Brand v Registrar of Companies [2016] NZHC 2983 (9 December 2016)

Last Updated: 22 February 2017

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

CIV-2015-485-621 [2016] NZHC 2983

UNDER	The Companies Act 1993
IN THE MATTER OF	An appeal pursuant to s 370 of the Act against the decision of the Deputy Registrar of Companies under s 385 of the Act
BETWEEN	DUNCAN CLEMENT BRAND Applicant
AND	REGISTRAR OF COMPANIES Respondent

Hearing:	8 June 2016
Appearances:	M Kersey and A R MacDuff for Applicant T G H Smith for Respondent
Judgment:	9 December 2016

_{JUDGMENT OF CLARK J}

Introduction

[1] Mr Brand was a director of companies placed in statutory management. The

Registrar of Companies exercised his power under s 385(3) of the Companies Act

1993 and issued a notice prohibiting Mr Brand from being a director (or similar) of a company for a period of four years.

[2] Mr Brand appeals that determination. He has also filed an interlocutory application for discovery. The application is opposed by the Registrar of Companies on numerous grounds including that discovery in this setting is not contemplated by the High Court Rules or the Companies Act under which the appeal is brought.

_{[3] This judgment determines the interlocutory application for discovery.}

BRAND v REGISTRAR OF COMPANIES [2016] NZHC 2983 [9 December 2016]

[4] Three issues arise:

(a) as a matter of principle is an appellant entitled to discovery in the context of an appeal under s 370 of the Companies Act? And, if there is an entitlement—

(b) should discovery be ordered in this case? And, if it should be—

(c) are there any grounds to withhold specific documents?

Background

[5] In 2010 companies relevant to the Registrar’s determination were placed in statutory management: Aorangi Securities Limited; Forresters Nominee Company Limited and Hubbard Churcher Trust Management Limited. Mr Brand had been a director of each alongside the late Mr Allan Hubbard and others.

[6] In July 2013 the Registrar of Companies formally notified Mr Brand that the failure of the companies and their potential mismanagement was under investigation. The Registrar was considering exercising his power under s 385 of the Companies Act 1993 to prohibit Mr Brand from managing a company. Mr Brand was invited to make representations.

[7] In the two years between the issuing of the notice and the decision under appeal, notified to Mr Brand on 24 July 2015, there was extensive correspondence between Mr Brand and the Ministry of Business, Innovation and Employment. The Ministry’s evidence is that pursuant to numerous requests for information under the Privacy Act 1993 and the Official Information Act 1982 extensive information was provided to Mr Brand. The information was placed before the Court for the purpose of this application and is indeed extensive.

[8] Mr Brand applied on 4 August 2015 for an exemption from the determination pursuant to s 385(8) of the Act. The application was declined and on 14 August

2015 the appeal underlying the present application was filed pursuant to s 370 of the

Companies Act.

[9] In September 2015 Mr Brand’s solicitors requested that the Ombudsman investigate the Ministry’s decision not to release certain documents. The Ombudsman declined to investigate because Mr Brand had an adequate remedy in the possibility that he could seek discovery of the documents. The Ombudsman recorded that if discovery was not granted, Mr Brand’s request for an investigation could be re-opened.

[10] I note that s 385(5) entitles a person to 10 days notice before the Registrar exercises the power conferred by subsection (3). As Mr Smith acknowledged during the course of the hearing, the fact that some two years of submissions and communications elapsed between the issuing of the notice and the Registrar’s determination suggests the summary intent underlying s 385 had been overlooked as the matter became “bogged down” in what now resembles a complex piece of litigation.

Submissions

Applicant

[11] Mr Brand seeks tailored discovery of particular documents on the grounds that they were considered in the course of making the decision under appeal, they are within the control of the respondent and they are relevant to the grounds of appeal.

[12] It was submitted for Mr Brand that the application is premised on the general ability to seek discovery in an appeal of this nature. Counsel for Mr Brand further submitted:

(a) that discovery is, in principle, available in this appeal on the basis that appeals under s 370 of the Companies Act are de novo and this Court, when determining the appeal, may substitute its own determination for that of the Registrar. Accordingly the Court can consider evidence that was not before the Deputy Registrar when the prohibition order was made and a mechanism must be provided for that material to be discovered.

(b) Part 20 of the High Court Rules does not provide specific rules governing discovery on appeal but the Rules are not a code. Discovery would not be inconsistent with pt 20 of the Rules or s 370 of the Companies Act.

(c) Rule 1.6 of the High Court Rules (which addresses cases for which no procedure is provided by the Rules) could provide a basis for the orders. Alternatively, r 8.5 provides for discovery orders to be made at a case management conference. Appeals may have case management conferences. Therefore discovery could be ordered as part of a case management conference.

Respondent

[13] The respondent’s position is that discovery orders in relation to appeals under pt 20 of the High Court Rules are not contemplated by the Rules. Nor is discovery contemplated by s 385 of the Companies Act which establishes a simple, swift and summary process for dealing with those involved in the mismanagement of companies in order to protect the public. The grant of discovery on appeal would frustrate this purpose. Where discovery has been granted in the context of statutory appeals there have been compelling special reasons for doing so. No such compelling factor exists here.

[14] Further, Mr Brand seeks documents not relied upon by the Deputy Registrar in reaching the decision under appeal and the material sought would not likely be admissible on appeal.

Analysis

[15] Rule 20.16 permits further evidence to be adduced on appeals but only with the leave of the Court and only where there are special reasons for hearing the evidence:

20.16 Further evidence

(1) Without leave, a party to an appeal may adduce further evidence on a question of fact if the evidence is necessary to determine an interlocutory application that relates to the appeal.

(2) In all other cases, a party to an appeal may adduce further evidence only with the leave of the court.

(3) The court may grant leave only if there are special reasons for hearing the evidence. An example of a special reason is that the evidence relates to matters that have arisen after the date of the decision appealed against and that are or may be relevant to the determination of the appeal.

(4) Further evidence under this rule must be given by affidavit, unless the court otherwise directs.

[16] The applicant’s case is that if, as r 20.16 permits, the Court is able to consider further evidence on appeal there must be a mechanism for those documents to be made available for review and inspection by the parties. That process is discovery.

[17] But r 20.16 is not cast so broadly as to entail a right to discovery on appeals under pt 20 of the Rules. Indeed, the object of r 20.16 is to limit evidence to be adduced in appeals under pt 20. This object is achieved by:

(a) a leave requirement (r 20.16(2)); and

(b) a pre-condition for the grant of leave namely that there must be

“special reasons” for hearing the further evidence (r 20.16(3)).

[18] An additional circumscription is that the power to grant leave is to be used sparingly. Fogarty J has observed that “the words ‘special reasons’ were carefully chosen to reflect the case law to this effect”.¹ The kind of “special reason” required by r 20.16 for the receipt of further evidence on appeal will vary according to the context of the appeal. The assessment of whether a special reason exists must take account of the particular statutory context in which the decision under appeal was

_made.²

¹ Chamberlain v Scott [2012] NZHC 2596; (2012) 21 PRNZ 176 (HC) at [14].

[19] Rule 20.16 envisages a party to the appeal identifying evidence which he or she seeks to adduce and advancing special reasons why leave should be given. The mere contemplation of further evidence does not create an entitlement to its receipt under r 20.16 much less to discovery.

[20] In Norris v Registrar of Companies, upon which the applicant relies, the High Court made orders for discovery in relation to an appeal under s 370 of the Companies Act.³ But those orders were made by consent and the decision is accordingly of limited assistance in determining this application.

[21] The applicant also cites Air New Zealand Ltd v Commerce Commission in which Rodney Hansen J ordered discovery in the context of an appeal from a determination of the Commerce Commission.⁴ Importantly, however, the Judge held that the need for limited discovery was generated by the leave he had previously given for further updating evidence to be filed, that being “realistic and desirable in a dynamic market”. Pursuant to the leave which the Judge granted the appellants filed extensive updating evidence. The Judge accepted that the appellants had a strong incentive to voluntarily disclose only favourable updating material and that it was

necessary to have “evidence of equivalent value” from the Commerce Commission on a controversial issue.⁵

[22] The omission to make provision in the legislation for discovery was, the Judge observed, because the admission of new evidence on appeal is itself exceptional. The Judge recognised that the discovery rules did not extend to appeals. He sourced his power to order discovery in r 9, the predecessor to the current r 1.6, which states:

1.6 Cases not provided for

(1) If any case arises for which no form of procedure is prescribed by any Act or rules or regulations or by these rules, the court must dispose of the case as nearly as may be practicable in accordance with the provisions of these rules affecting any similar case.

³ _{Norris v Registrar of Companies [2012] NZHC 2193.}

⁴ Air New Zealand Ltd v Commerce Commission HC Auckland CIV-2003-404-6590, 6 May 2004.

(2) If there are no such rules, it must be disposed of in the manner that the court thinks is best calculated to promote the objective of these rules (see rule 1.2).

[23] The outcome in Air New Zealand Ltd v Commerce Commission was driven by the Judge’s conclusion that discovery should be permitted because “the nature of the fresh evidence filed on appeal requires it”.⁶

[24] There is no similarity between the circumstances in which this application is made and the circumstances which were before Hansen J. The grant of leave to file evidence had created an imbalance between the parties and the Judge was of the view that the interests of justice therefore required discovery. No such compelling reason is made out in this case for avoiding the principle that discovery is not available on appeals.

[25] In Comalco New Zealand Ltd v Broadcasting Standards Authority the Court of Appeal held there was a power to order production of documents in the context of an appeal under s 18 of the Broadcasting Act 1989.

[26] The Court considered but did not decide whether the documents could have been obtained by discovery under the old r 300 and observed:⁷

It would be surprising if the rule were intended, as by a side-wind, to expand the availability of discovery to classes of proceedings where it had never previously been available and where there was no apparent need for it. So far as appeals are concerned, the proper time for discovery is while the case is before the lower Court. If discovery is appropriate in relation to matters before a tribunal, one would expect to find provision for it in the legislation setting up the tribunal.

[27] For similar reasons I do not accept the applicant’s submission that the case management conference procedure can provide a basis for discovery orders in appeals where discovery is not otherwise contemplated by the High Court Rules or the statute under which the appeal is brought.

[28] The operative principle is that discovery on appeal is rare and unless the statute under which the appeal is brought envisages discovery (expressly or by necessary implication) it will be ordered only in exceptional circumstances.

[29] I turn now to consider the provision establishing jurisdiction for the present appeal.

370 Appeals from Registrar’s decisions

(1) A person who is aggrieved by an act or decision of the Registrar under this Act may appeal to the court within 15 working days after the date of notification of the act or decision, or within such further time as the court may allow.

(2) On hearing the appeal, the court may approve the Registrar’s act or decision or may give such directions or make such determination in the matter as the court thinks fit.

[30] The appeal hearing under s 370 is accepted to be de novo because a general and unrestricted right of appeal is available and the court is able to confirm the decision of the Registrar, give directions or make determinations as it sees fit.⁸

[31] While s 370 is the only appeal provision in the Companies Act the Registrar exercises a wide range of powers under the Act and the decisions he or she is required to make vary in complexity and kind. The nature of the appeal hearings will therefore vary reflecting the range of decision-making subject to challenge.

[32] To better understand the nature of the Court’s function in this appeal I find it more helpful to consider the nature of the decision appealed from than to simply observe that the appeal hearing is “de novo”.

[33] The prohibition notice was given under s 385:

385 Registrar or FMA may prohibit persons from managing companies

(1) This section applies in relation to a company—

(a) that has been put into liquidation because of its inability to pay its debts as and when they became due:

⁸ Company Law (online looseleafed, Thomson Reuters) at [CA370.01(1)].

(b) that has ceased to carry on business because of its inability to pay its debts as and when they became due:

(c) in respect of which execution is returned unsatisfied in whole or in part:

(d) in respect of the property of which a receiver, or a receiver and manager, has been appointed by a court or pursuant to the powers contained in an instrument, whether or not the appointment has been terminated:

(e) in respect of which, or the property of which, a person has been appointed as a receiver and manager, or a judicial manager, or a statutory manager, or as a manager, or to exercise control, under or pursuant to any enactment, whether or not the appointment has been terminated:

(f) that has entered into a compromise or arrangement with its creditors:

_{(g) that is in voluntary administration under Part 15A.}

...

(3) The Registrar or the FMA may, by notice in writing given to a person, prohibit that person from being a director or promoter of a company, or being concerned in, or taking part, whether directly or indirectly, in the management of, a company during such period not exceeding 10 years after the date of the notice as is specified in the notice. Every notice shall be published in the Gazette.

(4) The power conferred by subsection (3) may be exercised in relation to—

(a) any person who the Registrar or the FMA is satisfied was, within a period of 5 years before a notice was given to that person under subsection (5) (whether that period commenced before or after the commencement of this section), a director of, or concerned in, or a person who took part in, the management of, a company in relation to which this section applies if the Registrar or the FMA is also satisfied that the manner in which the affairs of it were managed was wholly or partly responsible for the company being a company in relation to which this section applies; or

(b) any person who the Registrar or the FMA is satisfied was, within a period of 5 years before a notice was given to that person under subsection (5) (whether that period commenced before or after the commencement of this section), a director of, or concerned in, or a person who took part in, the management of, 2 or more companies to which this section applies, unless that person satisfies the Registrar or the FMA—

(i) that the manner in which the affairs of all, or all but one, of those companies were managed was not wholly or partly responsible for them being companies in relation to which this section applies; or

(ii) that it would not be just or equitable for the power to be exercised.

(5) The Registrar or the FMA must not exercise the power conferred by subsection (3) unless—

(a) not less than 10 working days’ notice of the fact that the Registrar or the FMA intends to consider the exercise of it is given to the person; and

(b) the Registrar or the FMA considers any representations made by the person.

(6) No person to whom a notice under subsection (3) applies shall be a director or promoter of a company, or be concerned or take part (whether directly or indirectly) in the management of a company.

(7) Where a person to whom the Registrar or the FMA has issued a notice under subsection (3) appeals against the issue of the notice under this Act or otherwise seeks judicial review of the notice, the notice remains in full force and effect pending the determination of the appeal or review, as the case may be.

...

[34] There are particular features of this detailed and comprehensive provision that are relevant to my consideration of the application for discovery.

[35] First, it envisages a swift decision-making process. In Davidson v Registrar of Companies Miller J undertook an analysis of the legislative history of s 385.⁹ He noted the speech of the Minister of Justice who, when introducing the predecessor to s 385, emphasised the need for a “speedier and more efficient” means of dealing with the problem of persons involved in the mismanagement of companies.¹⁰

Following his analysis of s 385 itself—its purpose, the nature of the Registrar’s

inquiry and power of prohibition—Miller J concluded that the “section establishes a simple and swift process, with no provision for hearing.”¹¹

⁹ _{Davidson v Registrar of Companies [2010] NZHC 1497; [2011] 1 NZLR 542 (HC).}

¹⁰ _{At [87].}

¹¹ At [99].

[36] In my view, the inevitable delay (particularly against the statutory backdrop which contemplates the Registrar exercising power on only 10 days notice) and potential complexity associated with discovery is prima facie inconsistent with the “protective” purpose of the power of prohibition¹² and the swift and simple process enacted to achieve that purpose.

[37] Second, the Registrar’s power to make a prohibition order under s 385 of the Act is broad and discretionary in nature.”¹³ As such, the threshold for a successful appeal will be more limited than for a general appeal. The applicant will need to demonstrate an error of law or principle; or that an irrelevant consideration was taken into account; or that a relevant consideration was overlooked or that the decision is plainly wrong.¹⁴ On an appeal against an exercise of the Registrar’s discretion the Court will be primarily concerned with what was before the Registrar. In comparable circumstances Doogue J declined to receive further evidence on an appeal against an exercise of discretion in Television New Zealand Ltd v Southland Fuel Injection Ltd.¹⁵ Similarly, I do not consider an order for discovery, even tailored discovery, is available to the present applicant.

[38] Third, the Companies Act makes no provision for discovery or similar provision of documents prior to the Registrar’s decision. No more is necessary than that the Registrar give notice of the allegations the candidate for prohibition faces.¹⁶

Mr Brand now seeks on appeal documents that could not have been obtained before the Registrar made his decision and which remain unavailable to him even following requests under the Privacy Act and Official Information Act.

[39] More generally there are no exceptional circumstances justifying discovery such as those before Hansen J Air New Zealand Ltd v Commerce Commission.¹⁷

¹² _{At [99].}

¹³ _{At [99]. See also at [100].}

¹⁴ _{Kacem v Bashir [2010] NZSC 112, [2011] 2 NZLR 1 at [32].}

¹⁵ Television New Zealand Ltd v Southland Fuel Injection Ltd HC Wellington AP298/94, 16 March

_{1998 at 6–7.}

¹⁶ _{Davidson v Registrar of Companies, above n 9, at [105]–[107].}

¹⁷ Air New Zealand Ltd v Commerce Commission, above n 4.

Conclusion

[40] Addressing the three issues posed at the outset, when appealing under s 370 of the Companies Act an appellant does not have an entitlement to discovery. No special circumstances warranting departure from that principle are made out on the application before me. These conclusions make it unnecessary for me to consider whether there are grounds to withhold specific documents.

Result

[41] The interlocutory application for discovery is declined. The respondent is entitled to costs.

_{Karen Clark J}

Solicitors:

Russell McVeagh, Wellington for Applicant

Luke Cunningham Clere, Wellington for Respondent