Reserve Bank of New Zealand v CBL Insurance Limited [2018] NZHC 999 (18 May 2018)

Last Updated: 19 June 2018

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2018-404-306 [2018] NZHC 999

BETWEEN	RESERVE BANK OF NEW ZEALAND Plaintiff
AND	CBL INSURANCE LIMITED Defendant

Hearing:	7 May 2018
Appearances:	S Barker and B R McKinnon for the Plaintiff (by telephone link) N S Gedye QC and I J Thain for the Interim Liquidators M Heard and C Upton for Mr Harris and Mr Hutchison, directors of the Defendant J E M Lethbridge for Elite Company Limited, a contingent creditor of the Defendant
Judgment:	18 May 2018

(RE-ISSUED) RESERVED JUDGMENT OF ASSOCIATE JUDGE SMITH

[1] On 9 May 2018 I gave a reserved judgment in this matter, on an application by Mr Harris and Mr Hutchison for discovery of certain documents held by the plaintiff or the interim liquidators. Having regard to the broad confidentiality and “no search of the Court file” orders made by the Court on 23 February 2018 (as subsequently varied), I directed that the judgment was not to be disclosed beyond the parties and their solicitors and counsel, pending my determination of whether parts of the judgment might need to be redacted to maintain consistency with the existing confidentiality orders. I invited counsel to advise me by 11 May 2018 if they considered that any part of the judgment should be redacted, so that the judgment could be issued publicly as soon as possible thereafter.

RESERVE BANK OF NEW ZEALAND v CBL INSURANCE LIMITED [2018] NZHC 999 [18 May 2018]

[2] Counsel for the plaintiff and the interim liquidators have since advised that they do not seek any redactions to the judgment, and no other party has advised that it considers any redaction necessary or appropriate.

[3] The judgment refers to certain further particulars of the statement of claim, filed by the plaintiff on 7 May 2018, but I do not apprehend that there is anything in the particulars document (which is also referred to in this judgment) that might be confidential in terms of the Insurance (Prudential Supervision) Act 2010 (the IPSA). I note too that the particulars document effectively now forms part of the plaintiff’s statement of claim in the liquidation claim, and on 20 March 2018 Courtney J made an order that the statement of claim would no longer be subject to the confidentiality orders earlier made by the Court. There appears to be nothing in the grounds of opposition to the liquidation claim raised by Messrs Harris and Hutchison (also set out in the judgment), or in the grounds advanced by the parties for and against the making of the discovery orders sought, that might justify redaction on the grounds of confidentiality or commercial sensitivity. Nor does the part of the judgment in which I address the question of whether the interim liquidators did or did not consent to the variation orders made on 28 February 2018 call for any confidentiality protection.

[4] The judgment is accordingly now re-issued, without any redactions. The existing orders for confidentiality and “no search of the Court file” are to remain in place pending further order of the Court.

Background

[5] This is an application by Mr Harris and Mr Hutchison, who are directors of the defendant (CBL), for discovery of certain documents held by the plaintiff (the Bank), or by the interim liquidators of CBL.

[6] On 23 February 2018, the Bank applied for an order putting CBL into liquidation. At the same time it applied for an order on an ex parte basis appointing Kare Johnstone and Andrew Grenfell (the interim liquidators), as interim liquidators of CBL. Orders were made by Courtney J on 23 February 2018 appointing Ms Johnstone and Mr Grenfell as interim liquidators.
[7] The substantive liquidation claim was advertised, and it was called before me on 27 April 2018. In advance of that hearing, Mr Harris and Mr Hutchison filed a notice of appearance indicating their intention to oppose the liquidation claim. The Bank raised an issue over whether Mr Harris and Mr Hutchison had standing to oppose the liquidation claim, they being only two directors on CBL’s six-member board. A notice of appearance was also filed by Elite Insurance Company Limited (Elite), a contingent creditor of CBL, although that notice of appearance was filed after the time prescribed for filing such notices by r 31.19 of the High Court Rules.

[8] A third notice of appearance was filed by LBC Holdings (New Zealand) Limited (LBC Holdings), CBL’s sole shareholder, but the Bank says that this notice was also defective in that it did not state whether the party filing opposed or supported the liquidation claim.

[9] While pointing out these claimed deficiencies in the notices of appearance, the Bank did not oppose Mr Harris and Mr Hutchison and Elite (collectively “the opposing parties”) opposing the liquidation claim on a provisional basis, with arguments over their entitlement to oppose, or their lateness in taking steps, to be the subject of argument at a defended hearing of the liquidation claim. I made a direction accordingly at the hearing on 27 April 2018, and directed that the substantive liquidation claim was to be heard over two days on 5 and 6 June 2018.

[10] I also directed that the opposing parties were to file provisional statements of defence by 7 May 2018.

[11] The opposing parties both raised concerns over whether they had sufficient information relating to the affairs of CBL to properly defend the liquidation claim. Various categories of documents were sought from the Bank and/or the interim liquidators, and the Bank and the interim liquidators have been prepared to provide some further information. I allowed further time for the parties to consider what further documents might be provided to the opposing parties, and directed counsel to file a joint memorandum by 1 May 2018, setting out any agreed positions on the provision of further information by the Bank to the opposing parties (including LBC
Holdings), and a proposed timetable for the filing of affidavits and submissions for the substantive hearing.

[12] The parties were unable to agree on the extent of further disclosure the Bank and the interim liquidators should make, and I convened a telephone conference on 4 May 2018 to deal with that issue and the timetable for the filing of affidavits and submissions for the substantive hearing.

[13] In advance of the conference on 4 May 2018, the Bank advised by memorandum that it would not now rely on one of the grounds for liquidation pleaded in its statement of claim. Specifically, the Bank said it would no longer rely on CBL’s alleged inability to pay its debts.¹ The Bank confirmed that the liquidation claim would proceed on the other pleaded grounds, namely alleged failure by CBL to maintain the solvency margin required by the Bank under the provisions of the Insurance (Prudential Supervision) Act 2010 (the IPSA) and alleged failure by CBL to comply with a direction given by the Bank under the IPSA on 29 January 2018. The alleged failure to comply with the Bank’s direction was said to constitute a serious failure to comply with a direction or other requirement imposed under the IPSA.²

[14] The Bank maintained its pleading in its statement of claim that CBL should be put into liquidation on “just and equitable” grounds, under s 241(4)(d) of the Companies Act 1993 (the Act) and/or under s 151(2)(d) of the IPSA.

[15] At the conference on 4 May 2018, I enquired of Mr Barker whether the Bank, in its application for a liquidation order based on just and equitable grounds, would rely on any matters additional to the alleged failure to maintain the solvency margin and serious failure by CBL to comply with the Bank’s directions. Mr Barker confirmed that the Bank would rely on additional matters under the “just and equitable” head. I directed the Bank to provide further particulars of its claims for a

1. A ground for a liquidation order under both s 241(4)(a) of the Companies Act 1993 and s 151(2)(a) of the Insurance (Prudential Supervision) Act 2010.
2. Failure of an insurer to maintain a required solvency margin, and serious failure by the insurer to comply with any direction or other requirement imposed under the IPSA, constitute separate, stand-alone, grounds for the making of a liquidation order under s 151(2)(b) and (c) respectively of the IPSA.

liquidation order on just and equitable grounds by midday on 7 May 2018. Those particulars were duly filed and served by the Bank on 7 May 2018.

[16] In the course of the telephone conference on 4 May, I gave certain directions for the filing of affidavits and written submissions. I also extended the time for the opposing parties to file their provisional statements of defence, to 15 May 2018. In view of counsel’s advice that further information was being provided by the interim liquidators to the opposing parties, I adjourned the conference to a chambers hearing at 2.15 pm on 7 May 2018 to deal with the requests by the opposing parties for further disclosure of documents by the Bank and the interim liquidators.

[17] In the event, Elite’s request for further disclosure was resolved by agreement between the parties, subject only to the possibility that further disclosure requests might be made arising out of the further particulars of its claim provided by the Bank on 7 May 2018.

[18] Some parts of the request for documents made by Mr Harris and Mr Hutchison were resolved, and I heard argument from counsel on the disputed categories of documents at the hearing on 7 May 2018. I now give judgment on the request for discovery by Mr Harris and Mr Hutchison.

Documents requested by Mr Harris and Mr Hutchison

[19] The requests for documents made by Mr Harris and Mr Hutchison, and the respective responses of the Bank and the interim liquidators, were helpfully set out in a table produced by Mr Barker and Mr Gedye for the hearing on 7 May 2018. I reproduce that table below, with some amendments made by counsel at the hearing:

Category	Requests by Mr Harris and Mr Hutchison	Response of the Bank	Response of interim liquidators
1	Latest accounts and financial information, including information held by [CBL’s] auditors and independent actuaries.	Has provided [CBL] solvency return to 31 Dec 17 Will provide financial statements to 28 Feb Doesn’t consider it has anything else relevant	Agreed – to 28 Feb
2	Valuations or draft valuations for any [CBL] assets prepared by the interim liquidators or any other party within the last six months	These documents are in the possession of the [interim liquidators] The Bank understands that [Messrs] Harris & Hutchison have all valuations. [The interim liquidators and the Bank] have committed to provide the draft Finity non- French construction business valuation subject to provision of undertakings	Same as [the Bank] Agreed. Already covered to extent sought, by order made on Elite’s request re non- French construction business. Nothing else sought under this head.
3	Offers and letters of interest received by the interim liquidators for any [CBL] assets or for assumption of any [CBL] liabilities	In possession of [the interim liquidators]	If there is anything in this category, it would be confidential and require conditions taking instructions
4	Communications between the interim liquidators and any parties regarding purchase of [CBL] assets or assumption of [CBL] liabilities	In possession of [the interim liquidators]	Same as [category 3 above]
5	Communications between the interim liquidators and any parties regarding the recovery of assets	In possession of [the interim liquidators]	Same as [category 3 above]
6	Documents relating to or evidencing the extent of the [CBL’s] business providing insurance cover in New Zealand and therefore engaging the IPSA regime. These should include (without limitation) details of how many current New Zealand policy holders there are, the premiums paid by those policy holders (including what part of the	[The] Bank has provided what it has, being insurer returns and [the Bank’s] overview document	Disclosure is unnecessary, as [Messrs Harris and Hutchison] should already have any documents they need under this head.
	premiums are unexpired) and any extant claims under those policies
Category	Requests by Mr Harris and Mr Hutchison	Response of the Bank	Response of interim liquidators
7	Analysis of the merits or costs to [CBL] of exiting the part of [CBL’s] business that engages the IPSA regime	Doesn’t exist	Nothing exists
8	Communications between the interim liquidators and [the Bank] (or Buddle Findlay) in relation to [CBL] (including prior to the interim liquidators’ appointment). [Mr Harris and Mr Hutchison] understand that Buddle Findlay has advised both [the Bank] and the interim liquidators but acts principally for the former (separate counsel having now been instructed for the interim liquidators). Obviously the interim liquidators are (or should be) independent from [the Bank] and have differing interests and duties. It is anticipated that there may be some legitimately privileged communications between the interim liquidators and Buddle Findlay, but much of what will have been communicated will have been a normal incident of the interim liquidators’ execution of their independent duties and will not be privileged	[The] Bank to provide redacted reports from the [interim liquidators] All other documents irrelevant or privileged	[The interim liquidators are] checking redactions (if any) on reports; as to communications generally, would need to see [Mr Harris and Mr Hutchison’s] pleading to know relevance; given that the documents could come from [the Bank], may take the view that it’s between the parties; need to find out [the Bank’s] position; if they are not opposed, [the interim liquidators’] only objection would be in relation to the task of identifying relevance.
9	Communications between [the Bank]/Buddle Findlay and the interim liquidators relating to [the Bank’s] application to vary the confidentiality orders on 28 February 2018, including any communications evidencing the interim liquidators’ consent to the variation. Such communications cannot be privileged. Even if they were, any privilege has been waived by the interim liquidators, who have provided Mr Harris with an account of their view of events	Irrelevant	[Seen] as a subset of [category 8 above].

Discovery in liquidation claims – legal principles

[20] Rule 31.22 of the High Court Rules provides that, when a statement of defence has been filed in a liquidation proceeding and the hearing of the proceeding has been adjourned for the allocation of a hearing date on a defended basis, the proceeding is to continue as if it were an ordinary proceeding commenced under Part 5 of the High
Court Rules. In this case, no formal statements of defence have yet been filed by Mr Harris and Mr Hutchison and Elite, but the Bank and the interim liquidators have accepted that some level of discovery should be provided to the opposing parties, particularly as Mr Harris and Mr Hutchison set out the substance of their opposition to the liquidation claim in a detailed letter from their solicitors dated 30 April 2018.

[21] I am satisfied that there is jurisdiction to order any discovery that may be appropriate, and there was no dispute between counsel over the broad principles to be applied.

[22] In the latter regard, I note first that in Nemesis Holdings Ltd v North Harbour Industrial Holdings Ltd,³ Wallace J noted that there may be a policy question as to how readily discovery should be granted at the later stage, when a liquidation proceeding is going forward on a defended basis. His Honour referred, by way of example, to a risk that the defendants would endeavour to delay winding-up proceedings by seeking detailed discovery from the plaintiffs. However, His Honour accepted that that concern might be counterbalanced by the need to have the full facts before the Court. Wallace J suggested that the Court should retain a discretion as to whether or not to grant discovery when proceedings are defended.

[23] The question of the extent of discovery to be ordered in a liquidation claim was recently considered by Associate Judge Osborne in Commissioner of Inland Revenue v Elementary Solutions Ltd.⁴ The Associate Judge referred to the judgment of Wallace J in Nemesis Holdings, and accepted that the Court retains a discretion to order discovery in liquidation proceedings. His Honour noted that his experience of the Court’s practice in recent years is that the Court has exercised its discretion to order discovery generally only in exceptional cases.

[24] The Associate Judge went on to consider, by way of analogy, the practice in relation to discovery on originating applications made under Part 19 of the High Court Rules (where there is no express entitlement to discovery of documents), referring to

3. Nemesis Holdings Ltd v North Harbour Industrial Holdings Ltd HC Auckland M116/89, 14 April 1989; (1989) 1 PRNZ 379 at 384.

⁴ Commissioner of Inland Revenue v Elementary Solutions Ltd [2017] NZHC 2411.

the Court of Appeal decision in Manchester Securities Ltd v Body Corporate 172108, where the Court recognised that a conservative approach should be adopted towards discovery in originating applications brought under Part 19 of the Rules.⁵

[25] In Elementary Solutions Ltd, Associate Judge Osborne adopted the following principles:⁶

(a) The Court has a discretion to order discovery.

(b) The documents sought must be capable of supporting the applicant’s case or adversely affecting the opponent’s case.

(c) Any orders for discovery should be subject to the proportionality and practicality requirements identified in r 8.2 of the Rules and should accord with the objective of “just, speedy and inexpensive determination” under r 8.2 of the Rules.

(d) The approach to discovery in originating applications should be conservative.

(e) Discovery will be appropriate in marginal cases where the party makes out an outline case but the Court encounters genuine difficulty in determining, without documentary evidence which is likely to assist, whether the threshold test is satisfied.

[26] In the event, Mr Heard, Mr Barker and Mr Gedye were all content that I approach the matter by applying the principles identified by Associate Judge Osborne in Elementary Solutions Ltd. I accept that that is appropriate, and I will proceed accordingly.

⁵ Manchester Securities Ltd v Body Corporate 172108 [2015] NZCA 29.

⁶ At [36] and [37].

The Bank’s case for liquidation, and Mr Harris and Mr Hutchison’s opposition

[27] The Bank’s case for making a liquidation order under s 151(2)(b) of the IPSA was stated in its statement of claim as follows:

Failure to maintain solvency margin

6. By direction dated 25 July 2017 [CBL] was required by the Bank to maintain a minimum solvency margin of 170% until further notice pursuant to IPSA and the solvency standard for non-life insurance business 2014.

7. On 15 November 2017 [CBL] and its appointed actuary advised the Bank pursuant to section 24 of IPSA that it was likely that [CBL] would be unable to maintain the solvency margin of 170%, imposed under licence conditions as at 31 December 2017.

8. On 20 February and 21 February 2018 [CBL] and the appointed actuary for [CBL] advised the Bank pursuant to section 24 of IPSA that [CBL’s] solvency margin had fallen below 100%, in breach of a condition of its licence to conduct insurance business.

[28] The Bank’s case for liquidation under s 151(2)(c) of the IPSA was pleaded as follows:

Serious failure to comply with direction

9. By letter dated 29 January 2018 the Bank modified an earlier direction dated 22 November 2017 in the following terms:

“[CBL] must prior to entering into any transaction or series of related transactions involving payment or transfer of assets of NZ$5 million or greater consult with [the Bank] about its circumstances and about the transaction or any other actions or proposed actions it intends to take in resolving its difficulties. “Consult” means providing [the Bank] with sufficient information for [the Bank] to form an informed view on the proposed transaction; receiving feedback from [the Bank] and having regard to that feedback before entering into the transaction.”

10. Between 14 and 16 February 2018, in breach of the above direction (as modified) [CBL] made the following payments or series of related payments totalling in excess of NZD55 million:

(a) NZD4,197,400 to United Specialty Insurance Company (USA) on 14 February 2018;

(b) NZD4,458,857.00 to United Specialty Insurance Company (USA) on 14 February 2018;

(c) NZD4,458,857.00 to United Specialty Insurance Company (USA) on 15 February 2018
(d) NZD42 million to Alpha Insurance A/S (Denmark) on 16 February 2018; and

11. Such payments each constituted a serious failure to comply with the direction set out in paragraph 9 above, including the payments at 10(a)-(c) (inclusive) as a series of related payments.

[29] In addition to those grounds for liquidation, the Bank also relies on the just and equitable ground for liquidation. In its particulars document dated 7 May 2018, the Bank pleaded certain alleged deficiencies in solvency returns submitted by CBL to it from 31 December 2014 and 30 June 2015. The Bank also pleaded certain issues relating to liability settlement agreements entered into between CBL and Alpha Insurance, and between CBL and CBL Insurance Europe DAC, and the alleged provision of excess reinsurance security to United Speciality Insurance. For the purposes of the present judgment it is unnecessary to refer to these particulars, as it was accepted by counsel at the hearing on 7 May 2018 that further documents and information will be provided by the Bank in support of these particulars, including by way of an affidavit to be provided by the Bank by 11 May 2018. The issue of discovery (if any) arising out of the Bank’s further particulars filed on 7 May 2018 was accordingly adjourned for further consideration if necessary.

[30] One aspect of the Bank’s further particulars document is, however, relevant to this judgment, and it is a pleading that, as at 28 February 2018, CBL’s liabilities exceeded its assets by not less than NZD38,000,000 (on the premise that CBL had ceased to write new insurance business by that date).

[31] The grounds of opposition advanced by Mr Harris and Mr Hutchison were set out as follows in a letter from their solicitors dated 30 April 2018:

Grounds for opposition

7. Your letter claims a lack of awareness of the grounds on which liquidation is opposed. This is surprising given the materials now exchanged, but to clear the matter up so it no longer distracts your clients from meeting their obligations, we can summarise the key grounds for opposition as follows:

The IPSA grounds

(a) The [Bank’s] statement of claim relies upon two specific IPSA grounds. These are grounds, but liquidation remains discretionary.
(b) The IPSA grounds are engaged by the tiny fraction of [CBL’s] business which writes New Zealand insurance (we understand it to be accepted that it is approximately 1%, but on Mr Harris’s evidence it is even less).

(c) If [CBL] ceased that tiny fraction of its business, there would be no component of [CBL’s] ongoing business that engaged the IPSA regime.

(d) [CBL] can and should exit that part of its business. It can do so swiftly and economically and without liquidation, and without any preference to current creditors.

(e) [The Bank] and the interim liquidators both believe it should exit this business (as is self-evident from the steps they are taking), but the interim liquidators appear to be delaying doing so, possibly to keep the existence of that business live as a liquidation ground.

(f) The New Zealand insurance component of [CBL’s] business being easily ended, there is no basis on which the discretion should be exercised in favour of liquidation when it is not supported by any shareholders or creditors.

The Companies Act grounds

(g) [The Bank’s] statement of claim pleads s241(4)(a) and (d) of the Companies Act, being:

(i) Inability to pay debts;

(ii) Just and equitable grounds.

(h) [Mr Harris and Mr Hutchison] contend that [CBL] is solvent (you already have Mr Harris’s affidavit on that issue, as well as the accounts underlying his view), and that the only just and equitable grounds even arguable (or pleaded) were the IPSA grounds which can and should be cured without further damaging creditor and shareholder interests.

(i) In any event, once it is recognised that IPSA compliance can be addressed by terminating that part of [CBL’s] business, the obvious just and equitable approach is to allow solvency questions to be addressed in the normal way – by the actual owners and creditors of [CBL].

Discussion and conclusions

[32] I will address each of the nine categories of documents listed in the table at paragraph [15] of this judgment.

Categories 1, 2 and 7

[33] No further discovery is sought in these categories. In respect of category 1, the Bank and/or the interim liquidators have agreed that copies of CBL’s financial statements as at 28 February 2018 are to be provided, and that should be done by 11 May 2018. There is no basis for any further order in respect of category 1 documents.

[34] Subject to the agreement to provide a copy of the Finity report on the non- French construction business (made in the context of Elite’s application for further discovery, and to be provided by 15 May 2018), the Bank and the interim liquidators say that there are no further valuations or draft valuations to be provided. There is therefore no basis for any discovery order in respect of the category 2 documents.

[35] The same is true in respect of category 7. I record the advice of the Bank and the interim liquidators that no documents exist in this category. Mr Harris and Mr Hutchison have not produced any evidence to the contrary.

Categories 3, 4 and 5

[36] Counsel dealt with these three categories together, so I will do likewise.

[37] Addressing first category 3, I accept that any offers or letters of interest the interim liquidators may have received (whether for the purchase of CBL’s assets or for the assumption of all or part of its liabilities) may be relevant to the value of CBL, and (at very least) to the contention in the Bank’s particulars document that CBL’s liabilities exceeded its assets by NZD38 million as at 28 February 2018. If and to the extent an offer or expression of interest was materially higher (or lower) than the corresponding book value of CBL’s relevant assets (or liabilities, as the case may be) as at 28 February 2018, the difference would arguably provide a more accurate picture of the relevant current market value, and would be relevant to the extent of the alleged excess of liabilities over assets. That in turn would arguably be relevant to the exercise of the Court’s discretion whether to order liquidation.

[38] The Bank and the liquidators do not deny that there are or may be documents in category 3, and I think it would be unsatisfactory (and unfair to Mr Harris and Mr
Hutchison if they are permitted at the hearing to be heard on their notice of appearance and provisional statement of defence), if at the hearing of the liquidation claim the interim liquidators were holding offers or expressions of interest which were not disclosed, and which were at levels which showed that CBL’s financial position was materially better than the interim liquidators had hitherto assumed. The interim liquidators’ principal concern on this category appears to be over the extreme commercial sensitivity of any offers or expressions of interest – Mr Gedye noted that there is a relatively small worldwide market for assets such as those held by CBL, and that Mr Harris and/or Mr Hutchison, or interests associated with them, may themselves be potential bidders for those assets. Mr Gedye submitted in those circumstances that any disclosure of offers or expressions of interest held by the interim liquidators should be disclosed only to the solicitor and counsel for Mr Harris and Mr Hutchison, on their first undertaking in writing not to disclose the documents to their clients (or to any other party) pending further order of the Court.

[39] It seems to me that there is no issue of proportionality involved here (there are unlikely to be a great number of offers or expressions of interest received by the interim liquidators since their appointment), but any offers or expressions of interest that do not materially differ from the figures for the relevant assets or liabilities adopted by the interim liquidators in the financial statements as at 28 February 2018 may be unlikely to support the case Mr Harris and Mr Hutchison are advancing, or adversely affect the Bank’s case. On the other hand, offers or expressions of interest tending to confirm the financial position advanced by the Bank would tend to support its position, and be relevant to that extent.

[40] I think the documents sought here are in the “marginal case” category referred to at paragraph [21](e) of this judgment, and that the appropriate course is to order discovery of the category 3 items, with identification and disclosure of the discovered documents to be restricted in the first instance to the solicitors and counsel for Mr Harris and Mr Hutchison, on their first providing a written undertaking to the interim liquidators that the documents will not be disclosed to Mr Harris or Mr Hutchison (or to any other person) without the leave of the Court. There will be an order accordingly, with copies of the documents discovered to be provided to the solicitor for Mr Harris and Mr Hutchison by 11 May 2018.
[41] I am not prepared to order discovery of any of the documents in categories 4 and 5. In my view these categories are far too broad. For example, it is difficult to see how communications between the interim liquidators and any parties regarding the purchase of CBL (or assumption of CBL liabilities) falling short of actual offers or expressions of interest (i.e. the category 4 documents) could advance the case for Mr Harris and Mr Hutchison, or damage the Bank’s case, and I think discovery as broad as that sought would also be disproportionate. Adopting a conservative approach in accordance with principle (d) in Elementary Solutions Ltd, I decline to make the order sought in respect of the category 4 documents.

[42] The same considerations apply, with greater force, to the documents sought in category 5. The request is far too broad, and it is not at all clear how the discovery sought will or might advance the case for Mr Harris or Mr Hutchison or damage the Bank’s case. This request seems to be bordering on fishing. I decline to order discovery of the documents in category 5.

Category 6

[43] I am not satisfied that discovery of these documents is necessary. Mr Harris’ and Mr Hutchison’s case on this issue was set out at paragraph 7(a) to (f) of their solicitors’ letter of 30 April 2018,⁷ and there appears to be no significant issue over the relative size of that part of CBL’s business that was subject to prudential supervision under the IPSA, when compared with the rest of CBL’s business. Mr Harris and Mr Hutchison say that it was less than one percent of CBL’s global business, and Mr Harris’ affidavit sworn on 27 April 2018 shows that he is aware of the approximate annual premiums paid on the New Zealand insurance business, and the approximate number of outstanding claims on the New Zealand business.

[44] Whether CBL’s business providing insurance cover in New Zealand represented, say, 0.75% of its global business, or (say) three or four percent seems most unlikely to affect the decision that the Court will be required to make on the substantive liquidation claim, and is accordingly unlikely to materially support the case for Mr Harris and Mr Hutchison, or damage the Bank’s case. In those

⁷ The relevant paragraph is reproduced at [27] above.

circumstances the discovery sought would also be disproportionate. I decline to order discovery of the category 6 documents.

Categories 8 and 9

[45] Again, counsel dealt with these two categories together. I will do the same.

Counsel’s submissions

[46] Mr Heard submitted that both categories are relevant to the question of whether the interim liquidators should be appointed liquidators on any final liquidation order the Court might make. He referred to what he described as the “extraordinary co- operation” between the Bank and the independent liquidators, in circumstances where (he submitted) the interim liquidators were obliged to act independently of the Bank. The category 8 documents, being communications between the interim liquidators and the Bank or its solicitors in relation to CBL, are primarily concerned with the need for the liquidators to be truly independent.

[47] Mr Heard referred to the statement of Courtney J in her minute of 1 March 2018 (in which the Judge varied the confidentiality orders that had been made on the appointment of the interim liquidators), that the interim liquidators consented to the proposed variations. That statement is alleged to have been incorrect.

[48] Mr Gedye submitted that the documents in categories 8 and 9 have no possible relevance to the issues with which the Court will be concerned at the substantive hearing. Discovery of documents in these categories would effectively allow a collateral attack on the interim liquidators, and their alleged lack of independence was not a ground that was advanced by Mr Harris and Mr Hutchison in their solicitors’ letter of 30 April 2018. If the issue is raised in the provisional statement of defence to be filed by Mr Harris and Mr Hutchison, it may be the subject of a strike-out application.

[49] Mr Gedye submitted that the identity of the liquidators will become an issue only if and when the Court makes a liquidation order. If the independence of the interim liquidators is still a live issue on 5 June, the Court could if necessary deal with
the “liquidation or no liquidation” issue first, and adjourn the matter to a further hearing to address the question of who should be appointed liquidators. Mr Gedye expressed concern that allowing this issue in by directing discovery on it could substantially increase the length of the hearing. The two days allocated for 5 and 6 June might not be enough.

[50] Mr Gedye also submitted in respect of the category 8 documents that the request is oppressive. Mr Harris and Mr Hutchison will have all the reports from the interim liquidators to the Bank (in the context of the discovery request made by Elite), and any redactions to those reports are likely to be minor.

[51] Specifically on the category 9 documents, Mr Gedye also submitted that whether the independent liquidators did or did not consent to the application to vary the confidentiality orders is irrelevant to the issue of whether or not CBL should be placed in liquidation. It is now an historical matter, and of no relevance.

[52] Mr Barker adopted Mr Gedye’s submissions, submitting that the documents in these two categories are not relevant, and that it would be premature to order their production in advance of any decision on whether there is to be a liquidation order.

[53] In reply, Mr Heard submitted that the question of who should be appointed liquidator should be heard with the substantive liquidation claim. He emphasised that Messrs Harris and Hutchison have no desire to extend or delay the hearing; they wish to have all matters resolved as fairly and expeditiously as possible. The discovery is sought at least in part to ensure that Mr Harris and Mr Hutchison do not advance further the arguments (essentially, lack of independence of the interim liquidators) which have so far been advanced, without a more detailed factual basis.

Discussion and conclusions on categories 8 and 9

[54] The Bank’s statement of claim does expressly seek an order appointing Ms Johnstone and Mr Grenfell as liquidators, so to that extent the issue is one that arises,
or will arise, on the pleadings. It is also the case that the appointment of a liquidator is the means by which a company is put into liquidation.⁸

[55] Mr Heard is also correct in submitting that independence will be an important quality the Court will require of any liquidator who might be appointed. The learned authors of Heath and Whale on Insolvency note that the Court has a broad discretion in the matter of who is to be appointed liquidator, and that a matter of “prime consideration” is that the liquidator is independent and must be seen to be independent.⁹

[56] The alleged lack of independence is presumably an alleged lack of independence from the Bank. In support, Mr Heard points to the fact that the same solicitors (Buddle Findlay) acted until very recently for both the Bank and the interim liquidators, and to Mr Harris’ contention that the Bank wrongly advised the Court that the interim liquidators consented to the variation orders sought by the Bank on 28 February 2018. Less clearly a ground of alleged lack of independence, but included at paragraph 7(e) of the letter dated 30 April 2018 from the solicitors for Messrs Harris and Hutchison, is their apparent concern that the interim liquidators favour the making of a final liquidation order, an outcome they oppose.

[57] As to the last of those possible grounds, Ms Johnstone did swear an affidavit on 26 April 2018 in support of a request for an urgent hearing of the liquidation claim, in which she outlined a number of difficulties and issues the interim liquidators have encountered since their appointment that she considered would be better dealt with if certainty were provided in the form of a final liquidation order. But I do not consider it arguable for Messrs Harris and Hutchison that any opinion Ms Johnstone and/or Mr Grenfell might have on that question would be relevant to the question of whether they would act independently if appointed final liquidators.

[58] Nor at this stage do I consider there is sufficient in the issue of the interim liquidators’ consent (or not) to the making of the variation orders on 28 February 2018 to justify the broad discovery sought in these categories. If there were any

⁸ Companies Act 1993, s 241(1).

⁹ Heath and Whale on Insolvency, (looseleaf ed, LexisNexis NZ Ltd), at [20.15].

misrepresentation of the interim liquidators’ position on the variation application (an issue I do not find it necessary to decide for the purposes of the present discovery application), the misrepresentation would presumably have been an act of the Bank or its solicitors, and not an act of the interim liquidators. And particularly if the interim liquidators had no concern with the variation orders made on 28 February it is not at all clear (at least not clear enough to justify an order for discovery of the category 8 and 9 documents) that disclosure of the documents relating to the 28 February 2018 variation orders would show anything about the interim liquidators’ independence. Applying the tests in Elementary Solutions Ltd, it is not clear how the discovery of these documents would be likely to support the case of Messrs Harris and Hutchison, or damage the Bank’s case, on the issue of the identity of any liquidators who might be appointed.

[59] It is even less clear how the category 8 and 9 documents might be relevant to the principal issue in the proceeding, which is whether or not CBL should be put into liquidation. On any view of it, the identity of any liquidators who might be appointed is subsidiary to that main issue, and I take that into account in determining, in the conservative exercise of my discretion, that the cost and time likely to be expended on this issue if discovery orders were made as sought would probably be disproportionate to any benefits the discovery might provide. I also take into account the fact that Mr Harris says that he already has the interim liquidators’ account of their view on the 28 February 2018 consent issue. Subject to any issues of admissibility that might arise, it will presumably be open to Mr Harris to cover that in his affidavit for the substantive hearing. And if the matter is not resolved to his satisfaction in the reply evidence, it will be open to Messrs Harris and Hutchison to raise their concerns with the Judge at the hearing. If further information is then required, that can be addressed by the Judge at the hearing.

[60] In the end, I think there is insufficient in what has been advanced in respect of the consent issue over the 28 February 2018 variation orders, or in the interim liquidators using the same instructing solicitors in the earlier stages of the proceeding,¹⁰ to provide Messrs Harris and Hutchison with the necessary

10. Especially given the decision of the interim liquidators to instruct independent senior counsel before the first call of the liquidation claim.

“springboard” to justify the discovery sought in these categories. The application for discovery of the documents in categories 8 and 9 is refused.





Associate Judge Smith

Solicitors:

Buddle Findlay, Wellington for the Plaintiff

Lee Salmon Long, Auckland for the directors of the Defendant Lowndes, Auckland for the contingent creditor of the Defendant