Station Properties Limited v Lever Action Limited HC Auckland CIV 2009-404-000354

[2011] NZHC 1482

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2009-404-000354

BETWEEN  STATION PROPERTIES LIMITED Plaintiff

ANDLEVER ACTION LIMITED AND WILLIAM NEIL MCGARVEY First defendants

ANDACE HIGH PROPERTY RENTALS LIMITED AND ALAN CHARLES HANSON

Second Defendants

ANDVIKRAM KUMAR AND NIRUPAMA KUMAR

Fourth Defendants

ANDROBERT JAMES SELWYN Fifth Defendant

ANDMICHAEL DONALDSON AND PATRICIA BRONWYN DONALDSON OTWAY

Sixth Defendants

ANDANDREW ALLAN-JOHNS AND CHRISTINE ALLAN-JOHNS Seventh Defendants

Hearing:         18 March 2011

Counsel:         A R Galbraith QC, J S Cooper and F F Nizam for plaintiff

R M Kelly and K J Jarvis for fourth to sixth defendants

Judgment:      27 May 2011 at 5:00 PM

JUDGMENT OF ASSOCIATE JUDGE ABBOTT

This judgment was delivered by me on           2011 at         am/pm, pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

STATION PROPERTIES LIMITED V LEVER ACTION LIMITED AND Anor HC AK CIV 2009-404-000354

27 May 2011

Solicitors:

Bell Gully, PO Box 4199, Auckland 1140 for plaintiff
Kelly Chambers Limited, PO Box 5148, Dunedin 9058 for defendants

[1]      This proceeding concerns a dispute over agreements for sale and purchase of units in a property development in Queenstown known as Bowen View. The plaintiff was the developer of the property, which comprised multiple residential apartments. It entered into agreements with the defendants for sale and purchase of certain of the apartments.   The defendants failed to settle the purchases.   The plaintiff sues for repudiation and breach of the agreements.

[2]      The proceeding was commenced against seven defendants, but is proceeding against the fourth to seventh defendants only (the plaintiff has settled with the first and second defendants and the third defendant has been adjudicated bankrupt).  The fourth to sixth defendants are jointly represented.  They are defending the claim on various  grounds.    They  contend  that  they  were  introduced  to  the  development through  a property investment mentoring scheme run by the plaintiff ‘s director, Mr R D McEwan (known as Dan McEwan).  They all say that they did not have an obligation to settle by reason of conduct of Mr McEwan and other agents or employees of the plaintiff.  This conduct has been pleaded in affirmative defences alleging breach of fiduciary duty, unconscionability, misleading and deceptive conduct, misrepresentation and repudiation of a collateral contract in respect of an

―underwrite fee‖.   They say that the plaintiff‘s purported cancellation of the agreements is ineffective because the plaintiff was in breach of its agreement with them.

[3]      Both  sides  to  the  dispute  have  brought  interlocutory  applications.    The plaintiff has served notices requiring the defendants to provide further particulars of their defences and answers to interrogatories.  The defendants have failed to respond fully to those notices.  The plaintiff seeks orders that they do so.  The defendants have applied for further discovery of documents relating to the financing of the development.  They have also challenged claims to privilege made by the plaintiff. Additionally,  they  are  seeking  an  order  requiring  the  present  solicitors  for  the plaintiff to cease acting for it.

[4]      All  applications  are  opposed,  although  some  aspects  of  them  had  been resolved or are no longer being pursued for other reasons.

Background

[5]      Station  Properties  Limited  is  one  of  a  number  of  companies  formed  by Mr McEwan.  He ran those companies under an umbrella company, McEwan Group Limited.    One  of  his  companies  was  Investors  Forum  Limited  which  provided services including investment education and sourcing investment property.

[6]      The defendants met Mr McEwan as a result of attending property investment seminars which he ran on behalf of Investors Forum Limited.

[7]      Mr McEwan, and his son Mr Kelly McEwan, incorporated Station Properties Limited to purchase the property in Queenstown on which it then arranged for the construction and eventual sale of the Bowen View Apartments.

[8]      Station Properties entered into a facility agreement with BOS International

(Australia) Limited in August 2006 for funding construction of the development.

[9]      The  investment  seminars  which  Mr  McEwan  ran  on  behalf  of  Investors Forum Limited, comprised a presentation by Mr McEwan in which he advanced his views on investment in property and how potential investors would benefit from becoming a member of the Investors Forum.  Membership of the Investors Forum entitled an investor to be mentored and advised by Mr McEwan.   A $5,000 membership fee was also a sourcing fee for finding, analysing and recommending developments suitable for investment.

[10]    The defendants say that they were impressed by Mr McEwan‘s presentation, and paid the membership fee to join Investors Forum.  Subsequently they received from Investors Forum a presentation from another of Mr McEwan‘s companies, Forum Select Bowen View Limited, of a proposal for investment in redeemable preference shares which carried an entitlement to share in the profit of the Bowen View development (Forum Select was involved in the financing of the development). Owners of redeemable preference shares were also given a preferential right to purchase an apartment in the development.   This led to each of the defendants entering into an agreement in May 2006 (subsequently varied in late August or early September 2006) to purchase one of the apartments.

[11]    The defendants did not settle their agreements when required to do so in

2008.  Station Properties commenced these proceedings in January 2009, originally seeking specific performance of the agreements, but now seek damages for non- performance.  Later Atmore Law acted as solicitors for Station Properties at the time of commencement of these proceedings.

[12]    BOS International put Station Properties into receivership on 20 April 2009. The receivers have continued the proceedings.   They instructed Bell Gully to represent Station Properties.  Bell Gully has acted since May 2009.  The proceedings are set down for trial commencing on 20 June 2011.

[13]    The defendants say that they entered into the agreements on the basis that they would not be required to settle. They contend that they were given the option of purchasing  the  apartment  outright,  or  purchasing  as  an  underwriter,  with  the intention that if Station Properties could sell the apartment for the same or greater value, the defendants would share in any resulting profit.  The defendants understood that the underwrite agreements were designed to achieve sufficient sales to ―get the project off the ground‖ and enable construction finance to be obtained.  It was also the defendants‘ understanding that the overall plan was to sell the development as a whole to a third party, so that defendants would not have to complete their respective purchases.     The  defendants  claim  that  this  understanding  is  reflected  in  the agreements in cl 37.1 which gave Station Properties the right to cancel the contract without notice at any time.

[14]    Station Properties contend that the relationship between it and the defendants is simply that of vendor and purchaser, and that the defendants were obliged to settle the agreements.  It does not accept that alleged undertakings and misrepresentations were given or made, but says that even if they were it was not on its behalf.

[15]    This proceeding first came before the court on an application by the plaintiff for  summary  judgment.    The  court  found1   that  there  was  an  arguable  defence available to the defendants, that statements by Mr McEwan, and by an employee of

Station Properties, could be construed as a misrepresentation that the defendants

1      Station Properties Ltd v Lever Action Ltd and McGarvey HC Auckland CIV 2009-404-354, 17

December 2009.

would not be required to complete the purchase in the event that Station Properties was unable to sell the development.

The defendants’ applications

[16]    The defendants seek four orders:

(a)      A declaration that no  privilege exists in an  email sent by Station Properties‘   financier   BOS   International   (Australia)   Limited   to McEwan Group Limited (for which Station Properties has claimed legal professional privilege);

(b)      An order restraining Station Properties‘ solicitors Bell Gully from

continuing to act for it in this proceeding;

(c)      An order setting aside a claim to legal professional privilege in respect of certain documents created by and passing between McEwan Group Limited and its solicitors;

(d)An order requiring Station Properties to discover documents relating to the financing of the development by BOS International (Australia) Limited.

Privilege in respect of the email

[17]    In its affidavit of documents Station Properties disclosed (as item S186) an email which an associate director of BOS International (Ms Ruediger) sent to a Project Coordinator for McEwan Group Limited (Ms Zamiri) and other persons within BOS International and McEwan Group, as part of an exchange of emails regarding fees payable to purchasers (described both as ―underwrite  fees‖  and as

―1% purchasers fees‖).

[18]    This exchange of email took place in August 2008 as Station Properties was preparing for settlement of sales of units in the development, and BOS International (as Station Properties‘ financier) sought to clarify what it would receive from the proceeds of the sales.

[19]    Station properties accepts that most of the email is discoverable.   It claims privilege only in a relatively short phrase which it says should be removed.   The redacted email reads:

All,

BOS was not aware of any underwrite/purchaser fee nor was Tony Dawson who has confirmed that they were not included within the marketing and sales commission budget.

Furthermore, the S&P agreements do not detail such fee arrangements, [redacted].

Hence, no set off will be made at settlement.  You should provide me with any ―side agreements‖ (which agreements, you should note, will be in breach of  BOS‘s  facility  agreement  given  they  were  made  without  our  prior consent) sooner rather than later -  I need to know what were are potentially dealing with here and report the situation to HBOSA Credit.   Needless to say, Credit will not be forgiving in this regard and we will be pushing back on any set offs claimed, to the legal extent that we can.

[20]    It is common ground that the redacted part of document S186 contained reference to legal advice (in the form of the conclusions reached by its solicitors) for which BOS International was entitled to claim privilege.  Further, BOS International has claimed the privilege both in a letter sent to the plaintiff‘s solicitors dated 15

November 2010, and in an affidavit by an associate director (Ms Gratton) filed in opposition to the defendants‘ application:  Ms Gratton states that BOS International has not waived its privilege and does not consent to the use or disclosure of the privileged portion of the email in this proceeding.

[21]    The law as to privilege, including waiver of privilege, is now to be found in ss 53–67 of the Evidence Act 2006:2 The sections that are relevant to this application are s 53 (the effect and protection of privilege), s 54 (privilege for communications with legal advisers) and s 65 (waiver).

[22]    Section 53(3) provides:

53       Effect and protection of privilege

…

(3)      A person who has a privilege conferred by any of sections 54 to 59 and  64  in  respect  of  a  communication,  information,  opinion,  or

2      Body Corporate No 191561 v Argent House Ltd (2008) 19 PRNZ 500 (HC) at [8].

document   may   require   that   the   communication,   information, opinion, or document not be disclosed in a proceeding—

(a)       by the person to whom the communication is made or the information is given, or by whom the opinion is given or the information or document is prepared or compiled; or

(b)       by any other person who has come into possession of it with the authority of the person who has the privilege, in confidence and for purposes related to the circumstances that have given rise to the privilege.

[23]    The defendants do not dispute BOS International‘s entitlement to prohibit disclosure in the event that its privilege subsists. Further, the defendants concede that BOS International would have held privilege in the legal advice pursuant to s 54 until it sent the email to McEwan Group on 21 August 2008. However, they say that the privilege has been waived (in terms of s 65):

(a)      by disclosure in that email of the conclusions in the advice, with such waiver being recognised by inclusion of the email in part 1 of the schedule to the plaintiff ‘s affidavit of documents sworn on 27 August

2010 (documents in the control of Station Properties for which neither privilege nor confidentiality was claimed); and

(b)alternatively, by inclusion of the email in part 1 of the schedule and subsequent  delivery  of  a  copy of  the  email  to  the  defendants  on

10 September  2010  (in  the  course  of  production  of  documents requested by the defendants and after the plaintiff‘s solicitors had reviewed its list and withheld some documents it said had been disclosed in error).

[24]    Station  Properties  contends  that  BOS  International  has  not  waived  its privilege by sending the email because the advice was disclosed to McEwan Group only and for the limited purpose of preparing for settlement. Nor had BOS International waived its privilege  by the disclosure of the email to the defendants. That was without BOS International‘s authority and was in error.   It relies on Ms Gratton‘s evidence, in particular that BOS International did not authorise disclosure of the advice to the defendants.

[25]    Before turning to the issue of waiver, I will deal briefly with a preliminary point. An unredacted copy of the email was put before the court in the submission of counsel  for the defendants.   The plaintiff has  taken  exception  to  its disclosure. Counsel for the defendants advised that she had intended to put a redacted copy before the court and to request that the court exercise its discretion to view the unredacted version. The unredacted version was included with her submissions inadvertently.  I accept that the inclusion of the unredacted copy was inadvertent. As the court has a discretion to view the allegedly privileged material, I do not consider that the error should count against the defendants.

[26]    The circumstances in which that privilege can be waived are set out in s 65, which reads:

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.

[27]    In Houghton v Saunders3 this court reviewed case law related to waiver and summarised the principles that are relevant when considering a waiver of privilege by disclosure under s 65:

It is possible to distil the following principles from the case law:

(i)      where  a  party‘s  use  of  privileged  material destroys  its confidentiality, the privilege will be treated as impliedly waived, even if that was not the party‘s actual intention: [Equiticorp Industries Group Ltd v Hawkins (No 2) [1990] 2 NZLR 175 (HC) at

180].

(ii)      waiver can occur pretrial: [Equiticorp; Chandris Lines Ltd v Wilson

& Horton Ltd [1981] 2 NZLR 600 (HC)].

(iii)      whether  ―a  significant  part‖  of  privileged  material  has  been disclosed as required by s 65(2) will depend on the substance rather than the quantity of the privileged material that is disclosed: [Bete Fog Nozzle Inc v Delavan Ltd (2008) 19 PRNZ 439 (HC) at [23]].

(iv)      disclosure of the existence of a privileged document as distinct from its contents will not normally amount to implied waiver: [Equiticorp at 180; Chandris Lines at 611; Shannon v Shannon [2005] 3 NZLR

757 (CA)].   In so far as Tau v Durie [[1996] 2 NZLR 190 (HC)]

may be authority to the contrary, it should not be followed.

(v)       deliberate disclosure of a complete copy of the privileged document will amount to waiver: [Equitcorp at 180; Chandris Lines at 611].

(vi)      deliberate  disclosure  of  some  of  the  content  of  the  privileged document will not necessarily amount to an implied waiver but may do so: [Ophthalmological Society of New Zealand Inc v Commerce Commission [2003] 2 NZLR 145 (CA) at 154; Astrazeneca Ltd v Commerce Commission (2008) 12 TCLR 116 (HC) at [39]].

(vii)      the test to be applied is whether in all the circumstances the conduct is inconsistent with maintaining the confidentiality of the privileged

3      Houghton v Saunders (2009) 19 PRNZ 476 (HC) at [55].

material in a way that could lead to injustice if the privilege is upheld:   [Ophthalmological Society At 154].   This test although enunciated in a pre-Evidence Act decision, is still applicable to a consideration of both s 65(2) and s 65(3)(a): [Astrazeneca at [31]– [39]].

[28]   The principles in paragraphs (i), (iii), (vi) and (vii) are relevant to this application.

[29]   In addition, it is well established that limited disclosure of privileged information does not necessarily amount to a waiver of privilege generally: C-C Bottlers Ltd v Lion Nathan Ltd4  citing Harbour Inn Seafoods Ltd v Switzerland

General Insurance Co Ltd;5 B v Auckland District Law Society.6

(a)      Waiver by disclosure to McEwan Group

[30]    The  defendants  say  that  by sending  the  email  (S186)  BOS  International waived privilege under s 65(2).

[31]    I accept that Ms Ruediger knew of the legal advice and, as an associate director, had the necessary authority to waive privilege (this was not challenged by Station  Properties).    Moreover,  by  making  explicit  reference  to  the  conclusion reached  in  the  advice,  she  clearly  disclosed  that  conclusion  voluntarily  and considered that the conclusion was significant (I also regard conclusions as a significant part of any advice, judged objectively).   I am not persuaded, however, that the remaining element of s 65(2), namely that the circumstances of disclosure are inconsistent with a claim of confidentiality, has been established.  Case authority regarding limited disclosure is relevant to this element of s 65(2).

[32]    The corollary to the provision that voluntary disclosure of a privileged communication  will  constitute waiver where the disclosure is  ―in  circumstances inconsistent   with   confidentiality‖   is   that   disclosure   that   is   consistent   with

confidentiality will not amount to a waiver of privilege.  This view has support in

4      C-C Bottlers Ltd v Lion Nathan Ltd [1993] 2 NZLR 445 (HC).

5      Harbour Inn Seafoods Ltd v Switzerland General Insurance Co Ltd [1990] 2 NZLR 381 (HC) at

384.

6      B v Auckland District Law Society [2003] UKPC 38, [2004] 1 NZLR 326.

case law.  In C-C Bottlers Ltd7 the court had to consider whether privilege had been waived in a document prepared by a party‘s solicitors that was subsequently sent to the party‘s financial advisers.   The court held that the disclosure to the financial advisers was a limited waiver applying to the financial advisers but did not constitute a waiver of the privilege generally, and in particular was not a waiver as against the other parties in that case.  In coming to this view, Henry J relied on the following

passage from an earlier judgment that he had given in Harbour Inn Seafoods Ltd8

(which concerned whether privilege had been waived in documents which a party had disclosed to its insurance broker):

The  privilege  claimed  here  is  from disclosure  to  the  defendant  and  the question of a claim of privilege as against [the insurance broker] is not presently in issue.   In my judgment the fact of disclosure of a document when confined to a particular non-party does not necessarily constitute a waiver of privilege available to a party seeking production.  In principle, it seems to me that disclosure, for example by a plaintiff to an associate or confidant unconnected with the proceeding of written legal advice on a claim against a defendant, in ordinary circumstances would not and should not constitute a waiver as against the defendant.

[33]    The  principle  that  a  privileged  document  can  be  disclosed  for  a  limited purpose only, without waiving privilege generally, has been confirmed more recently by the Privy Council in B v Auckland District Law Society, where the Privy Council stated:9

... It does not follow that privilege is waived generally because a privileged document has been disclosed for a limited purpose only: see British Coal Corporation v Dennis Rye Ltd (No 2) [1988] 1 WLR 1113 and Bourns Inc v Raychem Corporation [1999] 3 All ER 154. The question is not whether privilege has been waived, but whether it has been lost. It would be unfortunate if it were. It must often be in the interests of the administration of justice that a partial or limited waiver of privilege should be made by a party who would not contemplate anything which might cause privilege to be lost, and it would be most undesirable if the law could not accommodate it.

[34]    Clearly, there has been disclosure by BOS International to McEwan Group of the conclusions of the advice, and BOS International can be taken to have waived privilege as against McEwan Group.  However, that is not the issue for the court on this application, and it does not necessarily imply a waiver of privilege as against

any other person, including the defendants.

7      C-C Bottlers Ltd, above n 4.

8      Harbour Inn Seafoods Ltd, above n 5, at 384.

9      B v Auckland District Law Society, above n 6, at [68].

[35]    The defendants argued that this was not a case of limited disclosure, referring to the fact that the email was addressed ―All‖.  I do not accept this submission.  The email is clearly part of an email string involving other employees of BOS International and employees of McEwan Group.  I accept the submission of counsel for Station Properties that the disclosure was for the limited purpose of reaching agreement on the steps to be taken upon settlement of agreements for the Bowen View developments.

[36]   Counsel for the defendants argued, nonetheless, that the disclosure was inconsistent with a claim of confidentiality because the email (as distinct from others in the chain) did not expressly mention confidentiality, and because the effect of disclosure having been made to an adverse party in respect of whom the advice was sought had to be that no serious claim for confidentiality could still be sustained.

[37]    Again I am not convinced by these arguments.  There is no doubting the fact that the email was part of a chain of communications that the parties to the communications intended to be confidential (this is apparent from the explicit statement in emails from McEwan Group that the email was intended only for the person  or  entity  to  which  it  was  addressed  and  could  contain  confidential  or privileged information).  The absence of an express statement as to confidentiality in the body of email S186 does not require that document to be treated differently from the others in the chain.   In this respect it can be seen in a similar way to without prejudice correspondence where the first letter is stated to be without prejudice, and that stipulation clearly carries through to responses to it. As to the second point, I do not accept that disclosure to McEwan Group necessarily means that there can be no serious claim for confidentiality in respect of any other party.

(b)      Disclosure to the defendants

[38]    In   the   alternative,   counsel   for   the   defendants   submitted   that   BOS International lost the privilege as a result of Station Properties‘ disclosure of the unredacted copy of the email (first by listing the email in part 1 of the schedule to Station Properties‘ affidavit of documents, and then by delivering the unredacted copy to the defendants‘ solicitors on 10 September).

[39]    The  issue  is  whether  BOS  International‘s  privilege  has  been  waived  by Station Properties‘ actions.  This gives rise to two sub-issues.  The first is whether Station Properties had authority to waive BOS International‘s privilege.  The second is whether BOS International is otherwise entitled to avail itself of the saving in s

65(4) of the Act for disclosures that ―occurred involuntarily or mistakenly or otherwise without the consent of the person who has the privilege‖.

[40]    The starting point is the undisputed fact that BOS International is the holder of any privilege.  It is the person entitled to the protections afforded by s 53 of the Act and whose conduct which must be considered in determining whether there has been any waiver under s 65 as a result of disclosure.  It is clear from s 65(4) of the Act that the holder of privilege in a document disclosed to another person does not waive the privilege if the disclosure ―occurred involuntarily or mistakenly or otherwise without the consent‖ of the holder.

[41]    BOS International‘s associate director, Ms Gratton, has given evidence that BOS  International  did  not  authorise  disclosure.    In  B  v Auckland  District  Law Society the Privy Council stated expressly that unauthorised disclosure will not result in the loss of privilege.10

[42]    Counsel  for  the  defendants  submitted  that  this  element  of  s  65(2)  was satisfied because Station Properties acted with the authority of BOS International and could be regarded as its agent.11    I am not persuaded, however, that any of the parties involved in the listing or production of the email did so as agent for BOS International.  The fact that BOS International appointed the receivers does not make them (or Station Properties) its agent.12    Similarly, although Bell Gully may have acted  for  BOS  International  previously,  in  undertaking  discovery it  was  clearly acting for Station Properties as a party in the proceeding.

[43]    In light of my finding that BOS International did not authorise the disclosure,

there is no need to address the defendants‘ argument that Station Properties intended

10     B v Auckland District Law Society, above n 6, at [68].

11     As was the case in Body Corporate No 191561, above n 2.

12     Receiverships Act 1993, s 6(3).

to disclose the email and any mistake was as to the implications of disclosure rather than the act of disclosure itself.13   Nevertheless, I will address the point briefly.

[44]     Bell Gully wrote to the solicitors for the defendants on 11 October 2010 identifying the privileged material for the first time and advising that it had been disclosed in error, and that the privilege had not been waived by BOS International. That was some six weeks after Station Properties‘ affidavit had been provided, and a month after the unredacted email had been given to the defendants.  It also followed other correspondence between solicitors both over discovery and as to Bell Gully‘s independence and capacity to act for Station Properties.

[45]    Counsel for the defendants argued that Station Properties intended to disclose the email.  She pointed out that the ―mistake‖ was not raised until the issue over Bell Gully‘s independence had been raised, even though Bell Gully had earlier withheld some documents listed in Part 1, and redacted parts of others, before delivering the copies of documents requested by the defendants.   She submitted that a mistake as to the implications of the disclosure was the proper conclusion to draw from the correspondence.

[46]    I   am   not   persuaded   that   the   defendants‘  view   of   the   exchange   of correspondence is borne out by a reading of the correspondence as a whole.  The amount of privileged material was slight (a single phrase).  I accept the point made by counsel for the defendant that there is no evidence specifically stating how it came to be included in the list.  However, I take the view that the phrase could easily have been overlooked, first in the listing of documents (it was in the middle of the email which in turn was in the middle of an exchange of non privileged information), and in the review that Bell Gully undertook before providing the defendants with copies of all of the documents.

[47]    I accept the evidence that Bell Gully wrote to the defendants‘ solicitors as soon as they identified the mistake, having been alerted to it by the defendants‘ solicitors in the correspondence about the firm‘s independence and capacity to act for Station Properties (the second aspect of the defendants‘ application, which I will now

address).

13     Relying on Body Corporate No 191561, above n 2.

[48]    Lastly on this part of the application, I accept the submission of counsel for Station Properties that a ruling upholding the claim to privilege will not cause injustice or prejudice to the defendants.  The issue for this case is whether Station Properties/McEwan Group entered into side agreements, and the effect of any such agreements on the defendants‘ obligations to settle.   The legal advice that BOS International was given after the alleged entry into the agreements cannot be relevant to the circumstances of entry into those agreements or their implications.

[49]    The  defendants‘ application  for  a  declaration  that  no  privilege  exists  in document S 186 is dismissed

Whether Bell Gully should continue to act

[50]    The defendants‘ application for an order that Bell Gully cease to act for Station Properties in this proceeding relates to Bell Gully‘s knowledge of the development project around the time that the defendants entered into their agreements.

[51]    Bell Gully advised BOS International at the time that the latter undertook due diligence on the project in 2006, before deciding whether to fund its construction.

[52]    The defendants say that Bell Gully has knowledge of the level and quality of Station  Properties‘  disclosure  to  BOS  International,  and  that  evidence  will  be required to establish their affirmative defences (in which they are seeking equitable and statutory relief).  They say that facts in issue will include whether the project was genuinely analysed and assessed by Station Properties as sound and likely to be profitable, whether language and strategy was deployed to obscure the true nature of the defendants‘ commitments, whether the defendants‘ agreements were a machinery or funding device  to  get  the project  underway (allowing the  defendants  a later election to pull out) and whether side agreements (over deposits and underwrite fees) were binding on Station Properties.   The defendants say that the possibility that Station Properties concealed the side agreements from BOS International bears upon all of their issues with Station Properties:   any concealment would be relevant to whether the project could be taken at face value, and to Station Properties integrity in its dealings with them.   They say that even the redacted version of S186, read in

context of the surrounding emails, suggests that BOS International was unaware of the side agreements.   They say that the evidence will be required from BOS International and from Bell Gully as to the level and quality of Station Properties‘ disclosure to BOS International.

[53]    The defendants have come to the view that Bell Gully is in a position of conflict, by reasonable likelihood that members of the firm will be required to give evidence of a contentious nature, and that Bell Gully has a personal interest in denying the existence of the side agreements so as to avoid embarrassment to its reputation and possible civil liability to BOS International if the defendants were to succeed due to some failure in Bell Gully‘s due diligence.

[54]    Station Properties opposes the application.  It says that the advice that Bell Gully gave to BOS International in respect of due diligence is not in issue in these proceedings in any way, nor is Bell Gully‘s conduct.   It says that the sole issue is whether the agreements between Station Properties and the defendants are enforceable.  That will be determined by the meaning and effect of the agreements, and that is determined at the date that the agreements were entered into.  Evidence of what took place between Station Properties and a third party (BOS International) after the agreements had been executed cannot affect the enforceability of those agreements, nor can evidence as to the advice which Bell Gully gave to BOS International in relation to those agreements.  BOS International claims privilege in the advice.  It does not believe that the advice is in issue and has no objection to Bell Gully continuing to act for Station Properties in the proceeding.

[55]    The  defendants  rely  on  r  13.5  of  the  Lawyers  and  Conveyancers  Act (Lawyers: Conduct and Client Care) Rules 2008 and the inherent jurisdiction of this court. Rule 13.5 reads:

Independence in litigation

13.5     A lawyer engaged in litigation for a client must maintain his or her independence at all times.

13.5.1A lawyer must not act in a proceeding if the lawyer may be required to give evidence of a contentious nature (whether in person or by affidavit) in the matter.

13.5.2If, after a lawyer has commenced acting in a proceeding, it becomes apparent that the lawyer or a member of the

lawyer‘s practice is to give evidence of a contentious nature, the lawyer must immediately inform the court and, unless the court directs otherwise, cease acting.

13.5.3A lawyer must not act in a proceeding if the conduct or advice  of  the  lawyer  or  of  another  member  of  the lawyer‘s  practice  is  in  issue  in  the  matter  before  the court.   This  rule  does  not  apply  where  the  lawyer  is acting for himself or herself, or for the member of the practice whose actions are in issue.

[56]    It is common ground that the court has an inherent supervisory jurisdiction regarding its officers (all solicitors are officers of the court) when they represent parties to litigation, and that that supervisory jurisdiction is directed at preserving the proper administration of justice.

[57]    Again, it is common ground that both the Rule, and the inherent jurisdiction of the court, seek to uphold the  integrity of the judicial process which will be undermined if lawyers lack: ―[T]he objectivity and independence which their professional responsibilities and obligations to the Court require of them.‖14

[58]    Similarly, counsel were agreed that the test that the court will apply is that stated in Kallinicos v Hunt.15

However,  the  court  always  has  inherent  jurisdiction  to  restrain solicitors  from  acting  in  a  particular  case,  as  an  incident  of  its inherent jurisdiction over its officers and to control its process in aid of the administration of justice (Everingham v  Ontario;  Black  v Taylor; Grimwade v Meagher; Newman v Phillips Fox; Mitchell v Pattern Holdings; Spincode Pty Ltd; Holborrow; Williamson v Nilant; Bowen v Stott; Law Society v Holt).   Prince Jefri Bolkiah does not address this jurisdiction at all.  Belan v Casey and British American Tobacco Australia Services Ltd are not to be read as supposing that Prince Jefri Bolkiah excludes it.   Asia Pacific Telecommunications Ltd appears to acknowledge its continued existence

The test to be applied in this inherent jurisdiction is whether a fair- minded, reasonably informed member of the public would conclude that the proper administration of justice requires that a legal practitioner should be prevented from acting, in the interests of the protection of the integrity of the judicial process and the due administration of justice, including the appearance of justice (Everingham v Ontario; Black v Taylor; Grimwade v Meagher; Holborrow; Bowen v Stott; Asia Pacific Telecommunications).

14     Kooky Garments Ltd v Charlton [1994] 1 NZLR 587 (HC) at 590.

The  jurisdiction  is  to  be  regarded  as  exceptional  and  is  to  be exercised  with  caution  (Black  v  Taylor;  Grimwade  v  Meagher; Bowen v Stott).

Due weight should be given to the public interest in a litigant not being deprived of the lawyer of his or her choice without due cause (Black v Taylor; Grimwade v Meagher; Williamson v Nilant; Bowen v Stott).

The timing of  the  application  may be  relevant, in that  the cost, inconvenience or impracticality of requiring lawyers to cease to act may provide a reason for refusing to grant relief (Black v Taylor; Bowen v Stott).

[59]    The qualifications to the test (something exceptional required, the need for good reason to deprive a litigant of counsel of choice, and timing considerations affecting the costs, inconvenience or impracticality of an order) were all recognised in the earlier decision in this court in Clear Communications Ltd v Telecom Corp of New Zealand Ltd.16

[60]    The ability of counsel to maintain objectivity and independence are central to any consideration.  For that reason it will be a material consideration, likely to lead the court to intervene, if the lawyer has been personally involved in the facts in issue in the case and may be required to give contentious evidence.17   This can extend to a lawyer‘s role in giving advice which is ―at  the heart of the question in issue‖,18

which can rise to concerns about the lawyer‘s personal or reputational interest in the

outcome of the case.19

[61]    Counsel were largely in agreement on the principles, but placed different emphasis on them in their respective cases.  Counsel for the defendants submitted that the present case was ―on all fours‖ with Kallinicos,  where the court concluded that the practitioner in question was not only a material witness but one who, depending on how the evidence turned out, might also be exposed to suit and thereby had a personal interest.  The court considered that the propriety of the practitioner‘s conduct was likely to be examined in the proceedings and his evidence was likely to

be material, and could corroborate or refute his client‘s version of the facts.   The

16     Clear Communications Ltd v Telecom Corp of New Zealand Ltd (1999) 14 PRNZ 477 (HC) at

482–483.

17     Vector Gas Ltd v Bay of Plenty Energy Ltd [2010] NZSC 5, [2010] 2 NZLR 444 at [147]–[149].

18     Kooky Garments Ltd, above n 14, at 589.

19     See also Pearlbran v Win Mezz No 19 Pty Ltd [2009] QSC 292 at [18].

court came to the view that the practitioner could be put in the position where his

client‘s interest, his own interest and his obligation to the court could be in conflict.

[62]    Counsel for the defendants submitted that at least one Bell Gully lawyer could be a witness in the proceeding to establish (as a minimum) whether Station Properties had provided it with side agreements in the course of the due diligence, and as to whether Station Properties was denying the existence, relevance or validity of the side agreements.   Secondly, counsel submitted that Bell Gully lacked the necessary independence as its advice was critical to BOS International‘s decision to proceed to finance the project, and it had a personal or reputational interest in the result.    Counsel  submitted  that  there  were  a  range  of  possibilities  as  to  this knowledge which would potentially be relevant to its affirmative defences.

[63]    Counsel for Station Properties submitted that the facts of this case fell well short of the exceptional circumstances needed to deprive Station Properties of the services of the lawyers who had been acting for it since 2009.   He submitted that weight should be given to the prejudice that might accrue to each of the parties, and weight should be given to the view of the lawyer‘s client as to any prejudice or

conflict.20

[64]    Counsel for Station Properties relied in particular on T J Board & Sons Pty Ltd v Castello,21  a decision of the Supreme Court of Victoria which applied the principles   in   Kallinicos,   and   also   related   to   the  enforceability  of   disputed agreements.  In that case the plaintiffs applied for the solicitors for the defendant to be removed on the grounds that they had been involved in the case prior to the proceedings (and had been nominated as the vendor‘s solicitors on the agreements).

The court rejected the application for a number of reasons:

(a)       Neither the lawyer acting or his firm were involved in negotiation, preparation or execution of the disputed agreements.

(b)The enforceability of the agreements would not be determined by reference to later advice given by the lawyers as to the enforceability

of the agreements.

20     Pioneer Insurance Co Ltd v Anderson (2008) 19 PRNZ 45 (HC).

(c)      The mere potential for the lawyers to be called as witnesses was not enough:  the court had regard to the ―seemingly peripheral relevance of [the lawyer] to the primary disputed issues‖22  and concluded that he would not be a significant witness if he gave evidence at all.

(d)The court gave weight to the fact that the lawyer who might give evidence had no involvement whatsoever in the litigation and would not personally be in a position of conflict between his position as witness and his duty to the court.

The court concluded by referring to the exceptional nature of the court‘s jurisdiction and the need to give appropriate weight to the public interest in a litigant not being deprived of the lawyer of his or her choice without due cause.

[65]    Counsel for Station Properties submitted that this was not a case where there should be any concern as to lack of objectivity or independence.  The advice that Bell Gully had given to BOS International could not be considered central to the proceedings.   There was no evidence to suggest that Bell Gully had any role in drafting negotiating or signing sale and purchase agreements (it was not acting for Station Properties at that time) or that Bell Gully had any contact with either party prior to these proceedings.  There was no evidence to support an allegation of lack of objectivity or independence in Bell Gully‘s conduct of the proceeding to date.  No acts or omissions of either BOS International or Bell Gully are in issue and the role that it had in the background was unrelated to matters in issues between the parties: its advice to BOS International came after the agreements had been executed and could not change the obligations of either party.

[66]   Further, if the information that BOS International received from Station Properties had any relevance, the appropriate person to provide that evidence was someone from BOS International.  If a Bell Gully lawyer was called, any evidence given would be limited by privilege, being non-contentious and peripheral (at best)

to the main issues in the proceeding.

22 Ibid, at [23].

[67]    Finally  counsel  submitted  that  neither  BOS   International  nor  Station Properties had raised any complaints about Bell Gully continuing to act – indeed, Station Properties opposes the application, and the freedom of a party to choose its own counsel should not be infringed without good reason, and not at the behest of an opposing party who stood to gain tactically from the order.  The prejudice to Station Properties was obvious (it was likely to result in a loss of the scheduled trial date). By contrast there was no detriment to the defendants.

[68]    I am not persuaded that there is reason to take the drastic step of depriving Station Properties of the lawyers of its choice, either on the grounds that a lawyer or lawyers from Bell Gully could be a material witness in the case, or that Bell Gully has a personal or reputational interest, such as to cause concern as to Bell Gully‘s objectivity or independence.

[69]    I consider it unlikely that a lawyer from Bell Gully will need to be called to give any material evidence.   There is no reason for Station Properties to call this evidence, and it seems unlikely that the defendants would need to do so.  I accept that the lawyer might be able to give evidence as to what was disclosed by Station Properties regarding the side agreements but do not see how this can be relevant to the enforceability of the agreements.  That will have to be determined as at the date of entry into the agreements.  Ms Gratton has given evidence that BOS International received the legal advice on due diligence in September 2006.  Counsel for Station Properties informed me from the bar (with the consent of counsel for the defendants) that Bell Gully was advising BOS International on transactional documents from around  the  end  of  July  2006,  and  those  documents  included  the  May  2006 agreements and a draft of the variation that the defendants signed in late August or early September 2006, but there is no evidential basis on which the defendants can contend that  Bell  Gully had  any knowledge of  what  happened  between  Station Properties and the defendants.   The only documentary evidence of representations that were inconsistent with the agreements is the side agreements, and it is clear from their exchange of email in August 2008 that BOS International was not aware of those side agreements.

[70]    Counsel for the defendants submitted that there were several possibilities for

the evidence that Bell Gully‘s lawyers could give.  The first is that they were not told

of  the  side  agreements  (either  inadvertently or  through  deception).   As  already mentioned, the exchange of email in August 2008 indicates that this is the situation, and BOS International is equally able (and perhaps even better placed) to give this evidence.   The other two possibilities were that Bell Gully knew of the side agreements but failed to advise BOS International of them or that it did advise as to the side agreements, in which case BOS International entered into the finance agreement in full knowledge. The first is entirely speculative and unlikely.  However, even if some basis for this possibility was to emerge, it cannot assist the defendants in  their  affirmative  defences.   A similar  position  applies  in  relation  to  the  last possibility.   Counsel for the defendants submitted that this evidence would be a consideration  in  the  equitable  relief  being  sought  by the  defendants.    I accept, however, the submission of counsel for Station Properties that the knowledge of BOS  International  is  not  relevant  to  the  critical  issue,  being  the  defendants‘ knowledge of the agreements they were signing.   The knowledge of BOS International is not any part of the case being advanced by Station Properties.

[71]    Lastly, I accept a submission of counsel for Station Properties that even if a witness from Bell Gully was to be called, that witness‘s evidence would be limited by privilege, likely to be non-contentious and (at best) peripheral to the main issues.

[72]    The circumstances of the present case, in my view, are very different from the circumstances which persuaded the court in Kallinicos to direct that the practitioner should  cease  to  act  in  the  proceeding.    Bell  Gully were  not  acting  for  Station Properties in relation to the agreements, and the possible evidence that could be called is that Bell Gully had no awareness of the side agreements.  It is difficult to see how this will assist their case on the agreements — it is likely to be no more than whether the side agreements were provided or not provided.   That is a straight- forward matter and unlikely to be greatly contentious.   It is unlikely to assist the court greatly on what was or was not told to the defendants and encourage them to enter  into  the  agreements.    That  depends  on  the  dealings  between  the  parties. Neither Bell Gully nor BOS International had a part in those dealings.

[73]    In summary, I do not regard this as one of the exceptional cases which would justify interfering with Station Properties‘ right to choose the lawyers to represent it in this proceeding.   It is significant that the issue has been raised by the opposing

parties in the litigation (who could stand to benefit tactically from an order removing Bell Gully).  Neither Station Properties nor BOS International has any concern about Bell Gully continuing to act (and both have taken legal advice on the point):   I consider that that disposes of any concern about conflicting personal interest.  There is no obvious prejudice to the defendants in Bell Gully continuing to act.

[74]    The defendants‘ application for an order that Bell Gully cease to act  for

Station Properties is dismissed.

Documents subject to joint interest privilege

[75]    The  next  aspect  of  the  defendants‘ application  is  their  challenge  to  the plaintiff‘s claim to privilege in documents passing between the plaintiff ‘s parent company (formerly McEwan Group Limited, but now named Ro-Ro Investments Limited) and its legal advisors.  The plaintiff claimed privilege over these documents (marked ―SC2‖ in its affidavit of documents) on the basis that they were created for the purposes of giving or obtaining legal advice and legal services.  It claims a joint interest privilege under s 66(1) of the Evidence Act:

66       Joint and successive interests in privileged material

(1)       A person who jointly with some other person or persons has a privilege conferred by any of sections 54 to 60 and 64 in respect of a communication, information, opinion, or document—

(a)      is entitled to assert the privilege against third parties;

and

(b)      is not restricted by any of sections 54 to 60 and 64 from having access or seeking access to the privileged matter; and

(c)      may,  on  the  application  of  a  person  who  has  a legitimate interest in maintaining the privilege (including  another  holder  of  the  privilege),  be ordered by a Judge not to disclose the privileged matter in a proceeding.

[76]    Additionally, however, it relies on the fact that the liquidators of Ro-Ro Investments  (which  was  placed  into  liquidation  in  2008)  maintain  a  claim  to privilege.  The plaintiff has produced a letter from the liquidators stating that they

have not waived privilege in relation to any documents belonging to Ro-Ro, and require that the documents not be disclosed in any proceeding.

[77]    Counsel for the defendants sought to adjourn this part of the application as they were still considering the implications of the liquidator‘s position.  Counsel for the plaintiff resisted any adjournment and sought to have the matter determined.

[78]    The documents in question clearly fall within the privilege afforded by s 54 of the Act for communications with legal advisors.  Ro-Ro Investments Limited is unquestionably a holder of that privilege.  It seems likely that Station Properties has a joint interest.  I consider that Station Properties is also entitled to assert privilege against the defendants under s 66 of the Act, but, even if that was not the case (because there may not be a joint interest in some material), that Ro-Ro is entitled to, and has asserted, a right to require that the privileged material not be disclosed in the proceedings.  On that basis the defendants‘ application must fail.

Documents relating to funding of project

[79]    The last aspect of the defendants‘ application is their request for the plaintiff to discover documents relevant to the funding of the Bowen View Development, identified as:

(a)       all  documents  relevant  to  the  decision  by  the  Bank  of  Scotland

International to advance funding to the plaintiff;

(b)      all documents relating to the terms of the said funding; and

(c)       all  documents  relating  to  the  plaintiff‘s  compliance  with  the  said

terms.

[80]    Station Properties opposes the application on two grounds.  The first is that it does not have control over documents held by BOS International.  Secondly, it says that any documents that it holds relating to funding which have not already been disclosed are not relevant to matters in issue in the proceeding.

[81]    Dealing first with documents held by BOS  International, counsel for the defendants submitted that Station Properties had an obligation to take all reasonable steps  to  obtain  the  documents  from  BOS  International,  given  the  relationship between those parties (both historical and current).  She relied on the decision of this

Court in Inverness Medical Switzerland GMBH v MDS Diagnostics Ltd.23

[82]    Documents held by BOS International clearly are not documents over which Station Properties has control in terms of the standard test.24     Further, I do not consider that the principle in Inverness assists the defendants.   The principle in Inverness:25

… in a commercial cause where there is a relationship pursuant to which the defendant may reasonably be expected to gain access to relevant documents,

…   the   defendant   should   take   all   reasonable   steps   to   obtain   that documentation and to make discovery.   Fairness and openness in the discovery process demands as much.‖

[83]    In Inverness the defendant was the New Zealand licensee of a manufacturer from whom design and other drawings relating to products in issue were sought by the plaintiff.  It is conceivable that as licensee the defendant would either have an entitlement  to  call  for  this  information  about  the  licensed  products,  or  that  the licensor would be prepared to provide the information in the interests of a positive relationship.  In my view, however, different considerations apply in an arms-length lender/borrower relationship, and there is no reason to anticipate a positive and voluntary response from a lender to a request to provide its (internal) documentation about  the  loan  arrangement.    Without  such  expectation,  there  is  little  point  to requiring that Station Properties make a request for BOS International to provide these documents.

[84]    I consider that Inverness can and should be distinguished.  In coming to this view I take into account that the defendants can seek non-party discovery, although

that still raises the issue of relevance (the next point I address).

23     Inverness Medical Switzerland GMBH v MDS Diagnostics Ltd HC Auckland CIV 2007-404-

748, 21 December 2007.

24     See Re Bassett (deceased) [1934] NZLR 709 (SC); Lonrho Ltd v Shell Petroleum Co Ltd [1980]

1WLR 627 (HL).

25     Inverness, above n 23, at [37].

[85]    The second aspect of this part of the application focuses on documents that are held by Station Properties as distinct from BOS International.  The defendants say that the conduct of Station Properties is crucially relevant to their affirmative defences.  Counsel argued that any concealment of the side agreements affects the legitimacy of the project (whether it can be taken at face value) and the plaintiff‘s integrity in its promotion of it (specifically to the defendants).  Counsel also argued that the documentation being sought will be relevant to the accuracy of Station Properties‘ representations to the defendants about funding requirements, whether the project was soundly evaluated, and as to whether the representations made to the defendants  were consistent  with  what  was  said to BOS  International.    In brief, counsel  submitted that  the bona  fides  of Station  Properties is  in  issue,  and  the documents being sought are relevant to that.

[86]    Station Properties contends that the only documents as to funding that it holds that can be relevant are those that were provided to the defendants prior to or at the time they entered into their agreements.  It accepts that those documents are relevant as part of the matrix of fact relating to interpretation of the agreements, or could potentially be relevant to the defendants‘ affirmative defences (particularly as to  misrepresentation).     The  receivers  say  that  they  have  disclosed  all  those documents (and have set out in Station Properties‘ affidavit of documents the steps taken to locate them).

[87]    Essentially, this case is about what Station Properties, allegedly through Mr McEwan and other agents and employees, said to the defendants, which led them to enter into their agreements (including their entry into the variations agreements in late August/early September 2006).   Station Properties says it has discovered all documentation it can locate that is relevant to these representations up to the date of entry into the agreements (although it is not clear from the evidence, or counsel‘s submissions, what date Station Properties took as the cut-off date for its discovery). I take the view that discovery should have been provided up to the date that the defendants entered into their variation agreements.

[88]    Were it not for a recent amendment to the defendants‘ pleadings, I would not have been persuaded that the funding documents being sought are relevant to the issues:

(a)      The existence and legal effect of the side agreements will depend on communications between Station Properties and the defendants.

(b)The only documents  passing between  Station  Properties and  BOS International that will bear on the agreements between Station Properties and the defendants are documents that the defendants saw or had specific knowledge about at the point of entry into the agreements.

(c)      Whether Station Properties concealed the side agreements from BOS International, or said something different to BOS International to what it is alleged to have represented to the defendants, will not be relevant to  the  enforceability  of  the  agreements.    The  critical  issues  are whether the representations were made to the defendants, and whether they were accurate.   (Counsel for Station Properties made the point that the defendants have not pleaded that the representations as to BOS International‘s funding requirements or the representations made to BOS International as to intention to on-sell the project were not accurate).

(d)There is no evidence to support the defendants‘ argument that the funding   documents   may   reveal   misrepresentation   by   Station Properties to BOS International (the evidence that BOS International was unaware of the side agreement in August 2008 does not go this far).    More  significantly,  however,  the  defendants‘  appear  to  be seeking the documents to show that Station Properties was telling the defendants‘ one thing and BOS International another.  Discovery for

the sole purpose of impeaching a party‘s credit is not permitted.26

[89]    However, the day before the hearing, counsel for the defendants provided further particulars of their statement of defence, specifically pleading that concealment from BOS International of the full terms of the agreements with the defendants was part of a strategy to create a dependency in the defendants on the advice of Mr McEwan, and to encourage the belief that the project was legitimately

managed  in  accordance  with  proper  standards  of  business  practice  and  was  on normal commercial terms. The relevant part of the amended pleading reads:

The language and strategy referred to in paragraph 31(c) was –

1.        All the language used in the 20 September 2005 email annexed hereto as Schedule 1, when read as a whole, and in particular

a.        The contrast between so-called ―underwrite‖ purchases and

―outright‖ purchases;

b.The description of the ―underwrite‖ contract as conditional, cancellable at the Defendants‘ option;

c.        The instruction that  if  one  wished to ―buy  outright‖  one

―must delete the last special condition, clause 37.1 (cancel at

any time clause)‖;

2.        The said strategy was to:

a.        Create dependency in the Defendants upon the advice of

McEwan ....

b.Create  and  maintain  a  belief  in  the  Defendants  that  the project was being legitimately managed in accordance with proper standards of honest business practice and normal commercial terms –

By providing to the Defendants the indicative terms of  finance which terms included (in Appendix 2 – defining ―Qualifying Pre-sale Contracts‖) the requirements that the form of pre-sale contracts  was to be acceptable to the financier, and that the said contracts be on normal commercial terms;

By either concealing from or failing to disclose to the   financier   the   full   terms   of   the   ‗pre-sale contracts‘, thereby averting any decision by the financier to reject those contracts as unacceptable or on other than normal commercial terms‘

By   means   of  such  conduct,  conceal  from  the Defendants any basis for concern that the presale contracts were not on normal commercial terms.

[90]    This pleading arguably raises an issue to which the funding documentation held by Station Properties could be relevant (under the test in Peruvian Guano27).

[91]     I make an order that Station Properties discover documents in its control relating to the funding of the project bearing upon the issue as to whether the full

terms of the ―Qualifying Pre-sale Contracts‖ referred to in BOS International‘s terms of finance for the project were concealed from or not disclosed to BOS International in the period up to the point in time that BOS International committed itself to provide funding for the project.

Station Properties’ applications

[92]    Station Properties seeks orders that the defendants:

(a)       File and serve verified answers to a notice to answer interrogatories dated 28 September 2010; and

(b)File and serve an amended statement of defence providing further particulars sought in a notice to provide further particulars dated 28

September 2010.

[93]    The defendants filed and served verified answers to interrogatories in the notice at the end of November 2010.  By that time Station Properties had filed its application.  The defendants did not respond to the notice to answer particulars until the day before the hearing (the particulars provided have been set out above).

[94]    Station Properties contends that the answers given to the interrogatories are inadequate and evasive, and seeks an order that they be answered properly.  It also seeks an order that the defendants provide particulars of two aspects of their pleading that were not answered by the particulars provided before the hearing.

[95]    The defendants opposed the order sought in respect of interrogatories on the grounds that it was unnecessary and that the defendants had answered the interrogatories as comprehensively as they could ahead of the further discovery they were seeking.  In those circumstances they contended that the request for further and better answers was vexatious and oppressive.   The defendants resisted the further particulars being sought  on the basis that they were not necessary to  fully and adequately inform Station Properties of the defences.

Interrogatories

[96]    After a statement of defence has been filed, a party to a proceeding may serve notice on another party to answer specified interrogatories relating to any matter in question between them.28   The party served with a notice must answer it within the period specified in the notice, which is to be not less than 10 working days for a party resident in New Zealand.29   Unless a Judge orders otherwise, the statement in answer must address the interrogatories specifically and substantially:

(2)     A statement in answer to interrogatories must deal with each interrogatory specifically, either—

(a)       by  answering  the  substance  of  the  interrogatory  without evasion; or

(b)       by objecting to answer the interrogatory on 1 or more of the grounds mentioned in rule 8.7(1) and briefly stating the facts on which the objection is based.30

[97]    The Court can order a party to answer interrogatories at any time, but only after satisfying itself that the order is necessary at the time it is made.31

8.5      Order to answer

(1)       A Judge may, at any stage of any proceeding, order any party to file and serve on any other party (whether the interrogating party or not) a statement prepared in accordance with rule 8.6 in answer to interrogatories specified or referred to in the order.

(2)       The  interrogatories  must  relate  to  matters  in  question  in  the proceeding.

(3)      The order may require the statement to be verified by affidavit.

(4)       The  Judge  must  not  make  an  order  under  subclause  (1)  unless satisfied that the order is necessary at the time when it is made.

[98]    A fundamental rule underlying the entitlement to interrogatories is that they must relate to a matter in question between the parties.  The test has been described

as whether the interrogatories have some bearing on the questions in issue and a

28 Rule 8.1.

29 Rule 8.2.

30 Rule 8.6(2).

31 Rule 8.5.

tendency  to  establish,  or  form  a  step  in  establishing,  the  allegations:  BNZ  v

Gardener.32   The test is a wide one:  Marriott v Chamberlain: 33

Pretty nearly anything that is material may now be asked. The right to interrogate is not confined to the facts directly in issue, but extends to any facts that existence or non-existence of which is relevant to the existence or non-existence of the facts in issue.

[99]    Station Properties sought interrogatories directed towards establishing the circumstances in which the defendants entered into their respective sale and purchase agreements, the knowledge that the defendants had about the content and enforceability of those agreements, and the circumstances in which alleged undertakings and representations asserted by the defendants in their defences were made by Mr McEwan (as a director) and by employees.   The interrogatories are clearly relevant to issues in the proceeding.

[100]  Counsel for the defendants argued that the defendants were justified in their opposition on the grounds that it was unclear which interrogatories were alleged to be insufficient, that the defendants had answered the interrogatories as directly and comprehensively as they could, and that Station Properties had not shown that the order to answer was necessary.

[101]  The  first  point  has  been  answered  in  Station  Properties‘  submissions. Counsel for Station Properties grouped the interrogatories into three categories:

(a)       Where  answers  were  given  by  reference  to  previous  affidavits, without answering the question directly;

(b)Where specific words, documents or dates were requested but have not been provided;

(c)       Where answers are evasive.

32 BNZ v Gardener (1992) PRNZ 278.

33 Marriott V Chamberlain (1886) 17 QBD 154, 163, affirmed in Girvan v Nicholls HC Auckland

CIV-2008-404-2515, 29 October 2009.

[102]  Before  addressing  each  of  those  in  turn,  I  record  that  counsel  for  the defendants said that the defendants had not appreciated that Station Properties was pursuing its application in respect of the majority of the questions.  Whilst it is true that the solicitors for Station Properties, in a letter dated 29 November 2010, had referred to only three interrogatories where the answers were considered to be inadequate or evasive (two of which are still being pursued), in the same letter the solicitors made clear that Station Properties would be pursuing the application in respect of answers given by reference to previous affidavits.   I will deal with that point first.

[103]  In answers to questions seeking the circumstances in which undertakings and advice were allegedly given or representations made, and seeking the precise words used, the defendants answered by reference to several paragraphs in earlier affidavits (given in opposition to an application for summary judgment).   In each case the passages in the earlier affidavit gave a general account of proceedings at, and understandings drawn from, meetings that the defendants had with Mr McEwan, including statements  to  the effect  that  the account  of another party (also  in  an affidavit at the summary judgment stage) was ―virtually the same as my experience at a similar meeting‖.

[104]  I accept the submission of counsel for Station Properties that answers to interrogatories must be intelligible and complete in themselves, and that an answer which generally refers back to another affidavit does not conform with the requirements of Rule 8.6(2).   In my view the answers provided to interrogatories (a)(iii), (a)(v), (b)(iii), b(iv) D, (c)(iv), (c)(vi), (d)(iv), (d)(vi) and (i) should have been  answered  directly,  and  not  by reference to  earlier affidavits  or by general reference to an email or a document without identifying the specific passage in the document.

[105]  The second category of inadequate response concerns interrogatories seeking the precise words used in giving undertakings or advice, or making representations (interrogatories (a)(v), (b)(iv), D (c)(vi), (d)(vi)), and the date on which and the place where the defendants signed their agreements.   Counsel for the defendants argued that the defendants were now unable to provide any more precise words, and that it

was unreasonable and oppressive to  insist on precise words so long after the events

(at varying times between 2003 and 2005).

[106]  There is merit to both arguments.   The defendants are relying on alleged undertakings and representations.  It is axiomatic that their scope and effect depends on the actual words used.  At the same time, the passage of time can dim a person‘s ability to  recall.    However,  for  the  purposes  of  this  proceeding,  and  given  the importance of the alleged undertakings and representations, I consider it not unreasonable to  require  that  the defendants  answer such interrogatories  with  an explicit statement that they cannot now recall precise words used, or the place and circumstances of particular events, if that is the case.  If it is not they must state the words and give the details of date and place requested.

[107]  One of the interrogatories to which Station Properties seeks a more specific answer related to the circumstances in which the alleged representation was made to the defendants that their respective agreements were conditional and that they were not bound or would not be required to settle the agreements.  The answer given to that interrogatory was that the circumstances were set out in earlier affidavits, an approach which I have already rejected.  In her submissions in the hearing, counsel for the defendants argued that no further answer was necessary because it was clear from the context of the pleading and answers to the other parts of that interrogatory that the representation comprised an email from one of Station Properties‘ employees dated 20 September 2005, together with surrounding conduct consistent with that email.  The appropriate response to that question should have been to refer to the specific statements made in that email and, if necessary, to identify related conduct. I do not accept that Station Properties should have been left to have assumed this answer.  I have already directed that this interrogatory be answered directly.

[108] This leaves the last category where Station Properties contends that the defendants‘ answers were evasive. There are two interrogatories still in issue, being:

(k)       Did the second defendants know at the time that they entered into the S&P Agreement that, in the event the apartment they had purchased was not sold to a third party prior to settlement, they would be required to settle the purchase under the S&P Agreement?

(l)        Did the second defendants know at the time that they entered into S&P Agreement  that  the  plaintiff  required  bank  funding  for  the development to go ahead and that the S&P Agreement would be

used by the plaintiff to obtain bank funding and be relied upon by the bank in advancing that funding?

[109]  Each of the defendants answered interrogatory (k) ―I don‘t know‖  before stating that they did not think they would be forced to settle the purchase because they had been assured that the entire development would be sold prior to completion, and they had no reason to question this based on what they had been told by Mr McEwan or Station Properties‘ employees (the answers varied slightly between each defendant  but  this  was  the  essence  of  them).    Counsel  for  Station  Properties submitted that the question required a simple yes or no answer – the defendants either knew or did not know – and the explanation given made the whole answer unintelligible.

[110]  I accept that the phrase ―I don‘t know‖ is unclear.  However, in my view that stems from the form of the question.   I accept the submission of counsel for the defendants  that  it  is predicated on  an  assumption  that  the defendants  would  be required to settle if the apartments had not been sold earlier to a third party.  This begs the very question that they are advancing in their defences.  I consider that the defendants have answered this question as directly as was possible in the circumstances of this case.

[111]  This leaves interrogatory (l).  Station Properties contends that this is also a question that can be answered yes or no.  The defendants again answered it similarly by saying that they had no knowledge of the terms that Mr McEwan had discussed with the financier other than the general indicative terms that had been provided to them, and added that it was not for them to address what the financier might rely upon.  (Again this is the essence of the slightly varying answers).

[112]  Counsel for Station Properties accepted that this interrogatory posed three separate questions, and the last (whether they knew the agreements would be relied upon by the financier) was outside the defendants‘ knowledge.  However, I consider that the other two aspects of the interrogatory (whether the defendants‘ knew when they entered into the agreements that the plaintiff required bank funding, and that the agreements would be used to obtain that funding) are capable of direct answers, and should be answered accordingly.

[113]  Given the significance of the information to the defences, I consider that the answers to the interrogatories are necessary.

(b) Particulars

[114]  At the time of issuing its application, Station Properties sought particulars of paragraphs 28, 31, 36, 40 and 42 of the statement of defence.  It accepted that the interrogatories   and   other   exchanges   between   the   parties   provided   sufficient particulars of the allegations in paragraphs 36 and 42, and accepted that its request for particulars of paragraph 31 was met by the particulars provided the day before the hearing.   It pursued its application in respect of paragraphs 28 and 40.   The particulars sought were:

(a)       In respects of paragraph 28 of the statement of defence  dated 2 June

2010, provide particulars of:

(i)       the date when McEwan gave the alleged undertaking;

(ii)      the circumstances in which McEwan gave the alleged undertaking and whether it was given in writing or orally;

(iii)     the persons to whom McEwan gave the alleged undertaking; (iv)    the   words   used   by   McEwan   in   giving   the   alleged

undertaking.

(d)        In  respect  of  paragraph  40  of  the  statement  of  defence,  provide particulars in relation to each alleged misrepresentation of:

(i)       when the misrepresentation was made;

(ii)      the persons who made the alleged misrepresentation;

(iii)      the  circumstances  in  which  the  alleged  misrepresentation was made;

(iv)     the precise words used;

(v)       whether the misrepresentation was made orally or in writing and, if in writing, identify the document in which the alleged misrepresentation was made;

(vi)     who the alleged misrepresentation was made to.

[115] Counsel for Station Properties said that it was pursuing this part of the application because of the significance of the alleged undertakings and misrepresentations to the defences.  Counsel drew an analogy with defamation cases where the precise words used must be pleaded precisely, because of the significance

to the potential defences.  Counsel submitted that the answers to interrogatories did not fairly inform Station Properties of the basis for its allegations, as it could not be clearly ascertained from the pleading or answers to interrogatories what the defendants allege was said at particular meetings they attended, nor which aspects of statements made were alleged to constitute the undertakings or misrepresentations. Counsel again made reference to the general nature of the evidence given in the earlier affidavits:

(a)      The fifth defendant referred to a meeting in 2001, but without any details of the alleged  misrepresentations at that meeting;

(b)One of the sixth defendants described a two day seminar in July 2004 at which Mr McEwan spoke, but did not set out details of the alleged misrepresentations made at that time;

(c)      All of the defendants referred back to the affidavit of another party (the second named first defendant) who described a meeting in 2003 at which Mr McEwan spoke; but neither the fifth nor sixth defendants attended that meeting and there was no detail given in that affidavit of what was said, and what statements were relied on as undertakings or misrepresentations.

[116]  Counsel for the defendants accepted the importance of the undertaking and representations to the defendants‘ cases, but said that it had not been clear until receipt of the plaintiff ‘s synopsis for this hearing that Station Properties was still pursuing its application for particulars (having regard to the earlier provision of answers to interrogatories).   She said that the defendants were still awaiting particulars of a recently amended statement of claim (filed on 11 March 2011) and were likely to file an amended defence which could respond to the outstanding requests for particulars.  She advised that draft particulars (and interrogatories) had been prepared, but a response had been deferred until the defendants had an answer on their requests for further discovery.

[117]  Station Properties‘ request has been made under r 5.48(5) of the High Court

Rules:

5.48     Requirements of statement of defence

…

(5)       The  statement  of  defence  must  give  particulars  of  time,  place, amounts, names of persons, nature and dates of instruments, and other circumstances sufficient to inform the court, the plaintiff, and any other parties of the defendant‘s defence.

[118] There was no dispute between counsel as to the importance of proper particulars, as emphasized by the Court of Appeal in Price Waterhouse v Fortex Group Limited:34

It has become fashionable in some quarters to regard the pleadings as being of little importance.   There was an echo of that approach in the implicit suggestion floated in this case that exchange of briefs of evidence before trial might be seen as curing any lack of particularity in the pleadings.  Any such view is misguided.   Pleadings which are properly drawn and particularised are, in a case of any complexity, if not in all cases, an essential road map for the Court and the parties.   They are the documents against which the briefs of evidence are or should be prepared.   They are the documents which establish parameters of the case, not the briefs of evidence.

... What we are saying is that both the Court and opposite parties are entitled to be advised of the essential basis of a claim or defence, and all necessary ingredients of it, so that subsequent processes and the trial itself can be conducted against recognisable boundaries.   Neither the Court not opposite parties should be placed in the position of having to deal with a proposition of whose substance adequate notice has not been given in the pleadings.

[119]  There is no question that the alleged undertakings and misrepresentations are essential to this case and, therefore, that Station Properties is entitled to be fully and fairly informed as to the circumstances in which they arose, and the terms in which they were expressed.   I consider that the particulars sought are  appropriate and should be given.  To some extent they may also be provided in the undertakings that I have ordered, but I still consider it appropriate that they should be included in formal pleading.  I accept that it may not be possible for the defendants to plead the precise words used but, if that is the case, the position should be made clear.  I see no reason to delay giving of the particulars.  Counsel for the defendants indicated that

they have largely been drafted, and were merely waiting the discovery being sought

34 Price Waterhouse v Fortex Group Limited CA 179/98, 30 November 1998

from Station Properties.  I do not see that the discovery being sought should delay delivery of the particulars.

Decision

[120]  In summary:

(a)       The defendants‘ application for a declaration that no privilege exists in

document S 186 is dismissed (refer paragraph [49]);

(b)      The defendants‘ application for an order the Bell Gully cease to act for

Station Properties is dismissed (refer paragraph [74]);

(c)      The defendants‘ application for an order setting aside the claim for legal professional privilege in documents passing between the former McEwan Group Limited (now Ro-Ro Investments Limited) and its legal advisors is dismissed (refer paragraph [78]);

(d)The plaintiff is ordered to provide further discovery of documents relating to funding of the project as identified in paragraph [91];

(e)      The defendants are to file and serve verified answers to the plaintiff‘s notice to answer interrogatories dated 28 September 2010 as identified in paragraphs [104], [106] and [112];

(f)       The defendants are to provide further particulars of paragraphs 28 and

40 of their statement of defence as directed in paragraph [119];

[121]  The scope of the further discovery to be provided by the plaintiff and of the further answers to interrogatories and particulars to be provided by the defendants, is relatively confined.   It  should be  possible to do this within five working days. However, as there is also a need to review the timetable for service of briefs, and the potential  impact  of these orders on  those  briefs,  I will  defer setting a  date for compliance with these orders.  The parties will be advised by the Registrar of a date for a telephone conference either with me or with the trial Judge at which dates will be set for compliance with these orders.  Counsel have already provided memoranda

concerning directions for trial.  Those may now need to be updated.  If so that should be done by 5 p.m. on 30 May 2011.

[122]  Counsel did not address me on costs of these applications, as there had been correspondence on the conflict issue in particular which will need to be taken into account.  Directions for filing of memoranda will be given at the conference which

the Registrar is to allocate.

Associate Judge Abbott