Defendant found an apparently hallucinated case authority in plaintiff’s document
In disallowing a director from representing his company in proceedings, the New Zealand High Court said it was not confident he could address the complex legal issues pleaded, given his reliance on artificial intelligence (AI) to prepare an interlocutory application.
On behalf of the plaintiff in RAP Holdings Limited v Vero Insurance New Zealand Limited [2026] NZHC 1819, its sole director and shareholder initiated a proceeding against the defendant Vero Insurance New Zealand Limited.
Through the original statement of claim filed on 11 February 2026, the plaintiff company alleged that it:
The sellers, who had owned the property at the time of the Canterbury Earthquake Sequence, had filed a claim under their insurance policy.
In its statement of defence, Vero argued that the sellers lacked an assignable residual policy entitlement in connection with any remaining earthquake damage that was the subject of the proceeding, pursuant to the principle in Xu v IAG [2019] NZSC 68.
The director applied for leave to file a Mannix application to represent the plaintiff in the proceeding. Vero opposed the application.
In an amended statement of claim on 20 April 2026, the director omitted a reference to the assigned insurance policy and pleaded that Vero had failed to discharge its obligation to return the property to a compliant condition.
Vero’s counsel asserted that the director had used AI to prepare the application for leave to bring the Mannix application. The interlocutory application cited an authority that seemed to be an AI hallucination.
The director, who did not dispute utilising AI to draft the application, apologised for the mistake.
The High Court of New Zealand declined the Mannix application. The court ruled that granting leave would not promote a just, speedy, and inexpensive determination.
The court was unclear about the cause of action because the amended statement of claim had removed the reference to the assignment and pleaded that Vero had failed to discharge its obligation to reinstate the property.
The court held that the legal complexities of the claim, which was not confined to a single legal pathway, weighed against issuing leave. The court also saw factual complexities regarding the nature of the property’s foundation damage and the best repair methodology.
Regarding the need for professional objectivity, the court noted that the property owned by the plaintiff served as the director’s home.
The court determined that the director’s description of the primary dispute as substantially based on the facts and the evidence indicated a lack of objectivity.
The court did not consider the director well-positioned to tackle the key issues, which were legal, in a manner that would best serve the plaintiff’s interests.
The court acknowledged that the director was directly and consistently involved in the factual, technical, and contractual matters leading to this proceeding.
However, the court pointed out that directors wishing to represent their companies were frequently familiar with the circumstances giving rise to the company’s litigation.
