Wellington City Council v Local Government Mutual Funds Trustee Limited

[2015] NZHC 1151

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

CIV-2014-485-9933 [2015] NZHC 1151

BETWEEN

WELLINGTON CITY COUNCIL

Plaintiff

AND

LOCAL GOVERNMENT MUTUAL FUNDS TRUSTEE LIMITED Defendant

Hearing:	7 May 2015
Counsel:	T C Stephens with G M G Joe for Plaintiff E J Horner for Defendant
Judgment:	27 May 2015

JUDGMENT OF THE HON JUSTICE KÓS (Particular discovery; challenge to privilege claim)

[1]      The Wellington City Council has been put to substantial cost in defending and  settling  a  weathertightness  proceeding  brought  by  owners  of  the  Lofts Apartments at 181-185 Victoria Street, Wellington.

[2]      From 1997 to 2008 the Council was a participant in a mutual liability scheme providing professional indemnity and public liability protection to local government organisations.   That body is known as RiskPool, and it is the defendant in this proceeding.

[3]      Weathertightness problems at the property were identified in 2004.  In May

2004 the Council gave written notice to RiskPool of an occurrence which might give rise to a claim.   But no proceedings were brought against the Council until 2011. RiskPool claims it was not notified of the existence of the proceedings until 26

August 2013.   It says that by reason of such late notification, ensuing change of

position  and  the  existence  of  an  alleged  absolutely  unfettered  discretion  as  to

WELLINGTON CITY COUNCIL v LOCAL GOVERNMENT MUTUAL FUNDS TRUSTEE LIMITED [2015] NZHC 1151 [27 May 2015]

whether claims are met out of pool cover, it was entitled to decline cover to the

Council.

The application

[4]      An  affidavit  of  documents  was  sworn  by  Ms  Juliet  Martin,  the  general manager of RiskPool, in November 2014.   It has given rise to a dispute over discovery.

[5]      This judgment deals with an application for particular discovery under r 8.19, and a challenge to privilege claim under r 8.25.

[6]      After the application was made the defendant conceded that some of the privilege claims had not been properly advanced.  The result has been disclosure of a number of documents, and the recategorisation of those and others.

[7]      At the beginning of the hearing, counsel for the defendant also conceded that some of the categories of documents for which particular discovery is sought could be the subject of a Court order if the Court was so minded.  These were sensible and necessary concessions.

[8]      I will now address each category of particular discovery that remains in issue, and conclude with the remaining challenge to privilege claim.  That challenge now concerns one document only.

Particular discovery

Item 1: Documents relating to RiskPool’s decision to decline to indemnify the Council,  including  the  relevant  Board  meeting  minutes  and  Board papers/information that the Board considered in making its decision

[9]      RiskPool accepts that these documents would be relevant, if extant.  But it says that all documents within this category have been disclosed.

[10]     I  am  not  satisfied  that  a  sufficient  search  has  been  made  of  relevant documents.  Ms Martin’s original affidavit of documents refers to instructions to her solicitors to “obtain all relevant information”.   It then refers to Ms Martin having

herself undertaken a “review” of the defendant’s computer directory, referencing documents held by either Juliet Martin (General Manager) or Jane Brown (Legal Officer)  in  relation  to  the  “Lofts Apartments  and/or  Wellington  City  Council”. Although Ms Martin and Brown were employed by the defendant by late 2013 when the decision to decline was made, they were not employed by it in 2011 when other documents relevant to the plaintiff’s case may have been generated.  The temporal range of relevancy in this case dates back to May 2004 at least and potentially before.  It follows that applying those limited search criteria cannot have generated a complete and adequate search of documents relevant to this proceeding.

[11]     Ms Horner has now conceded that a further search will be required. A further affidavit will be supplied identifying the nature of the search undertaken and either confirming the absence of documents (if the original position is sustained) or else disclosing those documents that have come to light as a result of a proper search.

Item  2:  the  defendant’s  reinsurance  contract/policy  wording  for  each  layer  of

reinsurance that it held for the 2003/2004 year

[12]     In declining cover and defending this proceeding RiskPool contends it was prejudiced  by  the  late  notification  of  the  proceeding  because  of  the  2011 commutation of RiskPool’s reinsurance for the 2003/2004 fund year, which reinsurance or otherwise responded to the claim.  The Council does not accept that contention,  itself  contending  that  RiskPool  did  not  have  reinsurance  for  the

2003/2004 year, and that any reinsurance it did have for that fund year had already been exhausted.

[13]     RiskPool also says, as I have already said, that it has an absolutely unfettered discretion under the scheme rules whether to meet claims out of pool cover.   The Council contests that contention.  It says that the discretion is impliedly constrained by the purpose and intent of the scheme Trust Deed and scheme rules.  No separate question decision under r 10.15 has been made on this point, and it remains at large. As  Dobson  J  made clear in  Hager  v Attorney  General,  the scope of  discovery obligations  cannot  be  determined  on  the  assumption  that  a  particular  claim  or

defence will prevail.1   Relevance for the purpose of discovery cost corresponds to all issues currently and credibly live in the pleadings.

[14]     The nature and extent of reinsurance previously held by the defendant for the

2003/2004  fund  year  is  plainly  relevant  to  the  issues  live  on  the  pleadings. Discovery of the Item 2 documents must be given.

Item 3: the defendant’s financial records detailing the balance of the RiskPool fund and reinsurance for 2003/2004 fund year, surpluses from other fund years and guarantees or other assets available to the defendant to meet the Council’s Lofts Apartments’ claim

Item 8: the defendant’s financial records detailing the balance remaining of the

commutation payment received for the 2003/2004 fund year

[15]     One of the reasons for declinature given by RiskPool was that the Council’s claim for cover would, if accepted, require an additional call on members.  That was because there was insufficient remaining from the 2011 commutation payment.  That allegation  is  challenged  in  these  proceedings.     The  Council  contends  in  the alternative to making a call on members, that recourse ought be had to surpluses from previous fund years or guarantees from the parent company (provided for in the Trust Deed and scheme rules).

[16]     In these circumstances it is clear that these particular documents are relevant to the issues in the proceeding.  They are plainly in the possession of the defendant.

They should be discovered.

1      Hager v Attorney General [2014] NZHC 3293 at [28] – [29].

minutes and other documents relating to RiskPool’s negotiation of the commutation agreement with Swiss Re, including the defendant’s commutation offer to Swiss Re which preceded Swiss Re’s commutation counter-offer on 1 September 2011

Item 5: the Board papers and other documents/information that RiskPool considered in deciding to accept Swiss Re’s commutation counter-offer but including the accounts, documents and other information requested by the defendant’s directors as recorded in the minutes of their telephone conference on 22 September 2011

[17]     Ms Horner now accepts that both of these classes of documents are relevant, and that a further and more complete search needs to be undertaken.

Item 6: the final executed commutation agreement between the defendant and Swiss

Re

[18]     Since the filing of the  application,  RiskPool  has  conceded  that  the  final commutation agreement is relevant and not privileged.  It has been disclosed.

Item 7: the terms of Heaney & Co/Heaney & Partners engagement by the defendant

[19]     There  is  an  interesting  argument  that  notification  of  the  proceedings  to RiskPool  was  not  late,  but  occurred  in  2011  –  either  constructively,  because RiskPool was aware of the proceeding, or by attribution of knowledge, because RiskPool’s solicitors, Heaney & Co, were also the Council’s solicitors in the 2011 proceedings.

[20]     Ms Horner’s advice to the Court is that, following due enquiry of Heaney & Co, no formal written contract of engagement between that firm and RiskPool has ever existed.  It appears that the retainer by RiskPool has been on a case by case, or instruction by instruction, basis.   I am not prepared to order discovery of these diffuse arrangements.   However the forthcoming further affidavit of documents by the defendant will need to set out the precise position as to the absence of more formal retainer.

minutes and other documents relating to the defendant’s request for additional contributions from members of the RiskPool scheme and basis upon which such requests are made

[21]     RiskPool pleads that it was prejudiced by late notification.  That is because, first, there was insufficient commutation payment left to indemnify the plaintiff against the Lofts Apartments claim.  Secondly, an additional call on members would need to be made.  That call, it is said, would have imposed hardship on members, and would have discouraged members from rejoining the scheme or continuing with their membership.  That is the defendant’s pleading, and has put in issue the very point Item 9 relates to.

[22]     Ms Horner accepts the relevance of the documents sought but seeks some limitation as to scope.

[23]     In discussing the matter with Mr Stephens, I suggested that the scope of Item

9 discoverable at this point be limited to actual calls and Board papers and minutes regarding such calls.   Mr Stephens requested that I extend the class of documents included to communications from members indicating their reaction to calls made by RiskPool.  I accept that that is a reasonable requirement.

[24] There will therefore be an order for discovery in terms of Item 9, as limited by paragraph [22]. Leave is reserved to make further application depending on the outcome of the further discovery ordered.

Challenge to privilege

[25]    The single unresolved challenge to RiskPool’s privilege claims concerns document P1.113.  It was originally simply described as authored by “RiskPool”, and said to be a minute dated 3 October 2011.  It was originally claimed to be subject to litigation privilege.  The claim has now been amended to solicitor-client privilege. The authorship has been enlarged: it is a “combined memorandum from fund manager, scheme manager and scheme solicitor”.

[26]     Ms Horner is now to consider its status further.

[27]     The Court has not been asked to inspect the document.  However I note two points of general principle:

(a)      Where  a  document  is  a  composite  of  legal  advice  (otherwise privileged) and non-legal advice, only the portions of the document expressing legal advice are privileged.   That part of the document should be redacted. The balance must be disclosed.2

(b)The fact that the in-house scheme solicitor has given advice does not mean that legal advice given by her to her employer client is not privileged, even if she provides non-legal services also.3    However, only the legal advice given by the solicitor-manager is privileged. Managerial direction is not.4

If there is uncertainty in the application of these principles, leave is reserved to apply further to the Court for a ruling on the particular document.

Costs

[28]     The Council is entitled to costs.  In accordance with r 14.8(1) those should be fixed now. The Council is entitled to costs on a category 2 band B basis.

Result

[29]     Orders accordingly.

Stephen Kós J

Solicitors:

Simpson Grierson, Wellington for Plaintiff

Mahony Burrowes Horner, Wellington for Defendant

2      See for example Reid v Crown Law Office HC Wellington CIV 2008-485-1203, 21 April 2009 at

[44]–[47].

3      Robert v Foxton Equities Ltd [2014] NZHC 726 at [30].

4      Robert v Foxton Equities Ltd [2014] NZHC 726 at [32].