Xelocity Limited v Bay Audiology Limited HC Auckland CIV 2009-404-1744

[2010] NZHC 995

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2009-404-001744

BETWEEN  XELOCITY LIMITED Plaintiff/Counterclaim Defendant

AND  BAY AUDIOLOGY LIMITED Defendant/Counterclaim Planitiff

Hearing:         11 February 2010

Appearances: C T Patterson for the Plaintiff/Counterclaim Defendant

S S Cook and S R van der Wel for the Defendant/Counterclaim
Plaintiff

Judgment:      11 February 2010

[ORAL] JUDGMENT OF WYLIE J

Solicitors:

Graeme Skeates Law, P O Box 56 179, Dominion Road, Auckland 1015

Buddle Findlay, P O Box 1433, Auckland

C T Patterson, P O Box 2886, Auckland

XELOCITY LIMITED V BAY AUDIOLOGY LIMITED HC AK CIV 2009-404-001744  11 February 2010

[1]     The defendant/counterclaim plaintiff – Bay Audiology Limited (“Bay Audiology”)  –  seeks  further  and  better  discovery of  a  document  referred  to  as document  4.0001.     That  application  is  resisted  by  the  plaintiff/counterclaim defendant – Xelocity Limited (“Xelocity”).

[2]      Xelocity has also sought further and better particulars and further and better discovery from Bay Audiology.  That application has been resolved by consent.

Background

[3]      In  early  2007,  Bay  Audiology  decided  to  source  a  new  information technology system.  It selected Xelocity to assist in selecting and implementing the appropriate system.

[4]      There were delays in implementing the system, and various allegations have been made by the one party against the other.  Bay Audiology asserts that Xelocity did  not  adequately  define  its  requirements,  that  it  selected  an  untested  and problematic solution, and that ultimately, the system provided was not delivered on time, or on budget, and that it failed to meet Bay Audiology’s requirements.

[5]      Xelocity asserts that Bay Audiology has failed to pay for the services it provided.

[6]      Xelocity filed proceedings against Bay Audiology seeking payment of its outstanding fees.   Bay Audiology responded with a counterclaim against Xelocity alleging breach of contract and negligence.

Discovery

[7]      In an affidavit sworn on 16 November 2009, a Mr Bergin, on behalf of Xelocity, claimed litigation privilege in respect of document 4.0001.  It was noted in the affidavit that the document was dated 11 November 2008, and it was described as a “Project Close Report – What Went Wrong”.

[8]      On 12 October 2009, Bay Audiology’s solicitors wrote to Xelocity’s counsel querying the claim to litigation privilege in respect of document 4.0001.  Inter alia, the letter requested that Xelocity should describe the way in which the document was produced for the dominant purpose of the litigation.

[9]      Xelocity replied in respect of document 4.0001 as follows:

Document produced as part of Xelocity’s project management framework where a Project Close review is done and further improvements done to Xelocity’s PM framework.

The Project Close review meeting was attended by all of the Xelocity personnel involved with the project and meeting was facilitated by Peter de Heer, Xelocity Director. The report was typed up by Andreas Gabler.

[10]     Bay  Audiology  was  not  satisfied  with  the  response,  and  the  present application for further and better discovery has resulted.

Submissions

[11]     It is common ground that the matter is governed by s 56 of the Evidence Act

2006.

[12]     Section 56(1) and (2) provide as follows:

(1)       Subsection (2) applies to a communication or information only if the communication or information is made, received, compiled, or prepared for the dominant purpose of preparing for a proceeding or an apprehended proceeding (the “proceeding”).

(2)       A   person   (the   “party”)   who   is,   or   on   reasonable   grounds contemplates becoming, a party to the proceeding has a privilege in respect of—

(a)      a communication between the party and any other person:

(b)      a communication between the party's legal adviser and any other person:

(c)      information compiled or prepared by the party or the party's legal adviser:

(d)      information compiled or prepared at the request of the party, or the party's legal adviser, by any other person.

[13]     The sole matter in issue is whether or not the document was made, compiled or prepared for the dominant purpose of preparing for these proceedings.

[14]     Mr Patterson relies on an affidavit filed by Mr Bergin.  He submits that as at

11 November 2008, litigation was likely and that as at that date, Xelocity knew it might shortly be defending a claim by Bay Audiology for losses allegedly resulting from the project, and that ultimately it might have to commence litigation to recover its outstanding fees.  Mr Patterson relies on a passage in Mr Bergin’s affidavit which reads as follows:

15.      ...  Being  able  to  defend  any  such  claim  and/or  being  able  to successfully recover the outstanding fees was a more pressing concern than trying to improve performance on future projects.

He accepts that whether or not the document was prepared for the dominant purpose of the litigation is a question of fact that must be determined by the Court.  To that end, he has made a copy of the document available to me.

[15] Mr Cook for Bay Audiology disputes that the document was prepared for the dominant purpose of litigation. He refers to the response which Bay Audiology’s solicitors received from Xelocity referred to above at [9]. He says that it appears that the document was prepared for a number of purposes, including to preserve a record of Xelocity’s analysis of the project, to enable Xelocity to understand what caused failures in the project, and for Xelocity’s own operational reasons. He accepts that as at 11 November 2008, Xelocity had reasonable grounds to apprehend litigation, but denies that Document 4.0001 was compiled or prepared for the dominant purpose of litigation in accordance with s 56 of the Act.

Analysis

[16]     Section 56 does not depart in any material respect for the general principles established by the Court in relation to litigation privilege and set out in General Accident, Fire and Life Assurance Corporation Ltd v Elite Apparel Ltd [1987] 1

NZLR 129 and in Guardian Royal Exchange Assurance of New Zealand Ltd v Stuart

[1985] 1 NZLR 596 (CA). I refer to Carter Holt Harvey Ltd v Genesis Power Ltd

(No 7) HC Auckland CIV-2001-404-1974, 6 May 2008, Randerson J.

[17]     Litigation privilege provides protection against disclosure of communications between a person (or his or her legal adviser) and a third party prepared for the purpose of pending or contemplated adversarial litigation, which must have been definitely in prospect, and not a vague anticipation.  To be privileged from discovery or  production  in  evidence,  the  communication  has  to  have  been  made  with  a dominant purpose of enabling the party (or legal adviser) to conduct or receive and give advice in the litigation – see Laurenson v Wellington City Corporation [1927] NZLR 510; Alfred Crompton Amusement Machines Ltd v Customs and Excise Commissioners (No. 2) [1972] 2 QB 102; Guardian Royal Exchange Assurance of New Zealand Ltd v Stuart [1985] 1 NZLR 596.

[18]     In  Guardian  Royal  Exchange,  Cooke  J,  as  he  then  was,  proposed  the following test to determine whether or not litigation privilege could be invoked:

… I would propose as the New Zealand rule that, when litigation is in progress or reasonably apprehended, a report or other document obtained by a  party  or  his  legal  adviser  should  be  privileged  from  inspection  or production in evidence if the dominant purpose of its preparation is to enable the legal adviser to conduct or advise regarding the litigation.

[19]     Whether or not the dominant purpose for the preparation of the document is to enable advisers to conduct or advise regarding litigation is a question of fact – Harrison v Attorney-General (1989) 4 PRNZ 122 (HC) at 128.

[20]     Here litigation privilege is claimed in respect of Document 4.0001.  There is no dispute that litigation was reasonably apprehended at the time the document was prepared.   What is in issue is whether or not the document was prepared for the dominant purpose of that apprehended litigation.

[21]     I have concluded that the claim to litigation privilege cannot be made out in the present case for the following reasons:

a)       The initial response from Xelocity to Bay Audiology’s request that

Xelocity  should  describe  the  way  in  which  the  document  was

produced for the dominant purpose of litigation does not suggest that it was prepared for that purpose.  Rather it stated that the document was prepared as part of Xelocity’s project management framework, and so that improvements could be made to that framework.

b)Mr Bergin’s affidavit does not directly assert that the document was prepared for the dominant purpose of litigation.  He has suggested that being able to defend the claim, or being able to successfully recover the outstanding fees was a “more pressing” concern than trying to improve performance on future projects.   I do not accept that is an accurate description of why the document was prepared.   It is inconsistent with the initial response outlined above and with the content of document 4.0001.  I suspect that Mr Bergin’s comments are made with the benefit of hindsight.

c)       It is clear from the document itself that it was not prepared for the dominant purpose of preparing for litigation.   It is described as a “project close” document, or a “project close out report”.  It is noted on each page of the document that it is “for internal use only”.  The document is broken into four sections – “What did not work well”, “What went well”, “Lessons learned” and “Actions from lessons learned”.   It records that after the project was stopped, the Xelocity team did “a lessons learned session to retain the knowledge of what went wrong and what [Xelocity] can improve on”.  The lessons learnt are spelt out in some detail and actions taken or to be taken as a consequence are identified.  It is recorded that the document contains “a high level collection of items which require actioning and Xelocity Directors attention to prevent further project failures”.  The need for a detailed workshop is identified to action these various items.  There is nothing  in  the  document  to  suggest  that  it  was  prepared  for  the purpose of enabling Xelocity or its legal advisers to conduct, receive or give advance in relation to the apprehended litigation.  Rather, in my view, it is clear from the document that it was not prepared for

external advisors, or for the dominant purpose of preparing for litigation.

[22]     Bay Audiology’s request for further and better discovery of the document is granted and Xelocity is directed to discover and produce for inspection document

4.0001.

[23]     By consent, the parties have agreed that Xelocity’s application for further and best particulars and for further and best discovery can be dealt with on the following basis:

a)       Bay Audiology is to provide further discovery and particulars as are detailed in an email dated 10 February 2010 sent by Bay Audiology’s solicitors to Xelocity’s counsel (annexed to this judgment and marked “A”) and in an email sent by Xelocity’s counsel to Bay Audiology’s solicitors dated 11 February 2010 (annexed to this judgment and marked “B”).

b)Bay Audiology is not to introduce into evidence in these proceedings any documentation which has not been discovered by it to Xelocity by

31 March 2010, unless it was unable to provide such discovery by that date, despite having taken all reasonable steps to have the documentation available for discovery.

[24]     By consent, costs in regard to both applications are reserved.

Wylie J