Kyoto Trustee Limited v Annik New Plymouth Limited [2013] NZHC 2849 (29 October 2013)

Last Updated: 16 November 2013

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2013-404-1196 [2013] NZHC 2849

BETWEEN KYOTO TRUSTEE LIMITED Plaintiff

AND ANNIK NEW PLYMOUTH LIMITED First Defendant

ANNIK INVESTMENTS LIMITED Second Defendant

ROBIN LESLIE EDWARDS and MARY CHRISTINA FORBES-EDWARDS

Third Defendants

Hearing: 29 October 2013

Appearances: D W Grove for the Plaintiff

A V Shinkarenko for the Defendants

Judgment: 29 October 2013

_{(ORAL) JUDGMENT OF WOODHOUSE J}

Solicitors / Counsel:

Mr D W Grove, Barrister, Auckland

Mr CCH Allan (plaintiff ’s instructing solicitor), Grove Darlow & Partners, Solicitors, Auckland

Mr A V Shinkarenko, Barrister, Auckland

Mr P Ganda (defendants’ instructing solicitor), Ganda & Associates, Solicitors, Auckland

KYOTO TRUSTEE LIMITED v ANNIK NEW PLYMOUTH LIMITED [2013] NZHC 2849 [29 October 2013]

[1] The plaintiff has sought an order for further and better discovery by the defendants. Following discussions with Mr Grove at the beginning of the hearing the scope of discovery has been narrowed from what is recorded in the application. Documents are sought from both of the defendant companies (the first and second defendants) as follows:

(a) Bank statements for the period 1 April 2012 to 31 December 2012. (b) Monthly management accounts for the same period.

(c) Annual financial statements for the year ending 31 March 2013, if available.

[2] Discovery is further limited to documents in those categories relating to the operation of Te Henui Lodge, being the business operated from on or about 1 April

2012 by one or both of the defendant companies at the property at 20 Bell Street, Welbourn, New Plymouth.

The claim and defence

[3] A brief outline of the plaintiff’s substantive claim and the defence will assist.

[4] The third defendants are shareholders and directors of the first and second defendants.

[5] In March 2012 the second defendant agreed to buy the property at 20 Bell Street. The defendants (referring to them globally for present purposes, which will suffice) took possession of the property and began operating the business at the end of March or early April 2012.

[6] The defendants sought finance from the plaintiff for the proposed purchase. In August 2012 the plaintiff and defendants entered into a heads of agreement. This provided that the plaintiff would purchase the property, the plaintiff would lease it to the first defendant for a year and the first defendant would then purchase the property from the plaintiff.

[7] The defendants admit that there was a heads of agreement to that essential effect.

[8] The plaintiff alleges that a further agreement was made on or about 2

November 2012 with the terms recorded in emails and with those terms then recorded in draft formal agreements presented to the defendants for signature. The documents were not signed. The alleged further agreement included an option for the plaintiff to purchase 50% of the shares in the first defendant following the sale by the plaintiff to the first defendant. The plaintiff alleges that on 20 November 2012 the defendants wrongfully repudiated the heads of agreement and the further agreement. The plaintiff proceeds on the basis that it has accepted the repudiation and is suing for damages for various losses. The losses include a claim for what may be described broadly as a share of profit that the plaintiff would have made as a 50% shareholder of the first defendant. It is that claim for damages which is at the heart of the application for further discovery.

[9] The defendants admit that on 20 November 2012 they advised the plaintiff that the heads of agreement was at an end. They deny there was a further agreement as alleged by the plaintiff, they deny repudiation of the heads of agreement and allege breach by the plaintiff of that heads of agreement.

[10] It appears that the first defendant sold the business and the property itself pursuant to an agreement entered into in January 2013 with settlement of that agreement occurring apparently in February 2013.

Procedural background

[11] At a case management conference on 11 June 2013 the substantive claim was set down for a five day hearing commencing on 18 November 2013; that is to say, some three weeks away. At the same case management conference there was an order that the defendants file and serve affidavits of documents by 14 June 2013 with inspection to be completed by 28 June 2013.

Plaintiff ’s contentions

[12] I will outline some of the main points made by the plaintiff without endeavouring to cover all of the submissions, and will do the same when I come to the defendants’ contentions.

[13] Central to the plaintiff’s application is that the documents it seeks are relevant to the damages claim, as earlier outlined. The plaintiff submits that discovery to date has been piecemeal, has continued through to 10 September in response to informal requests from the plaintiff for better discovery, and that it remains inadequate. The plaintiff submits that there is no suggestion that the defendants do not have the documents sought, apart from annual financial statements for the year ending 31

March 2013.

[14] An important aspect of the plaintiff’s application arises from third party discovery. An order for third party discovery was made on 25 September 2013 on the terms recorded in the minute of Associate Judge Bell of that date. The plaintiff sought leave to file a further affidavit at the commencement of this hearing. This records some information obtained from the third party discovery. For the defendants, Mr Shinkarenko opposed the application to file and rely on this affidavit. However, I am satisfied that it is both appropriate to admit the further affidavit and that it is not in the circumstances unfair to the defendants to do so.

[15] This affidavit discloses, amongst other things, that on 30 October 2012 the first defendant received from accountants, who appear to be the first defendant’s accountants, a copy of a draft profit and loss account for the first defendant for the period ended 30 September 2012. This records relevant details of cash inflow and outflow for the first defendant for each of the months from April through to September 2012. There is also a draft profit and loss statement for the first defendant for the same period. The covering letter from the accountant to the first defendant also states that one item of income disclosed “was income received in the early months of operation and coded with Annik Investments Limited’s CashManager software”. The evidence is that this letter from the accountant and, more significantly, the attachments to the letter, were not discovered by any of the

defendants. I also note that the letter is formally addressed to the first defendant, but the letter commences “Dear Robin”, and is obviously directed to the first named third defendant.

[16] The recent affidavit also produces a copy of a deed of licence to occupy granted by the former owner of the property at 20 Bell Street (AXA New Zealand Nominees Ltd) to the second defendant.

Defendants’ contentions

[17] Mr Shinkarenko submissions for the defendant included the following: (a) The documents sought are not relevant.

(b) The information sought is private and commercially sensitive, and in particular the bank statements.

(c) The documents that have already been provided by the defendants are sufficient for the plaintiff to calculate its claim for damages in the relevant respect. The documents already discovered by the defendants include cashflow statements and weekly reports relating to occupancy rates. In addition, as Mr Shinkarenko noted, the plaintiff now has the documents obtained from the third party discovery.

[18] Mr Shinkarenko further submitted that at best for the plaintiff further discovery should be required from the first defendant only. Understandably some emphasis was placed on this point. This is because the claim relates to profit said to be lost in respect of the option to buy shares in the first defendant company.

[19] Flowing from the previous point Mr Shinkarenko submitted that to require discovery from the second defendant would be oppressive because, even if there may be some documents that are relevant because of some connection with the operation of the business, it will be necessary for counsel to review all the documents to ensure that irrelevant information is removed. That could be an onerous task.

Discussion

[20] The scope of the further discovery sought by the plaintiff has been reasonably significantly narrowed as a consequence of the discussion with Mr Grove. The discovery now sought is discovery that should be provided by both the first and second defendants. It is clear beyond reasonable argument, in my opinion, that the range of financial information that the plaintiff seeks from the first defendant is clearly relevant to the claim as pleaded. It is not for the defendant to make a judgment as to whether some information that is relevant should be sufficient. Unless it would be truly oppressive, all relevant financial information should be provided. There is nothing to indicate that all of the information that is sought could not be provided and provided without any difficulty. In that regard I also note that the letter of 30 October 2012 from the accountant to the first defendant and to the first named third defendant refers to the fact that both of the defendant companies used computer software for their account management. This lends emphasis to my conclusion that discovery would not be onerous. The same general observations apply to the provision of copies of bank statements.

[21] Mr Shinkarenko’s submission relating to the second defendant was, as I earlier indicated, an understandable submission to make and I consider it is a reasonable submission to make. However, the evidence that is available indicates that at least for a period financial records of the second defendant were produced in respect of the operation of the business at the centre of the plaintiff’s claim. The order that is sought is not a global order relating to all financial records for the second defendant, of the type defined, but only those relating to the operation of the business carried on at the property.

[22] The defendants have already discovered what may be described as primary accounting records, as earlier indicated. This of itself is a recognition of the relevance of primary records. That in turn goes back to the earlier observation that it is not then for the defendant to determine which of its primary accounting records are sufficient for the plaintiff. The third party discovery discloses that there were monthly management records and the draft accounts covering a period of six months. The plaintiff is entitled to the bank statements and monthly management accounts

underpinning the draft six monthly statement. The latter is derived from the former and in the circumstances of this case, with the parties somewhat at arm’s length over discovery, I do not consider it is unreasonable for the plaintiff to seek those further primary records.

[23] The last point is given some emphasis by the failure of the defendants to discover some documents which in my judgment clearly were discoverable and should have been discovered. I am, of course, referring to the draft six monthly statements and the covering letter from the accountant.

[24] The defendants have placed weight on commercial sensitivity and a submission that documents sought will contain private information, in particular bank statements. I am not persuaded that there is any foundation for refusing the order now sought by the plaintiff on the basis of these generalised contentions. If the documents sought do contain truly confidential information there are more appropriate means of dealing with that concern than simply refusing disclosure of information which could be highly relevant to the plaintiff’s claim. And on the face of it is highly relevant to the plaintiff’s claim.

[25] For these various reasons there is an order that the defendants provide to the plaintiff copies of the documents as defined at [1] and [2] of this judgment. The documents are to be provided in accordance with the following directions.

Directions

[26] Because the substantive claim is set down for hearing commencing on 18

November 2013 there is need for directions which will require the defendants to move very quickly and within a timeframe much less than would normally be provided. If the direction that follows causes real difficulties for the defendants, and for reasons not already effectively addressed in the preceding part of this judgment, then the defendants can make application to the Court for further directions. I would record, however, that such an application will have to be assessed having regard to the conclusion I have already reached that the documents that are now to be produced should have been produced probably many weeks ago.

[27] There is a direction that the defendants provide to the plaintiff copies of all of the documents defined at paragraphs [1] and [2] of this judgment by 4 November

2013.

[28] There is a further direction that a telephone case management conference be convened on Friday, 8 November 2013, or as soon as possible after that date, to discuss final preparation for the trial and, in particular, to ensure that the proceeding will be ready to proceed to trial on 18 November. The parties are to file memoranda for the conference at least one working day before the conference date. The memoranda are to address all matters relevant to readiness for trial.

[29] As earlier indicated, the parties have leave to apply for further directions if necessary.

Costs

[30] Mr Grove seeks costs for the plaintiff on a 2B basis. Mr Shinkarenko opposes costs and submits that costs should lie where they fall. That submission is made principally on the grounds that there has been a significant reduction of the scope of the discovery sought.

[31] I am satisfied that the normal rule should apply – that the plaintiff, having succeeded on this application, is entitled to costs. The reduction in the scope of discovery did not in my judgment have any significant bearing on the substantive outcome. The reality is that the defendants opposed all of the discovery sought in respect of both defendants and on a wide range of grounds. I am satisfied, as I have already indicated, that there really was no substantial basis for the first defendant to resist discovery at all. Certainly that aspect of the matter should have been dealt with between the solicitors without need to involve the Court at all. It is rather difficult to understand why the defendants have been so adamant in this regard having made some discovery of some primary accounting records and, indeed, of both defendant companies.

[32] As also indicated, the opposition by the second defendant had some foundation, but the limited discovery sought from the second defendant has been

ordered because of the disclosure by the third party which should have been provided in discovery by the defendants themselves.

[33] For these reasons I am satisfied that the plaintiff is entitled to costs on a 2B

_basis.

Woodhouse J