Privilege dilemmas: what is the dominant purpose?

Determining whether a document is privileged is a question that both in-house lawyers and private practice lawyers face when confronted with a discovery exercise – particularly in large-scale construction disputes. In this article we examine the recent decision in Minister of Education v James Hardie New Zealand [2019] NZHC 3487 (MOE) which provides timely guidance on the complex area of privilege.

When a claim is filed in Court, the first step that a party should undertake is to take reasonable steps to preserve documents that are, or are reasonably likely to be, discoverable in the proceeding (see 8.3 of the High Court Rules 2016 (HCR)).

After the documents have been preserved, the next step is to establish which documents are relevant and discoverable in the proceedings. In addition, HCR 8.16(1)(b) states that the schedule referred to in rule 8.15(2)(e) must, in accordance with that discovery order, list or otherwise identify documents that are in the control of the party giving discovery for which privilege is claimed and state the nature of the privilege claimed. Therefore, the question becomes which documents fall within the privilege category?

In the MOE case, Fitzgerald J began her analysis with examining and applying the principles in the landmark decision of the Court of Appeal in Guardian Royal Exchange Assurance of New Zealand Ltd v Stuart [1985] 1 NZLR 596 (CA) (Guardian Royal Exchange). Her Honour then provides practical guidance on the development of the law relating to litigation privilege in New Zealand.

The test for privilege

In New Zealand the test for litigation privilege is encapsulated in section 56 of the Evidence Act 2006, as follows:

  1. at the date the document was prepared, litigation was reasonably apprehended; and
  2. the document was prepared for the dominant purpose of preparing for litigation.

The Court of Appeal in Guardian Royal Exchange (at 14-15), states that a document prepared for the dominant purpose of litigation is:

 “… 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.”

When is litigation “reasonably apprehended”?

When and whether litigation is reasonably apprehended is a question of fact (MOE at [7]). However, there must be a “real likelihood” of litigation – a “mere possibility” or “vague apprehension” that litigation could occur is insufficient (MOE at [7]). Importantly, Fitzgerald J clarified that documents prepared for “investigatory purposes” do not automatically mean that litigation was reasonably contemplated at that time. Therefore documents which gather information relevant to legal proceedings are not automatically privileged, it always depends on the factual context (MOE at [98]).

Having examined the law relating to when litigation can be said to be reasonably apprehended, Fitzgerald J helpfully gave examples of where litigation was not reasonably apprehended, including:

  • where a complaint is made, or query is raised prior to any investigation of the matter because at that stage nothing is known about the complaint or what the response might be to it;
  • an investigation into the nature of the complaint and the possible causes of the issue that has come to the party’s attention (MOE at [40]); and
  • the fact that a document is prepared after a claim arose is not enough, at that point in time, to demonstrate that litigation is a possibility.

Has a document been prepared for the “dominant purpose” of litigation?

The test requires a party to establish whether the document has been prepared for the dominant purpose of enabling a legal adviser to conduct or advise on litigation (MOE at [16]). The fact that a document is addressed to a legal adviser or is said to be for the purpose of providing information to legal advisers, is not determinative of whether the document would attract privilege (MOE at [98]). In practice, this means that simply copying legal advisors into an email or adding them as part of a distribution list for an internal memorandum is unlikely, without more, to meet the threshold of establishing “dominant purpose”. It is important to bear in mind that a document which was not created for the purposes of litigation will not attract litigation privilege even if it is later used by that party in the subsequent litigation /proceedings (MOE at [24]), because the dominant purpose test is applied at the time the document is created.

What about a document that is prepared both for commercial reasons and litigation (i.e. it could have a “dual purpose”)? 

The question of whether a document satisfies the dominant purpose test where it was created for the “dual purpose” of a commercial reason and litigation has given rise to headaches for many lawyers and their clients.

Helpfully, the MOE case clarifies the position by stating that litigation privilege does not attach to a document prepared for dual/equal purposes of both litigation and another (i.e. commercial) purpose. The argument that the document was prepared for an “inseparable dual purpose” is not sufficient to attract litigation privilege – unless the dominant purpose is for apprehended litigation the document will not attract litigation privilege (MOE at [29]). For example, a report examining the cost of potential remedial works which was prepared to give a company an understanding of the potential costs of remedying defects in a building, where a company was aware that in the future there could be litigation, may not automatically attract litigation privilege in subsequent litigation.

Fitzgerald J confirmed that, in reality, there must always be a dominant or primary purpose for creating the document and litigation privilege will only apply to a document if its dominant purpose is in fact the preparation of apprehended proceedings (MOE at [29]). In practice, this means that where a document is considered to have a dual purpose, even if those two purposes are said to be inseparable, an assessment needs to be undertaken and the dominant purpose established one way or the other.

Fitzgerald J at [11] in the MOE case clarifies recent decisions in the New Zealand courts which cite the English Court of Appeal’s decision in Re Highgrade Traders Ltd [1984] BCLC 151 (CA) to the extent that these cases were interpreted as applying a dual purpose test. In Re Highgrade Traders, Oliver LJ concluded that the only purpose for which the reports came into being was to enable the insurers’ solicitors to advise on whether or not to litigate.

It is important to note that Fitzgerald J clarifies comments made by Associate Judge Bell in Minister of Education v H Construction North Island Ltd [2017] NZHC 3147 (H Construction). In H Construction, Bell AJ could be interpreted as stating that a document can have two purposes that are “inseparable” (i.e. a dual purpose). However, Fitzgerald J clarifies that Re Highgrade Traders does not stand for the proposition that a dominant and secondary purpose may somehow “merge” to become one dominant purpose (MOE at [28]). Rather, a clear decision, one way or the other, must be made as to the single dominant purpose of the document.

Key points for in-house and litigation lawyers in relation to litigation privilege

  • If a party is claiming that a document attracts litigation privilege and the privileged status is later challenged by the opposing party in proceedings (in accordance with HCR 8.25), the party should be prepared to explain to the Court why or what litigation was reasonably apprehended when each document was prepared, and why its dominant purpose was for the litigation (MOE at [45]).
  • A Judge has broad discretionary powers with respect to examining a claim of litigation privilege, including making an order that the document must be provided to the judge in order that she or he can examine the document and assess the claim of privilege. However, there is a high threshold to get to this point.
  • If a party is found to have claimed privilege over a document without foundation, they risk exposure to an adverse cost decision.
  • Any company or entity should instruct lawyers as soon as possible in relation to a dispute to seek to preserve privilege over any technical reports prepared, and internal documents, that could attract litigation privilege to avoid a situation where they may be ordered to disclose the document which could have an adverse impact on the strength of its case or adverse cost orders later down the track.
  • If there is a potential dispute a party should take care when creating documents and should limit dissemination of such documents as much as possible.

Authored by Christine Gordon, a Senior Associate in MinterEllisonRuddWatts' Construction team, and Mariam Baho, a Solicitor.

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