The New Zealand legal system is a common law system, based on the English system of justice. As a result, New Zealand, like England, Australia, Canada and the USA, adopts an adversarial court process. What this means is that the Courts are reliant on the parties to produce evidence and argue in favour of a particular version of events. Based on this evidence and argument from counsel, the Court will make a decision as to which party is right and which is wrong.
In contrast, civil law courts, which are in operation throughout much of Europe, are often inquisitorial, meaning they are less reliant on the parties to produce evidence and instead have extensive investigative powers of their own.
Listing the benefits and limitations of the two types of system is beyond the scope of this article, but one of the limitations of the adversarial system, particularly in a civil (as opposed to criminal) context is the reliance on the parties to put all relevant information before the Court.
Various rules are in place to ensure that as much relevant evidence as possible is available to assist the Court to reach the “correct” decision. These rules include the ability to compel witnesses to give evidence in Court, and the requirement for each party to make available to the opposite party all documents in their control which are relevant to the dispute.
However, there remain overriding public policy reasons to exempt certain categories of information from being disclosed to the Court. One way this is achieved is through the operation of the rules of “privilege”.
“Compellability” refers to the ability for parties to require witnesses to give evidence in court, whether they want to or not. Witnesses who are summonsed to give evidence in Court must appear and answer questions put to them on oath. A witness cannot refuse to answer if the question being asked is relevant to the dispute.
The starting point is that all witnesses are compellable and must answer all relevant questions. However, there are certain recognised exceptions and one of those exceptions is where the matters concerned are covered by privilege.
“Discovery” is a court process by which parties must inform each other (by providing a detailed list) of documents in their possession that are relevant to matters in issue in the proceedings. Documents are relevant if they are documents on which you rely; or documents that adversely affect your case; or documents that adversely affect the other party's case; or documents that support the other party's case.
This is a very broad test that captures a large amount of documents.
Although all relevant documents must be listed, not all have to be provided to the other side. Where, for example, particular documents are privileged, they do not have to be produced.
Types of privilege
In New Zealand the rules developed over many years of judicial decisions have now been codified in the Evidence Act 2006 (the “Act”). The substance of the law remains the same, but it is now (largely) contained in one piece of legislation.
In civil proceedings, there are two main types of privilege:
- legal professional privilege (includes legal advice privilege and litigation privilege); and
- privilege for settlement negotiations or mediation (“without prejudice” privilege).
There are also other situations where privilege can arise (e.g., communications with religious ministers/doctors and the privilege against self-incrimination), but it is not proposed to go into any detail regarding these types of privilege. The focus of this article will be on legal professional privilege and “without prejudice” privilege.
Dealing first with “legal professional privilege”, the Act breaks this privilege up into two different categories: “legal advice privilege” and “litigation privilege”.
Legal advice privilege
“Legal advice privilege” applies to communications a person makes with his or her “legal advisor” which are intended to be confidential and are made in the course of or for purpose of obtaining profession legal services (s54 of the Evidence Act). A “legal advisor” is defined to mean a lawyer, a registered patent attorney (only in relation to IP matters) or an overseas lawyer. In turn, a “lawyer” is defined under the Lawyers and Conveyancers Act 2006 as “…a person who holds a current practising certificate as a barrister or as a barrister and solicitor.”
It is important to note, therefore, that qualified lawyers who do not hold current practising certificates (i.e., many in-house counsel) will not qualify as “legal advisors” for the purposes of the Act and, as a result, communications with them may not attract privilege. It is also important to remember that not all communications between a lawyer and his or her client will attract privilege, only those for the purpose of obtaining legal advice.
“Litigation privilege” has a much wider scope than legal advice privilege, but only applies if legal proceedings are apprehended or have actually commenced. The privilege covers communications between all persons where litigation has commenced or is “reasonably apprehended” and the dominant purpose of the communication is preparation for that litigation.
If the dominant purpose of the document is not for the litigation, but for some collateral purpose, then even though the communication may be related in some way to the proceeding, it will not be covered by litigation privilege.
In respect of both legal advice privilege and litigation privilege, the privilege “belongs” to the client or the person involved in the dispute. Therefore, only that person is able to waive the privilege.
Privilege for settlement negotiations or mediation
“Without prejudice” privilege is a privilege that attaches to certain types of negotiations made with the intention of settling a dispute. The purpose of the privilege is to allow the parties to have full and frank discussions in an attempt to resolve their differences, without fear that any concessions or admissions made in the course of those discussions could later be used against them in Court.
Not all negotiations will qualify and in order for the privilege to apply, the relevant communications must have been intended to be confidential, and must be made in connection with an attempt to settle or mediate a dispute “of a kind for which relief may be given in a civil proceeding.”
If the privilege does apply then it “belongs” to both parties to the communication. That means that neither party can give evidence of the privileged communication without the other’s consent.
So, for example, if person A and person B are in a dispute and are having a conversation, with the intention of resolving that dispute and expressed as being without prejudice, in which A made concessions about the dispute, person B could not later give evidence of those concessions in Court. Only if both A and B agreed, could the Court hear evidence of what was said in the course of the without prejudice conversation.
Offers made without prejudice save as to costs
A sub-category of “without prejudice” privilege is the “without prejudice save as to costs” offer (also known as a “Calderbank” offer). This type of letter, which must be in writing, cannot be produced while the dispute is live, but may be shown to the Court in support of an application for legal costs to be awarded after a decision has been reached on the substance of the dispute. The letter is produced to show that one party has made a reasonable attempt to settle the dispute.
Such a letter can have significant implications when the Court turns to determine how legal costs associated with the proceeding should be allocated. For example, if we take a situation in which person A as the defendant makes a without prejudice save as to costs offer to settle a $100,000 dispute for a payment of $80,000 and that offer is rejected by person B as the plaintiff who continues with the claim for $100,000. If person B was ultimately successful in his or her claim but was only awarded $50,000 instead of $100,000, then the Court may determine that person B, despite “winning” the case, should have to pay the legal costs of person A as well as their own costs (at least from the point of the Calderbank offer).
Waiver of privilege
Even if privilege is found to exist, it can be fragile. In some circumstances the Court will find that it has been waived (either expressly or by implication) and the previously privileged material will have to be disclosed.
Privilege is waived where the person to whom the privilege belongs voluntarily produces or discloses the privileged evidence or a significant part of it in circumstances inconsistent with that person continuing to claim confidentiality. For example:
- disclosure of part of a legal opinion may lead to privilege being waived over the entirety of that opinion; or
- disclosure of a final legal opinion may lead to waiver of privilege over previous advice upon which the final opinion is based.
The rules of privilege can be complicated and confusing. Where court proceedings may eventuate it is important to be aware of the fact that documents relevant to that dispute may have to be provided to the opposite party unless you can establish that privilege exists.
Any admissions or damaging statements that are made during this period may well end up being relied upon by the opposing party to prove their case. It is essential to be conscious of this and prudent about what is communicated (both externally and internally) in the early stages of a dispute prior to obtaining legal advice.
By way of an example of how this issue can be critical, the Court in Fresh Direct v JM Batten Limited (2009) 20 PRNZ 126 held that an insurance notification form sent from an accountancy firm to its insurers on the firm becoming aware of a potential negligence claim was not privileged and had to be disclosed to the other side.
In that notification, the accountants would almost certainly have been required to set out their honest assessment of the events giving rise to the potential claim and the likelihood that they might eventually have to pay compensation to the affected client. One can therefore see why the accountants (and their insurer) were particularly keen to establish that this document should remain privileged. Unfortunately they were unsuccessful because there were no lawyers involved at that stage and litigation had not even been threatened by the affected client.
The lesson to take from this is to take particular care in the early stages of a dispute as to what is committed to writing and to take legal advice as soon as possible.
Published: 19 November 2014