NZX Ltd v Ralec Commodities Pty Ltd
[2015] NZHC 241
•23 February 2015
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
CIV-2011-485-1299 [2015] NZHC 241
BETWEEN NZX LIMITED
Plaintiff/First Counterclaim Defendant
AND
RALEC COMMODITIES PTY LIMITED First Defendant/First Counterclaim Plaintiff
RALEC INTERACTIVE PTY LIMITED Second Defendant/Second Counterclaim Plaintiff
GRANT DAVIS THOMAS Third Defendant
GRANT THOMAS NOMINEES PTY LIMITED
Fourth Defendant
DOMINIC LUKE PYM Fifth Defendant
PYM FAMILY PTY LIMITED Sixth Defendant
NZX HOLDING NO 4 LIMITED Second Counterclaim Defendant
MARK RHYS WELDON Third Counterclaim Defendant
Hearing: 28 and 29 January 2015 Counsel:
B R Latimour, B M Cash and J A Ruddell for plaintiff/counterclaim defendants
T J North SC, J K Scragg and B D A Collins for defendants/counterclaim plaintiffs
Judgment:
23 February 2015
NZX LTD v RALEC COMMODITIES PTY LTD [2015] NZHC 241 [23 February 2015]
RESERVED JUDGMENT OF DOBSON J
Contents
A RALEC APPLICATIONS
Application to remove confidentiality constraints imposed by NZX ............................................ [3] The approach to inspection of confidential documents .................................................................. [6] Documents relating to individual employees/contractors ............................................................ [11] Commercially sensitive documents in respect of NZX’s business ................................................. [23] Pre-requisites for disclosure of NZX confidential documents to experts ...................................... [37]
Challenge to extent of redactions in NZX discovered documents ............................................... [41] Challenge to NZX claim to privilege in parts of Ms Newsome’s notes ....................................... [53] NZX Holdings No 4 Limited – documents to be separately identified?...................................... [59] Non-disclosure of Mr Weldon’s notebooks.................................................................................... [64] Miscellaneous discovery concerns.................................................................................................. [72] NZX constraining Ralec’s contact with potential witnesses ........................................................ [76] B NZX APPLICATIONS
Challenge to Ralec’s claims to litigation privilege ........................................................................ [82]
Claim that Ralec has waived privilege on certain topics ........................................................... [103] Re Thundacats/no disputes representation ................................................................................. [108] Negotiation of integration (alliance) agreement .........................................................................[112] Advice on negotiating content of documents with NZX ...............................................................[114]
Legal advice on deteriorating relationship between Ralec and NZX, and the resignation of
Mr Thomas ..................................................................................................................................[119] Application for order that Ralec provide discovery of hard copy documents ......................... [121] Application for particular discovery re “gaps” and “missing documents” .............................. [125] Application for increased/further security for costs on the counterclaims............................... [130] Summary ........................................................................................................................................ [138] Costs ............................................................................................................................................... [140]
[1] My last interlocutory judgment in these proceedings was delivered on
6 March 2014.1 There, I sufficiently described the proceedings as involving claims by the plaintiff arising out of its purchase of businesses (based in Australia) from the defendants. There are also counterclaims by the defendants for alleged deficiencies by the counterclaim defendants in their post-acquisition operation of the businesses that are said to have compromised the prospects of the defendants earning additional consideration for their sale. As in my earlier judgment, I will refer to the plaintiff/counterclaim defendants as NZX, and to the defendants/counterclaim plaintiffs as Ralec.
[2] Somewhat more than three and a half years after the proceedings were commenced, the parties are still some distance from completing inspection of each other’s documents, and resolving residual issues in respect of the scope and terms for provision of discovery and inspection. This judgment deals for the most part with numerous applications affecting the scope and manner of discovery, and inspection arrangements. Their nature and the sequence in which they are addressed is sufficiently reflected in the list of contents of the judgment appearing above.
A RALEC APPLICATIONS
Application to remove confidentiality constraints imposed by NZX
[3] NZX has imposed confidentiality constraints on inspection of a substantial number of its documents, which Ralec’s counsel complain are frustrating their preparation of the case for Ralec. I addressed an earlier challenge by Ralec to the breadth of the confidentiality constraint in my 6 March 2014 judgment.2
[4] The submissions for Ralec identify 232 documents for which confidentiality constraints were still claimed on behalf of NZX. I was provided with copies of all of them for consideration, running to 1,328 pages.
[5] Counsel were at odds on how the documents ought to be characterised for the purposes of considering the justification for restraints on inspection, and whether
1 NZX Ltd v Ralec Commodities Pty Ltd [2014] NZHC 376.
2 At [52]–[63].
certain of the documents or their effective equivalents had otherwise been discovered on an open basis (that is, with no constraint on inspection claimed on behalf of NZX). A further issue was whether claims to confidentiality of some of the documents could be disputed because Messrs Pym and Thomas, as the Ralec principals most involved in preparation of its case, were independently aware of, or had sighted, some of the documents for which NZX still claimed confidentiality.
The approach to inspection of confidential documents
[6] The balancing act between fulfilling the discovery and inspection stage of proceedings so as not to frustrate fully informed preparation, and protection of legitimate confidentiality concerns, was reflected in the Court of Appeal’s observation in Port Nelson Ltd v Commerce Commission as follows:3
Relevant documents should generally be made available for inspection. The fact that they are regarded as being confidential, and would not be made available were it not for the requirements of the litigation, is immaterial. An order for non-disclosure can only be made when the Court is satisfied in terms of rule 312 that such an order is “necessary”. It must be either apparent from the document in question or shown by other evidence that disclosure would be likely to prejudice the party in some significant way. Even the possibility of prejudice may be sufficient, but that will depend on the seriousness of the possible prejudice and on the significance of the document to the issues in the proceeding, and the extent to which limited disclosure may enable the concerns of both parties to be accommodated.
[7] Although that decision pre-dates the current High Court Rules and also the Evidence Act 2006, it remains helpful guidance in assessing competing interests where disputes about claims to confidentiality cannot be resolved between the parties.
[8] I agree with, and respectfully adopt, the approach adopted to this issue by Asher J in Intercity Group (NZ) Ltd v Nakedbus NZ Ltd.4 That approach uses the considerations in s 69(3) of the Evidence Act as a touchstone, recognising that the section addresses the discretion the Court has to direct that confidential
communications not be disclosed in a proceeding, and that some of the
3 Port Nelson Ltd v Commerce Commission (1994) 7 PRNZ 344 (CA) at 348.
4 Intercity Group (NZ) Ltd v Nakedbus NZ Ltd [2013] NZHC 2261, (2013) 21 PRNZ 520 at [12]–
[24].
considerations in subs (3) will not be relevant in the context of restricting inspection of documents by an opposing party.
[9] The list in s 69(3) is as follows:
69 Overriding discretion as to confidential information
…
(3) When considering whether to give a direction under this section, the
Judge must have regard to—
(a) the likely extent of harm that may result from the disclosure of the communication or information; and
(b) the nature of the communication or information and its likely importance in the proceeding; and
(c) the nature of the proceeding; and
(d) the availability or possible availability of other means of obtaining evidence of the communication or information; and
(e) the availability of means of preventing or restricting public disclosure of the evidence if the evidence is given; and
(f) the sensitivity of the evidence, having regard to—
(i) the time that has elapsed since the communication was made or the information was compiled or prepared; and
(ii) the extent to which the information has already been disclosed to other persons; and
(g) society’s interest in protecting the privacy of victims of offences and, in particular, victims of sexual offences.
[10] The balancing of interests in the present circumstances can be approached from what I can treat as being the orthodox perspective. For the most part, I resist dealing with the opposing positions on an individual document basis, being satisfied that it is unnecessary to do so.
Documents relating to individual employees/contractors
[11] A significant portion of the documents for which NZX claims confidentiality contain details about or reflect dealings with individuals who were employees of the
businesses as owned by NZX, or contractors to them (employee confidential documents).
[12] Ralec’s legal advisers complain that the confidentiality asserted by NZX purportedly to protect the privacy interests of the individuals is unjustified, particularly as Ralec’s advisers have obtained affidavits from 11 of the individuals involved who have confirmed that documents in relation to them, as discovered by NZX, can be shown to the Ralec parties. One of those 11 individuals has qualified the approval for disclosure by requesting that he sight the documents involved first before any disclosure of them occurs. In addition, it is argued for Ralec that either or both of Messrs Pym and Thomas are familiar with the terms of employment of the individuals, by virtue of their own involvement with the businesses at the relevant times.
[13] In response to these points, Mr Cash argued that NZX’s obligations to respect the privacy of former (and existing) employees/contractors requires it to assert confidentiality in the documents about them. Mr Cash noted that the terms on which certain individuals have approved disclosure to Ralec does not go so far as authorising disclosure of personal details of their salary and other details to others of the employees, and that the claimed familiarity of Messrs Pym and Thomas with the circumstances of individual employees and contractors cannot credibly apply to the periods after Messrs Pym and Thomas ceased active involvement in the businesses.
[14] The appropriate balance in addressing the competing positions on this category is to permit disclosure of the confidential employee documents as discovered, on the following terms:
(a) where an individual is identified in a confidential employee document, Ralec may disclose the content in relation to that individual to that individual, once the individual consents to the disclosure occurring;
(b)where an individual consents to disclosure of content of confidential employee documents about that individual to both himself, and to experts, then that level of disclosure may occur; and
(c) Where an individual identified in a confidential employee document consents to such documents being disclosed to other existing or former employees or contractors of the businesses, then that disclosure may occur. Consent to this extent of disclosure should address disclosure to Messrs Pym and Thomas explicitly.
[15] In each case, Ralec is to obtain specific written terms of consent to disclosure from any individual so approached, prior to any disclosure occurring. Such written consents are to be retained by Ralec’s solicitors. No disclosure in respect of any individual is to occur, except to the extent that written consents are held by Ralec’s solicitors.
[16] To the extent that any confidential employee document addresses the circumstances of more than one individual, then the details in relation to any individual are to be redacted in any disclosure, except to the extent that Ralec’s advisers hold authorities to disclose details in respect of that individual in sufficiently broad terms to authorise the extent of disclosure being undertaken.
[17] One apparent exception to the individuals likely to give approval for disclosure is Mr Storey, and documents in relation to his business, ACF. I am not satisfied that Mr Storey is entitled to bolster NZX’s concern for confidentiality in relation to documents assessing the prospect of a purchase of his business. To the extent that documents analyse the prospects and nature of that business, rather than Mr Storey’s position as a potential employee of NZX, they are to be treated as falling outside the category of confidential employee documents. To the extent that documents reflect both detail about Mr Storey’s position as an employee, and commentary of any sort on the business, then the content addressing his position as an employee is to be redacted in any disclosure made by Ralec.
[18] As an example, I am annexing to the form of this judgment being issued to counsel the extent of redactions that I consider appropriate in the document at tab
178 of the bundles of confidential documents provided to me for the hearing.5 The
redactions I have made relate to details about Mr Storey as an employee or consultant. Concerns as to the confidentiality of details of the businesses that were being acquired is in a somewhat different category.
[19] A further subset of the employee confidential documents is those that relate to personnel still employed by NZX, or who continue to act as contractors to NZX. In addition to discharging NZX’s obligation as employer to protect the confidentiality of such employment arrangements, there is an understandable concern at the potential for embarrassment and disruption to those on-going relationships. An example is a May 2010 NZX document suggesting that it was intending to chart a different course with a particular employee from what
subsequently transpired.6
[20] Generally, the fact that disclosure of a confidential employee document is likely to cause embarrassment or strain in an on-going relationship would not weigh heavily in favour of constraining disclosure, but the countervailing consideration is the extent of impairment to the inspecting party’s preparation of its case when legal advisers are not able to share the content of such communications with their clients. On the guidelines I have set out, employees or consultants who are still with NZX are unlikely to grant approval for disclosure, so their position, and consequently that of NZX, is protected. Although I hope it is unnecessary, I reserve leave for Ralec to apply for relief from confidentiality constraints in relation to particular employee confidential documents where any material difficulty arises in the preparation of Ralec’s case.
[21] A further subset of the employee confidential documents is spreadsheets of salaries, bonus, Kiwisaver and superannuation details for all NZX employees.7 The
requirement for Ralec’s advisers to procure specific consent from each employee
5 Discovery no NZX.092.00528. (The public version does not contain this annexure.)
6 Discovery no NZX.144.00134, tab 107 in the confidential documents provided for the hearing.
7 Examples in the bundle of confidential documents provided were at tabs 7 and 8, NZX.144.00020 and NZX.144.00021.
before providing disclosure of details about them will require such spreadsheets to be redacted in all their details except to the extent they record details in respect of those who have provided approval to make disclosure. If such spreadsheets are treated as relevant, for example because of a comparison as to relatively how generously NZX treated employees in the particular businesses, compared with employees in other aspects of NZX’s businesses, then it should be possible for Ralec’s solicitors to undertake a statistical analysis to demonstrate any assumed relevant distinctions, and invite confirmation of the accuracy of that analysis by way of interrogatory. I am not to be taken as suggesting such a course, but identify the prospect as one means of balancing the interests of Ralec’s adequate preparation against the concerns NZX has in relation to its employees.
[22] I am not materially influenced by the argument for Ralec that the content of many of the documents for which confidentiality is claimed were known to either or both of Messrs Pym and Thomas because of their involvement in the businesses at the time. Mr Thomas resigned from the end of April 2010, and Mr Pym departed at the end of June 2011. NZX’s rejoinder that a general awareness of matters does not equate to knowledge of the confidential detail in specific documents is valid. On Ms Boos’ analysis of the 282 confidential documents in issue at the time of her last
affidavit, 134 of them post-dated Mr Pym’s departure.8
Commercially sensitive documents in respect of NZX’s business
[23] A further category of documents for which NZX asserts confidentiality is those documents which retain a sufficient level of commercial sensitivity that disclosure to third parties is likely to harm NZX’s current or future business.
[24] The weight to be given to such concerns has to take into account that many of the documents date from 2009 to 2011, with the most recent appearing to be about mid 2013. There is a reasonable expectation that commercial sensitivity of documents in relation to business proposals lose at least a measure of that sensitivity relatively quickly. As against that, the start-up nature of the businesses involved, and
their somewhat novel character, is likely to leave their owners relatively more
8 Affidavit of Grace Margaret Boos, 19 December 2014 at [9].
vulnerable to others copying the initiatives in competition with NZX than with, say, a manufacturing business.
[25] NZX has claimed confidentiality for documents such as notes of an initial meeting held between an agribusiness owner and an NZX representative (for example, at tabs 81 and 84 in the bundles of confidential documents).9 As I understand them, those are pre-acquisition descriptions of the business, and in some respects address their future prospects. Whilst understanding the commercial sensitivity, nearly six years after the transaction I am not persuaded that Ralec’s advisers should be constrained from discussing them with experts or Messrs Pym and Thomas, provided that they have all completed the appropriate undertakings.
[26] Another consideration is that NZX has commenced its claims in relation to the circumstances of acquisition of the businesses, and must be resigned to disclosure of the relevant circumstances surrounding the acquisition and subsequent conduct of those businesses, in making out the claims it brings. That position as plaintiff does not disentitle NZX to protection for genuinely confidential documents, but tempers to a degree the level at which confidentiality protection can be provided.
[27] As with a number of the aspects of the current applications, there has been some reconsideration of the need for constraint, and a measure of concession on NZX’s part as to the number of documents which it wants kept confidential. Of those that remain, and which are treated as commercially sensitive because of the perceived risk of harm to NZX’s business, I am satisfied that controlled disclosure to Messrs Pym and Thomas (in addition to experts) is warranted. As with the experts, I direct that before any disclosure of commercially sensitive documents is to occur, both Messrs Pym and Thomas are to complete unqualified written acknowledgements that they accept NZX’s concern for the commercial sensitivity of the content of such documents, that they will consider the content of such documents solely for the purposes of the present litigation, not retain any copies of them, and not disclose or discuss their content except with their legal advisers. Such acknowledgements should include statements to the effect that Messrs Pym and
Thomas accept these constraints, and the jurisdiction of the New Zealand High Court
9 NZX.045.00071 and NZX.010.00641.
to enforce them, irrespective of where they may be located when given access to the documents.
[28] One ground of Ralec’s challenge to the confidentiality claim was that copies of certain of the documents, or other documents with materially similar content, had been discovered elsewhere by NZX on an open basis. A variant was where a document had originally been discovered on an open basis but, once an apparent error was discovered, NZX’s solicitors have subsequently claimed confidentiality constraints for it.
[29] Mr Cash broke down the challenge to such documents into three components. The first was a group of NZX documents where there had apparently been duplicated copies provided for inspection in electronic files NZX.149, and NZX.149A. Although treated as still being in issue on Ralec’s argument, Mr Cash took me to an exchange of correspondence in September and October 2014 in which Duncan Cotterill acknowledged on behalf of Ralec that the apparent duplication resulted from an error in the electronic production of files for inspection purposes. Had the electronic production worked as NZX intended, the three documents in issue would only have been printed as documents in the NZX.149A electronic file, for which confidentiality was claimed.
[30] NZX has accepted in the course of dialogue between advisers that a second category of seven documents should be open for inspection without confidentiality constraint.
[31] That leaves a final group of four documents where NZX has provided access for inspection on an open basis in error, and has subsequently sought to impose confidentiality constraints in relation to them.10 The content of them is of a similar type to documents for which confidentiality has been claimed, either as employee confidential documents or as being commercially sensitive.
[32] The position of unintended waiver of privilege in documents is now covered by s 65(4) of the Evidence Act, which provides in essence that a party has not
10 Discovery nos NZX.144.00313, NZX.045.00072, NZX.095.00068 and NZX.105.00111.
waived privilege if disclosure occurred involuntarily or mistakenly or otherwise without the consent of the person who has the privilege.11
[33] It might be expected that unintentional waiver of confidentiality claimed over a discoverable document would be treated in the same way. However, there is no equivalent provision in the Act. Instead, one of the mandatory considerations as to whether the Court give a direction that a confidential document not be disclosed in a proceeding is the extent to which the information has already been disclosed to other
persons.12 That contemplates that there is no relevant notion of waiver of
confidentiality, so that the nature and extent of prior disclosure is another factor to be weighed up in deciding whether the Court will protect the confidentiality claimed in the relevant documents.
[34] There is no specific evidence addressing the circumstances in which documents for which confidentiality is claimed have been made available for inspection on an open basis. I was invited to infer that the occasional error of this type was to be expected, even if the discovery and inspection processes have been responsibly supervised overall.
[35] It does not appear that Ralec’s legal advisers had provided access to the documents in question to their clients or others before Bell Gully, on behalf of NZX, asserted the claim to confidentiality in respect of them. In all these circumstances, I am satisfied that the documents in question should be treated as within the category for which confidentiality constraints apply, consistently with the rulings I have given in respect of the remainder.
[36] The consequence is that such documents can be shown to experts and Messrs Pym and Thomas once appropriate undertakings have been received from them, to the extent that the confidentiality is claimed on the basis of commercial sensitivity. To the extent that the documents are employee confidential documents, then the
constraint on disclosure for that category also applies in relation to these documents.
11 See, for example, Body Corporate 191561 v Argent House Ltd (2008) 19 PRNZ 500 at [37]–
[42].
12 Evidence Act 2006, s 69(3)(f)(ii).
Pre-requisites for disclosure of NZX confidential documents to experts
[37] A discrete consideration is the constraint on Ralec’s legal advisers providing copies of relevant NZX discovered documents to appropriate experts retained to assist with the preparation of Ralec’s case. Mr Cash was inclined to accept, at least for the most part, that NZX could not resist such disclosures where appropriate protections in relation to confidential information disclosed by an opposing party were in place.
[38] One aspect of NZX’s concerns in this regard is that experts retained may be outside New Zealand and therefore not subject to the usual constraints applying to experts who are retained within New Zealand. I am not persuaded that experts of the types likely to be retained in this case are sufficiently removed from the practices and conventions applying to experts retained in New Zealand to justify any major variation to the arrangements that usually apply.
[39] Provided that all experts retained address, at the outset of their retainer, their commitment to compliance with the code of conduct for expert witnesses in sch 4 to the High Court Rules, then their involvement reflects their overriding duty to assist the Court. Instructions to experts uniformly require them to respect the confidentiality of all non-publically available information provided to them for the purposes of their retainer. The process of obtaining appropriate expert opinions would be frustrated if that standard arrangement did not apply.
[40] Disclosure of documents for which NZX claims confidentiality to experts
retained by Ralec’s advisers may occur on the following terms :
· Any expert is to be completely independent of all the Ralec parties, including the absence of any prior association with any Ralec party, and the absence of any financial or other interest in any of those parties. If Ralec retains an expert who is not completely independent, and nonetheless wishes to provide disclosure of any NZX documents for which confidentiality is claimed, then Ralec may seek directions from me on a non-notified basis before any such disclosures occur.
· In every case of an expert retained outside New Zealand, he or she is to complete an undertaking addressed jointly to Ralec’s solicitors and to the High Court of New Zealand, accepting the confidentiality of all documents derived from NZX, confirming that the only use made of those documents will be to provide advice to Ralec’s solicitors in relation to these proceedings, and submitting to the jurisdiction of the High Court of New Zealand for enforcement of the undertaking on terms recognising that the expert owes duties to this Court consistently with sch 4 to the High Court Rules.
· All such undertakings on these terms are to be completed in writing and held by Ralec’s solicitors prior to disclosure of any NZX documents for which confidentiality is claimed.
· Completion of such undertakings does not authorise unrestricted disclosure of confidential documents. Ralec’s solicitors are still to tailor the extent of disclosure to the scope of documents that are relevant to the topics, within the expertise of an individual expert, that are relevant to the opinion or advice sought from him or her.
· To the extent that Ralec intends to disclose NZX employee confidential documents (as that expression is defined in [11] above), the identity of individuals is to be redacted, consistently with the direction in [16] above, except to the extent that Ralec is holding consents from such individuals to make the extent of disclosure about them that is involved in provision of the documents to that expert.
Challenge to extent of redactions in NZX discovered documents
[41] NZX has provided copies of a substantial number of documents for inspection with part of their content redacted. Redactions have been made because the relevant content is considered to be either irrelevant or confidential. In some documents, the redactions were for part only of sentences so that the rationale for the redaction is difficult to discern.
[42] Ralec’s solicitors challenged the redactions and provided a schedule of some
240 documents that contained redactions, the justification for which was challenged. I was provided with copies of all of the documents in question.13
[43] My provisional view on hearing counsel’s submissions was that the disruption caused to the inspection process for Ralec’s advisers by their not being able to consider, at least on a confidential basis, the whole of the documents in question was likely to outweigh NZX’s interests in the excision of irrelevant and confidential material.
[44] After the hearing NZX’s solicitors filed a further memorandum dated
5 February 2015 addressing its response to a document by document list of Ralec’s concerns in relation to the redactions which they advised had been provided for the first time in submissions for the hearing. From NZX’s perspective, all of Ralec’s concerns in relation to redacted documents could be addressed on the terms of that memorandum.
[45] Ralec’s solicitors filed a memorandum in response on 11 February 2015, objecting to the course proposed on behalf of NZX, and to the manner in which NZX’s solicitors had raised the matter by means of their post-hearing memorandum. Ralec requested that I provide a determination in relation to the disputed redaction of all of the 242 documents.
[46] On 12 February 2015, I issued a minute directing that the issue of contested redactions be progressed in accordance with the proposal made on behalf of NZX in its 5 February 2015 memorandum. However, on 18 February 2015, Ralec’s solicitors filed a further memorandum complaining about allegedly unreasonable restrictions on the mode of inspection of the redacted documents being insisted on by NZX’s solicitors. Bell Gully had required the proposed inspection to occur at their offices, and to be carried out only by representatives of Duncan Cotterill. Ralec’s solicitors sought a direction that those additional constraints not apply, and instead
that they be afforded the opportunity of inspecting the redacted documents on the
13 10 volumes and 2,890 pages.
same basis as had previously applied to confidential documents disclosed to counsel only.
[47] On 19 February 2015, NZX’s solicitors responded on this topic yet again. This memorandum maintained that the constraints on inspection they were insisting on reflected proposals I had suggested during the hearing, and that they were made clear in their 5 February 2015 memorandum, and “the accompanying letter”.
[48] I did not appreciate that NZX intended to impose those restrictions when I considered the memoranda of 5 and 11 February 2015. No letter, said to accompany the 5 February 2015 memorandum, was referred to me. To the extent that the
5 February memorandum referred to my own suggestion that NZX would “permit inspection by Duncan Cotterill of the … documents …”, my part in the relevant discussions with counsel during the hearing was certainly not on the basis that NZX’s solicitors would discriminate between the personnel involved at Duncan
Cotterill, and the remainder of Ralec’s external legal team.14 Nor did the terms of
the 5 February memorandum put me on notice that NZX proposed the inspection had to occur at its solicitors’ offices, rather than by provision of electronic copies of the documents being available for inspection by Ralec’s legal advisers in their own offices.
[49] The sale and purchase agreement in issue provided for the non-exclusive jurisdiction of the New Zealand courts, and for New Zealand law to apply to the contract. However, the geographical and commercial reality is that the disputes arise out of NZX’s purchase of a series of businesses in Australia. The vendors of the businesses continue to reside in Australia, and it is entirely reasonable that they would use Australian solicitors and, at their option, Australian counsel, for their participation in the litigation. Unless some specific justification was raised, it would be antithetical to the letter and spirit of the Trans Tasman Mutual Recognition Act
1997 to manage commercial litigation of this type on a basis that discriminated
against Australian practitioners being involved for Australian litigants.
14 Any reference I made in my contributions to the relevant discussions to “Duncan Cotterill”
would only have been as an informal shorthand reference to Ralec’s legal advisers.
[50] Those who are authorised to access these confidential documents are all subject to the authority of the Court. In these circumstances, I was not persuaded that the sensitivity NZX displayed in preventing purportedly irrelevant aspects of partially redacted documents being disclosed to Australian solicitors and senior counsel could justify the disruption that would be caused to Ralec’s legal advisers in dealing with this aspect of the case.
[51] Accordingly, on 19 February 2015, I issued a further minute directing NZX’s solicitors to provide electronic copies of the redacted documents in unredacted form, for the confidential consideration of Ralec’s team of external legal advisers, to the extent that they are admitted in New Zealand.
[52] I will treat this aspect of Ralec’s application as being adjourned in the event that there are residual concerns on the scope and justification for redactions.
Challenge to NZX claim to privilege in parts of Ms Newsome’s notes
[53] Ms Rachel Newsome was employed as an in-house lawyer for NZX over the period of the acquisition of the businesses in question. NZX has provided discovery of a series of handwritten notes made by her in relation to various aspects of the transactions, apparently kept in spiral-bound notebooks. NZX treats Ms Newsome as having participated in two capacities. The first was as one of two lead managers in carrying out due diligence on the acquisition of the businesses. The second was in her on-going role as in-house counsel, providing legal advice to NZX and directing the requests for external legal advice, including responses to such advice.
[54] In discovering Ms Newsome’s notes, NZX has redacted the parts of them that it treats as made by her when discharging her second role as in-house counsel. Ralec has disputed the entitlement of NZX to do so, claiming that no legal context is provided in the adjacent parts of Ms Newsome’s notes that would suggest the redacted portion reflects the provision of legal services by her for her employer.
[55] In the latest of the affidavits affirmed by Ms Boos, a solicitor at Bell Gully involved in these proceedings, she has confirmed the dual capacity in which Ms Newsome was involved and, in a schedule to that affidavit, has provided a
description of the nature of the matters addressed in the redacted parts of
Ms Newsome’s notes.
[56] There is no dispute that a party to litigation can claim solicitor/client privilege for documents created by an in-house lawyer in the same way as correspondence with external legal advisers, subject to the content of the relevant documents meeting the same test.15
[57] Mr North SC urged me to assess in particular the context of redactions in three passages of Ms Newsome’s notes, on the basis that the lack of any apparent context for provision of legal services by Ms Newsome was sufficient to challenge the claim that the redacted content had such character.16 Mr North also submitted that the absence of an affidavit from Ms Newsome was telling. He criticised the ex post facto characterisation by a Bell Gully solicitor who was not involved in the
process at the time as inadequate to respond to Ralec’s challenge.
[58] I am not satisfied that Ralec’s challenge to the claim to solicitor/client privilege in respect of these documents can be made out. Assessing the context of them in light of Mr North’s concerns, and measuring those against the explanation for the redactions deposed to by Ms Boos, the basis for NZX’s claim to solicitor/client privilege has not been displaced. Given the informal and personal manner in which the notes appear to have been recorded by Ms Newsome, the absence of relevant context in the passages adjoining those that are redacted cannot of itself cast material doubt on the description of the content deposed to by Ms Boos. Accordingly, that aspect of the Ralec application is dismissed.
NZX Holdings No 4 Limited – documents to be separately identified?
[59] NZX Holding No 4 Limited (NZX4) has been sued by the Ralec parties as a second counterclaim defendant. NZX has provided its discovery lists jointly for the plaintiff and NZX4. However, Ralec claims to be entitled to have the discovery lists
specify those documents that are sourced from NZX4. Mr North argued that the
15 See generally McGechan on Procedure (online looseleaf ed, Brookers) at [HR8.25.06(4)(c)];
Robert v Foxton Equities [2014] NZHC 726 at [29]–[31].
16 The documents were NZX.070.00005 at 9, NZX.070.00006 at 14 and 16 and NZX.070.00012 at
7 and 8.
distinction is likely to be relevant to Ralec in preparing its case, first because NZX has not yet particularised the form or quantum of loss it claims, and has not sued in the name of NZX4 when it was the company that acquired and operated the businesses in question. Secondly, Ralec considers it is relevant on its counterclaim to identify the source of instructions to those operating the businesses post their acquisition by NZX as to how they were to be conducted.
[60] Part of Mr North’s argument was that the form in which the relevant records have been maintained electronically ought to enable NZX to separately identify the documents sourced from NZX4, and that given the potential relevance of its separate status, that modest extent of work should be required of NZX.
[61] NZX has resisted the need to separately identify the documents sourced from NZX4. It argues that the agreed protocol for discovery does not require it, that the Ralec parties have completed their discovery obligations on a joint basis, and that it would be disproportionate to require NZX to undertake what it considers to be a substantial amount of work to provide the additional detail sought.
[62] Ms Boos has deposed that NZX’s electronic records are stored using Google Cloud Computing Services, and the methods used for interrogating the electronic records did not seek to maintain any distinction between NZX4 and other components of NZX’s group of businesses.17 Ms Boos stated that because of the way in which NZX committed resources to operate the businesses, there is no entirely reliable criterion on which documents “sourced from NZX4” could be identified by further interrogation of the electronic records.
[63] Given NZX’s approach to the way in which its business has operated,18 and given also that discovery in the terms in which it has been provided accords with the protocol between the parties, I am not satisfied that there is any inadequacy in the form in which documents (including those for NZX4) have been discovered.
Further, because any research required to separately identify NZX4 documents
17 Boos affidavit, above n 8, at [59]–[65].
18 NZX draws no distinction between NZX4 and its parent company in relation to responsibility for the governance of the businesses acquired. Consistently, it appears that NZX will contend that there is no distinction between a loss suffered by NZX4 or attributing such loss to its parent company.
seems unable to be conducted without significant effort, and because of risks of inaccuracy in the answers that would be provided, the further direction sought by Ralec would be disproportionate and that aspect of its application is dismissed.
Non-disclosure of Mr Weldon’s notebooks
[64] Ralec personnel involved in dealings with Mr Weldon observed his practice of taking handwritten notes in exercise books or notebooks (the Weldon notebooks), in relation to matters he was dealing with during the acquisition of the relevant businesses and their subsequent operation. A further part of Ralec’s current application was for an order requiring Mr Weldon and NZX to file a further affidavit addressing in greater detail the circumstances in which those notebooks are said by NZX not to be available for discovery.
[65] The application is brought on the basis that the extent to which the Weldon notebooks have been addressed in affidavits of documents thus far do not discharge NZX and Mr Weldon’s obligations under r 8.16(1)(d). That provides that the schedule to an affidavit of documents must list or otherwise identify documents that:
(d) have been, but are no longer, in the control of the party giving discovery, stating when the document ceased to be in that control, and the person who now has control of them.
[66] Thus far, Mr Weldon’s own affidavit (completed after he had left NZX) confirmed that he had checked for any documents personally held by him that came within the terms of the discovery order, and that he did not personally hold any open documents falling within the scope of what was required. He confirmed that any potentially relevant documents were held by NZX. So far as documents in the control of NZX were concerned, Mr Weldon confirmed that he had provided assistance in helping to identify documents and where relevant documents might be found.
[67] In the affidavit of documents for NZX, a relatively extensive explanation was provided of the steps that were taken to identify hard copy material, and to undertake electronic searches for electronic documents. The NZX affidavit confirmed that
copies of diaries and notebooks of members of the due diligence team, where they were in existence, had been provided to Bell Gully to be added to the discovery list.
[68] The NZX affidavit identified a category for the “old exercise/notebooks of Mark Weldon” among the documents that had been lost or destroyed in the ordinary course of business, or otherwise lost, destroyed or no longer available.
[69] The effect of the relevant passages in the NZX affidavit of documents is that the Weldon notebooks are within the category that have been lost, destroyed or which are otherwise no longer available. It is implicit that no one within NZX (or Mr Weldon) can be more precise as to the timing or circumstances in which the Weldon notebooks became unavailable. NZX criticised the application as a fishing expedition, with little utility and which would accordingly impose a disproportionate obligation on NZX and Mr Weldon to cover additional ground for no useful purpose.
[70] Ralec considers NZX’s response to be inadequate. It was implicit in Mr North’s argument that, because the notebooks would have assumed relevance from an early point in Victorian County Court proceedings when Mr Weldon was still at NZX, that an obligation to preserve them was triggered from relatively soon after the notes were taken. However, Ralec cited no evidence that explicitly justifies an expectation that Mr Weldon or other NZX personnel ought to be able to depose in more precise terms as to the circumstances in which the Weldon notebooks were lost or destroyed.
[71] I am not persuaded that the NZX and Weldon affidavits are deficient in this respect. It is clear that their affidavits treat the Weldon notebooks as no longer available, with their having been lost or destroyed in circumstances that neither the deponent for NZX nor Mr Weldon can be precise about. The requirements under r 8.16(d) do not reasonably require more in the present circumstances. It may well be that, depending how matters develop, there may be scope for an interrogatory on the topic. However, in proportionate terms, this aspect of the NZX and Weldon discovery obligation has been sufficiently complied with.
Miscellaneous discovery concerns
[72] A residual aspect of Ralec’s present application was for an order requiring NZX to comply with the requirements of the discovery order and the listing and exchange protocol. The application cited aspects of NZX’s discovery that “required attention”. Ralec’s submissions complained that there were some 1,300 documents listed without a date, some 1,200 that were not attributed to a particular author and almost 800 that were both undated and “unauthored” documents. Despite exchanges of correspondence on the perceived inadequacies, concerns remained outstanding at the time the Ralec submissions were filed dated 23 January 2015.
[73] That part of Ralec’s submissions were not expressly addressed by Mr North in oral submissions. Nor did I understand the submissions in opposition on behalf of NZX to have dealt directly with this residual category of concerns.
[74] On the basis of the concerns described in the submissions, and a narrative in the third Tombleson affidavit, I am not persuaded that an order requiring NZX to supplement the detail of these documents is warranted. If the discovery task is kept in proportion, details such as this in the context of this litigation ought to be capable of resolution more informally.
[75] However, to the extent that the concerns and uncertainties identified in Ms Tombleson’s 5 December 2014 affidavit at [70] to [79] have not been resolved, it appears reasonable to expect NZX’s solicitors to respond as definitively as possible by way of informal clarification. To the extent that residual concerns remain and are not resolved informally, it may be that in the fullness of time Ralec might consider issuing interrogatories in relation to documents of particular relevance, where necessary details remain unclear.
NZX constraining Ralec’s contact with potential witnesses
[76] By way of a memorandum on 19 December 2014, counsel for Ralec raised concerns at what they characterised as inappropriate or improper communications from solicitors for NZX to potential witnesses whom Ralec’s solicitors wished to interview. The potential witnesses are former or existing employees of NZX, or
contractors to NZX. Bell Gully have written to a number of such individuals, at least some of whom Ralec’s solicitors want to interview, warning them of their on-going confidentiality obligations, and inviting the former employees or contractors to be in touch with NZX before embarking on any discussions with Ralec about NZX.
[77] Mr North’s concern was that letters from NZX’s solicitors in these terms would give the impression to the recipients of the letters that they were forbidden from talking to Ralec about the proceedings. Such an impression, whether given deliberately or not, was in breach of the principle that there is no property in a witness. The memorandum on behalf of Ralec sought directions from the Court that would require NZX and its solicitors to desist from any such attempts to constrain contact between former NZX employees, and Ralec’s solicitors.
[78] For NZX, Mr Latimour resisted the Court considering this complaint without Ralec having filed a formal application, specifying the extent to which it was claimed that there had been any breach of professional rules or other constraint on the conduct of NZX’s case. He also suggested that such an application should describe in specific terms the scope of any constraint that Ralec considered it was entitled to apply for against NZX and/or its solicitors. Mr Latimour foreshadowed argument that the terms of letters written to former employees or contractors did no more than remind those persons of on-going obligations of confidentiality, which NZX was perfectly entitled to do.
[79] I accepted Mr Latimour’s concern that the criticism being advanced, the extent to which the conduct was said to breach relevant constraints on the conduct of NZX’s case, and the scope of orders that might appropriately follow should be set out in sufficient detail in an application to enable NZX’s solicitors to take instructions and provide detailed argument in opposition to the orders sought. I am accordingly not in a position to determine Ralec’s entitlement to an order on any terms that would constrain this aspect of the conduct of NZX’s case.
[80] I did, however, indicate my provisional concern at the terms of the letter that had been sent on NZX’s behalf. Its effect was to send a warning shot to former employees that there might be adverse consequences for them if they were to discuss
their relationship with NZX with Ralec’s solicitors. Unless balanced by an explicit acknowledgement that there is no property in a witness, such communications do create a risk that the recipients will interpret them as enforcing a right NZX retained to prevent former employees talking with Ralec’s solicitors. As a matter of first principles, that is not the correct legal position.
[81] It is to be hoped that the informal discussion on the topic during the hearing will have cleared the air, but leave is reserved to Ralec to pursue a specific application, should it consider that necessary.
B NZX APPLICATIONS
Challenge to Ralec’s claims to litigation privilege
[82] Ralec has claimed litigation privilege in respect of communications between the Ralec parties and third parties or their agents from March 2010. Ralec did not specify the number and nature of the documents in its list and NZX has challenged the basis for a claim to litigation privilege from any earlier than November 2010.
[83] The scope of litigation privilege that may be claimed by a party was codified in s 56 of the Evidence Act 2006, but judgments addressing the topic in terms of the common law prior to that Act coming into force are still valid sources of guidance. The material provisions in the section are as follows:
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.
[…]
[84] The material considerations in the present dispute are whether individual documents were prepared after the proceeding was reasonably apprehended and, if so, whether each document was prepared for the dominant purpose of preparing for that proceeding.
[85] The party claiming the privilege must have a reasonable apprehension that the litigation that has ensued was probably going to occur.19 The mere spectre of eventual litigation is not enough. Decisions in New Zealand have adopted the characterisation by the English Court of Appeal that the litigation that ensued had to be a real likelihood rather than a mere possibility.20
[86] The requirement that the dominant purpose for creation of the document was the apprehended litigation derives from a settled approach that applied at common law before the Act. It is classically reflected in the Court of Appeal’s decision in Guardian Royal Exchange Assurance of New Zealand Ltd v Stuart.21 This form of the test for claiming privilege admits of the prospect that there may have been more than one purpose for creating a document, but where that is so, the dominant of them
has to have been to assist in preparation of that party’s case in relation to the apprehended proceeding. In many situations, the dominant purpose for creation of a document can only reliably be assessed by considering its content in the context of what was occurring in relation to the apprehended proceeding at the time.
[87] Both Messrs Thomas and Pym have completed affidavits in opposition to NZX’s challenge to Ralec’s claim to litigation privilege in this period. Their affidavits focus on their perception of the souring relationship between NZX and the
vendors of the businesses, and in particular an increasingly testy relationship
19 Commerce Commission v Caltex New Zealand Ltd HC Auckland CL33/97, 10 December 1998 at
3.
20 United States of America v Philip Morris Inc (No 1) [2004] EWCA Civ 330, [2004] 1 CLC 811 at [46], adopted in Pernod Ricard New Zealand Ltd v Lion-Beer, Spirits and Wine (NZ) Ltd [2012] NZHC 2801 at [30] and Financial Markets Authority v Hotchin [2014] NZHC 2732 at [46].
21 Guardian Royal Exchange Assurance of New Zealand Ltd v Stuart [1985] 1 NZLR 596 (CA).
between Messrs Thomas and Weldon. The analysis in their affidavits relies on matters in NZX documents that they have seen as part of the inspection process, but which were not seen by them at the time. Citing what they now attribute to NZX in reliance on communications to which they were not a party at the time cannot be relevant to the reasonableness of the perception that Ralec personnel held, which must obviously be confined to what they knew about at the time.
[88] There is some lack of clarity as to the litigation that Messrs Pym and Thomas apprehended would probably occur. From about November 2009, which was soon after the sale and purchase agreement had been settled, Mr Thomas became apprehensive that NZX would not commit the extent of resources that he believed the vendors had been assured would occur to develop the businesses. A failure to honour that perceived commitment was relevant to the vendors because the extent of finance provided to develop the businesses would affect their financial performance, which would in turn affect the prospects of the vendors earning additional consideration for the sale over the ensuing two or three years.
[89] A discrete issue which became a dispute was NZX’s treatment of Mr Thomas as an employee. His employment ended in April 2010 and he claimed the circumstances of termination of his employment were in breach of contractual entitlements he had as an employee. I was advised by Mr North that that dispute was settled, but NZX did not perform its commitments under the settlement, leading to County Court proceedings brought by Mr Thomas against NZX in Victoria, Australia. Both the nature and history of that dispute between Mr Thomas and NZX reflects its discrete character from the subject matter of the claims and counterclaims now in issue.
[90] The third dispute is what has become the essence of NZX’s claims against Ralec, namely claims alleged to arise out of representations as to the status of the businesses being sold by the vendors, prior to the sale being completed.
[91] In his affidavit on the claim to litigation privilege, Mr Thomas deposed that the Ralec parties apprehended “the very legal proceeding that is the subject of our
counterclaim … as early as late December 2009 but certainly by March 2010”.22
The context for that apprehension in both the Thomas and Pym affidavits does not go beyond expressions of concern that NZX was not resourcing the businesses as they believed NZX had promised that it would. Such concerns are a material step away from a decision to sue NZX for breach, or even a resolve to pursue the complaint with NZX by threatening proceedings if NZX did not perform in accordance with the vendors’ expectations.
[92] The first document addressing these concerns that was drawn to my attention was treated by Mr North as being completed on 15 April 2010, but from the context of its final paragraph (the document itself being undated) it appears to be shortly thereafter. It is headed “Key legal strategy points” and is described as a summary of the vendors’ legal position on their entitlement to hold NZX to what they considered to be the bargain on sale of their businesses. Those grounds reflect some aspects of the counterclaim commenced in these proceedings some 20 months later in December 2011.
[93] Had there been an on-going pattern of steps towards pursuit of what are now Ralec’s counterclaims, the “key legal strategy points” document might well be sufficient to make out a reasonable apprehension of litigation of the type now advanced in their counterclaim, from mid April 2010.
[94] So far as the prospect of claims of the type now pursued by NZX against the vendors is concerned, I am not satisfied that Messrs Thomas and Pym have identified any circumstances that would justify their having a reasonable apprehension of litigation of that type at any time before April 2010. In analysing the evidence, I have drawn a distinction between their awareness of the general souring of the relationship between them and NZX executives (particularly Mr Weldon), and any reasonable apprehension that NZX would sue them for contractual or pre-contractual breaches. The first clear signal on that topic came when Mr Thomas was presented
with a statement from Mr Weldon addressing, for the most part, his performance as
22 Affidavit of Grant Davis Thomas, 16 October 2014 at [64].
an employee. The document was headed “Performance issues” but in a separate
paragraph stated the following:23
1. Reliance in Relation to Sale Agreement
During the purchase process, including due diligence, you have NZX particular information regarding the success of Clear, including forecast revenue, tonnes traded that would result from the arrangements with Graincorp, the market position of Clear and similar matters. These representations were a critical part of NZX’s entering into the Sale Agreement. It now appears that a number of material matters may have been misrepresented to NZX. A preliminary legal review indicates that there are grounds for NZX to pursue via legal action against the Vendors and the Guarantors, the Trusts of Thomas and Pym, for some or all of the original purchase price. To be clear, this is not a performance matter.
[95] The distinction between the remaining content of that document, which addressed Mr Thomas’s performance as an employee, and this paragraph, which reflected a potential liability as a vendor of the businesses, is reflected in the final sentence of the paragraph.
[96] In commenting on the circumstances in which the document was presented to him, Mr Thomas has deposed:24
I was completely dumbfounded, shocked and appalled having gone to Wellington to address [an identified range of] commercially pressing issues. This was the last thing I had expected after just five months into a three year project, albeit I should add that Weldon’s management style was never going to tolerate honest or direct communication (which was an agreed NZX value).
[97] On its own, Mr Weldon’s paragraph raising NZX’s concerns and suggesting legal action that might be taken against the vendors is unlikely to be sufficient to trigger a reasonable apprehension of the prospect of litigation of the type launched by NZX some 14 months later. However, in the context of the deteriorating personal relationship and the end of Mr Thomas’s employment at that time, the announcement of NZX’s concerns of that type might well be sufficient to trigger the requisite apprehension. To get an adequate picture, it is necessary to trace the events for a
period thereafter.
23 Affidavit of Grant Davis Thomas, 16 December 2014, at 519 of exhibits.
24 Thomas affidavit, above n 23, at [91].
[98] I also recognise that the distinction Mr Latimour urged me to maintain between a reasonable apprehension of NZX suing Ralec, and a reasonable apprehension that Ralec would sue NZX, might become artificial in light of the factual situation. Although Mr North did not argue it in these terms, the practical position for Ralec may well have been a recognition that “if we sue them, they’ll sue us”, and in a complementary way, “if they sue us, we’ll sue them”. Accordingly, it may be unrealistic to expect Ralec to make out the bases for distinct apprehensions that there was a probability they would be sued by NZX, as well as a separate basis for apprehending that they would probably sue NZX.
[99] Mr Latimour’s argument for NZX was that the Ralec parties could not reasonably have apprehended the litigation that has ensued before November 2010. He argued that the earliest Ralec could make out a reasonable apprehension of litigation was when Mr Thomas wrote (on Ralec letterhead) to Mr Weldon on
17 November 2010, setting out Ralec’s view of NZX’s obligations to make payments for the businesses acquired, and requesting relatively extensive information which the letter indicated was relevant to Ralec assessing the prospects of it earning further consideration for sale of the businesses.
[100] That letter does not contain any statement putting NZX on notice of Ralec’s intention to pursue claims against NZX, but in the context of the deteriorating relationship, there is a basis for the Ralec principals to treat that threat as reasonably implicit. Some support for that implication is provided by the tenor of Mr Weldon’s response on 9 December 2010, firmly and extensively rejecting the expectations that were either explicit or implicit in Ralec’s 17 November letter.
[101] My attention was not drawn to any documents that reflected developments or milestones between the 22 April 2010 document presented by Mr Weldon to Mr Thomas, and Mr Thomas’s 17 November 2010 letter of enquiry on behalf of Ralec. It is somewhat unusual that supposedly apprehended litigation did not eventuate for some 15 months (between Mr Weldon’s notice of a potential claim on
22 April 2010 and the commencement of NZX’s proceedings in July 2011) and for Ralec’s claims not to eventuate for some 20 months from Mr McGirr’s “key legal strategy points” in April 2010 to the issuing of its counterclaim in December 2011. I
am troubled by the length of these periods and the lack of explanation for apprehended litigation (if it was in April 2010) not being commenced for so long.
[102] The course I intended to adopt is to call for all documents in the contested period between March and November 2010 in respect of which the claim to litigation privilege is maintained on behalf of Ralec. On the state of the evidence thus far, it seems likely that privilege might be made out from April, but given the unexplained period of time thereafter, it is prudent to assess the documents in the following six or so months until Ralec’s letter of 17 November 2010. I direct that Ralec’s solicitors are to provide the Court with copies of all those documents, together with a list which sufficiently identifies them for me to assess the claim to privilege in respect of them. For the purposes of serving that list on NZX’s solicitors, where communications are with a third party, their identity may be anonymised by generic descriptors such as “potential witness”.
Claim that Ralec has waived privilege on certain topics
[103] NZX’s solicitors confirmed with Ralec that open discovery of numerous emails involving requests for, and provision of, legal advice had not been inadvertent. Thereafter, NZX pressed for disclosure of all other documents containing legal advice that had been created on the same range of topics. This was advanced as a first aspect of NZX’s second application for particular discovery, filed on 5 December 2014.
[104] Holding a party to its waiver of legal professional privilege on a topic in such circumstances is essentially an issue of fairness: an inspecting party cannot satisfy itself that selective disclosure does not leave the inspecting party (and potentially the Court) with an incomplete and potentially misleading impression of the full extent of
advice that had been received on the topic.25
[105] Mr Latimour spoke to a list of documents itemised in sch 1 to the relevant submissions for NZX which identified openly discovered documents that included
legal advice, and identified six topics to which the advice related. I have
25 Shannon v Shannon [2005] 3 NZLR 757 (CA) at [62] – a pre-Evidence Act 2006 decision, but the codification in s 65 is not intended to change the substantive law on waiver of privilege.
subsequently considered the content of all the identified documents in respect of which legal professional privilege has been waived, and which NZX argues triggers an obligation for Ralec to provide complete disclosure of all legal advice on the six topics that NZX interprets them as addressing.
[106] NZX’s application proceeded on the premise that the documents containing or referring to legal advice that have been discovered on an open basis must implicitly be recognised as relevant to the dispute by Ralec. So, incomplete disclosure of documents that address the topics that are covered in them must also be discoverable, and cannot be withheld on grounds of privilege where legal professional privilege in respect of that topic has been waived.
[107] Mr Pym responded to this application in his affidavit affirmed on
19 December 2014. It is appropriate to address Mr North’s arguments in opposition that were largely in reliance on these passages in Mr Pym’s affidavit by reference to each of the topics raised in NZX’s application.
Re Thundacats/no disputes representation
[108] Three of the topics identified in NZX’s analysis related to a possible dispute with shareholders in a firm called Thundacats, and specifically a Mr McKay and Ms Weston. NZX claimed the topic is relevant to an alleged breach by the vendors of a representation that there were no material disputes affecting the businesses being acquired.
[109] Mr Pym’s affidavit confirmed that Ralec had not claimed privilege over documents in relation to the potential dispute with Thundacats shareholders, and that all relevant documents had been discovered.26 Before doing so, however, Mr Pym analysed what he considered to be the untenability of NZX’s complaint on this topic. He argued that there was full disclosure of the prospect of a dispute with disgruntled shareholders in Thundacats in the due diligence process prior to completion of the
sale and purchase agreement. Mr North adopted that analysis in arguing that any
26 Affidavit of Dominic Luke Pym, 19 December 2014 at [22].
further disclosure could be resisted because the untenability of this aspect of NZX’s
claim meant that it was no longer relevant.
[110] That argument does not provide a basis for resisting discovery of documents for which privilege may have been claimed, but where privilege is to be treated as waived because of disclosure of other documents containing or referring to legal advice that address the same topic. Until an aspect of a pleading is struck out, relevance for purposes of discovery is to be assessed by the matters that remain in issue on the pleadings. Accordingly, if there are any further documents reflecting requests for, or provision of, legal advice in relation to a dispute with Thundacats shareholders, then the open disclosure of some documents with such content constitutes a waiver by Ralec of its entitlement to assert privilege in respect of other documents, where the content of them addresses that same topic. If there were such further documents, then they would be discoverable.
[111] However, on the present state of the argument between the parties, NZX has not advanced grounds for challenging Mr Pym’s unequivocal statement that all relevant documents of this type have been discovered and there is therefore no scope for an order to provide additional discovery of documents within this category.
Negotiation of integration (alliance) agreement
[112] A second topic related to documents about how services provided by various aspects of the businesses that NZX was acquiring might be integrated. Documents on that topic containing or referring to legal advice have been discovered on an open basis. In resisting an obligation to discover any further such documents, Mr Pym also deposed that there are none on the same topic for which privilege has been claimed. He deposed that all documents of this type have already been discovered.27
[113] However, before deposing to that effect, Mr Pym described the history of the integration agreement and the extent to which the position with it was disclosed to NZX before completion of the sale and purchase agreement. On that basis, he
dismissed the tenability of NZX’s complaint in relation to it as presently pleaded.
27 Pym affidavit, above n 26, at [33].
Reflecting that analysis in the Pym affidavit, Mr North’s submission was to the effect that further documents on this topic were irrelevant because it was (in his view) inevitable that the allegations against Ralec on this topic would have to be abandoned. As already observed, that is not an appropriate ground on which to resist discovery if additional documents are in fact discoverable on the same topic. The position is therefore the same as for the previous category considered.
Advice on negotiating content of documents with NZX
[114] NZX cited five documents that Ralec has discovered on an open basis which include legal advice on the preferred stance to be adopted in negotiating terms with NZX.
[115] The five documents that NZX relied on were dated between 1 and 26 August
2009. They appear to focus on various iterations of a terms sheet that was being negotiated by Ralec representatives with NZX throughout that period. I cannot discern any content that addresses the more detailed terms that were presumably negotiated after that period in the formal sale and purchase agreement that followed on after agreement on the terms sheet. I note the distinction between documenting the two stages of negotiations between the parties was not raised by Mr Pym in his
affidavit. He describes these discovered documents as:28
… relating to negotiations of the terms of the SPA with NZX.
[116] Nor did Mr North invite me to draw that distinction in his submissions. However, this is the one categorisation of the topics covered by documents that included legal advice where I have a concern that NZX may have defined the topic more broadly than is warranted. If Ralec were to take the point, I would receive further written submissions on this discrete issue, with a view to limiting any ruling on the effect of waiver of privilege on this topic to Ralec documents that addressed the appropriate content of a terms sheet document, as distinct from legal input into
the drafting of the formal SPA that followed.
28 Pym affidavit, above n 26, at [34].
[117] I also have a concern on the terms of Ralec’s opposition to this aspect of the NZX application, namely Mr Pym’s unqualified statement that Ralec has not claimed privilege over documents relating to legal advice and associated documents regarding negotiations with NZX leading up to the written SPA.29 Given the detailed level of involvement of Ralec’s solicitors in the prior stages of negotiating successive iterations of the terms sheet with NZX, it is difficult to accept that a
substantial volume of documents was not created through the more complex stage of negotiating the formal sale and purpose agreement. If I was persuaded by NZX to expand the topic that is addressed by the documents in respect of which privilege has been waived to cover the negotiation of all contractual documents with NZX, then more detailed justification for the bald assertion that there are no such documents might well be required.
[118] However, on the more confined topic of negotiating the terms sheet, there is no similar basis for questioning the accuracy of Mr Pym’s statement that all documents within that topic have already been discovered.
Legal advice on deteriorating relationship between Ralec and NZX, and the resignation of Mr Thomas
[119] NZX relied on four documents discovered by Ralec on an open basis that contain requests for, and provision of, legal advice between 16 and 23 April 2010. During this time, the prospect of NZX terminating Mr Thomas’s employment crystallised, and he agreed with Mr Weldon on terms for his resignation. The topic on which Ralec is to be treated as waiving privilege by virtue of open disclosure of these documents extends to the ramifications for the vendors of how Mr Thomas’s termination or resignation might occur, so far as their entitlements to additional consideration for the sale were concerned. The topic of how Mr Thomas might best preserve his own contractual position as an employee of NZX is also addressed. The waiver cannot reasonably be taken to extend to all advice on the prospects of the vendors pursuing claims against NZX for breach of obligations arising under the sale
and purchase agreement.
29 Pym affidavit, above n 26, at [35].
[120] I accept NZX’s analysis that all the documents addressing these topics appear not to have been complete. The documents that NZX relied on in this part of this application refer to other documents that, at least on NZX’s analysis, have not been disclosed to it. All such further documents are to be discovered on an open basis. The existence or otherwise of further documents on these topics is to be reviewed, and confirmed in a further affidavit to be filed and served on the point.
Application for order that Ralec provide discovery of hard copy documents
[121] Exchanges between solicitors for the parties in 2014 revealed that hard copy files that might contain relevant documents had been held in storage for the Ralec parties, but not reviewed. That was on the basis that everything of relevance had previously been copied in electronic form and that Ralec had discharged its discovery obligations by providing discovery of all the relevant electronic records.
[122] Solicitors for NZX did not accept that position, contending that Ralec could not reasonably be satisfied that there were no additional documents in hard copy form, without undertaking an assessment of them.
[123] Despite resisting that course after the NZX application for an order in relation to hard copy documents was filed, in Mr Pym’s affidavit affirmed on 20 January
2015, he confirmed that he had now personally searched 23 archive boxes that contained all the hard copy documents that had previously been referred to. That search revealed nine documents that were within categories that had specifically been raised on behalf of NZX, but which Mr Pym maintained were not relevant.30
[124] Mr Latimour maintained a general objection to the Court placing any reliance on the content of Mr Pym’s late affidavit, but practically acknowledged in relation to this application that its contents rendered the application for an order to discover hard copy documents moot. Mr Latimour reserved NZX’s position in relation to costs on this application, foreshadowing an argument that the late change in position
by Ralec was inadequate and that NZX should recover costs unnecessarily incurred.
30 Affidavit of Dominic Luke Pym, 20 January 2015 at [100]–[117].
Application for particular discovery re “gaps” and “missing documents”
[125] The second aspect of NZX’s second application for particular discovery sought additional discovery from Ralec of what NZX had analysed as gaps, and missing documents, within the categories of document that had been discovered and inspected up to that time. The application relied on a relatively detailed analysis of the inspection of Ralec documents described in Ms Boos’ affidavit that was also affirmed on 5 December 2014. Ms Boos concluded that apparently identifiable gaps must have resulted from a failure by Ralec to properly complete its discovery. She listed the following categories in which she considered additional discovery ought to
have been made:31
· internal communications about the proposed transaction with NZX;
· documents relating to steps taken by Ralec to ensure the on-going team dedicated to the Clear business had adequate and appropriate capability, including all communications with ex Clear employees;
· documents relating to Ralec’s internal consideration of the situation in
dispute with NZX;
· all board minutes, reports or other communications to or from members of the Ralec board or shareholders post-acquisition by NZX.
[126] Ms Boos also identified a range of individual documents that she considered ought to have been discovered, but which were missing from those inspected at that time.
[127] The adequacy of Ralec’s discovery appears to have been scrutinised in considerable detail. There is something of an irony in NZX complaining of inadequacies when it had previously surmounted what I consider to be the high threshold for the order it persuaded me to make, requiring Ralec to re-list its
discovery to eliminate irrelevant documents. I apprehend that the attention to detail
31 Affidavit of G M Boos, 5 December 2014 at [27]–[87].
will be maintained, and NZX now has a sufficient record of explicit denials to its detailed requests for further discovery to enable any subsequent changes in position to be observed, should the matter subsequently change.
[128] Ralec’s opposition to these aspects of NZX’s application relied on the third affidavit completed by Mr Pym, out of time, on 20 January 2015. On the basis of further searches, Mr Pym confirmed that the overwhelming majority of the documents sought were either irrelevant (being general administrative filing) or were already discovered.32
[129] In light of the degree of specificity of Mr Pym’s denials, Mr Latimour accepted that he could not presently pursue this aspect of the application any further. Mr Latimour requested that the application be adjourned and again foreshadowed an application for costs given the extent of work that he claimed had reasonably been undertaken by NZX to pursue the application, and the lateness of the purportedly finite response from Mr Pym.
Application for increased/further security for costs on the counterclaims
[130] In a judgment delivered in July 2012, I ordered security for costs in favour of NZX and Mr Weldon as the defendants to the counterclaims. At that time, I ordered payment of a first stage of security for discovery and inspection of $35,000 for NZX and $25,000 for Mr Weldon.33
[131] In the 2012 judgment, I indicated a provisional view about the appropriate levels of security for costs for subsequent stages in the proceedings as follows:34
· in respect of interlocutory applications - $25,000 for NZX and
$10,000 for Mr Weldon
·for preparation of briefs and other steps in preparation for trial up to commencement of trial - $35,000 for NZX and $5,000 for Mr Weldon;
·prior to trial, in respect of trial costs - $60,000 for NZX and $15,000 for Mr Weldon.
32 Pym affidavit, above n 30, at [104].
33 NZX Ltd v Ralec Commodities Ltd [2012] NZHC 1585 at [53], [54].
34 NZX Ltd v Ralec Commodities Ltd, above n 33, at [55].
[132] In my March 2014 judgment, I accepted that the scale of work involved in discovery and inspection in relation to the counterclaims had expanded to an extent that justified an increase of $10,000 in the security for costs in favour of NZX.35
[133] NZX’s current round of interlocutory applications included one seeking an increased order for security for costs for discovery and inspection, given the expanded scale of those tasks, plus an order for the second stage of security to be paid in respect of interlocutory applications.
[134] Discovery and inspection has certainly been substantially more extensive and protracted than I anticipated in July 2012. However, when Mr Latimour addressed this aspect of the application, I indicated a distinct lack of enthusiasm for revisiting the adequacy of security that has been paid, when it remains difficult to allocate responsibility as between the parties, and as between the discovery and inspection required on NZX’s claims, and that required on Ralec’s counterclaim. I indicated a provisional view that hearing argument on any increase in the measure of security available to the counterclaim defendants on these initial stages was inefficient, and that it was preferable to focus on efficient management of the remainder of discovery and inspection issues. The same can be said for the interlocutory applications that I anticipate will most likely follow.
[135] Mr Latimour was prepared not to pursue an order for additional security for discovery and inspection, in return for being able to revisit the scale of the work that had been involved in support of an application at some later stage in the proceedings to revisit the adequacy of the provisional amounts that I specified in July 2012. Further, Mr Latimour did not seek an increase in the amount specified for interlocutory applications, but instead sought an order for payment of the amounts respectively of $25,000 for NZX and $10,000 for Mr Weldon, in the near future.
[136] Mr North was instructed to oppose any increase in security for discovery and inspection, but accepted that it was appropriate for the Court to direct a time in the relatively near future by which the next stage of security should be paid. He urged
the Court not to entertain any request to increase the provisional levels indicated for
35 NZX Ltd v Ralec Commodities Ltd, above n 1, at [51].
various stages in 2012, at least until the parties were at the stage of preparing briefs. It is premature to indicate when any reconsideration may be warranted.
[137] In the meantime, I direct that the amounts for security for costs in respect of interlocutory applications are to be paid within 28 days of delivery of this judgment.
Summary
[138] The various components of Ralec’s current application have been dealt with
as follows:
(a) I have limited the scope of the confidentiality constraints that NZX sought to impose on inspection of its confidential documents. In relation to commercially sensitive documents, this will enable disclosure to Messrs Pym and Thomas and appropriate experts retained on behalf of Ralec, once those receiving the documents have completed appropriate written acknowledgements of the confidentiality constraints imposed on them (see [27] and [40] above). Where confidentiality is claimed for documents relating to individual employees or contractors, Ralec is required to obtain explicit waivers of the employees’ rights to confidentiality in those documents, to the extent appropriate for the disclosure Ralec intends making of documents in relation to each employee. To the extent such consents are not obtained, the identity of individual employees or contractors is to remain redacted.
(b)As to Ralec’s challenge to the extent of redactions made in NZX’s documents, I was sympathetic to Ralec’s counsel being able to test the justification for those by inspecting the unredacted form of the NZX discovered documents on a confidential basis. A process proposed on behalf of NZX subsequent to the hearing for resolving issues over redacted documents is to be undertaken, subject to modification as to the manner of inspection as directed in my minute of 19 February
2015 on this point. I hope that will resolve the issues, but residual concerns may be referred back to the Court.
(c) I have dismissed Ralec’s challenge to NZX’s claim to privilege in parts of handwritten notes made by Ms Newsome, and have also dismissed the application for an order requiring NZX to identify those of its discovered documents that are sourced from NZX Holdings No 4 Limited. Further, I have dismissed an application requiring a further affidavit or affidavits to deal with the non-availability of handwritten notebooks maintained by Mr Weldon during the relevant period.
(d)I have deferred dealing with a concern raised on behalf of Ralec as to allegedly inappropriate communications from NZX’s solicitors to former employees or contractors that purports to constrain their freedom to discuss the subject matter of the proceedings with Ralec’s solicitors.
[139] I have dealt with NZX’s various applications as follows:
(a) I have provisionally found that Ralec could not claim litigation privilege before about 15 April 2010. I have called for all the documents created between March and November 2010 in respect of which Ralec has claimed litigation privilege, to assess whether their content entitles them to litigation privilege.
(b)NZX’s application for an order that Ralec be deemed to have waived privilege in respect of other documents on certain defined topic is largely resolved on the basis of Mr Pym’s verification that no such further documents exist. I have defined the topic addressed in documents concerning Mr Thomas’s position as an employee, and concerns over the relationship between Ralec and NZX, more narrowly than the topics NZX claim have been the subject of waiver of privilege. I have directed Ralec to clarify the existence of additional documents addressing one relatively confined topic as I have defined it.
(c) NZX’s application for an order that Ralec discover certain files of hard copy documents has been substantially resolved by a late filed affidavit from Mr Pym confirming that he had vetted all such documents and addressed their discoverability.
(d)NZX’s application for particular discovery in relation to perceived gaps in the documents thus far inspected, and missing documents, is also substantially resolved on Mr Pym’s late affidavit deposing to the absence of such additional documents.
(e) I have dismissed an application for increased security for costs in relation to the discovery and inspection stages of the proceedings. I have ordered that the amounts previously set for the stage of the proceedings dealing with interlocutory applications are to be paid within one month of delivery of this judgment, and have recognised the prospect of subsequent applications on behalf of NZX to revisit the sums provisionally set for subsequent stages of the proceedings, as
they progress.
Costs
[140] Mr Latimour asked that I defer a determination on costs, at least on those applications brought by NZX where the grounds for the application were substantially answered very shortly before the hearing by the late filing of Mr Pym’s third affidavit. I am prepared to do so. Because I would want to address costs in the round, reflecting all the work involved for all parties in dealing with all aspects of the arguments I heard, I will therefore defer dealing with costs on all aspects of these present applications.
[141] However, I record my provisional view that both sides have had a measure of success in advancing their legitimate interests in the discovery and inspection phase of these protracted proceedings. I will be disinclined to commit resources to hearing argument and determining claims and counterclaims as to which party has conducted itself more reasonably or unreasonably. I consider that the position of each side
softened in their opposition to the orders sought by the other at and just before the hearing.
[142] The likely size of costs awards relative to resources committed to pursuing them should cause the parties to look forwards in focusing on efficient preparation for the hearing, rather than backwards in seeking to score points on orders requiring what would inevitably be relatively modest contributions to the costs that have already been incurred.
Dobson J
Solicitors:
Bell Gully, Wellington for plaintiff and counterclaim defendants
Duncan Cotterill, Wellington for defendants and counterclaim plaintiffs
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