction with those other entities, provided investment advice.
[11] The written investment plan developed by Mr Henderson recommended placement of a sum of $350,000 in Capital + Merchant Finance Ltd and $200,000 in PropertyFinance Securities Ltd. Those companies subsequently failed. They were placed in receivership in August and November 2007, respectively. Mr and Mrs
Kirkham’s case is that BritsNZ, Mr Cole and each of the Broadbase interests
provided negligent[6] advice in reliance on which they acted and suffered significant financial losses.
[6] The claims are brought in negligence, breach of contract, breach of s 9 of the Fair Trading Act 1986 and breach of s 29 of the Consumer Guarantees Act 1993.
[12] Ms Newland sought investment advice in 2002 from an adviser employed by Broadbase Egmont Ltd. That company is now known as Hamilton Steele Ltd. Mr Nairn was one of its directors. Ms Newland’s instructions were to provide “a safe and secure investment portfolio which would supplement her income and provide for her in retirement”. A “conservative” portfolio was recommended. Ms Newland made an initial investment of $100,000.
[13] In August 2006, Ms Newland’s investments were approaching maturity. By this stage Mr Ternouth had joined Hamilton Steele Ltd. Ms Newland made it clear that she “did not want to risk her money being invested in long-term commitments” and reiterated instructions that they were to “remain safe”.
[14] Ms Newland was advised to invest in Bridgecorp Finance Ltd, Capital + Merchant Finance Ltd, PropertyFinance Securities Ltd and MFS Pacific Ltd. In total she invested something in the order of $500,000 in those companies.
[15] By the end of 2007 all except MFS Pacific had been placed in receivership. In or around February 2008, MFS Pacific was subject to a moratorium. Ms Newland sues to recover significant financial losses, on similar bases to those advanced on behalf of Mr and Mrs Kirkham.[7]
The insurance claims
[7] The causes of action are brought in negligence, breach of s 9 of the Fair Trading Act 1986, breach of s 28 of the Consumer Guarantees Act 1993 and breach of fiduciary duty. Hamilton Steele Ltd is sued on the basis that it is vicariously liable for the acts of Mr Ternouth and Mr Nairn.
[16] The Code of Ethics and Professional Conduct of the Institute of Financial
Advisers Inc require members to hold professional indemnity insurance “covering
those areas in which the member practices, to provide clients with protection from
errors and omissions”. The Broadbase interests took out professional indemnity
insurance policies with QBE, to comply with that requirement.
[17] QBE declined cover, for reasons given in letters from their solicitors of 6
March 2009 (the Newland proceeding) and 10 July 2009 (the Kirkham proceeding). In material terms, the letters are identical. Reliance was placed on an endorsement to the policies that, QBE contends, operates as an exclusion clause, in respect of certain classes of claims that an insured may make.
[18] In its solicitors’ letter to Ms Newland, QBE’s position was put as follows:
1.We act for QBE Insurance (International) Limited (“QBE”) and have been dealing with the notification by you of the claim by Denise Newland under reservation of rights by QBE. We hereby give notice that QBE Insurance (International) Limited declines the claim made in respect of the claim on you by Newland. It is not liable to provide indemnity due to the application of the Investment Advisor’s Endorsement (a) and/or (b).
2. The relevant parts of the Investment Advisor’s endorsement (“IAE”)
are as follows:
“QBE shall not be liable under this Policy to provide indemnity in respect of any Claim alleging, arising out of, based upon or attributed to, or in any way involving, directly or indirectly:
(a) Depreciation, or failure to appreciate, in value of any investments including but not limited to securities, commodities, currencies, options or futures transactions; or
(b) any actual or alleged representation, advice or guarantee provided by or on behalf of the Insured as to the performance of any such investment; ...”
3.The claim is detailed in the statement of claim. There are three causes of action; negligence, misleading conduct under the Fair Trading Act and breach of the Consumer Guarantees Act.
4. All causes of action allege the reduction in value ie the depreciation
of the plaintiff’s investments. Accordingly (a) of the IAE applies.
5.Additionally or alternatively, in substance it appears that the claim is that the plaintiff was told that the investments were likely to produce the contracted rates of interest and a return of the capital. Accordingly the claim(s) can be said to arise out of the advice given by Hamilton Steele Ltd as to the likely performance of the plaintiff’s investments in the finance companies. All that is required is that the
claims arise indirectly from advice as to the performance of the investment. This requirement is satisfied.
...
[19] Following declinature, QBE was joined as a third party in the Newland proceeding and a fourth party in the Kirkham proceeding. QBE contests liability under the policies. It continues to rely on the exclusions set out in the investment advisory endorsement. The central issue, as between insured and insurer, is whether the policies respond to the type of claims made by the investment advisers against whom proceedings have been brought.
The privilege issue – general comments
[20] In an affidavit sworn on 8 September 2011, Mr Skelton (QBE’s Deputy Claims Manager) listed documents in respect of which privilege was claimed. Those listed under category P 1 are the subject of a legal advice privilege claimed under s 54 of the Evidence Act 2006 (the Act). Those that appear under category P 2, are the subject of a litigation privilege claim, based on s 56 of the Act.
[21] There was one document in respect of which privilege was claimed in the first verified list of documents that has been omitted from the second. Counsel for QBE has advised that the document in issue went missing during the Christchurch earthquake. For that reason, it has not been included in the list of documents in respect of which privilege is claimed.
Legal advice privilege
[22] Section 54 of the Act provides:
54 Privilege for communications with legal advisers
(1) A person who obtains professional legal services from a legal adviser has a privilege in respect of any communication between the person and the legal adviser if the communication was—
(a) intended to be confidential; and
(b) made in the course of and for the purpose of—
(i) the person obtaining professional legal services from the legal adviser; or
(ii)the legal adviser giving such services to the person.
....
[23] The scope of s 54(1) is referable to “professional legal services from a legal adviser”. The terms “legal adviser” and “lawyer” (one of the species of legal adviser) are defined in s 51(1) of the Act.[8]
[8] The definition of “professional legal services” in s 54(2) is limited to explaining the nature of
services provided by a registered patent attorney or an overseas practitioner.
lawyer has the meaning given to it by section 6 of the Lawyers and
Conveyancers Act 2006
legal adviser means—
(a) a lawyer; or
...
[24] Section 6 of the Lawyers’ and Conveyancers’ Act 2006 defines the term
“lawyer”:
lawyer means a person who holds a current practising certificate as a barrister or as a barrister and solicitor
In my view, the definition of “lawyer” includes a person who gives legal advice to his or her employer, as long as that person holds a current practising certificate. Mr Skelton comes within that category of person.
[25] In Hart v Bankfield Farm Ltd,[9] French J considered a submission that documents that were no more than an instruction (as opposed to communications tendered for the purpose of obtaining legal advice) were not subject to s 54. She rejected that submission, saying:
[45] In my opinion, the instruction letter given ... clearly falls within [s 54]. While there might be an argument the letter was not for the purpose of seeking legal advice, it was, on anyone’s view of it, for the purposes of obtaining legal services. It follows I do not accept [counsel’s] first submission. I find the documents were privileged.
[9] Hart v Bankfield Farm Ltd HC Timaru CIV 2008-476-72, 21 May 2008 (French J).
[26] The documents in respect of which legal advice privilege has been claimed include some that came into existence before the Broadbase interests notified QBE of Ms Newland’s claim.
[27] Mr Skelton has given evidence about the circumstances in which Ms
Newland’s claim came to QBE’s attention. In summary:
(a) The relevant policies required the insured to notify QBE of circumstances that might give rise to claims under them;
(b) Following Bridgecorp Finance Ltd being placed in receivership in
July 2007, the insured gave notice of that circumstance;
(c) The insured told QBE that it had advised a number of clients to invest in Bridgecorp and finance companies of a similar ilk.
[28] At the time when Broadbase gave notification of “circumstances” to QBE in terms of the policies, it had not been served with proceedings in any matter relating to the collapse of Bridgecorp. However, by 15 August 2007, QBE was aware of potential claims from at least four investors who had lost sums of $45,000, $54,000,
$20,000 and $314,000 respectively. QBE quickly realised that the policy might be the subject of other investor claims, as a result of the collapse of companies in respect of which investment had been recorded.
[29] At that time QBE reviewed the relevant insurance policies. As part of that review, it considered how the investment advisors’ endorsement would apply to any claims brought against the Broadbase interests.
[30] QBE sought legal advice from Duncan Cotterill, solicitors, and from counsel instructed by that firm, Mr Till QC. As a result of advice received, QBE declined to indemnity Broadbase for the type of claim brought by Ms Newland and Mr and Mrs Kirkham.
[31] Ms Newland had notified Broadbase of a “grievance” with the financial
advice she received from Broadbase, on 31 March 2008. QBE was notified of that
on or about 7 April 2008. Advice was received from Mr Till on 14 October 2008. That is the date by which Mr Skelton contends that QBE had a reasonable apprehension that it would be involved in litigation at the suit of Ms Newland.[10]
[10] See the extract from Mr Skelton’s affidavit, set out at para [33] below.
[32] A formal claim was made by Ms Newland’s solicitors to Hamilton Steele Ltd on 25 September 2008. QBE received a copy of that letter on 29 September 2008. QBE was also aware of other correspondence about the claims from solicitors acting for Ms Newland, from 25 September 2008 until 19 December 2008.
[33] Mr Skelton deposed:
15.As an experienced claims manager, I know that once a decision is made to decline indemnity, there is a significant likelihood QBE will be joined as a party to proceedings. Once a decision to decline indemnity is contemplated, it is therefore normal for QBE to contemplate it will be joined to proceedings.
16.Given the nature of the claims against Broadbase, including the potential scale of losses and the number of potential complainants, it appeared very likely to me that Broadbase would join QBE to proceedings following declinature of a claim. Because of this, QBE wanted to make sure the right decision was made in relation to indemnity. This was the reason for obtaining Mr Till QC’s advice.
[34] I have considered the documents in issue for which legal advice privilege has been claimed. On the basis of Mr Skelton’s explanation of the circumstances in which advice was being sought about whether the policies would respond to claims of this type, I uphold the claim for legal advice privilege. While some documents do not specifically contain or seek legal advice, they are part of a continuum of correspondence in which the advice was being sought. In my view, those documents cannot sensibly be separated out from others to which the s 54 privilege attaches.
[35] There is at least one document that could be said to fall under the
“instruction” category, to which French J referred in Hart v Bankfield Farm Ltd. I
adopt the approach taken by French J in that case in upholding the privilege in respect of such documents.[11]
Litigation privilege
[11] Hart v Bankfield Farm Ltd HC Timaru CIV 2008-476-72, 21 May 2008 at para [45]; see para [25] above.
[36] Section 56 of the Act governs the circumstances in which litigation privilege may be claimed in respect of documents that have come into existence for the purpose of an apprehended proceeding:
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.
...
[37] Section 56(1) reflects the pre-existing common law. The test is whether the document in issue came into existence for the “dominant purpose” of the activities in respect of which privilege is claimed. It is enough for a person to reasonably contemplate becoming a party to an “apprehended” proceeding. The privilege can only attach to “apprehended” Court proceedings.[12]
[12] Evidence Act 2006, s 4, definition of “proceedings”.
[38] QBE perceived the possibility of a claim by Ms Newland on or about 7 April
2008,[13] the date on which QBE was notified of Ms Newland’s “grievance”. However, Mr Skelton’s approach to fixing an appropriate date is more conservative.[14] For the purpose of its litigation privilege claims, QBE has chosen 14
October 2008 as the date by which litigation privilege could attach to documents that
came into existence for the dominant purpose of preparing for apprehended proceedings. I am satisfied that is an appropriate date to apply.
[13] See para [30] above.
[14] See para [33] above.
[39] I have considered the documents in respect of which only litigation privilege is claimed. I am satisfied that those documents do fall within the category of litigation privilege and ought not to be disclosed.[15]
Costs
[15] In reaching that view, I have considered Laurenson v Wellington City Corporation [1927] NZLR
510 (SC), Guardian Royal Exchange of New Zealand Ltd v Stuart [1985] 1 NZLR 596 (CA), Fresh Direct Ltd v J M Batten & Associates (2009) 20 PRNZ 126 (HC) (Wylie J), at para [45] and AXA Seguros v Allianz Insurance Plc [2011] EWHC 268 (Comm) at para [43].
[40] There are three questions of costs that arise:
(a) Costs in relation to the unsuccessful application to set aside privilege; (b) Costs in relation to the withdrawn application for particular discovery
made by the Broadbase interests in the Kirkham proceeding;
(c) Costs on the remaining questions of further and better discovery, in the Newland proceeding.
[41] Costs shall lie where they fall on the privilege application. While QBE has been successful, an indulgence was granted in its favour (following the hearing on 3
February 2011) to provide further evidence. In addition, it was not unreasonable (given the times during which privilege was initially claimed) for the Broadbase interests to seek a Court ruling on whether privilege attached to the communications.
[42] While it proved necessary for further work to be undertaken by QBE, on the application for further and better discovery made by the Broadbase interests in the Kirkham proceeding, some of that duplicated required work on the application in the Newland proceeding. In those circumstances, I am not prepared to make an order for
costs against the Broadbase interests, on the withdrawn application.
[43] On the application for further and better discovery in the Newland proceeding, costs remain reserved. The application may yet be the subject of resolution by agreement.[16] I do not consider any order should be made until the outcome of the parties’ discussions (or any necessary Court ruling) is known.
Result
[16] Kirkham v Cole & Ors (Minute No 11) HC New Plymouth CIV 2009-443-0198, 26 October 2011, paras [14]–[16].
[44] The application to set aside the claims of privilege made by QBE in the
Newland proceeding is dismissed. No order as to costs.
[45] The application for further and better discovery made in the Newland
proceeding is adjourned for mention at the end of the settlement conferences on 29
November 2011, if substantive issues have not been resolved. I shall make further directions, if necessary, at that time.
[46] There will be no order as to costs on the withdrawn application for further and better discovery in the Kirkham proceeding.
[47] I have returned the sealed envelope containing the privileged documents to the Registrar. It shall be retained in safe keeping until completion of the settlement conferences. At that time, I will hear from counsel about whether there is any reason
why it cannot be returned, in that form, to the solicitors for QBE.
P R Heath J
Delivered at 4.00pm on 18 November 2011
Solicitors:
Dennis King Law, PO Box 1092, New Plymouth
Hoskins Thorn, PO Box 1753, Shortland Street, AucklandWynn Williams & Co, PO Box 4341, Christchurch
Duncan Cotterill, PO Box 5, Christchurch
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