Fagan v ANZ National Bank Limited [2012] NZHC 3238 (28 November 2012)

Last Updated: 11 December 2012

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2011-404-2021 [2012] NZHC 3238

BETWEEN CAROL ANNE FAGAN AND ROBIN CHRISTOPHER FAGAN

First Plaintiffs

AND CRAIG CHRISTOPHER GEORGE FAGAN

Second Plaintiff

AND ANZ NATIONAL BANK LIMITED Defendant

Hearing: 28 November 2012

Appearances: Mr Neilsen for plaintiffs (on instructions from solicitors for plaintiffs - (Whitfield & Co)

Mr Skilton and Ms Verkerk for defendants

Judgment: 28 November 2012

_{ORAL JUDGMENT OF ASSOCIATE JUDGE DOOGUE}

Counsel:

Whitfield & Co, Cambridge – [e-mail]

MinterEllisonRuddWatts, P O Box 3798, Auckland – [e-mail]

FAGAN & ANOR V ANZ National Bank Limited HC AK CIV-2011-404-2021 [28 November 2012]

[1] Counsel applied to have this proceeding put back into my Chambers List today following the filing of an interlocutory application for further and better discovery. That application was filed on Monday of this week. Mr Neilsen who is not normally involved with this file appeared in support of an application for further and better discovery. He is to be complimented on the way in which he took on his instructions on short notice and with a relatively bare brief. Likewise Mr Skilton has argued the matter before me very well given the shortage of time within which to deal with the application.

[2] Regrettably I must say something that is critical of the way in which the plaintiffs have proceeded with this application. This matter has a trial in March of next year. As long ago as May this year I directed that interlocutory applications were to be filed and served by 15 June 2012.

[3] The plaintiffs filed a second amended statement of claim on 23 November

2012. They followed that up with the application for further and better discovery to which I have made reference. The application was never going to be consented to and so it must have been apparent to the plaintiffs’ legal advisors that if it was to be dealt with it would be dealt with on an opposed basis. Quite why the plaintiffs’ advisors thought it would be possible to allocate a fixture for such a matter less than a month before the commencement of the legal vacation and in time for briefing and the trial to commence is not clear. After hearing from counsel it became clear to me that there would be very little prospect of a fixture being allocated in the usual way. Nor was the matter one of such urgency that it could be given a priority fixture in the Duty Judge list as interlocutory injunctions and other types of urgent applications are. I have therefore heard counsel at the end of my list today and as a result of the submissions that they have made, I shall decide the matter now.

[4] The plaintiffs bring a claim against the defendant which includes assertions that the bank owed fiduciary obligations to them. That is to say the plaintiffs contend that beyond the bank/customer relationship in this case, the bank assumed obligations to advise and act in the best interests of the plaintiffs. That may not be the exact formulation of the duty as it is pleaded in the statement of claim but it will

suffice for present purposes. The second amended statement of claim reiterated claims of a fiduciary duty being owed by the bank to the plaintiffs and as part of that claim make reference to what they say was a scheme that the defendant established to provide financial incentives to its employees for securing the placement of term loans as between the defendant and its customers.

[5] As I understand it the allegation is that as part of the dealings between the bank and the plaintiffs, the plaintiffs relied upon advice which a Mr McPhillips who is an employee of the defendants, provided concerning types of lending mechanism which were on offer from the bank. They say that Mr McPhillips breached duties:

Not to act in the defendants interests to the detriment of the plaintiffs, and act in good faith and in the interests of the plaintiffs.[1]

[6] It was further said that there was a conflict of interest between the defendant’s duty to the plaintiffs to give full, fair and balanced financial advice and its interests and the interest of its employees in selling their products. It was further said that a conflict of interest could be discerned as well in the fact that on the one hand the defendant had the duty to give full, fair and balanced financial advice and yet on the other hand was providing financial incentives to its employers to sell the financial product which the plaintiffs eventually acquired.

[7] In order to support their allegations the plaintiffs now seek the additional discovery which is the subject of the application for further and better discovery dated 26 November 2012. This additional discovery is sought a year after the defendant provided its affidavit of documents in the litigation.

[8] The additional discovery sought seeks documents relating to any:

Incentive scheme, bonus scheme or other awards scheme that provided or might provide employees or representatives of the respondent with any direct or indirect financial reward for introducing clients to ... the Rural Growth Fund or the relevant lending to the applicants.

[9] Discovery is also sought of targets and budgets given to employees and documents that relate to the consequences that might result to employees if they did

not meet targets and budgets. The plaintiffs also seek documents relating to “any training/education to its employees”.[2] The application then goes on to assert that the “respondent’s employees and/or representatives were incentivised to sell the Rural Growth Fund to customers”. It says that this issue of incentivisation is relevant to the allegation of breach of fiduciary obligation.

[10] The application is to be decided on the basis that the range of discoverable documents is to be determined by applying the test in Peruvian Guano. That seems to me to be the consequence of the fact that discovery in this proceeding started before the amendment to the High Court Rules which was made in 2011. Any documents that might be harmful to the case for the defendant or assisted the case of the plaintiffs or any documents that could reasonably be seen as assisting the plaintiff to embark upon a chain of enquiry for other discoverable documents would have to be disclosed by the defendant.

[11] Mr Skilton for the bank made it clear that his client did not accept that the documents sought were relevant. He also said that even if they were relevant, against his earlier contention, the width of the scope of the documents which the plaintiffs were seeking was excessive. As a result the range of documents sought was disproportionate and out of scale with their importance to the litigation and not justified in terms of the scale of the burden they would impose upon the defendant.

[12] Dealing first with the issue of relevance, I am bound to take the pleadings as they presently stand. Even though it must be questionable whether a bank can owe a fiduciary obligation in the circumstances referred to here, I will accept that that is an issue that will arise at the trial and the plaintiffs are entitled to use discovery to the permitted extent to support them in their assertions concerning the existence of a fiduciary obligation and its breach on the part of the bank.

[13] It might be thought that the only issue that was relevant was whether Mr McPhillips, in advising the clients, was in fact placed in a position where he was required to give advice to the clients at the same time as selling products to them for which he would receive, allegedly, financial incentives. I suppose though that the

surrounding circumstances including the issue of how far Mr McPhillips might have gone in promoting the products and emphasizing their positive qualities could arguably be influenced by the question of whether he had any incentives and what those incentives were. So while I am not entirely without doubt in the matter I will accept that the incentivisation category of documents is relevant for the purposes of the Peruvian Guano test. I accept therefore that the documents listed in (a)(i) – (iii) are relevant.

[14] I do not accept that the documents in “(iv)” are relevant. Whatever training or education might have been provided to an employee is too far removed from what he actually might have done as a result, or notwithstanding, his training and education to be relevant and reasonably discoverable.

[15] The next issue concerns the width of the orders sought. The form of the order sought is very general. It is not restricted to Mr McPhillips, the actual individual employee who is said to have been acting for the bank in the relevant events that might have breached the fiduciary obligation. It seems to be directed to all employees of the bank and their interaction with customers generally. An order in those terms cannot possibly be justified. It is excessively wide, it is remote from the issues in this case and it would be oppressive in its effect. I decline to make an order in such terms. I would however be prepared to make an order in the acceptable categories that I have identified in regard to the employee Mr McPhillips.

[16] A further issue that has arisen concerns particulars. The defendant’s counsel says that the second amended statement of claim which was filed omitted particulars of financial loss. I direct that the plaintiffs are to file a further amended statement of claim providing the particulars required in terms of r 5.33 of the High Court Rules. That is to say the statement of claim must include particulars of the financial loss that each plaintiff claims to have suffered and a summary of the means by which that loss is calculated.

[17] Mr Skilton has concerns about the discovery that has been completed by the plaintiffs, an additional number (approximately 30) of discoverable documents have been informally provided. He invited me to make an order that the plaintiffs provide

a further affidavit of documents. His particular concerns centre on documents held by the solicitors acting for the plaintiffs and by their accountants KPMG. His concern he told me was not so much with the listing of the documents but with receiving assurance on oath as to what steps have been taken to fulfil the plaintiffs’ obligations.[3]

[18] The plaintiffs are not prepared to consent to making of such an order. I do not consider that in the absence of any evidence the Court has jurisdiction to make an order requiring particular discovery.

[19] The next matter concerns the timetable direction which requires the plaintiff to advise by 12 December 2012 what the undisputed facts are. The plaintiffs need more time. Given that this proceeding started in 2011 I have trouble understanding why the Court should provide any significant margin of additional time. But to give some assistance I will extend that date out to 16 December 2012 and that will have a consequential affect on the obligations of the defendants to provide their input into the relevant facts not in dispute by an additional four days and the finalised statement of disputed fact can be put back by four days.

[20] I have already ruled on the issue of costs on the plaintiffs’ particular discovery application. There remains outstanding the issue of the costs of the conference today (preparation and memoranda for the conference etc) and those costs are reserved.

[21] The final issue concerns the matter of costs. It will be clear from the introductory remarks to this judgment that my view is that the plaintiffs have not acted reasonably in bringing an application of this kind when the proceedings are so far advanced and in breach of the timetable directions that I gave. Even if the application had not been in breach of a timetable obligation, it is quite unreasonable in my view for a party to file an application so close to the Christmas vacation when there is a trial looming in March. For those reasons I consider that in my discretion I should disallow any costs to the plaintiffs even though they are successful on their

_application.

J.P. Doogue

Associate Judge

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[1] Paragraph 34.

[2] Paragraph 1(a) of interlocutory application.

[3] Rule 8.15.