X v Y [2014] NZHC 1869 (8 August 2014)

Last Updated: 2 September 2014

[NO PERSON MAY PUBLISH IN ANY REPORT OR ACCOUNT RELATING TO THIS APPLICATION THE NAME, ADDRESS OR OCCUPATION OF A RESPONDENT, OR ANY OTHER PARTICULARS (INCLUDING THE IDENTITY OF THE APPLICANT) LIKELY TO LEAD TO THE RESPONDENTS’ IDENTIFICATION]

IN THE HIGH COURT OF NEW ZEALAND DUNEDIN REGISTRY

CIV-2014-412-000093 [2014] NZHC 1869

BETWEEN	X Plaintiff
AND	Y First Respondent
AND	Z Second Respondent

Hearing:	31 July 2014
Appearances:	A M Cunninghame for Applicant T J Shiels for Respondents
Judgment:	8 August 2014

JUDGMENT OF ASSOCIATE JUDGE OSBORNE

_{on application for pre-commencement discovery}

[1] [X] seeks an order pursuant to r 8.20 High Court Rules that [Y/Z] gives discovery of bank records of either or both [Y/Z] and [C]. [Y/Z] opposes the making of any order.

Summary of conclusions

[2] Rule 8.20 allows a Judge to order pre-commencement discovery if it appears to the Judge that an intending plaintiff may be entitled to relief.

[3] In the judgment which follows, I find that [X’s] application must fail for a single reason. That reason relates to the conclusions which [X’s] expert

_{[suppression] has come to as a result of an investigation. [Suppression] states}

X v Y [2014] NZHC 1869 [8 August 2014]

[suppression] conclusions as to its sources [suppression]. The test under r 8.20 is what appears (meaning from evidence) to the Court rather than what appears to the applicant’s witnesses. [X] has not produced the primary evidence to make it appear to a Judge that [X] may be entitled to claim relief in relation to misappropriations by [C].

[4] But for this I would have granted the application which otherwise appears meritorious. I find the other requirements of r 8.20 established but that cannot save the application.

Background

[5] [X] employed [C] as a [suppression].

[6] [X] is likely to commence proceedings against [C] in relation to

[suppression].

[7] Ms Cunninghame for [X] carefully stated at the start of her oral submissions that [X] is not suggesting that [Y/Z] has been a party to [suppression]. [X] accepts that [Y/Z] was unaware of what [X] considers were [suppression]. The uncertainty which [X] has at present, affecting [Y/Z], relates to the extent to which [Y/Z] may have benefited and the way in which [suppression].

[8] [X] has produced (Schedule 1 to this judgment) a draft statement of claim in order to indicate what [X] is at present able to plead and what gaps would remain in any pleading without discovery.

The intended defendant

The issue

[9] Responsibly, counsel for [X] has at this point identified [suppression] as an intended defendant in the draft statement of claim. Any second defendant is stated to be “unknown”. This drafting anticipated Ms Cunninghame’s express concession that [X] does not suggest that [Y/Z] personally was a party to [suppression].

[10] Notwithstanding the limited naming of possible parties in the draft statement of claim, [X] in its interlocutory application named not only [Y] as first intended defendant but also named [Z] as second intended defendant.

[11] Mr Shiels QC, for [Y/Z] (in both capacities), took a preliminary point as to the characterisation of [Y/Z] as second intended defendant [suppression].

[12] Mr Shiels correctly noted the distinction under r 8.20 High Court Rules between the intended defendant and the person or persons who may have control of relevant documents. The latter category of person need not be the intended defendant.¹

Ruling

[13] I accept that the distinction highlighted by Mr Shiels has not been observed in this case in the heading to the application as filed by [X]. [Suppression] [Y] will have the capacity of intended defendant when responding to the application. However, in responding to the application so far as it relates to her personal documents, [Z] has only the capacity of respondent. It is not appropriate that the heading to the proceeding identify [suppression] as an intended defendant when that is not [X’s] position.

[14] I accordingly direct that the heading to this proceeding shall immediately become as set out in the heading to this judgment so as to identify [X] simply as applicant and [Y/Z] in her two capacities as first respondent and second respondent.

The basis of [X’s] intention to sue

[15] [X’s] application was supported by two affidavits. First, [X’s] chief executive officer, [suppression], and secondly, [suppression].

[16] [Suppression].

_{[17] [Suppression].}

¹ High Court Rules, r 8.20(1)(b).

[18] [Suppression]. [19] [Suppression].

[20] In opposition evidence, [Z] deposes that [suppression]. [21] [X] made this application and [suppression].

[22] [Suppression].

Pre-commencement discovery

The rule

[23] Rule 8.20 High Court Rules provides the pre-commencement discovery in these terms:

8.20 Order for particular discovery before proceeding commenced

(1) This rule applies if it appears to a Judge that—

(a) a person (the intending plaintiff) is or may be entitled to claim in the court relief against another person (the intended defendant) but that it is impossible or impracticable for the intending plaintiff to formulate the intending plaintiff's claim without reference to 1 or more documents or a group of documents; and

(b) there are grounds to believe that the documents may be or may have been in the control of a person (the person) who may or may not be the intended defendant.

(2) The Judge may, on the application of the intending plaintiff made before any proceeding is brought, order the person—

(a) to file an affidavit stating—

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

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

(b) to serve the affidavit on the intending plaintiff; and

(c) if the documents are in the person's control, to make those documents available for inspection, in accordance with rule

8.27, to the intending plaintiff.

(3) An application under subclause (2) must be by interlocutory application made on notice—

(a) to the person; and

(b) to the intended defendant.

(4) The Judge may not make an order under this rule unless satisfied that the order is necessary at the time when the order is made.

[24] The three-point analysis which I adopt in relation to an application under r 8.20 requires me to be satisfied as to three matters:²

(a) The intending plaintiffs are or may be entitled to claim relief against another person;

(b) It is impossible or impracticable for the plaintiff to formulate the claim without the documents sought; and

(c) There are grounds for belief that the documents may be or have been in the possession of the person concerned.

The adequacy of pleadings and particulars

[25] Of the test of “impossible or impracticable” under r 8.20(1)(a) the Court of Appeal has stated in Exchange Commerce Corporation Ltd & Grovit v New Zealand News Ltd³ that what is meant is an “inability to plead the claim in accordance with

_{the requirements of the rules”.}⁴

² Malayan Breweries Ltd v Lion Corporation Ltd (1988) 1 PRNZ 629 (HC), at 631–632, per Wylie J; Welgas Holdings Ltd v Petroleum Corporation of NZ Ltd (1991) 3 PRNZ 33 (HC) at 40, per McGechan J.

³ Exchange Commerce Corporation Ltd & Grovit v New Zealand News Ltd [1987] NZCA 94; [1987] 2 NZLR 160 (CA).

⁴ At 164, per Somers J. See also Hetherington Ltd v Carpenter [1997] 1 NZLR 699 at 705.

The competing positions

[X’s] position

[26] [X] relies predominantly upon [suppression]. [27] What [X] does not know includes:

(a) [Suppression]. (b) [Suppression]. (c) [Suppression].

[28] As against [C’s], [X]’s draft statement of claim (through the lack of detail in the draft paragraph [7]) understandably fails to identify the particular outcome of [suppression].

[29] As between [X] and parties other than [C], the statement of claim identifies that there may be a cause of action for [suppression].

A degree of urgency

[30] [X] asserts that urgency attaches to the need for pre-commencement discovery. [X] wishes to finalise its statement of claim. It says that relief (including possibly interim relief) may then be realistically pursued.

[31] When [X] made this application it felt the additional pressure of not knowing whether information as to [suppression].

[32] [Suppression].

[Y/Z]’s position – [suppression].

[33] In his submissions for [Y/Z] Mr Shiels emphasised that [Y/Z] is entitled to have [suppression] separate opposition [suppression] considered separately. That is clearly correct and I follow that approach.

Does it appear to me that [X] may be entitled to claim against [Y]?

[34] The first limb of r 8.20(1)(a) requires that [X] must cause it to appear to me that it is or may be entitled to claim relief against [C].

Submissions for [Y/Z]

[35] Mr Shiels submits that there has been a loose approach in the present application with the result that basic requirements of evidence have not been met. The test is how matters appear to the Judge, not to the deponents. Mr Shiels says that what the deponents have offered is simply their opinions – where opinions have been offered, the grounds of belief have not been stated. He submits that little weight, if any, should be attached to such evidence.

[36] In his written synopsis, Mr Shiels had also noted the failure of [suppression] to qualify [suppression] as an expert. This point was met by [suppression] (shortly before the hearing) filing an affidavit in which he qualified himself.

[37] Finally under this head, Mr Shiels submitted that for [X] to establish an entitlement under r 8.20, it must be able to point to evidence of a real as opposed to a speculative claim. He submitted that [X’s] intended proceeding does not take matters beyond mere fishing because [X] has failed to establish a sufficient substratum of fact. He refers, for instance, to passages in [suppression].

Submissions for [X]

[38] In her submissions, Ms Cuninghame understandably focused on the activities of [C], submitting that his conduct was such that relief may properly be sought against [Z]. [Suppression].

[39] I accept Ms Cuninghame’s submission that there is a circularity involved in Mr Shiels’ suggestion that the present application involves fishing because [X] is uncertain as to details which may be answered by the requested [suppression]. If it is first established that [X] may have a claim, then the request for the [suppression]

cannot be written off as mere fishing in the sense that there is some unjustified speculation that they may contain information relevant to [suppression].

The test under r 8.20(1)(a)

[40] I turn then to the underlying question as to whether it appears to me that [X]

may be entitled to claim relief against the estate.

[41] Mr Shiels invited me to see parallels with this case in observations made by McGechan J in Welgas Holdings Ltd v Petroleum Corporation of NZ Ltd.⁵ In Welgas, McGechan J set aside a pre-commencement discovery order granted by the Master. His Honour found that there was conceivably some prospect of a claim but the possibility was essentially speculative. In reaching that conclusion, McGechan J observed, amongst other things:⁶

Affirmations of belief do not much assist.

and further:⁷

There are a considerable number of unknown or inchoate factors requiring settlement before a Court could feel confident that the “substance” of a claim existed, as opposed to a mere fishing “possibility”.

[42] I do not find the Welgas passages quoted by Mr Shiels as of particular assistance in this case. The potential proceeding in Welgas related to a transaction between the Crown and Petrocorp which was said to contravene s 27 Commerce Act

1986. McGechan J analysed⁸ the range of factual questions which would need to be

answered positively before a claim might exist. The much narrower issues in this case involve whether [C] took money which was not his own and paid it into a bank account he controlled. If he did, [X] is likely to have a claim against his estate.

[43] In Welgas, McGechan J’s statement that “affirmations of belief do not much assist” was made not because an affirmation of belief of purely factual matters is

_{unimportant – rather, his Honour was commenting on the test of “likelihood to have}

⁵ _{Welgas Holdings Ltd, above n 2.}

⁶ _{At 49.}

⁷ At 50.

anti-competitive effect”, a question which his Honour observed in the end is one of

inference.⁹

[44] In the present case, [suppression] has reviewed material, including the records of [suppression].

[45] These statements are not “affirmations of belief” in the sense of inferences used by McGechan J in Welgas – rather they are statements of [suppression] conclusions from [suppression] analysis of documents. That said, and for the reasons I come to at [49] and [55], [suppression]’s evidence is ultimately inadequate because it fails to cite or provide the source documents or other evidence to support the conclusions.

[46] I then turn to McGechan J’s description of “unknown or inchoate factors” which rendered the Welgas claim a mere “fishing” possibility. In that and the preceding paragraph of his judgment,¹⁰ McGechan J referred to a number of substantial uncertainties in Welgas’s possible claim, on which Welgas had provided limited evidence. A reading of the judgment indicates that the evidence left so many uncertainties as to findings in relation to the market and possible competition (that is to say the “unknown or inchoate factors”) that the Court could have no confidence that a claim of substance existed. This led McGechan J to conclude:¹¹

I must say the plaintiff still seems to be looking for a claim, rather than looking at a claim.

[47] The present situation is very different to Welgas. [X] is very much looking at a claim. It knows the general nature of the case. But because the records which [C] controlled (and [Y now controls) may be a primary source of evidence in relation to [suppression], [X] is not at this point in a position to plead its case in accordance

_{with the requirements of the High Court Rules.}

⁹ _{At 49.}

¹⁰ At 49–50.

[48] The direct relevance of the bank accounts may be illustrated in this way. [X’s] intended litigation will proceed on the basis that [suppression]. This exercise might be characterised more appropriately as “joining the dots” rather than “fishing”.

[49] Finally, under this heading of an “entitlement to claim”, I come to the

underlying evidence as to [C’s] [suppression].

[50] Mr Shiels characterised this as opinion evidence. [suppression] was stating what appeared to [suppression] (either from documents relating to [suppression].

[51] [X] bases its case as to an “entitlement to claim” because of [C’s] misappropriations on passages such as I have quoted. Without such evidence [X] could not aspire to satisfy the requirement under r 8.20 that it must appear to me that [X] may have a claim in relation to [suppression].

[52] I have considered anxiously whether [suppression]’s conclusions upon the evidence reviewed by [suppression] may yet be sufficient to ground an application for pre-commencement discovery. The relatively low threshold indicated by the test “may be entitled” in r 8.20(1)(a) might suggest some leniency in relation to requirements of evidence.

[53] However, I accept Mr Shiels’ submission that nothing in r 8.20 diminishes the

usual requirements in relation to evidence on an interlocutory applicant.

[54] An intending plaintiff must provide a proper evidential base to support an application under r 8.20. In this case the appropriate evidence would have identified the sources (e.g. contemporary documents or records of interview) on which conclusions are stated. For example, what is the evidence behind [suppression].

[55] Access to another person’s private documents is a privilege accorded by some provisions of the High Court Rules. In the case of the privilege accorded by r 8.20, the Court has a duty not to order pre-commencement discovery unless it appears not only to any intending plaintiff’s witness but in particular to the Judge that the intending plaintiff may have a claim. The Judge gains that conclusion not by proxy

through the conclusions of a witness for the intending plaintiffs, but by the evidence of that witness which reasonably identifies the sources of his or her conclusions.

Appropriate course – adjournment?

[56] It emerged in the course of counsels’ submissions that I might reach a conclusion that [X’s] application would have succeeded but for a failure to support [suppression] evidence by identification of sources and exhibiting of documents. It is plain from [suppression] evidence that [suppression] believes the conclusions [suppression] has reached in the course of the [suppression] investigation are supported by the documents [suppression] has seen and the interviews which have been conducted. What is missing in [suppression] evidence is a linking of the particular transactional records, [C’s] emails and interview records to the conclusions reached by [suppression].

[57] At the conclusion of the submissions I discussed with Mr Shiels the possible outcomes of the hearing. I suggested to him that one possible outcome was that I adjourn the hearing to enable [X], if [suppression] chose to do so, to adduce further evidence. Mr Shiels opposed such an approach. He referred to the provision (r 7.52

High Court Rules) which precludes a party who fails in an interlocutory application from applying again for a similar order without first obtaining the leave of a Judge, which leave may only be granted in special circumstances. Mr Shiels submitted that the only proper course in the present case, having regard to the fact that [X] chose to pursue this application to a hearing after the grounds of opposition were filed, is that the application be dismissed, with [X] left to take [suppression] chances on a second application if [suppression] saw fit.

[58] Rule 7.42 High Court Rules permits the adjournment of an interlocutory hearing from time to time, on any terms the Judge thinks just. There is a parallel provision in r 10.2 in relation to trials.

[59] Under both provisions, when the Court considers whether it is in the interests of justice to postpone a hearing, it must consider justice both between the parties and

as a matter of the interests of other litigants in the public interest in achieving in what is the most efficient use of court resources.¹²

[60] Such broader consideration of injustice may often militate against the granting of an adjournment. In the context of an interlocutory application, which by its nature may be pursued a second time, albeit with leave, issues of justice arising from the efficient use of resources may militate in favour of an adjournment rather than against.

[61] I have weighed in this case the possibility on my own initiative of adjourning the proceeding to allow [X] the opportunity to seek leave to produce the documentary record which would support the conclusions deposed to by [suppression]. This is an unusual case in that I am satisfied that the single present reason why [X]’s application must fail is the lack of attribution and documentary support [suppression] conclusions. While there is no apparent reason to doubt the ability of [suppression] to have drawn accurate conclusions from what [suppression] has seen, the failure to exhibit prime material leaves the respondents and the Court unable to test the reliability of what [suppression] has said in the way which is achieved with the rules of evidence.

[62] The inadequacy of [X’s] evidence was directly confronted in the written synopsis filed by Mr Shiels before the hearing. Mr Shiels, in that synopsis, identified the failure to provide sources for conclusions. [X] elected to file very late evidence (“in reply”) to deal with other aspects of Mr Shiels’ submissions but not on this issue. An adjournment of the hearing was not pursued by Ms Cunninghame for [X]. Mr Shiels, therefore, had only a brief opportunity to address the possibility of an adjournment when the Court itself raised it in the course of submissions.

[63] I am conscious that on Ms Cunninghame’s submissions the [X] has felt compelled to act with urgency in bringing this application. If [suppression] obtained unlawfully by [C] are found to have been [suppression], relief by way of freezing

_{order may be available to [X] and the failure to obtain such relief may prejudice [X].}

¹² Commissioner of Inland Revenue v Patel [2013] NZHC 477 at [24]–[30] per Associate Judge

Bell; Aon Risk Services Australia Ltd v Australian National University [2009] HCA 27, (2009)

[2009] HCA 27; 239 CLR 175.

The sense of urgency which has driven the timing and possibly the form of this application may have had an understandable impact on the extent of evidence presented. I have taken that factor into account in considering whether to adjourn the hearing.

[64] Ultimately I am not satisfied that the Court would be justified on its own motion in adjourning this application effectively in order to allow [X] time to repair an evidential gap in its application.

[65] I conclude, as Mr Shiels submitted, that the correct outcome is that this application must be dismissed.

May [X] be entitled to claim against [Z]?

[66] As I have recorded, Ms Cunninghame stated that [X] was not suggesting in the context of this interlocutory application that [Z] had been a party to or aware of [suppression].

[67] Accordingly [Z] has ceased to be named as an intended defendant in this proceeding. [Z] is rather a respondent in [Z’s] personal capacity because there are (in terms of r 8.20(1)(b)) grounds to believe that relevant documents may be in [Z’s] control. Documents relating to the joint account are in her control [suppression].

[68] But for the issues of evidence to which I have referred, the provisions of r 8.20(1) would have been satisfied as against [Z].

The impossibility or impracticability of formulating a claim against [C]

[69] In the event that [X’s] evidence had established a foundation for [suppression] conclusions, I would have been satisfied that it was impossible or impracticable for [X] to formulate [suppression] claim. In particular, [X] does not have a present ability, without the records of [suppression] previously controlled by [C], to know in all cases what [suppression].

[70] These observations apply to accounts controlled by [C]. I would not have been satisfied that a similar order should be made in relation to [suppression]. There is nothing in the evidence of [X] to suggest that [C] was involving [ Z] in [suppression].

Discretion

[71] Mr Shiels addressed the exercise of the discretion which I would have if all requirements of r 8.20 had been satisfied. In that event, Mr Shiels submitted that the discretion ought to be exercised against the granting of an order for pre- commencement discovery as [X] intends to obtain from [suppression].

[72] [Suppression]. [73] [Suppression]. [74] [Suppression]. [75] [Suppression]. [76] [Suppression].

[77] Given my finding that the application must be dismissed it is unnecessary to finalise the terms of the restrictions which would have applied.

Outcome

[78] The application of [X] for pre-commencement discovery must be dismissed. It would have been granted but for the evidential issues which I have identified.

[79] Costs must follow the event. If counsel are unable to agree as to costs then Mr Shiels is to file and serve a memorandum (four page limit) within 10 working days, with Ms Cunninghame to reply within five working days thereafter (four page limit). The Court will then determine costs on the papers.

Orders

[80] I order:

(a) The intending plaintiff ’s application is dismissed;

(b) The intending plaintiff is to pay to the respondent the costs and disbursements of the application;

(c) The amount of costs and disbursements is reserved for further submission if not agreed.

Associate Judge Osborne

Solicitors:

Anderson Lloyd, Dunedin

Aspinall Joel, Dunedin

Counsel: T J Shiels QC, Dunedin

_{SCHEDULE 1}

[Suppression]