Andrews v Lomax
[2022] NZHC 2244
•5 September 2022
IN THE HIGH COURT OF NEW ZEALAND INVERCARGILL REGISTRY
I TE KŌTI MATUA O AOTEAROA WAIHŌPAI ROHE
CIV-2021-425-72
[2022] NZHC 2244
UNDER Section 174 of the Companies Act 1993 BETWEEN
ROBERT ANTHONY ANDREWS
First Plaintiff
KERRY ANDREWS
Second PlaintiffROBERT ANTHONY ANDREWS, KERRY ANDREWS and BERYL ANDREWS, as
trustees of the Ruby Trust Third Plaintiffs
AND
PAUL JOHN LOMAX
First Defendant
CHESTER HOSPITALITY LIMITED
Second Defendant
NH TRUSTEES NO. 9 LIMITED, as trustee
of the Lomax Family Trust Third Defendant
ARROW HOSPITALITY LIMITED
Fourth Defendant
Hearing: 23 August 2022 Appearances:
S D Williams and B B Gresson for Andrews parties P Murray for Lomax parties
Judgment:
5 September 2022
JUDGMENT OF ASSOCIATE JUDGE LESTER
ANDREWS v LOMAX [2022] NZHC 2244 [5 September 2022]
[1] The Andrews parties and the Lomax parties are involved in what can be fairly be described as acrimonious litigation. There is a complete lack of trust between them.
[2] The Lomax parties being Paul Lomax (Mr Lomax), Chester Hospitality Limited (Chester) of which Mr Lomax is director, NH Trustees No. 9 Limited, as trustee of the Lomax Family Trust, and Arrow Hospitality Limited (Arrow), issued proceedings under s 174 of the Companies Act 1993 against the Andrews parties. Shortly thereafter, the Andrews parties issued separate proceedings against the Lomax parties. The Andrews parties are Robert Andrews, Kerry Andrews, Robert and Kerry Andrews as trustees of the Ruby Trust, and Arrow.
[3] The Andrews parties seek orders enforcing orders for tailored discovery made by consent on 4 November 2021 and varied by consent on 15 December 2021.
[4] By the time the application was heard, the application related to the following categories of documents:
(3)All documents relevant to Paul Lomax’s 4 February 2021 proposal for a cash bonus payment form Arrow, including but not limited to:
(a)correspondence between Paul and Vanessa Lomax, Paul or Vanessa Lomax and Mike McNab, Paul or Vanessa Lomax and employees of Chester Hospitality Ltd, and Paul or Vanessa Lomax and trustees of the NH Trustees No. 9 Ltd and the February 2021 proposals to increase the management fee charged by Chester Hospitality Limited (Chester); and
(b)documents relevant to Robert Andrews’ refusal on or about 24 February 2021 to agree to Paul Lomax’s request for a cash distribution and his recommendation that Arrow prioritise paying down company debt and making provisional tax payments.
…
(8)All documents relevant to Arrow’s tax compliance (income tax, provisional tax, PAYE, GST), quantification of tax liability and payment for the period 1 January 2021 to date, including but not limited to correspondence between Paul and Vanessa Lomax, Paul or Vanessa Lomax and Mike McNab, employees of Chester, the trustees of the NH Trustees No. 9 Limited, or any tax deferral scheme providers.
(9)All documents relevant to Arrow’s Wage Subsidy claims as pleaded in paragraph [13] of the statement of claim dated 16 July 2021,
including but not limited to documents identifying the employees in respect of whom the wage subsidy was claimed by Chester.
(these three categories are dealt with together)
(10)All documents relevant to the employment of [PP] and [KR], including but not limited to correspondence, employment contracts, pay slips, PAYE returns, and other records of wages and PAYE paid.
…
(6) All documents relevant to communications between Paul or Vanessa Lomax and Lara Miller of Chester in respect of management services provided to Arrow, including but not limited to the administration of the company’s bank account and payments approved, made or withheld from the account from 24 February 2021 to date.
[5] As the parties had agreed to orders for tailored discovery in relation to these documents, in this application I do not have to consider whether the documents are relevant. The parties agreed those documents were to be discovered and orders were made by consent. This is not a case where the well-known test in Assa Abloy New Zealand Ltd v Allegion (NZ) Ltd, applies as this is not an application for further discovery under r 8.19 of the High Court Rules 2016 (the Rules).1 The Assa Abloy test asks whether the documents are relevant, whether they exist, whether discovery is proportionate and, upon weighing and balancing these factors, whether an order is appropriate. Those factors are overtaken where the parties have agreed to tailored discovery orders.
[6]McGechan on Procedure at [HR8.10.01] notes that:
Usually tailored discovery will be narrower in scope than under standard discovery. But in an appropriate case it can be extended to documents that “may” lead to a train of enquiry in accordance with the pre-2011 Peruvian Guano approach: Intercity Group (NZ) Ltd v NakedBus NZ Ltd [2013] NZHC 1054 at [15].
[7] The categories of documents agreed to be subject to tailored discovery and subject to this application are reasonably defined, that is, they do not capture a large number of documents.
1 Assa Abloy New Zealand Ltd v Allegion (NZ) Ltd [2019] NZHC 2760, [2018] NZAR 600 at [14].
[8] In Pyne Gould Corporation v Bath Street Capital Ltd, Katz J discussed whether an order for tailored discovery requires the party giving discovery to produce all documents falling within the tailored discovery categories or whether that party must also assess each document for relevance.2 Her Honour said:3
The overall scheme of the rules envisage that parties will (and should) turn their minds to issues of relevance at the time the relevant categories are negotiated. The rules do not appear to envisage a secondary relevance filter being applied to agreed categories. Ideally, the categories should be carefully formulated to capture only documents the parties agree are relevant (albeit it is open to the parties to take a broader view of relevance than they would for standard discovery). The cost and efficiency gains associated with tailored discovery may be lost if this is not done and significant disputes about relevance arise later, as has occurred in this case.
[9] While Katz J recognised it may be apparent from the way a category is drafted that the parties intended a secondary relevance test to be applied,4 I do not read the above categories as requiring that secondary review.
[10] Accordingly, I am satisfied that what the Lomax parties must demonstrate here is there is reason to believe the Lomax parties have not met their obligations in respect of these categories – the second question from Assa Abloy.
Development immediately before the hearing
[11] On 18 August 2022, shortly before the hearing, Kerry Andrews filed an affidavit relating mainly to category 10 at [4] above, that is the employment records.
[12] On 12 August 2022, Mr Lomax provided some further documents in relation to that category including unsigned employment agreements or letters of offer to the named individuals. Those documents were provided by way of a Dropbox link. Mr Lomax’s affidavit provided on the same day said: “We do not hold signed employment agreements”.
2 Pyne Gould Corporation Ltd v Bath Street Capital Ltd [2020] NZHC 1247.
3 At [43].
4 At [44].
[13] It now turns out that Ms Kerry Andrews has for some time had access to a Dropbox subfolder administered by Chester, one of the Lomax parties, and used by Chester for documents relating to Arrow.
[14] Ms Andrews says that in August 2021 she downloaded a complete copy of the Dropbox folder which she checked against Mr Lomax’s Affidavit of 12 August 2022. When she did so she found in the August 2021 copy of the Dropbox folder, employment contract documents relating to an individual I refer to as “KR”, including documents signed by Mr Lomax and not discovered by him.
[15] Further, Ms Andrews says during her review of the current Dropbox folder she noticed the signed letter of offer and signed employment agreement she had obtained through her August 2021 download had been deleted from the latest folder. This discovery prompted the allegation that the Lomax parties have deleted discoverable documents.
[16] Ms Andrews goes further and says, when reviewing the file sizes of documents from the August 2021 Dropbox against the current version, a large number of files now have a smaller file size which she says indicates they have been edited, including documents relevant to the categories of documents sought in this application.
[17] Mr Lomax filed an affidavit the day before the hearing again, as this issue arose at the eleventh hour, denying any inappropriate conduct. It seems that an employee of Chester who assisted him with his check of the records, may have deleted files provided to him. He says he has instructed Chester’s IT consultant to review the Dropbox files to try and arrive at an explanation for the matters raised by Ms Andrews. It seems material that has been deleted can be retrieved from the deleted files folder. There are issues with Mr Lomax’s explanation. Mr Lomax did not disclose in his original discovery or in further informal disclosure the signed employment agreement for KR; rather, he said it did not exist. Ms Walker’s deletion of that document cannot therefore have been a consequence of her sending it to Mr Lomax as suggested by him. That said, I acknowledge the issue has arisen late in the piece.
[18] This is an unsatisfactory state of affairs as regards both sets of parties. Mr Murray, counsel for the Lomax parties, is critical of the fact that the Andrews parties had a copy of the Dropbox but did not include it in their own discovery saying the orders for tailored discovery applied to all parties.
[19] There would appear to be merit in Mr Murray’s submission that the Andrews parties were themselves in breach of the orders. Ms Williams, counsel for the Andrews parties, submitted her clients were not required to discover the Dropbox documents they had access to, relying on r 8.16(5) which says the discovery need not include:
…
(a)documents filed in court; or
(b)correspondence that may reasonably be assumed to be in the possession of all parties.
[20]McGechan at HR8.16.07 says:
It is not necessary to list documents filed in court or correspondence that may reasonable be assumed to be in the possession of all parties: r 8.16(5). Interpreted literally, documents other than correspondence need to be listed even if in the possession of all parties. However, even if such a literal interpretation is correct, proportionality and the duty to co-operate under r 8.2 should operate to relax the requirement to stick rigidly to the rules: Dold v Murphy [2018] NZHC 994 at [28].
[21] The Andrews parties holding back that they had access to the Dropbox is not consistent with r 8.2 which provides:
8.2 Co-operation
(1)The parties must co-operate to ensure that the processes of discovery and inspection are—
(a)proportionate to the subject matter of the proceeding; and
(b)facilitated by agreement on practical arrangements.
(2)The parties must, when appropriate,—
(a)consider options to reduce the scope and burden of discovery; and
(b)achieve reciprocity in the electronic format and processes of discovery and inspection; and
(c)ensure technology is used efficiently and effectively; and
(d)employ a format compatible with the subsequent preparation of an electronic bundle of documents for use at trial.
[22] The present discovery application has the appearance of seeking to achieve a “gotcha” moment.
[23] Equally, and for whatever reason, it appears the Lomax parties have not provided discovery of all the material in the Dropbox when they provided their list of documents in March 2022. The Lomax parties at best approached their discovery obligations with insufficient care – at worst they choose not to produce some documents.
[24] The distrust between the parties is such that at the hearing I suggested the following approach be adopted. A fully independent IT specialist will have access to the Arrow Dropbox including, for the avoidance of doubt, the deleted files part of the Dropbox and complete a search of the Dropbox and deleted files folder for the material in the discovery categories listed in this judgment. The IT specialist will also investigate the allegation around the deletion and editing of discoverable documents.
[25] The costs of that exercise are to, in the first instance, be borne by Arrow. Ms Williams confirmed the company had funds to cover that exercise. If the Andrews parties’ allegations as to the deletion or editing of relevant documents is upheld then the Lomax parties will reimburse the IT specialist’s costs to Arrow. If the apparent editing of the documents is in fact due to them being accessed by Ms Andrews or if Ms Andrews’ actions are substantially the true reason for the matters covered in her allegations, then the Andrews parties will reimburse Arrow for the IT specialist’s costs.
[26] The IT specialist can also confirm all documents within the categories set out at [4] above have been disclosed.
[27] Given this was only raised at the hearing, counsel, while seeing the merit of the exercise, did not have instructions to consent to it. I am satisfied the Lomax parties are in default of the tailored discovery order. So much follows from their not
discovering the signed employment agreement for KR in their list of documents served in March 2022. That default means the very wide jurisdiction under r 7.48 is available.
[28]Accordingly, pursuant to r 7.48 of the Rules I order:
(1)The parties are to endeavour to agree the identity of an independent IT specialist. If such is unable to be agreed within 15 working days of the date of this judgment, an IT specialist’s will be appointed by the Court.
(2)The Lomax parties will give the IT specialist’s unfettered access to the Dropbox.
(3)Any items in the deleted folder of the Dropbox, as at the date of this order, are to be restored to the Dropbox and/or copied and/or otherwise preserved.
(4)No material whatsoever in the Dropbox is to be deleted or edited until further order of the Court.
(5)The IT specialist is to prepare a report addressing the issues in Ms Andrews’ affidavit of 18 August 2022 and the explanation provided by Mr Lomax in his reply of 22 August 2022. Copies of those affidavits are to be provided to the IT specialist.
(6)The IT specialist is to review the Dropbox documents set out in the categories set out at [4] of this judgment. Copies of those documents are to be provided to the parties in electronic form.
(7)The IT specialist’s costs in the first instance are to be paid by Arrow. If the IT report supports Ms Andrew’s claim then the Lomax parties shall reimburse Arrow for those costs. If there is a reasonable explanation for the deletions and/or Ms Andrews is found to have edited or deleted files, the Andrews parties are to reimburse the costs to Arrow.
(8)The Lomax parties are to endeavour to obtain an affidavit from the employee of Chester who assisted Mr Lomax with the discovery in which she is to explain what instructions she was given and by whom, in relation to her search of the Dropbox for discoverable documents, provide any correspondence in that regard, describe what actions she took during that check, including why she deleted any documents. That affidavit is to be completed within 15 working days of the date of this judgment and is to be filed and served with a copy provided to the IT specialist.
[29] Ms Williams also notes the Lomax parties have not provided discovery of the other documents in category 10, that is, PAYE returns and other records of wages and PAYE paid. Mr Lomax’s affidavit of 12 August 2022 does not engage with this point. Accordingly, I order the Lomax parties are to provide a further affidavit of documents giving discovery of those documents within 15 working days of the date of this judgment. Given the individuals named in category 10 are said to have been employed recently, the company must have the records sought.
Categories 3, 8 and 9 – Arrow documents
[30] The second aspect of the current application relates to whether documents held by the former accountants for Arrow are within the power and control of the Lomax parties. This is an issue that does not, in my view, reflect particularly well on either group of parties.
[31] Mr Murray’s explanation in respect of this issue is that the Andrews parties have known all along that Arrow’s former accountants were ready, willing and able to provide the materials they sought directly to the Andrews parties upon the accountant’s outstanding invoice of $1,449 being paid. The fee was apparently disputed by the Andrews parties. That advice was provided by the accountants to the Andrews parties in July 2021. Thus, Mr Murray says the documents were within the control of the Andrews parties. The same point holds true in respect of the Lomax parties. It seems all that was holding up the disclosure of these documents was payment of the disputed invoice of $1,449.
[32] In Mr Lomax’s affidavit of documents, he recorded in his capacity as a director of Arrow, his consent to the release of the documents. It was on 15 August 2022 that the Andrews parties paid the outstanding invoice on a without prejudice basis and the accountant released the documents to the parties the following day. I agree with Mr Murray that the costs incurred by both parties in dealing with this issue significantly exceeds the $1,449. The deadlock over this issue was not consistent with the co-operation required by r 8.2.
[33] I am told the documents released were categories of documents requested by the Andrews parties before the discovery order was made. Those categories will not cover of all Arrows’ documents held by the accountant.
[34] Ms Williams submitted the parties’ ability to obtain copies of Arrow’s documents from the accountants only goes so far. She submitted the orders made by consent required all parties to disclose all documents they had within the categories of tailored discovery. I agree with Ms Williams that the Lomax parties should, in their March 2022 List, have discovered all documents they held relating to Arrow within those categories. That discovery should have included all correspondence and other documents received from Arrow’s former accountant. Mr Murray submitted that the Lomax parties did not have to undertake that step when it was the Andrews parties who had the ability to obtain documents from the accountants simply by paying the outstanding invoice.
[35] In my view, such is not an answer to the Lomax parties’ obligations under the Court orders. First, the Lomax parties could not rely on r 8.16(5), set out above, as they must have known the Andrews parties had not paid the disputed invoice as at the date of their March 2022 List. While I accept there is likely to be a significant overlap between the documents that can be sourced from the accountant and those held by the Lomax parties, it does not follow they are completely the same. There may be drafts or copies with edits or notes held by either the accountant or the Lomax parties or documents may simply no longer be held by either of them. However, I come back to the obligation on the parties to co-operate in respect of discovery. Counsel agreed the accountants are to provide all of the Arrow records to the parties. I am told the accountants did not charge for the last release of information. Once those
documents have been released to both sides, the Lomax parties can then rely on r 18.16(5) and only discover those additional documents in their possession or copies they hold that differ in some way.
[36] Accordingly, I order the parties are to jointly request Arrow’s former accountants to release to each of the parties a complete copy of all material held by the accountants in relation to Arrow.
Category six
[37] Mr Lomax has claimed he has provided discovery of all documents in this category and says that virtually all communications between him and Ms Miller are verbal.
[38] However, e-mails between Mr Lomax and Ms Miller have been produced by the Andrews parties. Those emails suggest that Mr Lomax and Ms Miller used e-mails for the purposes of services provided to Arrow. Mr Lomax’s affidavit is to confirm he has checked all his devices and all his e-mail addresses for all correspondence with Ms Miller in relation to management services provided to Arrow. Mr Lomax is to confirm that he has checked the deleted folders for all e-mail addresses on all devices in relation to this category. That affidavit to be provided within 15 working days of the date of this judgment and may be incorporated into the affidavit I have already directed from him.
Residual documents relating to category 3
[39] As to documents relating to the value of Arrow used by the Lomax parties to make their offer on 22 October 2021, I am satisfied that further discovery is required from Mr Lomax.
[40] The accountants who previously acted for Arrow will be releasing all Arrow documents and continue to act for Mr Lomax. That the accountants were acting for Arrow and Mr Lomax, I understand, was the reason they ceased to act for Arrow. My impression is that documents relating to Mr Lomax’s request on 4 February 2021 for a cash bonus would have been prepared by the accountants acting as Mr Lomax’s
agent. Mr Lomax, in his affidavit of 12 August 2022, says documents relevant to this category are held by Arrow’s accountants. Mr Lomax is to address those documents in the affidavit already directed. If they are held by the accountants then they will either be in the documents to now be released, or be documents under his power and control – there is no middle ground.
Costs
[41] Costs are reserved. Any party seeking costs is to file a memorandum not more than 5 pages within 10 working days of the IT specialist’s report being produced. Leave is reserved to apply further. Counsel are to advise me if the IT specialist has been agreed.
Associate Judge Lester
Solicitors:
Todd and Walker, Queenstown
Copy to counsel:
S D Williams, Barrister, Auckland
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