CYNOTECH SECURITIES LIMITED AND BUDGET LOANS LIMITED V PEOPLE LIMITED AND ORS HC AK CIV 2008-404-1559 [2009] NZHC 108 (12 February 2009)

IN THE HIGH COURT OF NEW ZEALAND
AUCKLAND REGISTRY
                                                            CIV 2008-404-1559



             BETWEEN                    CYNOTECH SECURITIES LIMITED
                                        AND BUDGET LOANS LIMITED
                                        Plaintiffs

             AND                        PEOPLE LIMITED
                     
                  First Defendant

             AND                        GLENN BRYNN CHRISTIE
                                
       Second Defendant

             AND                        ANGELA PETERS
                                        Third Defendant


Hearing:     12 February 2009

Counsel:     A Liddell for Plaintiff
             G Wishart for Defendants

Judgment:    12 February
2009


                     (ORAL) JUDGMENT OF HEATH J




Solicitors:
Capamagian Liddell, PO Box 62, Tauranga
McElroys, PO Box 835,
Auckland

CYNOTECH SECURITIES LIMITED AND BUDGET LOANS LIMITED V PEOPLE LIMITED AND ORS
HC AK CIV 2008-404-1559 12 February 2009

The application


[1]    Cynotech Securities Ltd and Budget Loans Ltd seek an order for further
discovery. The application, while
made before the High Court Rules 2008 came into
force, now falls for determination under r 8.24 of the 2008 Rules.


Background


[2]    Cynotech and Budget Loans are financiers. The defendants are People Ltd (a
mortgage finance broker), Mr Christie (its managing
director) and Ms Peters (an
employee of the company).


[3]    In August 2007, People Ltd was involved as a broker in a transaction
in
which, ultimately, Cynotech and Budget Loans advanced $288,683.00 to McHardy
House Custodians Ltd. Two brothers, Kevin and John
Andersen, guaranteed the
loan. The Andersens were property developers.


[4]    People Ltd acted as agent for the borrowers in undertaking
the loan
arrangements.     A loan proposal was prepared and forwarded by Ms Peters to
Cynotech on or about 17 August 2007. The purpose
of the loan was stated to enable
the borrower to repay a second mortgage over a property.


[5]    The loan proposal contained a
section, called "background and notes". It also
contained financial information about the two proposed guarantors, Kevin and John
Andersen. The relevant parts of the loan proposal state:

       Background and notes:         Kevin and John Andersen have been
clients
                                     of People Limited for many years. They are
                                     investors
and property developers.

                                     They have been involved in projects ranging
                     
               from apartments and land subdivision in
                                     Russell through to projects as far south
as
                                     Wanaka. Their work can be viewed on their
                                     website: www.winslaw.co.nz

                                     The offered security property ­ McHardy
                                     House ­ is to
be marketed over the
                                     spring/summer period. Therefore a short 6
                            
        month term is all that is required, with
                                     capitalised interest and fees.

       Personal
Position:            Kevin Andersen

       (Before Loan)                 Assets:                 $40,836,034

                 
                   Liabilities:            $35,542,258

                                     Net Asset Position      $ 5,293,776

       Personal Position:            John Andersen

                                     Assets:                 $39,051,033

 
                                   Liabilities:            $33,907,258

                                     Net Asset Position 
    $ 4,848,774

[6]    Cynotech and Budget Loans allege that the money was advanced on the faith
of representations contained in
the loan proposal, as to the net asset position of the
Andersens. It transpires that the loan advanced has not been repaid. Including
interest, the debt now said to be owing
is $329,057. It appears that there are no
assets available against which Cynotech or Budget Loans could execute any
judgment it might
obtain against borrower or guarantors.


The claims


[7]    Cynotech and Budget complain that the true financial position of the
Andersens was not properly disclosed by People Ltd. Accordingly, Cynotech and
Budget Loans issued proceedings against the three defendants
alleging that they
made false representations designed to induce the lenders into advancing funds.
They allege that they did, in
fact, rely on the representations and were induced to
lend by them.


[8]    Four causes of action are pleaded. The first is for
breach of s 9 of the Fair
Trading Act 1986.       The second is in deceit.          The third is in negligent
misrepresentation.
The fourth is breach of fiduciary duty.

[9]     While there are few affirmative statements in the present Statement of
Defence,
it is clear from the denials that People Ltd, Mr Christie and Ms Peters deny
that they misled or deceived the lenders; they deny
they were deceitful; they deny
they made any statements negligently. They deny any fiduciary duty existed and,
even if it did, that
they breached it.


Relevance


[10]    The application for further and better discovery is supported by an affidavit
sworn by a
director of the plaintiff companies, Mr Hawkins. In summary, the
concerns expressed by Mr Hawkins are that not all documents have
been disclosed
that go to the knowledge of the defendants of the financial position of the borrower
and guarantors.     Because People
Ltd has been involved in other transactions
involving McHardy Home Custodians Ltd and the Andersens, it is asserted that there
must
be other documents that are relevant to their state of knowledge of the personal
financial position or whether any assets were held
on trust.


[11]    There is also a concern about the absence of discovery of documents relevant
to the knowledge of People Ltd of
the structures employed by the Andersens to hold
assets which they asserted some beneficial interest.


[12]    The application is
opposed on the grounds that no other relevant documents
exist. Ms Wishart, for the defendants, has helpfully and succinctly summarised
the
grounds of opposition. She submits that all relevant documents have been disclosed
and, while not put in this way by her, suggests
that any wider discovery would
enable the plaintiffs to go on a "fishing" expedition in respect of any other
documents that might
be held, notwithstanding, the likely historical nature of such
documents.


Jurisdiction


[13]    Ms Wishart made the point that
the financial position of developers can vary
significantly over relatively short periods of time depending upon the fortunes

particular
property transactions being undertaken at the time it is necessary to
disclose that financial information.


[14]   Rule 8.24 of
the High Court Rules 2008 provides:

       8.24 Order for particular discovery against party after proceeding
       commenced

       If at any stage of the proceeding it appears to a Judge, from evidence or from
       the nature or circumstances of the case
or from any document filed in the
       proceeding, that there are grounds for believing that a party has not
       discovered
1 or more documents or a group of documents that should have
       been discovered, the Judge may order that party--

       (a)
    to file an affidavit stating--

               (i)     whether the documents are or have been in the party's
               
       control; and

               (ii)    if they have been but are no longer in the party's control, the
                    
  party's best knowledge and belief as to when the documents
                       ceased to be in the party's control, and who
now has control
                       of them; and

       (b)     to serve the affidavit on any other party.

[15]   The present form of the rule is similar to that contained in r 300
of the High
Court Rules 1985. The significant change is the removal of the former r 300(2)
which stated that the Court must be satisfied
that a further discovery order is
"necessary" at the time the order is made.


[16]   Notwithstanding the removal of that requirement,
it will be rare that an order
would be made if it were not necessary to do justice between the parties. Having
said that, I do not
purport, in this judgment, to express any view on the breadth of the
new provision. For the purposes of the present application,
there is no material
difference in the way in which r 8.24 is to be applied.


Analysis


[17]   I am satisfied that Mr Liddell,
for the plaintiffs, has identified classes of
documents which ought to be the subject of a discovery order. The relevance of the
documents is to the state of knowledge of the defendants of the financial position of

the Andersens at a time proximate to the
preparation of the loan proposal, on or
about 17 August 2007.


[18]   However, while Mr Liddell has set out a number of specific
documents in a
schedule to his application, I consider the application ought to be addressed on a
more generic basis, while being
limited to a period of time sufficiently proximate to
the time at which the loan proposal was made.


[19]   No doubt the schedule
(to which Mr Christie has already responded in an
affidavit) will be helpful to the defendants in identifying the type of documents
for
which they must search. But, ultimately, the duty is on the defendants, assisted by
their solicitors, to search out and disclose
those documents which are relevant.


[20]   It is important that there be an individualised approach to discovery in a case
like
this.   It will be important, particularly in relation to transactions where
confidential information relating to third parties might
be held, to ensure that
irrelevant documents are excluded and that appropriate arrangements are made
between the parties (or with
the assistance of the Court) to enable production of
documents to protect such confidences.


[21]   Any order must be directed to
knowledge that has a bearing on the alleged
representations as to amounts of "personal assets" and "net asset position" in the
loan
proposal. I also consider that the time ought to be limited.


[22]   On reflection, and having heard from counsel on this issue,
I consider that a
period of about one year is appropriate.


[23]   The orders are required to enable the plaintiffs to understand
what knowledge
People Ltd and its director and employee had at material times. In turn, that may be
relevant to whether, for example,
there was inadvertent misleading in stating the
financial position or statements about net assets were negligently made.

Result


[24]     For those reasons, I make the following order:


         a)     Each defendant shall file and serve a supplementary verified
list of
                documents which shall list those documents in their respective
                possession, power or control,
relevant to the state of knowledge of
                each defendant of the net asset position of Kevin and John Andersen
      
         and McHardy Home Custodians Ltd, and whether any assets disclosed
                by the Andersens or McHardy Home Custodians
Ltd were held by
                them as trustees for other persons or entities.


         b)     The supplementary affidavit shall
only list documents that came into
                the possession, power or control of each of the defendants during the
       
        period between 1 September 2006 and 17 August 2007 (inclusive).


         c)     The supplementary verified list of documents
shall be filed and served
                on or before 3 April 2009.


[25]     So far as costs are concerned, I fix them on a 2B
basis together with
reasonable disbursements. I reserve the incidence of costs to follow the outcome of
the proceeding.




                                                    _____________________________
                                                                       P R Heath J