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Tyrion Holdings Limited v Infrastructure NZ Limited [2016] NZHC 1599 (12 July 2016)

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Tyrion Holdings Limited v Infrastructure NZ Limited [2016] NZHC 1599 (12 July 2016)

Last Updated: 29 August 2016


IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY



CIV-2013-404-4037 [2016] NZHC 1599

UNDER
S 174 of the Companies Act 1993
BETWEEN
TYRION HOLDINGS LIMITED Plaintiff
AND
INFRASTRUCTURE NZ LIMITED First Defendant
PAUL FREDRIC CLAYDON Second Defenant
INFRASTRUCTURE & CIVILWORKS LIMITED
Third Defendant


Hearing:
12 July 2016
Appearances:
Mr R Parmenter for Plaintiff
Mr M Taylor for Second and Third Defendants
Judgment:
12 July 2016




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;

  1. The benefit of various contracts with clients for civil engineering work and construction project management;

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;

  1. The benefit of employment relationships with various staff member;

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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