PricewaterhouseCoopers v Zag Limited

[2023] NZHC 1470

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE

CIV-2018-485-892

[2023] NZHC 1470

BETWEEN

PRICEWATERHOUSECOOPERS

Plaintiff/Counterclaim Defendant

AND

ZAG LIMITED

Defendant/Counterclaim Plaintiff

Hearing:	12 June 2023
Appearances:	A J Horne and T J B Leggat for Plaintiff/Counterclaim Defendant D M Salmon KC, M F Mabbett and E M N Ryan for Defendant/Counterclaim Plaintiff
Judgment:	13 June 2023

JUDGMENT OF McQUEEN J

Introduction

[1]                 This proceeding concerns the provision of a human resources management and information system for the New Zealand Police (the Project).

[2]                 In 2014, the plaintiff (PWC) entered into an agreement with Police under which it was the lead contractor for the Project. PWC separately entered into a subcontract with the defendant (Zag Ltd, formerly known as Soltius Ltd).1 The scope of the relevant obligations of PWC and Zag under the relevant contracts and associated agreements is the subject of the dispute between the parties.

1      For simplicity in this judgment, I refer to the defendant as Zag.

PRICEWATERHOUSECOOPERS v ZAG LTD [2023] NZHC 1470 [13 June 2023]

[3]                 The Project suffered from delays and was subsequently delivered over budget. PWC and Police settled their dispute in relation to the Project. The settlement was recorded in a settlement deed dated 31 May 2018 (the Settlement Deed).

[4]                 The substantive hearing in this matter is scheduled to begin on 19 June 2023. The issue before the Court that requires immediate determination is an application by Zag for particular discovery, in which Zag also challenges PWC’s claims of privilege in respect of certain categories of documents. That application is opposed by PWC.

[5]                 PWC also seeks non-publication orders in respect of the Settlement Deed. PWC and Zag consent to these orders sought being made on an interim basis, until further order of the Court. At the hearing, I indicated I would make those orders on that basis, which meant it was unnecessary to hear argument on the issue at this time.

[6]                 I heard Zag’s application on 12 June 2023. Given the imminent commencement of the substantive trial, I indicated to counsel that I would provide my decision by  13 June 2023.

[7]                 For the reasons set out below, I consider that Zag’s application should be allowed in part.

Zag’s application for particular discovery and challenge to PWC’s privilege claims

[8]                 Zag seeks the following documents  to  be  provided  for inspection  within 48 hours:

(a)Documents exchanged between PWC and Police for the purposes of the mediation on 27 February 2017 and/or in the course of negotiating and agreeing the Settlement Deed between PWC and Police, including but not limited to all versions of the parties’ formal ‘position papers’ exchanged between Police and PWC for the mediation (the Settlement Documents).

(b)Documents prepared by PWC in order to analyse PWC’s (and other

Project members’) respective contributions to Project delays, which are not the subject of legal advice privilege (the Project Delay Documents).

(c)If PWC intends to call evidence from Mr Eric Lucas in the form set out in his current brief of evidence, documents comprising the legal advice relied on in his brief of evidence and all other legal advice relevant to PWC’s liability for, and the reasonableness of, the quantum of PWC’s settlement payment to Police (the Legal Advice Documents).

(together, the Documents).

[9]Zag seeks also from PWC:

(a)listing in accordance with cl 7(1) of sch 9 of the High Court Rules 2016 all documents in respect of which privilege has been claimed by way of group listing (the Individual Listing Order); and

(b)listing in the open section all documents in its power, possession or control within the categories set out [8] above.

[10]            In broad terms, Zag submits that PWC’s approach to privilege is over-broad, incorrect in law, and unfair given the seriousness of the allegations and the evidential vacuum in respect of critical issues.

[11]            PWC’s notice of opposition sets out several grounds on which it opposes the making of the orders sought. Overall, PWC submits that the Documents are privileged, privilege has not been waived, and nor is it in the interests of justice for disclosure of the Documents to be made. It says Zag has unreasonably and improperly delayed making this application and that the orders sought are unreasonable and disproportionate, particularly given the imminence of trial.

The relevant law

[12]            For convenience, I set out here the relevant High Court Rules and provisions of the Evidence Act 2006.

[13]            Particular discovery after proceedings have commenced is provided for by     r 8.19 of the High Court Rules 2016. Rule 8.19 states:

8.19Order for particular discovery against party after proceeding commenced

If at any stage of the proceeding it appears to a Judge, from evidence or from the nature or circumstances of the case or from any document filed in the proceeding, that there are grounds for believing that a party has not discovered 1 or more documents or a group of documents that should have been discovered, the Judge may order that party—

(a)to file an affidavit stating—

(i)whether the documents are or have been in the party’s control; and

(ii)if they have been but are no longer in the party’s control, the party’s best knowledge and belief as to when the documents ceased to be in the party’s control and who now has control of them; and

(b)to serve the affidavit on the other party or parties; and

(c)if the documents are in the person’s control, to make those documents available for inspection, in accordance with rule 8.27, to the other party or parties.

[14]            A party may bring an application under r 8.19 at any stage after discovery has been provided. In such circumstances, the starting position is a presumption that the affidavits already provided are conclusive.2 An application under r 8.19 is a method of circumventing that rule. Given r 8.19 relates to particular discovery, the documents sought must be described with some specificity. Rule 8.25 allows such an application to also challenge claims of privilege.

[15]            The party seeking particular discovery has an onus to establish that the existing discovery is incomplete.3 There is no obligation on an opposing party to file any

2      McCullagh v Robt. Jones Holdings Ltd [2015] NZHC 1462, (2015) 22 PRNZ 615 at [7].

3      At [7]; and Lighter Quay Residents’ Society Inc v Waterfront Properties (2009) Ltd [2017] NZHC 818 at [16].

evidence in response.4 An applicant must establish grounds for belief that the party is in, or has been in control of, a document or class of document that should have been discovered, and that there is a prima facie indication that the documents sought are or have been in the control of the opposing party.5 However, it is not necessary to establish that a party has failed to comply with a discovery order.6

[16]            The Court usually follows a four stage approach to applications under r 8.19, asking:7

(a)Are the documents sought relevant, and if so how important will they be?

(b)Are there grounds for belief that the documents sought exist?

(c)Is discovery proportionate, in terms of time, cost, and potential value of the discovery?

(d)Weighing and balancing these matters, in the Court’s discretion applying r 8.19, is an order appropriate? The Court retains an overriding discretion as to whether to make an order.

[17]            Typically, the Court has regard to affidavit evidence, the pleadings, and the circumstances of the case to establish whether there are grounds to believe that a party has not discovered documents that should have been disclosed.8 The documents sought must be relevant to the issues that will be before the Court, and reference must be made to the pleadings to ascertain this.9 The Court will not try the case during a discovery application, and any preliminary view of the strength of the case of the party applying for discovery is not relevant to the assessment.10

4      Plumpton v Terry [2016] NZHC 988 at [26].

5      Lyttelton Port Company Ltd v Aon New Zealand [2016] NZHC 2996 at [13].

6      Southland Building Society v Barlow Justice Ltd [2013] NZHC 1125 at [24].

7      Assa Abloy New Zealand Ltd v Allegion (New Zealand) Ltd [2015] NZHC 2760, [2018] NZAR 600 at [14]; affirmed in Lighter Quay Residents’ Society, above n 3, at [16].

8      McGechan on Procedure (online looseleaf ed, Thomson Reuters) at [HR8.19.03].

9      Robert v Foxton Equities Ltd [2014] NZHC 726, [2015] NZAR 1351 at [8].

10     Rapid Metal Developments NZ Ltd v Access One Scaffolding Ltd [2017] NZHC 204 at [5] and [14]; and Cares Appliances Ltd v Smiths City (Southern) Ltd [2014] NZHC 1979 at [19].

[18]            The Court must consider whether it is in the interests of justice to order the particular discovery in light of the matters at issue and in particular the proportionality of the cost of the particular discovery.11 The threshold for particular discovery is therefore akin to tailored discovery.12

[19]            As to the effect of an imminent trial, generally an impending trial will not justify variance from normal discovery requirements if an unfair trial would otherwise result.13 However, if the parties have allowed the discovery process to drift until it has become too late for the Court to order discovery without jeopardising the trial, the parties must take responsibility for ensuring that the discovery they expect to receive is provided to them.14

[20]            Applications for particular discovery can be opposed on grounds of oppression. This involves balancing considerations of cost and time against the potential value of discovery.15 Considerations of cost and time involve assessing what work would need to be done to identify and provide those documents, particularly if they are archived and/or only available in hard copy.16 The consideration of cost is also relevant as against the sum claimed / sought to be recovered in the proceeding.17

Settlement/without notice privilege

[21]            Section 57 of the Evidence Act 2006 establishes a specific privilege for settlement negotiations. It provides:

(1)A person who is a party to, or a mediator in, a dispute of a kind for which relief may be given in a civil proceeding has a privilege in respect of any communication between that person and any other person who is a party to the dispute if the communication—

(a)was intended to be confidential; and

11     Air National Corporate Ltd v Aiveo Holdings Ltd [2012] NZHC 2258 at [18].

12 At [18].

13     Stephenson v Jones [2015] NZHC 1455 at [49]; and Hoyle v Hoyle [2015] NZHC 3001 at [20].

14     Pero v Mike Pero Mortgages Ltd [2018] NZHC 2176 at [22].

15     Jones v Auckland Council [2012] NZHC 29 at [34]–[37].

16     Southland Building Society v Barlow Justice Ltd, above n 6, at [40].

17 At [42]. However, on this point, r 8.22(1) empowers the Court, when making a discovery order, to order that another party meet the costs of the party making discovery if it is manifestly unjust for the discovering party to have to meet the costs of complying with the discovery order.

(b)was made in connection with an attempt to settle or mediate the dispute between the persons.

(2)A person who is a party to a dispute of a kind for which relief may be given in a civil proceeding has a privilege in respect of a confidential document that the person has prepared, or caused to be prepared, in connection with an attempt to mediate the dispute or to negotiate a settlement of the dispute.

[22]            The privilege contained in s 57(1) is held jointly by the parties to the negotiation/mediation, and so cannot be waived except by those parties in conjunction.18 The privilege contained in s 57(2) is held solely by the party who prepared the relevant document. There are therefore two separate privileges, relating to without prejudice communications or preparations for those communications in the context of civil disputes. The privilege is available when there is a ‘dispute’, or whether in the “course of negotiations the parties contemplated or might reasonable have contemplated litigation if they could not agree”.19 Nevertheless, a narrow construction of the term dispute is not warranted.20 The policy rationale for the privilege is to encourage frank and open settlement discussions without fear that those discussions will be used in evidence.21 This is an important rationale.

[23]            There are exceptions to the privileges contained in ss 57(1) and 57(2). To this end, s 57(3) provides that the privileges contained in ss 57(1) and 57(2) do not apply to:

(a)the terms of an agreement settling the dispute; or

(b)evidence necessary to prove the existence of such an agreement in a proceeding in which the conclusion of such an agreement is in issue; or

(c)the use in a proceeding, solely for the purposes of an award of costs, of a written offer that—

(i)is expressly stated to be without prejudice except as to costs; and

(ii)relates to an issue in the proceeding; or

18 Evidence Act 2006, s 65(5); Russell v Commissioner of Inland Revenue [2015] NZCA 351 at [11]– [12]; and McCulloch v Quinn [2012] NZHC 1850 at [40].

19 Barnetson v Framlington Group Ltd [2007] 1 WLR 2443, [2007] EWCA Civ 502 at [34]; affirmed in Morgan v Whanganui College Board of Trustees [2014] NZCA 340, [2014] 3 NZLR 713 at [13] and [27].

20 Morgan v Whanganui College Board of Trustees, above n 19, at [17]–[19].

21 Bartletts Creek Vineyard Ltd Partnership v VinLink Marlborough Ltd [2022] NZHC 1012 at [32].

(d)the use in a proceeding of a communication or document made or prepared in connection with any settlement negotiations or mediation if the court considers that, in the interests of justice, the need for the communication or document to be disclosed in the proceeding outweighs the need for the privilege, taking into account the particular nature and benefit of the settlement negotiations or mediation.

Waiver of privilege

[24]            Waiver of privilege is addressed by s 65 of the Evidence Act 2006, which provides:

65       Waiver

(1)A person who has a privilege conferred by any of sections 54 to 60 and 64 may waive that privilege either expressly or impliedly.

(2)A person who has a privilege waives the privilege if that person, or anyone with the authority of that person, voluntarily produces or discloses, or consents to the production or disclosure of, any significant part of the privileged communication, information, opinion, or document in circumstances that are inconsistent with a claim of confidentiality.

(3)A person who has a privilege waives the privilege if the person—

(a)acts so as to put the privileged communication, information, opinion, or document in issue in a proceeding; or

(b)institutes a civil proceeding against a person who is in possession of the privileged communication, information, opinion, or document the effect of which is to put the privileged matter in issue in the proceeding.

(4)A person who has a privilege in respect of a communication, information, opinion, or document that has been disclosed to another person does not waive the privilege if the disclosure occurred involuntarily or mistakenly or otherwise without the consent of the person who has the privilege.

(5)A privilege conferred by section 57 (which relates to settlement negotiations or mediation) may be waived only by all the persons who have that privilege.

[25]            I discuss the authorities on waiver of privilege in the context of my analysis of Zag’s application.

Analysis

Settlement Documents

[26]            The Settlement Documents are the first category of documents of which disclosure is sought by Zag. Zag seeks particular discovery of the Settlement Documents and challenges PWC’s treatment of them as privileged. Zag’s challenge to PWC’s claim of privilege was articulated on two bases, being that either PWC had waived privilege or that s 57(3)(d) of the Evidence Act applied.

[27]            As noted earlier, the Project faced various challenges, and this led to a dispute between Police and PWC, which was the subject of a settlement. The terms of settlement were recorded in a Settlement Deed dated 31 May 2018.

[28]            The Settlement Deed has been disclosed.22 The Deed includes some recitals. At [F], the parties’ claims are described. In the description of Police claim, [F(b)] states:

… .Police’s claim is accurately reflected in correspondence with PWC and the statement of position tendered for the mediation between Police and PWC on 27 February 2017 which is reproduced in schedule A. Schedule A has been updated from the statement of position to reflect the losses claimed and quantified by Police as of December 2017.

[29]            Paragraph 6 of the Settlement Deed addresses the possibility of PWC pursuing a claim against Zag. It states that Police will make personnel available for interviews with PWC and its lawyers, as well as for the purpose of giving evidence. It says Police will also provide certain documentation to PWC. It permits PWC to use Police’s statement of position contained in schedule A, as well as the breakdown of Police’s alleged losses in attachments 1 – 6. Of particular importance is that [6.1(d)] explicitly waives the parties “without prejudice” privilege in schedule A and the attachments in the context of any claims or proceedings between PWC and Zag.

22     While PWC made this document available to Zag at a considerably earlier point in time, I understand that it was only formally disclosed in this proceeding earlier this year.

[30]            PWC has also disclosed several letters between Police and PWC which set out arguments made as to matters at issue between them.23 These “claim letters” were exchanged before the mediation and settlement process between Police and PWC.

[31]            Zag says that at present, schedule A and the attachments to the Settlement Deed, together with the claim letters are the only documentary evidence on which the Court will be able to decide some of the issues that arise on the pleadings. Zag says that it appears that formal position papers were exchanged between PWC and Police (analogous to statements of claim and defence) in the context of mediation of their dispute.24

[32]            Zag submits that such documents will be the best evidence available as to the scope of PWC’s likely liability to Police and are therefore relevant both to PWC’s claim in this proceeding for the cost of its settlement with Police and to PWC’s assertion that it was reasonable to enter into that settlement. Zag notes the reference in the evidence of Mr Bole that the schedule is an “updated version” of Police’s position paper prepared for mediation, and says therefore that the schedule is a “carefully curated” version of Police’s claim. Zag also says that the Court needs better and more detailed information to understand how the loss claimed by PWC can be said to result from breaches of the subcontract between PWC and Zag.

[33]            It is against this backdrop that Zag seeks particular discovery of the Settlement Documents and challenges PWC’s treatment of them as privileged. Zag says that all documents exchanged between PWC and Police for the purpose of the mediation and settlement of the dispute should be discovered. Zag submits that PWC and Police have jointly waived privilege in the subject matter of the mediation and settlement and that this waiver extends to the documents exchanged in the settlement process. Zag secondly submits that, pursuant to s 57(3)(d) of the Evidence Act, it is in the interests of justice for the Settlement Documents to be disclosed.

23     See exhibit LP-08 to the affidavit of Leroy Potter, pages 1–50.

24     Police’s claim was referred to arbitration but no further arbitration steps were taken after the initial reference.

[34]            Regard must be had to the pleadings to ascertain the relevance of the settlement between PWC and Police. In its statement of claim, PWC asserts that Zag has breached its contractual obligations to PWC.25 It pleads that it is entitled to be indemnified by Zag for the breach of those obligations. PWC then pleads that these breaches caused it to suffer loss and damage.26 PWC claims various sums that either PWC incurred directly in undertaking additional work on aspects of the Project or that PWC incurred through paying Zag to undertake such additional work, together with the amount PWC has paid to Police to settle Police’s claims for damages.27 Most importantly for present purposes, PWC also pleads that it was reasonable for PWC to enter the settlement with Police.28

[35]            In its statement of defence, Zag denies any breach of its contractual obligations, denies that PWC is entitled to be indemnified by Zag for the alleged loss and further pleads that Zag did not cause such loss. Zag asserts that PWC, Police and two third parties caused or materially contributed to any loss and says that PWC has not reasonably mitigated any loss, including by failing to account for such contributions to any loss in its settlement with Police.29 Zag says it does not know and therefore denies that the settlement between PWC and Police was reasonable.30

[36]            Given these pleadings, it is apparent that the reasonableness of the settlement between PWC and Police is squarely at issue in the proceeding. PWC seeks to recover from Zag the sum paid to Police in settlement, as part of its pleaded loss. Zag characterises this as a “pass-through” claim.

[37]            PWC accepts that it will have to establish at trial that the amount of the settlement with Police is properly claimed. PWC submits that the Court will hear extensive evidence at trial about the problems that occurred in the Project. The contracts between PWC and Police and open correspondence between PWC and Police in 2015 and 2016 regarding the disputes between them have been disclosed. PWC submits that the Court will have “all the evidence it requires to make its own

25     First Amended Statement of Claim, 9 December 2022, at [172]–[177].

26     At [178]–[181].

27     PWC also claims legal costs and disbursements but this is not relevant for present purposes.

28 First Amended Statement of Claim, 9 December 2022, at [171].

29     Third Amended Statement of Defence and Counterclaim, 17 February 2023 at [172]–[181].

30 At [171].

determination as to whether PWC was justified in entering into the Settlement Deed and whether that was an appropriate mitigation of its loss”. PWC says this will include the opportunity for counsel for Zag to test the evidence called by PWC through cross- examination. PWC does not accept, however, that the Court needs to see the Settlement Documents to inform its assessment. PWC’s position is that it may maintain the “without prejudice” or settlement privilege shared by it and Police over those documents. PWC does not accept that privilege has been waived or that disclosure is required in the interests of justice.

[38]            I turn first to consider whether it is in the interests of justice for the Settlement Documents to be disclosed, as contemplated by s 57(3)(d) of the Evidence Act. The question is whether, in the interests of justice, the disclosure of the documents in the proceeding outweighs the need for the privilege, taking into account the particular nature and benefit of the settlement negotiations or mediation.

[39] The ‘interests of justice’ exception contained in s 57(3)(d) is a relatively new addition to the statutory law of evidence. It was inserted into the Evidence Act by the Evidence Amendment Act 2016, following a discussion of equivalent exceptions in the common law of evidence by the Law Commission.31

[40]            The threshold for what justifies excluding the application of these two privileges relating to settlement and mediation has been described as “necessarily high” given the importance of the ability of parties to have free and frank settlement discussions.32 While s 57(3)(d) envisages a broad and flexible approach, “it would be rare for a Court to set aside settlement privilege unless there was a very clear or at least very seriously arguable case for doing so”.33 Common law exceptions to without prejudice  privilege  are  accepted  to   be  informative  as  to   the  interpretation  of  s 57(3)(d).34

31     Law Commission The 2013 Review of the Evidence Act 2006 (NZLC R127, 2013) at [10.34]– [10.94].

32     See Smith v Shaw [2020] NZHC 1229.

33     Smith v Shaw [2020] NZHC 238 at [46].

34 At [34].

[41]            Zag’s application focused on an exception discussed in England, firstly in the case of Muller & Anor v Linsley & Mortimer, essentially to the effect that without prejudice communications were admissible where there is an issue as to whether a party has acted reasonably to mitigate loss.35 Zag submitted that the dearth of case law in New Zealand as to this particular exception was a result of a general practice that when litigating upon a settlement, parties typically provide without prejudice communications in discovery as there was generally no expectation of confidentiality in respect of such claims.

[42]Lord Hoffman concluded in Muller that:36

The issue raised by paragraph 17 of the statement of claim is whether the conduct of the Mullers in settling the claim was reasonable mitigation of damage. That conduct consisted in the prosecution and settlement of the earlier action. The without prejudice correspondence forms part of that conduct and its relevance lies in the light it may throw on whether the Mullers acted reasonably in concluding the ultimate settlement and not in its admissibility to establish the truth of any express or implied admissions it may contain. On the contrary, any use which the defendants may wish to make of such admissions is likely to take the form of asserting that they were not true and that it was therefore unreasonable to make them.

I do not think that interpreting the rule in this way infringes the policy of encouraging settlements. It may of course be said that a party may be inhibited from reaching a settlement by the thought that his negotiations will be exposed to examination in order to decide whether he acted reasonably. But this is a consequence of the rule that a party entitled to an indemnity must act reasonably to mitigate his loss. It would, in my judgment, be inconsistent to give the indemnifier the benefit of this rule but to deny him the material necessary to make it effective.

[43]            PWC argued that Muller was no longer good law. It is certainly true that its reasoning has been the subject of some judicial debate in the English authorities.37 The result in Muller (although not always the reasoning) appears however to have been accepted in later cases.38 It has also been listed as included in the list of exceptions to without prejudice privilege by the Court of Appeal in New Zealand in Sheppard

35 Muller & Anor v Linsley & Mortimer [1996] PNLR 74 (CA) at 80.

36 At 80.
37 See Berkeley Square Holdings Ltd v Lancer Property Asset Management Ltd [2021] EWCA 551.

38 See Oceanbulk Shipping and Trading SA v TMT Asia Ltd [2010] UKSC 44, [2011] 1 AC 662 at [30]–[35]; citing Unilever Plc v The Proctor & Gamble Co [2000] 1 WLR 2436 at 2444–2446 (CA).

Industries Ltd v Specialised Bike Components Inc.39 I note that PWC asserted that the Muller exception as listed in Sheppard Industries was by way of discussion rather than adoption, and that therefore there was no basis to conclude that it had been accepted by the Court of Appeal, particularly against other authorities in this Court which have emphasised the importance of without prejudice privilege.40 PWC also asserts that if Muller was to be accepted as good law in New Zealand, its application should be limited to situations where the dispute would not be justiciable without the documents in question being made available to the Court.

[44]            On review of the relevant cases, in the time available to me, I can see no basis for a conclusion that Muller is not good law in New Zealand. Notwithstanding the critiques of Lord Hoffman’s reasoning, the principle itself is sound. In the absence of clear appellate authority that Muller is not good law, and given the recognition of the exception by the Court of Appeal, I consider that there is an exception to without prejudice privilege in New Zealand law where there is an issue as to whether a party has acted reasonably to mitigate loss. This is not to diminish the importance of the without prejudice or settlement privilege but rather to recognise that it is not an absolute rule.

[45]            This conclusion appears to me to be also broadly consistent with the position as evidenced by the inclusion of s 57(3)(d) in the Evidence Act, and the clear indication from the Courts that its interpretation should be guided by exceptions known to the common law.

[46]            I am satisfied that it is in the interests of justice for documents relating to the settlement of the PWC/Police dispute to be disclosed. I do not consider that PWC can assert a claim against Zag that the sum paid by PWC to Police under the Settlement Deed (as set out in the schedule and annexures to the Settlement Deed) was reasonable without Zag being able to test that reasonableness. While PWC says there will be plenty of evidence at trial on this question, as well as opportunities to test that

39     Sheppard Industries Ltd v Specialised Bike Components Inc [2011] NZCA 346, [2011] 3 NZLR 630 at [24(f)].

40     See Smith v Shaw, above n 33.

evidence, to my mind this is insufficient in circumstances where the documents sought by Zag are materially relevant to that issue.

[47]            At this pre-trial stage, it is uncertain what evidence will be called. As Zag pointed out, there may be difficult issues for the conduct of the trial, with issues arising frequently about the questions that can be properly put to and answered by witnesses, and what documents may be referred to. The application before me relates to discovery of documents. It is through disclosure of contemporaneous documents that Zag will be in a position to assess whether what is said in schedule A and the attachments to the Settlement Deed accurately records a reasonable settlement. PWC has chosen to plead a claim based on a reasonable settlement and requiring disclosure of related documents seems to me to be appropriate in such circumstances.

[48]            Given my conclusion above, I only briefly address whether PWC has waived its privilege over the Settlement Documents, being the second basis for Zag’s submissions in respect of the Settlement Documents.

[49]            The test for waiver of privilege is whether in all the circumstances the conduct of the privilege-holder is inconsistent with maintaining the confidentiality of the privileged material, in a way that could lead to injustice if the privilege is upheld.41 In circumstances where privilege is waived in some otherwise privileged material, a further question may arise as to whether there has been collateral waiver. The phrase ‘cherry picking’ is used to describe the situation in which a party to litigation selectively waives privilege in respect of a document in support of their case, but not others which pertain to the same issue.42 Katz J described this principle in the following terms:43

This principle, sometimes known as the “cherry-picking rule”, aims to prevent a party from presenting the court with a selective view of the relevant evidence. This will occur if a party is able to waive privilege in relation to helpful portions of evidence, while hiding behind privilege in order to avoid disclosing other parts of evidence that are potentially unhelpful. In such circumstances, privilege is waived in relation to all the material relevant to the issue in question, as there would otherwise be a risk of injustice as to the real

41     See Evidence Act 2006, s 65.

42     See Nea Karteria Maritime Co Ltd v Atlantic & Great Lakes Steamship Corpn (No 2) [1981] Com LR 138 at 139.

43     Capital + Merchant Finance Ltd v Perpetual Trust Ltd [2015] NZHC 1233 at [29].

weight or meaning of the document or evidence that has been disclosed.44 Where collateral waiver applies, a party will be required to disclose any further privileged material that is relevant to the same issue for which the privileged material was deployed.

[50]The principle is described in Cross on Evidence in the following terms:45

Collateral waiver has a broad effect. It extends further than requiring disclosure of all records of the particular communication with respect to which privilege has been waived. Collateral waiver will also apply to all other privileged communications and documents dealing with the same issue. A party will not be entitled selectively to waive privilege for only some of the material relating to the relevant issue, and thus rely on material favourable to its case, while keeping unfavourable material confidential. The issues in this context are the specific propositions that the party offering privileged material in evidence seeks to support with the privileged material offered.

[51]            The Settlement Deed itself is not privileged.46 PWC argues that as a result, no collateral waiver can exist as there has been no underlying election to waive privilege. PWC also submits that the Settlement Documents, as positional or negotiating documents, record different factual propositions than the Settlement Deed and that these are distinct issues. PWC says that waiver of privilege of such documents would be beyond the scope of any election to waive the Settlement Deed (had it been privileged) and amount to an inappropriately broad policing of cherry-picking “by harvesting the whole crop”, as Downs J colourfully put it in Robert Jones Holdings Ltd.47 PWC also argues that as privilege in the Settlement Documents is held by both PWC and Police, it is not PWC’s privilege to unilaterally waive, and neither party has waived it.

[52]            On the other hand, Zag argues that by disclosing schedule A and the annexures to the Settlement Deed, privilege in the Settlement Documents has been waived, as any other approach permits PWC to unfairly “cherry-pick” what it discloses. Zag emphasises PWC’s acknowledgement that the Settlement Documents record different factual propositions than the Settlement Deed and says that this demonstrates the importance of Zag being able to test the correctness of the position advanced by Police

44     See Hodge M. Malek (ed) Phipson on Evidence (18th ed, Sweet & Maxwell Ltd, London, 2013) at [26-09]-[26-10]; and Nea Karteria Maritime Co, above n 42, at 139.

45     Cross on Evidence (online looseleaf ed, LexisNexis) at [EVA65].

46     It is not in dispute that the Settlement Deed itself is not privileged: s 57(3)(a) of the Evidence Act 2006.

47     Robert Jones Holdings Ltd v McCullagh [2016] NZHC 2529 at [68].

in schedule A and the annexures. Zag submits this goes to the heart of its ability to defend the claim made against it.

[53]            I am not persuaded by PWC’s argument that there is no privilege in the Settlement Deed and therefore there can be no collateral waiver. In my view, Zag is correct in its submission that schedule A and the annexures are privileged material over which privilege has been expressly waived, for the purpose of facilitating PWC’s claim against Zag. The inclusion of schedule A and the annexures does not seem to me to be an entirely conventional approach to a Settlement Deed and for this reason requires closer consideration by the Court. Related to this is the argument that PWC cannot unilaterally waive the privilege over the Settlement Documents as it is a joint privilege with Police. Again, in my view, having made schedule A and the annexures available in the Settlement Deed for the purpose of facilitating PWC’s claim against Zag, both PWC and Police have waived their privilege over those documents.

[54]            As noted, PWC says that the positional arguments made by PWC and Police in the context of the mediation and settlement discussions (as likely set out in the Settlement Documents) are “by their very nature, distinct factual issues”. The fact is that neither the Court nor Zag know what is said in those documents as they have not been disclosed. But given the significance of the reasonableness of the settlement between Police and PWC, in this proceeding, I find it difficult to conclude that the positional statements will not also relate to the current dispute between PWC and Zag.

[55]            Thus, in terms of the law on collateral waiver, I am in no doubt that the Settlement Documents are relevant to matters in issue in the proceeding and I also conclude that injustice would arise if Zag was unable to have access to the Settlement Documents.48

[56]            Having concluded that PWC’s challenge to privilege in respect of the Settlement Documents is successful, I turn now to the application of the discovery rules as contained in the High Court Rules.

48     See Everest Serviced Apartments Ltd v Body Corporate 511909 [2022] NZHC 1925 at [50]–[51].

[57]            In terms of the test for particular discovery under r 8.19, there is no dispute that other documents exist in relation to the mediation and settlement. Indeed PWC has claimed without prejudice and/or settlement privilege in relation to them. As already noted, those documents are relevant to an issue in the substantive proceeding.

[58]            I accept, as PWC submits, that Zag has known about the settlement between PWC and Police for some time (although the Settlement Deed was only formally disclosed recently) and that addressing this order will be a distraction from preparation for trial for PWC’s legal advisers. PWC also says that requiring it to make this disclosure is not proportionate.49 It notes that PWC’s solicitors were not engaged until after the mediation between PWC and Police and therefore may not hold all Settlement Documents. It says the uplift of documents from others involved earlier was premised on such documents relating to the mediation and settlement being privileged.

[59]            Despite these matters, I consider that it is proportionate and an appropriate exercise of my discretion to make an order for particular discovery. Zag’s access to the relevant documents is very important to the fair and proper conduct of the trial given the significance of the issue relating to the reasonableness of PWC’s settlement with Police. I consider that this outweighs the time, cost and inconvenience of the order for PWC.

[60]            Zag indicated its acceptance that not every document relevant to the mediation or settlement negotiations is necessarily in scope. I agree, and consider that something more confined than Zag’s definition of the “Settlement Documents” can be applied to the order for discovery. The goal is for substantive discussion of the Police and PWC claims to be disclosed. This approach is consistent with the principle of proportionality in discovery.

[61]            Accordingly, PWC is to promptly disclose documents exchanged between PWC and Police for the purposes of the mediation on 27 February 2017 and/or negotiating and/or agreeing the Settlement Deed, which set out, or respond to, either party’s substantive claim.

49     Assa Abloy New Zealand Ltd, above n 7, at [14(c)].

Project Delay Documents

[62]            The second category of documents addressed in Zag’s application challenging PWC’s privilege claims is the Project Delay Documents.

[63]            The issue in this category centres on what is called the ‘Wall Chart’ document, of which there were  numerous  versions.  This  is  described  in  the  affidavit  of  Mr Richard King (for PWC) dated 2 May 2023 as follows:

11.The Wall Chart was created in December of 2016 to help PwC to understand and develop the arguments which it could put forward in negotiations and mediation with Police. We were looking to understand the whole history of the Project to help prepare for the settlement negotiations and the mediation, and that was the purpose of this document.

12.The way the Wall Chart was created was that Kunal Seth and I got into a room at the PwC offices in Auckland for, as I recall, about a week and put brown paper all round the walls. We then worked to create a timeline of the whole Project, including the negotiation of the contracts, using information we had in PwC’s files. These were mostly artefacts (documents) created in the course of the Project. We stuck post-it notes up along the walls indicating key dates and events. I believe we took other PwC team members through this while we worked on it but putting it together was done by Kunal and me.

13.At the end of that work, Kunal took photographs of what he had put up on the wall. I then asked for and got assistance from the PwC digital team, through James Ryan, to preserve this work and create an enduring document….

…

15. The Wall Chart is a time series of events, noting when issues arose in different aspects and workstreams. It was created to be an input into the key events and themes which we believe the settlement of negotiations with Police were likely to be focused on. It is not an analysis of the causes of or contributions to the issues in the Project. In particular, it does not contain views or information about the relative contributions of PwC and Zag to the issues in the Project that caused it to run over time and over cost. The relative contribution between PwC and Zag was not relevant to our discussions with Police, because PwC as head contractor was responsible to Police for both its and Zag’s work. The case we had to make to the Police was about the extent of Police responsibility versus PwC responsibility as head contractor, and for the purposes of the negotiations with Police, Zag’s responsibility was subsumed under PwC in terms of the contractual relationships.

[64]            PWC discovered the sixth version of the Wall Chart in the open section of its affidavit of documents in February 2022. When PWC realised this late last year, its lawyers wrote to Zag’s lawyers advising that PWC continued to assert privilege over the document and that it had been inadvertently disclosed.

[65]            Zag seeks disclosure of all documents prepared by PWC in order to analyse PWC’s (and the other Project members’) respective contributions to Project delays, which are not subject to legal advice privilege. PWC says it has already done this, and that the Project Delay Documents, including the Wall Chart, are privileged.

[66]            Zag argues that the Wall Chart appears to show various causes of delay in the Project, including the extent to which Police and a third party (Kronos Ltd) contributed to such delay. Zag says that PWC first claimed legal advice and/or litigation privilege over the document but has subsequently claimed privilege under s 57(2) of the Evidence Act.50 Zag says the Project Delay Documents are relevant for the same reasons as the Settlement Documents and it is in the interests of justice for them to be disclosed. Zag says it intends to use the Wall Chart at trial.

[67]            The first question to deal with is whether PWC’s disclosure of the Wall Chart was inadvertent. If disclosure was not inadvertent, then in the terms of s 65 of the Evidence Act privilege in the Wall Chart has been waived. Zag says that disclosure was not inadvertent, as the Wall Chart was deliberately handed over and listed in the open section of PWC’s affidavit of documents. Zag says that the passage of time that passed before PWC’s lawyers raised the matter in correspondence should be taken into account.

[68]            I prefer PWC’s submissions on this issue. The authorities are clear that disclosing a document that was not intended to be disclosed does not amount to a waiver of privilege.51 As stated by Asher J:52

50    Zag takes the point that different types of privilege have been asserted at different times by PWC in relation to the wall charts. I do not think there is anything of significance to this argument and do not address it further.

51 Evidence Act 2006, s 65(4). See also Body Corporate 191561 v Argent House Ltd (2008) 19 PRNZ 500 (HC) at [42], cited in Courtesy Motors Ltd v Endeavour Commercial Ltd [2021] NZHC 221 at [27].

52 Body Corporate 191561, above n 51, at [42].

… the mistake must be a mistake as to the act of disclosure itself rather than the implications of it. Thus, a mistake in the handing over of a group of documents which were thought to contain all non-privileged material, but which unbeknownst to the discloser contained privileged material, would be the sort of mistake envisaged. It would be a voluntary but mistaken act. It would be unintentional. However, if the mistake was a deliberate handing over of a document without a consideration that it was privileged, or forgetting that it was privileged, that would not be the sort of mistake covered by the section.

[69]            The circumstances do not constitute PWC deliberately handing over the document without a consideration that it was privileged, or forgetting that it was privileged. I therefore conclude that the disclosure of the Wall Chart as an open document was inadvertent and does not in itself amount to a waiver of privilege. Discoveries of the nature and size as in this proceeding are a challenging exercise. Counsel for PWC addressed how PWC had collated and assessed its discovery. I note that discovery in this proceeding took at least a year to complete, and involved at least many thousands of documents. In this context, I am satisfied that the disclosure of the Wall Chart was in fact inadvertent.

[70]            Further, I do not consider that an error in the listing and provision of one document constitutes a proper basis for challenging the entirety of PWC’s discovery process through requiring individual listing of all privileged documents. I discuss this matter further below.

[71]            The second question is whether privilege is properly asserted over the Project Delay Documents. As PWC notes, Zag does not seek the disclosure of documents subject to legal advice privilege.53 Its challenge is to the application of without prejudice privilege and litigation privilege.54

[72]            Mr King explains in his affidavit, as set out above, the timing and circumstances in which the wall charts were created. Zag complains that Mr King does not state in “unambiguous terms” that the wall charts were prepared for the purpose of, or used in, the mediation. Zag argues that something akin to a dominant purpose test in s 56(1) of the Evidence Act must apply here. I am not persuaded by these arguments.

53     Evidence Act 2006, s 54.

54     Sections 56 and 57.

[73]            I find Mr King’s affidavit to clearly establish that the wall chart documents were prepared with the required connection to the mediation. I am satisfied that without prejudice privilege is applicable. I also consider that similar documents that analyse PWC’s (and the other Project members’) respective contributions to Project delays and were created at a similar time are also likely subject to without prejudice privilege. The position is the same in terms of the claim for litigation privilege—given the evidence that at the relevant time, proceedings against Zag were also contemplated.

[74]            The final question is whether it is in the interests of justice in terms of the     s 57(3)(d) test that the without prejudice privilege asserted by PWC should be set aside. I observe that the Project Delay documents are of quite a different nature to the Settlement Documents, for which I have earlier accepted that disclosure would be in the interests of justice. There has been no disclosure by PWC in relation to Project Delay documents with the effect of making some but not all information available— and nor did PWC relate those documents to a recognised common law exception to the privilege. In the context of the Project Delay documents, I am therefore not satisfied that the interests of justice outweigh the need for the privilege such that the documents should be disclosed.

[75]            Accordingly, I do not consider there is a proper basis for the Court to look behind PWC’s affidavit of documents in this regard. Nor do I consider it appropriate to require PWC to list individual documents of this kind so that Zag may consider whether to challenge the privilege claim made. Again, I discuss further below the question of whether individual listing of privileged documents is required.

Legal Advice Documents

[76]            The final category of documents the subject of Zag’s application is the Legal Advice Documents. Zag’s application in respect of this category is that by referring to legal advice received by PWC in Mr Lucas’ brief of evidence dated 17 February 2023, PWC has waived privilege in that legal advice in accordance with s 65(3)(a) of the Evidence Act. The relevant passages of Mr Lucas’ evidence state:

3.26 PwC considered that, while Police or their contractor Kronos had contributed to the delays, the Consortium had caused the majority of them. PwC made an assessment, having considered the issues and

problems that had arisen on the project and the delays and additional costs to Police they had caused, and having taken legal advice, that there was a high probability that Police would be successful in a large proportion of its claim.

…

3.35PwC’s own assessment, which was informed by its consideration of the events that had caused the delays and additional costs and by legal advice, was that the Consortium was likely to be found to be substantially more culpable than Police for the extra costs incurred from the project delays and that PwC was therefore likely to be liable to Police for the great majority of Police’s additional costs claimed and was unlikely to recover most of its own unpaid costs from Police. The terms of the MSA including mentioned at paragraph 3.2 were material to this assessment. In particular:

(a)it was beyond argument that the delivery of the Project had far exceeded the timelines originally committed to;

(b)Police were clear that they did not receive the HRMIS solution that they believed they were entitled to expect under the MSA;

(c)Police had a good case that they were entitled to withhold payments and they did not have to pay for unapproved change requests;

(d)it was difficult for PwC to argue that PwC had informed Police of issues as soon as they could have where we now believed they had caused or contributed to delay or had not met agreed performance standards. This had to do with Zag not informing PwC in a timely way of issues in the project; and

(e)the high liability cap meant a very significant exposure for PwC.

[Redacted]

…

[77]            The relevant legal test for waiver of privilege did not appear to be in dispute between the parties although several cases were referred to me. In brief, waiver occurs

where a party both asserts reliance upon a privileged communication and also seeks to inject the substance of the communication in evidence.55

[78]            Zag says that Mr Lucas’ brief of evidence relies on legal advice PWC received, which Mr Lucas says was taken into account by PWC when deciding to enter into a settlement with Police. Zag submits that PWC asserts reliance on the legal advice, seeks to inject the substance of the communication into evidence, and that therefore an abuse of the privilege exists. Zag submits that privilege has been waived. Zag says that in the present case the substance of that legal advice has been put in issue, and is being used by PWC to bolster its decision to settle, thereby compromising its claim to privilege.56 Zag says that the references to the legal advice can only be designed to improve PWC’s case on the issues before the Court in the substantive proceeding.57

[79]            PWC disputes this analysis. It submits that what Mr Lucas says does not amount to waiver of privilege. PWC say that the key point is that a waiver does not occur where a party merely refers to a privileged communication, or even when a party relies on that communication. A waiver only occurs where the party also seeks to inject the substance of the privileged communication into evidence. PWC submits that it has not injected the substance of the privileged communication into evidence, and that:58

A party is entitled to give the reasons for a decision, even if the decision is made on the basis of legal advice, without compromising the claim to privilege in respect of that advice. This is not a situation where the fact or the content of the legal advice was being offered to bolster the decision.

[80]            Rather, PWC submits that Mr Lucas simply says that PWC entered into the Settlement Deed in the context of assessments it made of a number of factors, as well as “having taken” legal advice and having been “informed by” it. Those statements do not assert a reliance upon that advice or disclose its content or substance, they merely recount that legal advice was obtained as part of the factual context.

55 AstraZeneca Ltd v Commerce Commission (2008) 12 TCLR 116 (HC) at [35]–[39]; see also Ophthalmological Society of New Zealand Inc v Commerce Commission [2003] 2 NZLR 145 (CA) at [30]; and Shannon v Shannon [2005] 3 NZLR 757 (CA) at [56].

56 Stockman v Health and Disability Commissioner [2020] NZCA 588 at [70]; see also PCP Capital Partners LLP v Barclays Bank Plc [2020] EWHC 1393.

57 PCP Capital, above n 56, at [92].

58 Stockman, above n 56, at [70].

[81]            I agree with PWC’s view of Mr Lucas’ evidence. It seems to me that Zag is raising rather fine points as to how Mr Lucas’ references to PWC taking legal advice might need to be constructed so as not to waive privilege. I do not think the language used to refer to legal advice is sufficient to establish that Mr Lucas has injected the substance of the legal advice into evidence. Nor do I accept that the reference to the legal advice amounts to bolstering the reasonableness of the settlement between PWC and Police in a manner that amounts to waiver of privilege in the advice.

[82]            I therefore conclude that PWC has not waived privilege in the legal advice referred to in the evidence of Mr Lucas.

Listing order

[83]            Finally, Zag seeks an order requiring PWC to list all documents in which privilege has been claimed by way of group listing.59 Zag submits that PWC has refused to individually list its documents so that Zag can consider challenging further privilege claims. Zag says that there are grounds to believe that PWC has not properly claimed privilege, and that the listing order is necessary to enable Zag to become aware of the documents claimed to be privileged, and to meaningfully consider a challenge to the claim of privilege in each document. Central to this submission is Zag’s view that PWC has claimed privilege over a broad range of documents which are not properly considered to be privileged.

[84]            PWC submits that the listing order application fails to establish a reasonable basis for concluding that PWC’s affidavit of documents “over-claimed” privilege or was insufficient. PWC says that the order sought is not justified and would be disproportionate. It says that the onus is on Zag to establish that discovery is incomplete, which requires cogent evidence, particularly in light of the presumption that affidavits of documents are conclusive.60

59 Pursuant to rr 8.16, 8.19 and/or 6.23 of the High Court Rules 2016.

60 NZ Iron Sands Holdings Limited v Toward Industries Ltd [2019] NZHC 1416, [2019] NZAR 1199 (HC) at [34]; Waitakere Group Ltd v James Hardie New Zealand Ltd [2021] NZHC 1111 at [4] and [8].

[85]            In my view, the circumstances of this case do not dictate an order as sought by Zag. I have declined Zag’s applications in relation to Project Delay documents and Legal Advice documents. The order I have made in relation to Settlement Documents will ensure provision of relevant documents. Requiring individual listing of all privileged documents would be substantial task that I would only require, a week before trial commences, if I was satisfied that it was proportionate in all the circumstances. I am not so satisfied and therefore decline to make the Individual Listing Order sought by Zag.

General prejudice and delay

[86]            It has not been possible in the limited time available, nor I think, necessary, to reach a firm view on all aspects of the various assertions by the parties as to who might be at fault for the issues in this application arising for determination so close to trial.61 In my assessment of whether I should make the orders sought by Zag, I have endeavoured to keep issues of prejudice in mind while focusing on what I consider to be the correct substantive outcome in each case, given the importance of ensuring a trial at which the critical matters in dispute can be fairly heard.

Final comment

[87]            The parties raised with me a matter in relation to some correspondence between the counsel which was provided at the end of the common bundle for the hearing of Zag’s application. Counsel did not take me to the letters, and I have not subsequently read them. It was common ground that if I was to refer to them, there was a further letter that should be made available to me so as to provide a complete picture. I record that I have not read the letters for the purpose of this application and accordingly do not seek the further letter to be provided.

Result

[88]Zag’s application is successful to the extent of the following order:

61 I note that in a Minute dated 18 September 2022 Grice J directed that any  interlocutory  applications including for further and better discovery were to be filed and served by 21 October 2022. That Minute records also that counsel indicated it was unlikely that any interlocutory applications would be filed.

(a)PWC is to promptly disclose documents exchanged between PWC and Police for the purposes of the mediation on 27 February 2017 and/or negotiating and/or agreeing the Settlement Deed, which set out, or respond to, either party’s substantive claim.

[89]Non-publication orders are made on the following terms:

(a)an order that the Settlement Deed and its terms be kept confidential to the parties, their advisers and witnesses; and

(b)a non-publication order in respect of the settlement payment agreed and the loss asserted by Police (including the size of the claim, the relevant calculations of loss and the total estimated quantum of loss).

[90]            These non-publication orders are to apply on an interim basis, until further order of the Court.

[91]            Costs on Zag’s application are reserved until the determination of the substantive proceeding.

McQueen J

Solicitors:

MinterEllisonRuddWatts, Auckland for Plaintiff Hudson Gavin Martin, Auckland for Defendant