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High Court of New Zealand Decisions |
Last Updated: 29 August 2016
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2013-404-4037 [2016] NZHC 1599
UNDER
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S 174 of the Companies Act 1993
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BETWEEN
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TYRION HOLDINGS LIMITED Plaintiff
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AND
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INFRASTRUCTURE NZ LIMITED First Defendant
PAUL FREDRIC CLAYDON Second Defenant
INFRASTRUCTURE & CIVILWORKS LIMITED
Third Defendant
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Hearing:
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12 July 2016
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Appearances:
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Mr R Parmenter for Plaintiff
Mr M Taylor for Second and Third Defendants
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Judgment:
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12 July 2016
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ORAL JUDGMENT OF ASSOCIATE JUDGE J P
DOOGUE
TYRION HOLDINGS LIMITED v INFRASTRUCTURE NZ LIMITED [2016] NZHC 1599 [12 July
2016]
[1] The brief background to this matter is that the plaintiff was a 50
percent shareholder in the first defendant which was
incorporated in 2005. The
second defendant was the sole director of the company.
[2] The plaintiff alleges as a shareholder in the first defendant it has been treated oppressively and otherwise in such a way that attracts an entitlement to relief under s
174 of the Companies Act 1993. Mr Blomfield who is behind the
plaintiff’s claim asserts that, in effect, Mr Claydon has
“plundered”
the business that was previously carried on by the
plaintiff. The plaintiff formally operated in the field of civil engineering
project managing and contracting.
[3] The allegations that the plaintiff makes includes that as part of a
strategy to appropriate the plaintiff’s business
for his own benefit, Mr
Claydon arranged for the incorporation of the third defendant which came into
existence in July of 2008.
[4] The plaintiff will be seeking various orders pursuant to s
174 of the Companies Act 1993 including compensation
pursuant to s 174(2)(b)
by way of an order requiring the company or any other person to pay compensation
to it in regard to loss
or harm suffered by the oppressive etc dealings which
are alleged.
[5] The plaintiff asserts that during the period of
approximately July to
December of 2008:
Claydon caused the undertaking of the original company and CNZ ... to be
transferred to [the third defendant] ... in that, by way
of example only, the
new company received from the original company ...
a. Heavy construction and earthmoving equipment;
c. The benefit of business relationships acquired over the
original company’s trading history;
d. Moneys held in bank accounts;
e. The benefit of unpaid invoices and work in progress;
g. Vehicles;
h. Office equipment;
i. Goodwill and branding.
[6] While the plaintiff asserted that the “undertaking
transfer” occurred during the five month period approximately
stated above
in 2008, Mr Parmenter said that that is not to say that its interest in the
trading activities of the third defendant
thereafter were limited to that
period. It will be the contention of the plaintiff that it has suffered loss of
a capital form and
also through deprivation of income that it might otherwise
earnt and which was earned in its place by the third defendant from
approximately
July 2008 when the third defendant was incorporated.
[7] In order to succeed in its claim, Mr Parmenter told me, the
plaintiff needs to have an accurate picture of the trading results
of the third
defendant from the date of the alleged misappropriate of the plaintiff ’s
business.
[8] In this case there was a direction that the parties provide
standard discovery pursuant to r 8.7. The plaintiff is however
dissatisfied with
the discovery provided in has now brought an application pursuant to r 8.19,
that latter rule is in the following
terms:
8.7 Standard discovery
Standard discovery requires each party to disclose the documents that are or
have been in that party's control and that are—
(a) documents on which the party relies; or
(b) documents that adversely affect that party's own case; or (c) documents
that adversely affect another party's case; or (d) documents
that support
another party's case.
[9] Prior to the hearing of this application Mr Claydon provided an affidavit in which he stated his willingness to voluntarily discover additional material that had been identified by the plaintiff as omitted from the discovery given to. However
there remain some categories of documents in regard to which the defendants
maintain their opposition.
First contested category – 1(a)(xii)
[10] This category comprises all invoices sent by ICL to all clients since
incorporation.
[11] The response of the defendants is that they are not persuaded that
those documents should be seen as being relevant further
information and, in any
event, the information is contained in the company’s financial accounts
which are available to the
plaintiff. Further, copies of some of the invoices
were not retained. As well the company has changed accounting software more
than once since these events took place and it would be “extremely
onerous” – if it could be done at all –
to produce the
invoices required out of the company’s records.
[12] In relation to the point about relevance Mr Parmenter’s
contention essentially was that it is possible for financial
accounts to be
adopted which minimise and understate the profitability and income of companies
through the deployment of various
accounting devices. I accept as a matter of
commonsense it is possible to do what he suggests can be done. On the other
hand Mr
Taylor for the second and third defendants said there was no compelling
ground for doubting the reliability and veracity of the accounts.
Mr Claydon
as a director of the company has statutory obligations to attend to the
formation and furnishing of proper books of
account which accurately reflect the
company’s financial affairs, he said. The second and third defendants
are also required
to provide taxation returns such as GST returns and the like,
all of which are the foundation for the financial accounts.
[13] The way in which this matter is to be approached seems to me to be as follows. The plaintiff is entitled on an application pursuant to r 8.19 to require the opposing party, the respondent, to give the discovery that it ought to have given in the first place. That discovery, as I have noted, was discovery under the standard discovery rule which requires the party giving discovery to disclose adverse documents. It is not a case of the party discovering being required to provide all
documents that might lead to a line of enquiry as was the case under the form
discovery test propounded in Peruvian Guano. In effect what the
plaintiff was seeking to do in this case is to put itself in a position where it
can reconstruct the actual financial
position as opposed to the purported
financial position set out in the second and third defendants’ financial
accounts. I
do not consider that the plaintiff has established that there
are adverse documents which are required to be discovered,
at least based
upon the desire on its part to carry out a reconstitution of the second and
third defendants’ true financial
position, as contrasted to what is
disclosed or likely to be disclosed in the company’s financial
accounts.
[14] There was however an additional basis upon which the plaintiff
justified seeking the invoicing information. Having access
to the invoices of
the defendants would assist another aspect of the plaintiff’s claim as is
apparent from the summary of the
allegations in the amended statement of claim
of what occurred in July 2008 onward. The plaintiff ’s case involves
the
assertion that the second and third defendants drew away the
plaintiff’s customers. Any documents which show a transfer
of customers
from the plaintiff to the second and third defendants would be adverse
documents within the meaning of r 8.7
because they would assist the
plaintiff in proving one of the elements that it will need to in establishing
that there was a
diversion of its clientele to the second and third defendants.
Of course the fact that customers transferred across does not of
itself prove
that there has been a breach of obligation or improper dealing but it is a
building block which the plaintiff will need
to put in place in progressing its
claim. Because of such considerations Mr Taylor was prepared to accept that
during the period
from July to December 2008 documents in this category ought to
be provided but is resistant to providing them for any longer
period.
[15] It is difficult to be categorical about the matter but it is possible that if the second and third defendants actively recruited the former customers of the plaintiff, that their efforts would not immediately bear fruit but could actually result in the recruitment of those former customers much later than the five month period just described. Therefore at least in theory, it would seem to be possible that there would be documents outside the five month period which would assist the plaintiff’s claim and accordingly would be discoverable. Whether or not there are such documents in
existence which ought to have been discovered, but have not, is a difficult
question. Failure to make complete required discovery
can be established by
explicit evidence that there has been such a failure but more frequently is
established by a successful applicant
on the basis of inferences that the Court
is able to draw from all of the circumstances. I simply do not know enough
about the
circumstances of the case that I would confident to say that there
must have been documents that came into existence that were under
the control of
the defendants which were discoverable but have not been discovered. However,
the Court can confidently expect that
when completing issues of discovery
counsel will bear in mind the observations just made in this judgment about the
fact that it
does not necessarily follow that invoices limited only to the date
range of the five months in 2008 are required.
[16] The other matters that were mentioned by Mr Claydon include the
difficulty of recovering invoices. In some cases it may
well be impossible for
any document to be recovered at all which would have been a relevant document in
terms of the standard discovery
obligation which the defendants were subject to.
However, that does not excuse the second and third defendants from mentioning
the
matter. They would be required to depose to documents that once were in
existence that the principals of the company can remember,
being documents no
longer able to be located. Beyond that, obviously the company cannot be
reproached for not producing
documents that no longer exist.
[17] As to the form of order, I therefore direct that the second and
third defendants are to give discovery of invoices rendered
by the second and
third defendants to their customers from the inception of trading until December
2008.
Category 1(a)(xiv)
[18] The category identified here is
All of the contracts into which ICL entered since incorporation.
[19] The same reasoning that was adopted with regard to invoices applies to this category and therefore consistently with the ruling in regard to 1(a)(xii) no order will be made.
Category (1)(a)(xv)
[20] The original request was for discovery of all employment
records of employees who had previously been employed
by the plaintiff and
later were employed by the second or third defendant. Mr Parmenter has agreed
during the course of this hearing
to limit the date range from July 2008 up
until 31 March 2010.
[21] I agree that if there were any documents showing the transfer of
employees over from the plaintiff ’s business to the
defendant’s
business they would be relevant to the allegation of appropriation by the
defendants of the plaintiff ’s
business. Mr Taylor, sensibly, indicates
that his client will withdraw his objection to providing this category of
documents subject
to the date range being limited as I have set out above. There
will be an order accordingly.
Category (x) (viii)
[22] This is an application for banks for accounts and loans etc. It is
possible that when making application for banking
accommodation the
second and third defendant may have made statements to the effect that it was
simply a transfer over to the
new company of the old company’s
business. However, there is not a sufficient level of probability that
such
statements were made that enables the inference to be drawn that there are
documents evidencing such statements in existence which
have not been
discovered. Accordingly I decline to make an order under that
category.
Category 1(a)(xix)
[23] This category relates to leases of land or cars/equipment into which
the third defendant has entered. Initially the defendants
opposed the making of
these orders. Mr Parmenter is prepared to accept a limitation of the date range
of any documents in this category
ending at 31 March 2010.
[24] Initially the position that the defendants took was that these documents were not relevant. Mr Taylor has however accepted that providing there is a limited date
range applied they could be relevant. I consider that that concession is correct. There will be an order that any documents in that category covering the period July
2008 to 31 March 2010 which have not been discovered ought to
be.
Costs
[25] The applicant has succeeded even though Mr Parmenter accepted that
its success was “modest”. It would normally
be entitled to an award
for costs against the respondents as the parties who did not succeed. Mr Taylor
points out that there have
been concessions made by the defendants. In my view
costs ought to be paid. The applicant was required to bring the application
and
it was only after that point that concessions were forthcoming. Therefore the
making of concessions does not have any direct
relevance to the question of
costs in my view, although of course there Court welcomes sensible, practical
concessions of the kind
which Mr Taylor made today.
[26] One matter that counsel has not addressed which I will make brief
reference to is the question of delays and non-compliance
with timetable orders.
The parties need to be aware that the Court has jurisdiction to increase or
reduce costs orders in recognition
of breaches of timetable orders. The parties
may be well advised to keep this in mind in future because if they do
not
there could be real financial consequences of non or late compliance
with the Court’s directions. In the meantime however
there will be an
order that the plaintiff/applicant is to have costs on a 2B basis together with
disbursements fixed by the Registrar.
Remaining matters
[27] The following remaining matters require to be dealt
with.
[28] Mr Blomfield removed a large volume of the first defendant’s documents from its premises. Not long before the hearing of this application those documents were returned. Strictly speaking the first defendant is now required to provide discovery of those documents which comprise some 20-24 estimated folders. Given that both parties have had these documents in their possession and have had access
to them, it would seem to be possible for the parties to come to some
practical agreement to limit any further documentation of discovery
in relation
to those documents. I understand that Mr Claydon has some concern that not all
of the documents taken away were brought
back. It may be, for example, that
counsel are able to agree that a further affidavit dealing only with assertions
of what documents
were not returned will be sufficient to dispose of this
category of documents without the formal need for them all to be sorted and
made
subject to discovery. I will leave it to counsel to explore a workable solution
and ask that one way or the other they advise
the Court by memorandum/a not
later than 19 July 2016 of any consent orders that the Court is asked to
give.
[29] The next direction concerns the date for compliance with the
directions I have given for additional discovery today. By
agreement the
particular discovery will be required to be completed by the defendants by 23
August 2016. Inspection thereafter is
to be completed by 7 September
2016.
[30] There is a pressing need to allocate a trial date in this
proceeding.
[31] The Registrar is to allocate a Chambers List hearing at the first available date subsequent to 7 September 2016 so that the parties can advise on the proposals for dealing with any remaining interlocutory issues, close of pleadings date, trial duration and agreed pre-trial programme. They should also advise any non- availability on the part of counsel or the parties to attend at a trial which would be not before the end of the first quarter of 2017. The likelihood is that a trial would be
allocated in the second, third of possibly fourth quarter of
2017.
J.P. Doogue
Associate Judge
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