ETG Holdings Limited v First Eastern Holdings Limited [2013] NZHC 1174 (16 May 2013)

Last Updated: 2 July 2013

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2012-404-228 [2013] NZHC 1174

BETWEEN ETG HOLDINGS LIMITED First Plaintiff

AND ETG BROKERAGE LIMITED Second Plaintiff

AND FIRST EASTERN HOLDINGS LIMITED First Defendant

AND FE INVESTMENTS LIMITED Second Defendant

AND THATT KIONG SHIM Third Defendant

AND TONY SUN Counterclaim Defendant

Hearing: 16 May 2013

Appearances: Mr B Gustafson for Plaintiffs

Mr Heard and Ms K Phelan for Defendants

Judgment: 16 May 2013

_{ORAL JUDGMENT OF ASSOCIATE JUDGE DOOGUE}

ETG HOLDINGS LIMITED & Anor V FIRST EASTERN HOLDINGS LIMITED & Ors HC AK CIV-2012-

404-228 [16 May 2013]

[1] Following the earlier hearing which took place on this matter on 1 May 2013

I requested further assistance from counsel about certain aspects of the applications that their clients had filed. Both sides had filed applications seeking particular discovery and further discovery orders. All of this stems from the original discovery order which Judge Faire made by consent on the basis of a consent memorandum that counsel filed dated 9 August 2012.

[2] I have been reminded that at the previous hearing the parties were able to agree with respect to the orders sought in paragraph 1(b) of the plaintiffs’ application for particular discovery and those orders will be made by consent in the following terms:

(a) Documents in the relevant loan files in the defendants’ possession, not already discovered, including correspondence between the defendants and their agents on one hand and the FE Investments Limited’s debtors and their agents on the other, relating to the debtors’ financial receivables in one of the following provisions in the FE Investments Limited’s financial statements 31 March 2009 to 30 September 2010. This category is limited to documents in the defendants’ possession in the period 31 March 2009 to 11

May 2010. The relevant loan files are those where loans are categorised as: (i) Secured and past due;

(ii) Secured and restructured; (iii) Secured and impaired;

(iv) Overdue by 31 to 60 Days; (v) Overdue by 61 to 90 Days; (vi) Overdue by 91 to 180 Days; (vii) written off.

I order accordingly.

[3] The next point concerns two items that were discussed at the hearing on 1

May 2013 and which were related to the employment of Mr George Wong and the retainer of Ms Lim the solicitor acting for the plaintiffs. Briefly, in the counter- claim it is said that Mr Wong had made representations or given assurances which are actionable, the Fair Trading Act is referred to, inter alia. The question of whether the defendants are able to establish that the plaintiff has legal liability for what Mr Wong is alleged to have said is a relevant issue in the proceedings. Mr Sun, the principal of the plaintiff

group has given an affidavit which essentially describes Mr Wong as a senior executive in the plaintiff group. The defendants say that they still require discovery concerning the scope of the authority that Mr Wong possessed and was invested with by the plaintiff companies at the time of the negotiations and discussions.

[4] Mr Heard told me that the defendants may have several routes to the point where they can attribute Mr Wong’s statements to the plaintiff group. They can do so by invoking express authority, implied authority and ostensible authority. So far as the express authority is concerned Mr Heard accepts that of course there will not be any provision in such terms of engagement as Mr Wong has with the plaintiff group that specifically deals with his function at the negotiations between the parties. However there may be an express description of his responsibilities which will show that the type of negotiations that he was involved in were such that he was expressly authorised by the company to engage in on their behalf. It may be that there are other routes that can take the defendants to the same point, Mr Heard says that the very fact that the plaintiffs put forward Mr Wong as their representative at the negotiations may have some weight in that regard. But the point is that if there is some document which relevantly fixes the ambit of Mr Wong’s authority then it should be discovered, in the defendants’ submission.

[5] Mr Gustafson says that Mr Wong has been with the plaintiff group for a long time. It is not known if there is an express written agreement concerning his terms of engagement. If one was entered into it may have been so long ago that it cannot now be located.

[6] In my view any document describing Mr Wong’s terms of engagement must be relevant. If the types of difficulties that Mr Gustafson refers to are encountered then it is always open to the plaintiffs to include in their affidavit a description of the efforts that they have made to locate the document and the impossibility of finding it.

[7] The next point concerns the part that the solicitor representing the plaintiffs played in the negotiations. She is said to have made statements which amount to at least implicit representations about what services or advantages the plaintiffs could provide to the defendants if the agreement went ahead. The defendants sue partly on

the basis of what Ms Lim said. As part of their pleading they assert that she was acting with the authority of the plaintiffs when she made these statements and that the plaintiffs are fixed with the legal consequences of her so making representations.

[8] Similar but not identical issues arise here about Ms Lim’s authority. I again accept that express authority may provide the defendants with the route towards establishing liability that will enable them to obtain judgment. That suggests that any document reflecting the terms of the retainer of Ms Lim needs to be considered. It may be that if there is a document of retainer it is not in fact relevant because it does not say anything material about what part if any she was to play in the negotiations that eventually took place. Further there may be issues of privilege that arise from the terms of the retainer. Mr Heard raised this point somewhat tentatively because it is difficult to foresee exactly what problems might arise but any such difficulties, too, can be accommodated by the terms of the affidavit which the plaintiffs filed responding to an order to give discovery of such documents. I have also suggested a middle path which would involve the document being submitted to the Judge to view before a ruling is made on and I leave it to the parties to decide whether that would be a productive approach to take in the circumstances of this case.

Databases

[9] There are mutual complaints about the quality of discovery about databases. I will confine myself today to the issue of the plaintiffs’ databases.

The defendants say that the representations in the pre-contractual discussions left them with the impression of a very substantial database of the customers of the plaintiffs’ forex business which was operated in more than one country. They say that the scale and substance of the database so represented, they say knitted in with and reinforced the other representations made about what level of funding could be solicited from their clients by the plaintiffs and would be deposited with the defendants. The defendants now say they need to have discovery relating to the database. Mr Heard said that this could relate to the question of the reasonable grounds for making the representations that the defendants allege. If, for example the representations were to the effect that millions of dollars could be raised by, inter

alia, deploying the plaintiffs’ database, and if it turns out that the database has, say, only 50 people in it, that rather removes the basis for asserting that there are reasonable grounds for the representation as to the level of funding which might be solicited. I agree with that and I consider that to that extent what was in the database is relevant to a live issue in the case.

[10] There may however be real problems about inspection of any such database. Mr Gustafson rejects any possibility of the entire database being handed over. It is a collection of data of considerable commercial sensitivity, he says. There is a dispute about it but Mr Gustafson says that he has offered to make the database available on terms. The defendants say that any discussion was on a without prejudice basis. However, the problems with inspection can be dealt with and one possibility is having the database examined by an expert who prepares a report as to the truly salient aspects of the database that are relevant in this proceeding, the numbers of different individuals contained in the database and perhaps their location which would bear upon whether the representations made about the possibility of raising funds were realistic. That may also have relevance to other aspects of the case including damages.

[11] It is going to be necessary to resume this hearing to dispose of the issue I am now discussing together with some other issues. A date will be provided to the parties shortly but in the meantime if they are able to confer on the question of how to manage inspection of the plaintiffs’ database then that would be helpful. I recall there may also be a mirror image problem with the defendants providing a database that they have although for the purposes of getting discovery that might be rather different. That issue should be the subject of discussion as well.

[12] Finally I record that there has been some mention made of whether the defendants gave proper notice of their intention to seek discovery of the plaintiffs’ database. Mr Heard says that discovery of such a document was always contemplated by the terms of the consent memorandum that the parties signed 8

August 2012 at paragraph 1(d). Mr Gustafson on the other hand says that the issue has been raised late and in a procedurally unsatisfactory way and that he is not in possession of full instructions or information which enables him to deal with the point. I mention this in

case the parties think it may have some relevance to the ultimate costs in the case. I

do not propose to make any costs order based on that disagreement at this stage.

[13] Counsel should confer on matters that have yet to be resolved and file a memorandum indicating what areas of discovery still are going to require the Court’s intervention. Once I receive that I will deal with the matter either by way of issuing a judgment or alternatively scheduling additional time for a similar hearing to the

_{one which was conducted on 16 May 2013.}

J.P. Doogue

Associate Judge