Managh v Hasselman [2012] NZHC 1287 (1 June 2012)

Last Updated: 11 June 2012

IN THE HIGH COURT OF NEW ZEALAND NAPIER REGISTRY

CIV-2011-441-000824 [2012] NZHC 1287

UNDER ss 131, 298 and 301 Companies Act 1993

IN THE MATTER OF Titan Building (HB) Limited (in liquidation)

BETWEEN JOHN FRANCIS MANAGH AS LIQUIDATOR OF TITAN BUILDING (HB) LIMITED (IN LIQUIDATION) Plaintiff

AND LANS JOHANNES HASSELMAN Defendant

Hearing: 31 May 2012 (Heard at Napier)

Counsel: M E J Macfarlane for Plaintiff/Applicant

A J Orme for Defendant/Respondent

Judgment: 1 June 2012

JUDGMENT OF ASSOCIATE JUDGE OSBORNE

_{as to application for particular discovery}

The application

[1] The plaintiff makes application for an order that the defendant provide further and better discovery under r 8.19 High Court Rules.

[2] The plaintiff’s application seeks a general further and better discovery but with reference to some specific categories of documents which the plaintiff, Mr

_{Managh, identified in his supporting affidavit.}

MANAGH AS LIQUIDATOR OF TITAN BUILDING (HB) LIMITED (IN LIQUIDATION) V LANS JOHANNES HASSELMAN HC NAP CIV-2011-441-000824 [1 June 2012]

[3] Mr Macfarlane, for the purposes of the hearing, provided a more specific form of draft order which identified particularised orders which might be made. That draft is attached as Schedule A to this judgment.

The Jurisdiction

[4] Rule 8.19 (formerly, 8.24) refers to an order for particular discovery, rather than to further and better discovery, but its use is in relation to a situation where a party has provided discovery which is found to be deficient.

[5] Rule 8.19 gives the Court a discretion to order particular discovery where there are grounds for believing that a party has not discovered one or more documents or a group of documents which ought to have been discovered.

[6] The predecessor rule, r 300, required an applicant to establish that the order is necessary. The present rule does not - an amendment representing a “significant relaxation” of the previous threshold: ANZ National Bank Ltd v Tower Insurance Ltd.[1]

[7] That said it will be rare for an order to be made for particular discovery if it is not necessary to do justice between the parties. See Cynotech Securities Ltd v People Ltd.[2]

[8] The plaintiff must generally establish a prima facie indication the documents are or have been in the party’s control, but the plaintiff does not need to prove that the documents actually exist. See Simunovich Fisheries Ltd v Television New Zealand Ltd (No 6).[3]

[9] The plaintiff must also establish that the documents sought are relevant as posited by the authors of McGechan at HR 8.19.03(3).

The touchstone of relevance should be fashioned or tailored to reflect those matters which will be actually in issue before the Court.

Background

[10] Mr Managh is the liquidator of Titan Building (HB) Limited (which I will

refer to as “HB”), a company incorporated in 2006. It ceased to trade around April

2010. It was placed in liquidation on 8 July 2010. It was a building company.

[11] The defendant, Mr Hasselman, was a director of HB. He also owned and controlled Titan Buildings Limited which in turn owned 50 percent of the shares in HB. Mr Hasselman is a builder and he conducted the day-to-day operations of HB. The remaining shares in HB were held by the interests of Graeme Higgie who, with his wife, was also a director of HB. The Higgies were not themselves builders, but rather in this context investors. The Higgies are through their current account with HB significant creditors of HB.

[12] HB’s accounting services were initially provided by the firm of Gregor Vallely, who also are very modest creditors of HB. That firm ceased to be HB’s accountants before it ceased to trade. Mr Hasselman’s accountants, Black & White Accounting, took over the role at a time when Mr Hasselman and Mr Higgie were looking for an arrangement whereby the Higgies might pull out of HB and Mr Hasselman buy them out entirely. That buy-out did not eventuate but the transfer of accountants did.

[13] HB proceeded into liquidation by shareholders’ resolution. It was not a liquidation brought about by arms-length creditors. Rather the liquidation reflected the break-down between the company’s members.

The particular issues in the litigation

[14] Mr Managh, as liquidator, sues Mr Hasselman in relation to numerous transactions involving HB’s money or services which are alleged to have involved Mr Hasselman’s other company, Titan Buildings Limited, clients of Titan Buildings Limited and Mr Hasselman’s father.

[15] In his affidavit in support of the application, Mr Managh summarised his explanation of the need for further discovery in terms of its relevance to the issues in this way:

7. All these documents are necessary to help determine the extent to which the company was in effect paying for the defendant’s company, Titan Buildings Limited’s account and supplies, and in respect of the building work done for members of the Hasselman family. They are also necessary to support the evidence I believe will be given by the other shareholders in the company (the Higgies) that the defendant used the company’s trade accounts and bank facilities for personal expenditure, and transferred credits and trade accounts to Titan Buildings Limited.

8 One of the issues in the litigation concerns the mixing of money and interest at the defendant’s instigation between the company and Titan Buildings Limited (which he controlled and still does as far as I know). I refer to paragraph 22, 23 and 29-31 of the statement of claim (these last paragraphs also involving Titan Buildings Limited). The only reference to Titan Buildings Limited’s documents is at LH

78- 81, being bundles of that company’s invoices with no detail provided. Those documents and documentary details of the “no detail invoices are in his control, and they are relevant and I request the court to order him to list and provide all such documents as relate to the company and its trading activity.

[16] Mr Orme did not take issue with Mr Managh’s identification of why additional documents would be relevant. Rather the defendant’s opposition from the outset has argued on the specific ground that the notice of opposition identifies namely:

The respondent has provided all relevant documents in it’s [sic] possession and control to the plaintiff.

The initial request for documents

[17] The liquidator initially identified the types of documents now sought in a letter to Mr Hasselman in August 2010. Mr Hasselman was asked to make the documents available (see Schedule A).

[18] The same group of documents was again requested by a letter dated 11 April

2012.

The defendant’s affidavit of documents

[19] Mr Hasselman had, in the period between those letters, filed his affidavit of documents in March 2012. It is not suggested by him that it specifically refers to all the documents sought by the plaintiff.

[20] In Part Four of his affidavit, Mr Hasselman deals with the documents no longer in his control in this way:

PART FOUR

Documents that are no longer in my control:

(a) Documents formally [sic] in the possession of Black & White Accounting Ltd which were passed over to the Plaintiff at the Plaintiff’s request following the liquidation of Titan Building (HB) Limited.

(b) Documents formally [sic] in my possession that were passed over to the Plaintiff at the Plaintiff’s request following the liquidation of Titan Building (HB) Limited.

(c) Originals of documents sent to their respective addresses on or about the dates noted on those documents.

[21] The liquidator’s case on this application is that there is good reason to believe that Mr Hasselman has custody or control of the documents in the requested classes or that he has failed to accurately complete Part Four by identifying where those documents which he previously had have gone to.

[22] In his affidavit in opposition Mr Hasselman makes a number of points in response to the liquidator’s suggestion that he has not properly completed an affidavit of documents. He says:

4. Subsequent to such requests, I provided all relevant documentation that I had in my possession at that time to the Plaintiff.

5. ...

6. Through the discovery process, I searched for physical records and documentation at my home and at storage facilities. I carried out an electronic search of my email and computer records, and I also requested the Company’s accountants, Black & White Accounting, to search their records.

7. All documents found as a result of such searches were listed in my Affidavit of Documents dated 22 March 2012 (“the Discovery Affidavit”).

[23] He refers to documents provided both in hard copy and in electronic form. There is at least an impression created by his evidence that some of the documents sought by the liquidators such as invoices may well be among the documents discovered as a group but simply not listed individually. He summarises his position in this way:

Despite this, it appears that the Plaintiff believes that I have withheld documents from him. This is certainly not the case. As stated on numerous occasions, and as set out in my Discovery Affidavit, I have provided all relevant documentation to the Plaintiff that I had in my possession and control.

Has the defendant custody or control of further documents?

[24] I am satisfied that there is at least a prima facie indication that the documents requested are still within Mr Hasselman’s custody or control. I note in particular:

(a) Mr Hasselman had the day-to-day operation of the company, its contracts and its book-keeping. He liaised for HB with the accountants.

(b) He refers to searches he made at his house and his storage facilities, again indicating his control of the storage of HB’s records.

(c) The liquidator’s evidence establishes that the requested documents

have not been received or are unable to be identified by the liquidator.

(d) References to Mr Hasselman’s supplying of documentation to Mr Vallely or to the Higgies as a possible indicator that they might have received such records from Mr Hasselman cannot have significant weight attached to them as those persons as creditors would almost certainly have supplied them to the liquidator if they came into possession of them.

(e) The records taken over by the liquidators identify a number of points with certainty:

(i) Detailed records as to all the transactions of the 2009 year exist to 31 March 2009 while nothing remotely similar exists for the period after;

(ii) The company continued to trade after 31 March 2009;

(iii) The GST records for the period thereafter indicate active trading;

(iv) The most likely explanation is that Mr Hasselman still possesses or controls the records but that he simply has not yet located them.

[25] There needs to be an order as to particular discovery to deal with the prima facie situation. Applying the approach taken in Cynotech Securities Ltd v People Ltd the order is necessary to do justice between the parties. In reaching that conclusion, I have some additional regard to the particular responsibilities of a liquidator winding up the affairs of a company in the interests of its creditors and of its members.

Part Four

[26] Alternatively, Mr Hasselman may have disposed of documents without yet appreciating the particular way in which he has disposed of them or the person to whom he has disposed of them. It is his responsibility to work out specifically as best he can where those documents may have gone. The order sought by Mr Macfarlane in Schedule A is an appropriate way of dealing with that situation so that the liquidator can be best informed as to where, if necessary, he might make further enquiries.

The form of an order

[27] I have vetted the draft order both as to the terms of the groups of documents sought and as to the way in which a requirement in relation to Part Four is identified. I consider that both are appropriate ways of dealing with the outcome of this application.

Costs

[28] The liquidator, having been successful, it is appropriate that costs follow the event on a 2B basis.

Mr Hasselman’s responsibility

[29] Before making orders, I add this. It is clear that Mr Hasselman, in relation to a company which ran into financial difficulties, found the attendances in relation to discovery onerous. The Court can appreciate that in relation to unpaid time the attendances may have been burdensome. Nothing in this judgment should be taken as indicating a finding that Mr Hasselman has wilfully withheld documents or in any way sought wilfully to obstruct the course of the liquidation. Underlying this judgment is the fact that the directors of HB had special responsibilities which enure after the liquidation of HB. Unfortunately for Mr Hasselman the obligation falls on him to take unpaid steps which may be burdensome but are important for the proper administration of a liquidation under the Companies Act.

Orders

[30] I order that:

(a) the defendant is to discover the following documents and/or groups of documents in accordance with High Court Rule 8.19:

(i) The sales invoice book used for Titan Building (HB) Limited

(the company).

(ii) The records describing the particular contracts in which the company was involved from 1 April 2009 to 8 July 2010 (being the date of appointment of the plaintiff’s liquidator).

(iii) The documents (including sales invoices) which explain all the sales referred to in the GST returns (LH72 of the defendant’s list of documents) for the same period.

(iv) The documents which record and explain the deposits into the

company’s bank accounts for the same period.

(v) The documents which describe or are the quotations, costings, contracts or subcontracts in which the company was involved in the same period.

(vi) Any other documents of any kind which describe the company’s work and receipts for the same period, including those held by the defendant in Titan Buildings Limited’s name.

And in respect of Part 4 of the defendant’s affidavit of documents dated 22 March 2012 the defendant is ordered to describe and list all the documents kept for the purpose of the company’s records and business which have been lost, destroyed or given to third parties and not now included in the plaintiff’s documents as listed or in the defendant’s documents as so far listed, in accordance with Form G37 of the High Court Rules Schedule 1.

(b) The defendant is to comply with order (a) by filing and serving a supplementary affidavit by 15 June 2012.

(c) The defendant is to make available any supplementary document for inspection by 22 June 2012.

(d) The defendant is to pay the costs of this application on a 2B basis

together with disbursements to be fixed by the Registrar.

(e) For case management purposes I adjourn the proceeding to the List at

_{Napier at 10.00 am, 28 June 2012.}

Associate Judge Osborne

Solicitors:

Sainsbury Logan & Williams – Email [e-mail]

Lawson Robinson - Email – [e-mail]

SCHEDULE A

1 Before the Honourable Justice [name, date]

After reading [identify relevant court documents] and the affidavit(s) of [full name(s)] and after hearing/on the application of* [name], counsel/solicitor/ on behalf of [†specify party applying for the order], and [name(s)], counsel/solicitor† on behalf of [specify the other party or parties], this court orders the defendant to discover the following documents and/or groups of documents in accordance with High Court Rule 8.19:

(1) The sales invoice book used for Titan Building (HB) Limited (the company).

(2) The records describing the particular contracts in which the company was involved from 1 April 2009 to 8 July 2010 (being the date of appointment of the plaintiff’s liquidator).

(3) The documents (including sales invoices) which explain all the sales referred to in the GST returns (LH72 of the defendant’s list of documents) for the same period.

(4) The documents which record and explain the deposits into the

company’s bank accounts for the same period.

(5) The documents which describe or are the quotations, costings, contracts or subcontracts in which the company was involved in the same period.

(6) Any other documents of any kind which describe the company’s work and receipts for the same period, including those held by the defendant in Titan Buildings Limited’s name.

And in respect of Part 4 of the defendant’s affidavit of documents dated 22

March 2012 the defendant is ordered to describe and list all the documents kept for the purpose of the company’s records and business which have been lost, destroyed or given to third parties and not now included in the plaintiff’s

documents as listed or in the defendant’s documents as so far listed, in

accordance with Form G37 of the High Court Rules Schedule 1.

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[1] ANZ National Bank Ltd v Tower Insurance Ltd [2009] NZHC 1155; 15 ANZ Insurance Cases 61-816 (HC) at [24];

_{McGechan on Procedure HR8.19.03.}
[2] _{Cynotech Securities Ltd v People Ltd HC Auckland CIV-2008-404-001559, 12 February 2009.}

[3] Simunovich Fisheries Ltd v Television New Zealand Ltd (No 6) HC Auckland CIV-2004-404-

3903, 3 August 2007 at [11].