Auckland Trotting Club Incorporated v Canam Group Limited (aka Medway Limited)
[2024] NZHC 1330
•6 June 2024
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2022-404-001110
[2024] NZHC 1330
BETWEEN AUCKLAND TROTTING CLUB INCORPORATED
PlaintiffAND
CANAM GROUP LIMITED (a/k/a Medway Limited)
First Defendant
CANAM VENTURES LIMITED, CANAM INDUSTRIAL LIMITED
Second Defendants
LOUKAS SOTERI PETROU, NICHOLAS ARTHUR PAGE and ANDREW CROSBIE CLARK
Third Defendants
CABINETRY INVESTMENTS LIMITED, CANAM BUILDING LIMITED (now
1962Trees Limited), CANAM MANAGEMENT SERVICES LIMITED, and CANAM BUILDING SOLUTIONS LIMITED
Fourth Defendants
Hearing: 16 April 2024 Appearances:
M C Black / J Daly for the Plaintiff
D J Chisholm KC, T J Lindsay, and C Brownlee for the Corporate
/ Petrou DefendantsJudgment:
6 June 2024
JUDGMENT OF ASSOCIATE JUDGE GARDINER
AUCKLAND TROTTING CLUB INC v CANAM GROUP LTD [2024] NZHC 1330 [6 June 2024]
This judgment was delivered by me on 6 June 2024 at 10.00 a.m. pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar Date.......................................
Introduction
[1] Auckland Trotting Club Inc (ATC) engaged Canam Construction Ltd (CCL)1 to build a large apartment complex on its land at the Alexandra Park horse racing venue in Greenlane, Auckland. After three years, ATC terminated the contract for breaches by CCL, including failing to provide a guarantee from its parent company, Canam Group Limited (CGL).2
[2] ATC and CCL referred their disputes to arbitration. The arbitrator awarded ATC a final award of $85,675,772.30 million (Final Award). However, by then CCL had been placed into voluntary liquidation. The Final Award has not been recovered from CCL.
[3] ATC brings this proceeding against CGL (the first defendant), Canam Ventures Ltd (CVL) and Canam Industrial Ltd (CIL) (the second defendants), other Canam companies (the fourth defendants),3 and current and former directors of CCL, CGL and other Canam companies: Loukas Petrou, Nicholas Page and Andrew Clark (the third defendants).
[4] In its amended statement of claim (ASOC), ATC applies for an order that CGL and the other corporate defendants contribute to its losses (the first cause of action), and for an order setting aside disposals from CGL, CVL and CIL to the fourth defendant companies through a restructuring which ATC says was intended to defeat its claim as a creditor (the fifth cause of action).
1 Now named Tribola767 Ltd.
2 Now named Medway Ltd.
3 Cabinetry Investments Ltd, Canam Building Ltd (now 1962Trees Ltd), Canam Management Services Ltd and Canam Building Solutions Ltd.
[5] Against the third defendants, ATC applies for relief under s 301 of the Companies Act 1993 (the Act), being an inquiry and orders that the directors breached their duties under ss 135 and 136 of the Act not to permit the company to trade recklessly or incur an obligation that it would be unable to perform, and orders for restitution and/or compensation (the second and third causes of action). ATC also applies for an award of damages and compensation against Messrs Petrou and Page for making misleading representations about the financial means of CCL in breach of ss 9 and 11 of the Fair Trading Act 1986 (the FTA) (the fourth cause of action).
[6]The trial of ATC’s claim commences on 3 June 2025.
[7] This judgment determines interlocutory applications made by ATC against the first, second, first-named third, and fourth defendants (collectively, the Corporate/Petrou defendants) for:
(a)orders for particular discovery;
(b)orders that they provide further and better particulars of their amended statements of defence (ASODs); and
(c)pre-trial directions regarding the application of the findings and determinations in the arbitration.
[8] The judgment also determines an interlocutory application by the Corporate/Petrou defendants for orders for particular discovery against ATC.
ATC’s application for particular discovery
[9] ATC applies for orders for particular discovery of categories of documents set out at Schedule A to its application and replicated at Schedule A to this judgment.
[10] ATC maintains that the categories of documents sought are relevant to its first cause of action for contribution from the corporate defendants towards its losses; its second and third causes of action against the directors for breaching their ss 135 and
136 duties; and its fifth cause of action against CGL and the directors to set aside dispositions that allegedly prejudiced it as a creditor.
[11] Except for the fifth category, the documents sought by ATC are financial, accounting or management information for the “Related Parties” identified by ATC’s expert forensic accountant, Marnus Beylefeld.4 The Related Parties are 17 companies and one trust in the Canam group of companies. These include the seven corporate defendants, and seven other companies which are, or are said to have been at some time, part of the Canam group of companies.5
[12] Mr Beylefeld says that to “perform an independent analysis of the financial issues set out in the [ASOC]”, he needs the categories of documents of which discovery is sought. Specifically, he states that:
(a)some of the Related Parties had their financial results consolidated with each other, and represented those financial results in a consolidated group format to ATC (and the financial positions of CCL, CGL and the Canam group of companies were not as represented);
(b)the financial position and value of a parent company (such as CGL) is a direct consequence of the value of the parent’s investments in its subsidiaries, as well as all balances owed by it, and to its related parties;
(c)the implication of a common treasury account used by the Canam group of companies is that any related party whose transactions were effected through that bank account would have created a related party exposure to, and accounting relationship with, every other entity whose transactions were effected through that bank account; and
4 Affidavit of Marnus Beylefeld in Support of Plaintiff’s Application for Further Discovery and Related Orders, dated 18 December 2023, at [26].
5 Canam Joinery Ltd; Canam Construction (BOP) Ltd (CBOP); Canam Interiors Ltd; SJLP Investments Ltd; LPSJ Investments Ltd; Cyprus Trust; CBOP Investments Ltd (NewBOP); Canam Interiors Ltd (CIL), Canam Joinery Ltd (CJL), Five Hills Ltd (FHL) and Canam Commercial Ltd (Commercial).
(d)the value or financial position of the Related Parties depends on all the transactional activities which allegedly passed through the central treasury account.
[13] In his affidavit in reply, Mr Beylefeld expands that from a tax and accounting perspective, CGL, CBL, CCL, CJL, Commercial, CBOP, CIL, FHL and CMSL were or are part of the same group of Canam companies, and the existence of related party advances between CGL and the subsidiaries means all the subsidiaries’ financial results are relevant to the group, and additionally relevant to CGL’s value.
[14] The Corporate/Petrou defendants oppose the discovery on several grounds, including that:
(a)all relevant documents/information have already been discovered;
(b)ATC has not established how the categories of documents identified are relevant;
(c)ATC has failed to establish reasonable grounds for believing that further relevant and discoverable documents exist and are in the control of the Corporate/Petrou defendants;
(d)CCL’s documents are in the possession and control of the liquidators of CCL, not the Corporate/Petrou defendants;
(e)documents of companies within the Canam group of companies who are not defendants are in those companies’ possession and control and no application has been made for discovery from those non-parties; and
(f)further discovery would be disproportionate and oppressive.
Discussion
[15] For an order for particular discovery, ATC must establish that the documents sought are relevant to an issue in dispute; that there are grounds to believe that relevant
documents exist that have not already been discovered; and that discovery would be proportionate.6
[16] My overall view is that core financial documents that show the financial and accounting position of CCL, CGL and the other companies within the Canam group that shared the common treasury account over the relevant period will potentially hold information relevant to the ASOC.
[17] Under the first cause of action (the “pooling claim”) ATC alleges that CGL and the third defendant directors took a substantial role in the management of CCL’s affairs, including by operating a single treasury account and intermingling CCL’s receivables with funds of its related companies. Further, ATC claims that CGL and the other corporate defendants contributed to the liquidation of CCL and acted in reckless disregard to CCL’s creditors (the most significant being ATC), including by failing to ensure CCL had sufficient resources to perform its obligations under the construction contract and by requiring monies paid by ATC under the contract to be paid into the common treasury account owned by CGL and paying that money away to related entities and/or using it to pay a dividend of $6.7 million to the shareholders of CGL during the FY17.
[18] Under s 271(1)(a) of the Act a court may, if it considers it just and equitable to do so, order that a company that is, or has been, related to the company in liquidation pay to the liquidator the whole or part of any or all the claims made in the liquidation. In deciding whether it is just and equitable the Court must have regard to the extent to which the related company took part in the management of the company in liquidation; the conduct of the related company towards creditors of the company in liquidation; and the extent to which the circumstances that gave rise to the liquidation of the company are attributable to the actions of the related company.7
[19] At its most simple, ATC’s claim is that the group was operated in a way that was either reckless to or deliberately designed to defeat ATC’s interests as a
6 Assa Abloy New Zealand Ltd v Allegion (New Zealand) Ltd [2015] NZHC 2760, [2018] NZAR 600 at [14]; and Jessica Gorman and others McGechan on Procedure (online ed, Thomson Reuters) at [HR8.19.03].
7 Companies Act 1993, s 272(1)(a)–(c).
contracting party to/potential creditor of CCL by diverting cash and assets away from CCL into CGL and/or other companies within the group and/or paying out dividends and finally undertaking a retrospective restructure of the group (the latter point being the basis for the fifth cause of action).
[20] The third cause of action against the third defendant directors for reckless trading in breach of s 135 of the Act overlaps with the first cause of action. ATC claims that the directors permitted CCL to carry on business with insufficient capital and resources, that they carried on business with reckless disregard for the interests of creditors, continually risked the insolvency of CCL, and permitted CCL’s monies (including monies paid by ATC under the contract) to be intermingled with funds payable by related companies using the single treasury account.
[21] In my view, documents which show the relative financial positions of CCL, CGL and related companies within the group which shared the treasury account from the commencement of the contract until CCL’s liquidation; and the movement of funds and assets between those companies are in principle relevant to issues in the first and third causes of action.
[22] The relevant date range is the financial years FY15 to FY23 because of the fourth and fifth causes of action. Under the fourth cause of action, ATC alleges that CCL’s tender submission made in July 2015 mispresented the financial position of CCL, CGL and the Canam group of companies, including by stating that “The Canam group of companies are in an enviable secure financial position with no debt and the ability to fund operations from retained earnings.” Documents showing the financial position of CLL, CGL and the other companies within the group from FY15 are potentially relevant to whether CGL and the third defendant directors had grounds for making this statement.
[23] The fifth cause of action against CGL and the other corporate defendants concerns events in 2022 after the contract was terminated, the arbitration had taken place and CCL was placed into liquidation. The allegation is that the corporate defendants disposed of property to prejudice ATC as a creditor by restructuring the group with retrospective effect to substitute Cabinetry Investments Ltd for CGL as the
parent company and dispose of CGL’s, CVL’s and CIL’s property, value, and assets to the fourth defendant Canam companies at an undervalue. Further, ATC proposes to amend the fifth cause of action to include CGL’s declaration of the 2017 dividend in FY17 as an affected disposition.
[24] This brings me to the observation that Mr Beylefeld’s affidavit focuses considerably on the solvency of CGL. ATC’s claim does not directly concern the solvency of CGL. The first cause of action, for the pooling of assets, is made by ATC as a creditor of CCL and seeks contribution from the corporate defendants (including CGL) on the basis that they were involved in the management of CCL and contributed to its liquidation. Similarly, the allegations against the directors are that they breached their duties as directors of CCL, not CGL. The position becomes somewhat confusing when one gets to the fifth cause of action, as ATC pleads that the dispositions of assets were prejudicial to its interests as a creditor of CCL and/or CGL. The basis for the claim that ATC is a creditor of CGL is unclear – the order for specific performance made by Hansen KC in the second arbitration award was for CCL to procure the PCG from CGL.
[25] However, insofar as the fifth cause of action claims that the retrospective restructure of the Canam group prejudiced ATC’s interests as a creditor of CCL, documents showing the nature of the restructure and disposal of assets are likely to hold relevant information.
[26] Those are my general findings on relevance. However, ATC must also establish that there are grounds to believe that additional relevant documents exist that have not been discovered already; and that discovery would be proportionate. In my view, some of the categories identified by ATC are too broad and it would be disproportionate to require the defendants to discover them considering the expected value of the information contained in the documents. In relation to others, ATC has not established grounds to believe that further relevant documents exist.
[27]I turn now to the specific categories of documents requested.
Category 1 – financial documents for FY15 to FY23
[28] In my assessment the following categories are relevant for the reasons stated, and it would not be disproportionate to require their discovery:
(a)1(a): annual financial statements for the individual Related Parties for FY15 to FY23 not already discovered.
(b)1(b): consolidated annual financial statements for the Related Parties for FY15 to FY23 not already discovered.
(c)1(c): documents relating to the dividend of $6,752,149 declared by CGL in FY17, including the directors’ certificate, on the basis that ATC has articulated a specific allegation relating to this dividend and plans to amend its ASOC to plead it.
(d)1(f): documents relating to the 2022 restructure recording the sale or transfer of assets or liabilities from one Related Party to another.
[29] The balance of the documents requested in Category 1 are, in my view, not relevant, or the time and costs involved in their discovery would exceed their likely value and would therefore be disproportionate. More specifically:
(a)1(c): directors’ solvency certificates and other documents concerning any dividend declared by any Related Entity from FY15 to FY23. I am not persuaded of the relevance of these documents beyond the CGL FY17 dividend. There is no specific allegation pleaded about dividends paid by other companies within the Canam group. ATC refers to the reply affidavit of Mr Beylefeld dated 28 March 2024 at [43] and [44] as justifying this request; but this evidence concerns the CGL 2017 dividend only.
(b)1(d): budgets for the Related Entities for FY15 to FY23. The basis for this request is said to be Mr Beylefeld’s evidence at [45] to [47] of his reply affidavit. He states that he has been instructed that the conduct
and solvency of the Related Entities is relevant to the “pooling claim” and the reckless trading claims; and that the budgets are necessary to assess each entity’s solvency. That is incorrect - the solvency of the related entities (beyond CCL) is not at issue in the pooling cause of action, the reckless trading cause of action, or any cause of action.
(c)1(e): directors’ or management’s workpapers and documents concerning valuation of Relevant Entities’ work-in-progress, projects, or jobs at each year end from FY15 to FY23. The basis for this request is said to be Mr Beylefeld’s evidence at [48] to [50] of his reply affidavit, and again presupposes that the solvency of each entity is relevant to ATC’s claim, particularly the pooling claim. That is not the case.
Category 2 – monthly management accounts FY16 to FY23
[30] In his affidavit in opposition to ATC’s application Mr Petrou deposes that formal monthly management reports for the Canam entities are and were not prepared, and that financial and accounting data is accessed and monitored by directors and management in real time on Canam’s construction project management software.8 He states that once historic construction projects are completed, they are closed out on the project management software and the information for those projects is no longer accessible and cannot be reinstated. He states that for historic periods, the financial statements are therefore the only reliable guide.
[31] Mr Beylefeld questions Mr Petrou’s response, clarifying that the request for monthly management accounts refers to accounts informed by a company’s financial and accounting system (information recorded in its “general ledger” or “accounting ledger”), not its project management software.9 He expresses surprise that the Related Entities would not have an accounting ledger, which he says is a crucial company record.
8 Affidavit of Loukas Soteri Petrou in Opposition to Plaintiff’s Interlocutory Application, dated 18 March 2024, at [13]–[14].
9 Affidavit of Marnus Beylefeld in Reply to the Respondents’ Notice of Opposition to Plaintiff’s Interlocutory Application, dated 28 March 2024, at [55]–[63].
[32] Through Mr Beylefeld, ATC has addressed the second issue. However, Mr Beylefeld does not explain in either of his affidavits (and nor does ATC in its submissions) why the monthly management accounts of each entity for these periods are relevant and necessary to resolve any issue in the case. For that reason and bearing in mind that the defendants will be ordered to discover their annual financial statements, this part of ATC’s application is refused.
[33] However, ATC has leave to apply by memorandum for discovery of any specific monthly management accounts for specific companies that it says will hold relevant information beyond that shown in the financial statements to be discovered. ATC will need to establish relevance to a particular issue in the proceeding.
Category 3 – monthly reconciliations of the treasury account FY16 to FY23
[34] Had these reconciliations existed, I would have found them to be relevant and discoverable given how central the common treasury account is to ATC’s claims. However, Mr Petrou deposes in his affidavit that the treasury account was not reconciled monthly.10 Rather, the company accountant would reconcile the account at the end of the financial year and record in the financial statements whether an entity had surplus funds sitting in the treasury account, or it was overdrawn. Therefore, he says, the transactions between each entity are apparent through the financial statements of each entity, and balance out with the financial statements of CGL.
[35] Mr Petrou states that to the extent the accountant retained any working papers relating to the year-end reconciliation and provided these to him as part of his discovery searches, they will have been discovered to the extent relevant.
[36]ATC does not challenge this account.
[37] There is no basis therefore for considering that documents in this category exist that should have been, but have not been, discovered. To avoid doubt. Mr Petrou is required to confirm in a discovery affidavit that he has requested from the accountant
10 Affidavit of Loukas Soteri Petrou in Opposition to Plaintiff’s Interlocutory Application, above n 8, at [15].
and discovered any working papers concerning the annual reconciliation of the treasury account.
Category 4 – financial records FY19 to FY23
[38] The documents sought in this category are said to be relevant to the fifth cause of action concerning the 2022 restructure of the Canam group.
[39]ATC does not pursue categories 4(a), (c) or (e).
[40] In relation to 4(b) – valuations of plant, property, equipment, intangible assets, or businesses, or shares relating to the restructure or liquidation – and 4(d) – business plans, projections, forecasts, or budgets provided to any bank by any Related Entity, ATC relies on Mr Beylefeld’s explanation for why these categories are relevant (paragraphs 68 and 70 to 72 of his March 2024 affidavit). I consider these categories to be overly broad and unfocused and their relevance to any specific issue unclear. The defendants will be required to discover documents recording the sale or transfer of assets or liabilities from one Related Party to another as part of the 2022 restructure under 1(f). The additional discovery sought here would be disproportionate.
[41] In relation to 4(f) – documents concerning the forgiveness by CGL of a debt owing by CBL in FY21 – Mr Beylefeld clarifies that the request is confined to documents evidencing the reasons why the debt was forgiven. Mr Petrou has given the reasons for the forgiveness of the debt in his answer to interrogatories dated 26 January 2024 at [20]. It was considered unlikely to be recoverable.
Category 5 – CCL’s records and other information provided by the Corporate/Petrou defendants to liquidators
[42]ATC does not pursue this category.
Category 6 – General Ledgers FY16 and FY17
[43] This category was requested informally through correspondence after ATC made its interlocutory application. This is an extremely broad category, and no attempt
is made to define which ledgers are sought for what company, and how those ledgers are said to relate to an issue in the case. This category is refused.
Category 7 – CGL bank statements FY16 and FY17
[44] This category was also requested through correspondence. Mr Beylefeld does not address why these statements are said to be relevant to an issue, and nor does ATC in its submissions. This category is refused.
Corporate/Petrou defendants to take reasonable steps to obtain documents
[45] Mr Petrou does not specifically address every category of document sought in his affidavit. For some of the categories it is unclear whether discovery is opposed on the grounds of relevance, or because they have already been searched for, or because they are not within the Corporate/Petrou defendants’ possession or control. Obviously, the Corporate/Petrou defendants are only required to discover those documents that are within their possession or control.
[46] Having said that, where a non-party holds relevant documents, but they have a relationship with one of the parties such that the party can extract documents from the non-party, then that party should take all reasonable steps to obtain those documents
— reasonableness being fact and circumstance dependant.11 Therefore, the Corporate/Petrou defendants are required to take reasonable steps to obtain the documents in respect of which the discovery application is granted from the Related Entities.
ATC’s application for further and better particulars
[47] ATC seeks further particulars of ten paragraphs across the four statements of defence of the Corporate/Petrou Defendants. The particulars sought are set out at Schedule B.
[48] The Corporate/Petrou Defendants oppose the requests. They say that ATC already has fair notice of their grounds of defence. They say that as defendants, they
11 Green & McCahill Holdings Ltd v Williams [2023] NZHC 919 at [70].
are not obliged to provide further particulars of defences in relation to particulars in a statement of claim, admissions in a statement of defence, or matters in a statement of claim which are subject to outstanding requests for further particulars by them; or of defences relating to “further particulars by way of summary flowcharts". They also say that they are not required to plead evidence that they may wish to rely on.
Legal principles
[49] Rule 5.48(1) of the High Court Rules 2016 requires a statement of defence to either admit or deny the “allegations of fact” in the statement of claim. Rule 5.48(3) provides that every allegation not denied is deemed admitted.
[50] A denial of an allegation of fact in the statement of claim must not be evasive. Points must be answered in substance. In all cases, a fair and substantial answer must be given.12
[51]I now turn to ATC’s specific requests.
Paragraph 8 of the ASOC/responses in the Corporate/Petrou defendants’ ASODs
[52]Paragraph 8 of the ASOC pleads:
Accordingly, on 29 March 2022 but with retrospective effect from 1 April 2020, CGL was removed as the ultimate ‘Canam’ holding/parent company and in substitution for CGL, Cabinetry was registered as the holding company of CBL and CMSL. Schedules of the above company interests and the restructuring are attached to the Statement of Claim. There are also other Canam related companies who comprise the group as shown in the schedule’s [sic] and appendix to this amended statement of claim. Their role and participation in the restructuring is subject to the defendants providing full discovery.
[53]In their ASODs, the Corporate/Petrou Defendants plead:13
[They admit] that the flow charts at Schedules 1 and 2 of the First Amended Statement of Claim accurately (but incompletely) detail the company structure
12 High Court Rules 2016, r 5.48(2).
13 Statement of Defence of First Defendant to First Amended Statement of Claim, dated 2 November 2023, at [12]; Statement of Defence of Second Defendants to First Amended Statement of Claim, dated 2 November 2023, at [8]; Statement of Defence of First-Named Third Defendant to Amended Statement of Claim, dated 2 November 2023, at [8(b)]; and Statement of Defence of Fourth Defendants to First Amended Statement of Claim, dated 2 November 2023, at [12].
of the Canam and Cabinetry entities, save that the second-named third defendant has never been a director or shareholder of Cabinetry Investments Limited…
[54]The Corporate/Petrou defendants say further that:14
(a)Cabinetry Investments Limited was a new company formed on 20 June 2018 and not formerly a part of the Canam group of companies;
(b)the structure chart marked 4 was produced solely to demonstrate which of the subsidiaries of CGL became subsidiaries of Cabinetry Investments Limited in the 29 March 2022 restructure, does not reflect other changes to the group structure and is therefore an unreliable representation of the wider group structure; and
(c)Schedule 3 is not a fair or accurate representation of the findings at the arbitration as to CCL’s defaults under the Construction Contract. He relies on the terms of the arbitration awards as if pleaded in full and refers to paragraph 341 of the Interim Award dated 18 May 2021 in particular.
(emphasis added)
[55] ATC applies for further particulars “in support of the allegation of other changes to the group structure and the allegation that structure chart marked 4 to the First ASOC is an “unreliable representation of the wider group structure”.
[56] I do not consider that the Corporate/Petrou defendants should be required to provide the particulars sought. The material allegation of fact is contained in the first sentence of paragraph 8 of the ASOC. ATC then attaches five charts to its ASOC apparently to illustrate this material allegation of fact. One of these is flow chart 4, which appears to have been provided with Mr Petrou’s submissions for an earlier interlocutory hearing in this proceeding. The chart shows the “Canam group at the time of the tender + 29 March 2022 Restructuring”. The Corporate/Petrou defendants have responded by clarifying the purpose and specific focus of flow chart 4. They are not required to go further and create a new flow chart to illustrate all the changes to the group structure or to plead all these changes in their ASOD.
14 Statement of Defence of First Defendant to First Amended Statement of Claim, above n 13, at [8] and [12]; Statement of Defence of Second Defendants to First Amended Statement of Claim, above n 13, at [8]; Statement of Defence of First-Named Third Defendant to Amended Statement of Claim, above n 13, at [8(b)]; and Statement of Defence of Fourth Defendants to First Amended Statement of Claim, above n 13, at [12].
[57]Ultimately, ATC is requesting evidence from the Corporate/Petrou defendants.
Paragraph 25 of the ASOC/paragraph 25 of CGL’s ASOD
[58]At paragraph 25 of the ASOC, ATC pleads:
25. On 19 July 2018 ATC terminated the Construction Contract. The grounds for termination included the following:
Particulars
(a)The engineer formally certified defaults by CCL on 26 September 2016, 7th of June 2017, 25th of August 2017 and 19th of July 2018. These defaults included:
(i)the substantial differences between the anticipated monthly cash flows (‘ACF’) and actual monthly expenditures (‘AAS’) as illustrated below;
(ii)the very low number of subcontractors on-site;
(iii)ongoing delays to the contract program which had an (extended) completion of 9 May 2018. Even at that date, CCL still had at least $42 million worth of work left to complete;
(iv)that CCL had abandoned the site and persistently, flagrantly or willingly neglected to perform its obligations under the contract;
(v)there were large numbers of defects;
(vi)CCL had not allocated sufficient resources to the contract and too few contractors were on site to meet the required program. Examples of the difference between CCL’s ‘anticipated cash flows’ (ACF) against the ‘amounts actually spent’ (AAS) by CCL each month. By example CCL’s June 2017 ACF was
$4,200,000 but its AAS was only $636,908; for September 2017 the ACF was $7,3000,000 but the AAS was only
$1,051,437; for October 2017 the ACF was $9,100,000 but the AAS was only $1,132,437.
(b)The original completion date under the contract was 30th June 2017. This was extended to 9th May 2018 but CCL continued to incur further defaults and delays. By 31 May 2018 CCL was already 435 working days behind a revised completion date. To put that delay in context, the original duration for the total contract works (start to finish) was 425 working days. Aside from additional costs and defective works issues, at this rate it would take CCL another 42 months to complete the contract (also noted below).
(c)CCL failed to devote the resources necessary to proceed “continuously industriously and efficiently” to progress the work towards
completion. CCL had significant cash flow issues and failed to devote sufficient resources to the project to fulfil its contractual obligations.
(d)For 22 months of the contract, CCL had only completed approx
$23,500,000 worth of work at an average monthly spend of
$1,000,080. Applying this rate it would take CCL a further 42 months, or three and a half year, to compete the project under the contract.
(e)Clause 14.2.1(d) of the Construction Contract included an event of default if the Engineer certifies in writing that the contractor has abandoned the contract or is otherwise persistently, flagrantly or wilfully neglecting to carry out its obligations under the contract. As noted above, on 19 July 2018 the Engineer to the contract (Mr Casey) issued a certificate under clause 14.2.1(d) that, among other things, there was persistent failure by CCL to commit sufficient resources and materials to the project, which was deteriorating significantly and in trouble.
(f)CCL’s defaults are also addressed and particularised in the arbitration Awards and referenced to below which included determinations upholding the defaults and ATC’s right to terminate the contract.
(g)For instance, CCL had also failed to provide documentation as found at paragraph 341 of Arbitration Award 1 and failed to provide the PCG under clause 14.2.1(b). A summary of some of CCL’s defaults and defects under the contract established during the arbitration, is attached as a schedule to this statement of claim.
[59]Paragraph 25 of CGL’s ASOD reads as follows:
25. It has insufficient knowledge of and therefore denies paragraph 25.
[60] ATC requires particulars specifying the grounds upon which CGL denies all the allegations and particulars pleaded at paragraph 25(a)– (g) of the ASOC and seeks further particulars of the basis for each of the allegations pleaded at paragraphs 25(a)– (g).
[61] The material fact pleaded by ATC is that ATC terminated the construction contract on 19 July 2018. CGL has denied that based on insufficient knowledge. I consider this to be an evasive answer. CGL must be aware that on 19 July 2018 ATC issued a notice under the construction contract purporting to terminate the contract. Does CGL deny paragraph 25 because it was not the recipient of that notice? Does it deny this paragraph because it does not accept that the termination was valid? Does it accept that ATC terminated the contract on that day but deny knowledge of the grounds pleaded as particulars? CGL should provide a clear and substantial answer.
[62]However, CGL is not required to plead to the particulars at paragraph 25(a)–
(g) of the ASOC. It is not necessary to provide answers in a statement of defence to particulars in the statement of claim. The “allegations of fact” referred to in r 5.48 of the High Court Rules are those necessary to show the cause of action, not the particulars.15 Particulars provide details to illuminate the allegations of fact.
Particulars are not deemed admitted if the defendant ignores them.16
[63] Mr Black submits that whether an allegation is pleaded as a particular or a standalone allegation does not matter. He submits that the objective of the High Court Rules concerning pleadings is to “bring the parties to issues, and to ensure that they know the real points to be discussed and decided”.
[64] I reject that submission. A defendant is entitled to assume that if a factual statement or allegation is described as a particular, the plaintiff has tendered it not as a material fact, but to inform the defendant of the details of the claim; and that it does not require an answer.17
[65] If ATC considers the grounds for termination of the construction contract pleaded at paragraph 25(a)– (g) are facts that are material to the cause of action, it should plead them as material allegations of fact rather than particulars. In that case, CGL will be required to admit or deny those facts.
[66] CGL is not required to provide the basis for each of the allegations pleaded by ATC at paragraph 25(a) – (g) of the ASOC. The basis for the allegations is a matter for ATC to plead and prove, not for the defendants to plead.
Paragraph 72 of the ASOC/paragraph 66 of CGL’s ASOD
[67]At paragraph 72 of the ASOC, ATC pleads:
15 Walker v Bennett (2009) BCL 388 (HC) at [24]; Jessica Gorman and others McGechan on Procedure (online ed, Thomson Reuters) at [HR5.48.08]. This commentary was adopted by the Court of Appeal in Blake v Thames District Court [2022] NZCA 557 at [18]
16 Walker v Bennett, above n 15, at [24]–[25]; and Blake v Thames District Court, above n 15, at [18].
17 Walker v Bennett, above n 15, at [26]; and Gorman and others, above n 15, at [HR5.48.08]. This commentary was adopted in Blake v Thames District Court, above n 15, at [18].
72. CGL together with the Third Defendants, took a substantial role in the management of CCL’s affairs and among other factors, the close structural relationship was confirmed by the requirement to provide the PCG under the Construction Contract.
Particulars
(a)The Third Defendants were the directors of both CCL and CGL at the time the Construction Contract was entered into.
(b)There were no company resolutions or minutes approving entry into the Construction Contract, even though it would have been a major transaction for CCL, nor was there any formalised shareholder support.
(c)The companies operated through a single Treasury account. CCL’s receivables were mixed and intermingled with the funds of its related companies.
(d)There was a failure to keep proper and adequate accounting records by CCL and the other Canam companies which has resulted in substantial uncertainty as to the assets and liabilities of CCL and the other companies (in the group and outside).
(e)CCL’s financial statements show CCL did not have the resources to meet and perform its obligations under the Construction Contract. The support of CGL, through the PCG was a condition of CCL entering into and its performance of the contract.
(f)Statements made in CCL’s tender documents represented that CCL’s financial backing, viability and worth was aligned, linked and interdependent with CGL. As above, the Canam group of companies’ assets was also represented as supporting CCL.
(g)There were significant shareholder advances made to CCL from its related companies, including CGL.
(h)During 2019, 2020 and 2021, CCL with the support of its related entities spent approximately $3.036 million for costs in the arbitration. CCL’s funds were all drawn from the Treasury account and appear to have been supported by advances from its related parties and entities.
(i)During the arbitration, Mr Petrou confirmed to the arbitrator that if the PCG was found to be required, CGL would provide it. Mr Petrou confirmed that this assurance had been authorised by CGL. The specific performance award (No.2) followed, which ordered the PCG to be provided.
(j)Immediately upon the specific performance award being issued, the Third Defendants then separately and in combination with CCL (and CGL) put CCL into voluntary liquidation to defeat the specific performance order.
[68]At paragraph 66 of its ASOD, CGL simply denies paragraph 72.
[69] ATC complains of this bare denial and states that it follows that CGL denies the particulars in paragraph 72(a)– (j).
[70] I agree that the bare denial of the allegation of fact at paragraph 72 is unsatisfactory. It seems unlikely that CGL intends to deny that the third defendant directors took a substantial role in the management of CCL’s affairs. I acknowledge that ATC has made several allegations within the one sentence which contributes to the lack of clarity in CGL’s response. Despite that, CGL should respond to each element of the allegation of fact at paragraph 72.
[71] But CGL is not required to plead to the particulars of this allegation at paragraph 72(a)– (j). The comments at [62] to [64] above apply.
Paragraph 15 of the ASOC/paragraph 15 of Mr Petrou’s ASOD
[72]At paragraph 15 of the ASOC, ATC pleads:
15. The Construction Contract price was $78,353,000 (excluding GST). As detailed below, this required significant financial resources and commitments by CCL which it confirmed in a schedule of financial information provided with its tender to the Construction Contract (the “Construction Contract” and “Contract Works”).
[73]At paragraph 15 of his ASOD, Mr Petrou pleads:
15. In relation to paragraph 15, he:
(a)admits the first sentence in paragraph 15;
(b)denies the second sentence of paragraph 15; and
(c)says further CCL had available the resources sufficient to carry out the contract, that the schedule of financial information referred to in paragraph 15 made clear there was cash flow to manage the construction costs of the project for a period of two months until the first payment was received, and the plaintiff engaged in an extensive tender evaluation process from 24 July 2015 to 16 October 2015 and employed a full set of consultants to review the Tender and neither the plaintiff nor its consultants raised concerns regarding CCL’s ability to complete the contract prior to entering into the Construction Contract.
(emphasis added)
[74] ATC requires further particulars of what resources were available to carry out the contract, besides the cash flow to manage construction costs of the project for two months until the first payment was received.
[75] Mr Petrou is not required to provide particulars about CCL’s available resources in his statement of defence. This information is a matter of evidence for trial. ATC is made aware from Mr Petrou’s ASOD that whether CCL had available resources sufficient to carry out the contract is a contested issue for trial.
Paragraph 53 of the ASOC/paragraph 53 of Mr Petrou’s ASOD
[76]At paragraph 53 of its ASOC, ATC pleads:
53. CCL’s financial statements as at 31 March 2015, signed by directors Petrou, Page and Clark, stated that CCL had net assets of only
$636,836 with CCL’s only material asset being Work in Progress. The financial position then also showed as Current liabilities: Shareholder Advance – Canam Group Limited of $890,590.
[77]In his statement of defence, Mr Petrou pleads:
53. He apprehends he is not required to plead to paragraphs [53]– [55] as they are by way of particulars.
[78] ATC requires Mr Petrou to admit or deny that he signed CCL’s financial statements as at 31 March 2015.
[79] Paragraph 53 of the ASOC appears after the heading “Particulars”. This heading appears to be an error. I consider that Mr Petrou should plead to paragraph 53, including by admitting or denying that he signed the financial statements referred to in that paragraph.
Paragraph 73 of the ASOC/ responses in the Corporate/Petrou defendants’ ASODs
[80]Paragraph 73 of the ASOC pleads that:
The actions and conduct of CGL and its subsidiaries in the management of CCL contributed towards the Plaintiff’s losses and led to the liquidation of CCL.
and then sets out particulars at paragraph 73(a)–(y). At paragraph 73(q), ATC states:
The Companies Office records show that on 29 March 2022, but with retrospective effect from 1 April 2020, CGL was ‘restructured’ whereby it was removed as the ultimate holding company of CBL and CMSL. CGL was replaced by Cabinetry as the ultimate holding company.
[81]In their ASODs, the Corporate/Petrou defendants deny paragraph 73.18
[82] ATC requires further particulars in support of what is denied about the Companies Office records showing that the restructuring occurred and with retrospective effect from 1 April 2020.
[83] The Corporate/Petrou defendants have pleaded to the material fact pleaded at paragraph 73 of the ASOC. They are not required to admit or deny particulars.
[84] In any event, the Companies Office records are a matter of public record and ultimately are matters for evidence at trial. Furthermore, the Mr Petrou’s answers to interrogatories address this issue.19
ATC’s application for pre-trial directions
[85] ATC’s application seeks, under rr 7.8, 7.43A and 7.44 of the High Court Rules, directions “regarding the application of the findings and determinations in the three arbitration awards now registered as judgments of the High Court”. Specifically, ATC seeks:
(a)a direction that the awards/judgments of the High Court constitute an estoppel between the parties;
(b)a direction that the documents and evidence provided in the arbitration (including that of the experts) and the consequential findings and
18 Statement of Defence of First Defendant to First Amended Statement of Claim, above n 13, at [67]; Statement of Defence of Second Defendants to First Amended Statement of Claim, above n 13, at [38]; Statement of Defence of First-named Third Defendant to Amended Statement of Claim, above n 13, at [71]; Statement of Defence of Fourth Defendants to First Amended Statement of Claim, above n 13, at [43].
19 Affidavit of Loukas Soteri Petrou in Response to Interrogatories, dated 16 January 2024, at [4]– [12].
determinations that resulted are not required to be re-litigated by ATC in this proceeding;
(c)a direction that the extent to which the estoppel may be relevant and bind the defendants in this proceeding is a matter to be determined at the trial;
(d)further directions as to the conduct of the hearing, including that it is not necessary for the documents and evidence (including the witnesses called in the arbitration) to be provided again in this proceeding;
(e)any other direction or order that the Court considers just or proper, without which the trial of this proceeding would be unduly prolonged by the Court having to re-litigate and make determinations already found in the arbitration.
[86]In its submissions, ATC now appears to seek narrower directions that:
(a)the findings made in the First Award/Judgment as to the defects, delays and defaults and liability of CCL under the construction contract, and the termination of the contract by ATC, comprise an issue estoppel as between ATC and CCL, and those findings need not be relitigated in this proceeding; and
(b)that the findings and proof as to the quantum of loss incurred by ATC with CCL of $85,675,772.30, determined in the Third Award/Judgment, comprises an issue estoppel of those losses and damages resulting from the construction contract and those findings need not be relitigated in this proceeding.
[87] ATC argues that considerable cost and court time will be avoided if the directions are made.
[88] Obviously, the arbitration awards are binding as between ATC and CCL. The italicised part of the direction sought at [86(a)]is unnecessary.
[89] However, none of the defendants in this proceeding were a party to the arbitration, and no orders were made against any of them in the arbitration or the judgment.
[90] Subject to (inter alia) the law of issue estoppel, evidence of a judgment or a finding of fact in a civil proceeding is not generally admissible in another civil proceeding to prove the existence of a fact that was in issue in the proceeding in which the judgment was given.20
[91]For an issue estoppel to arise, the following requirements must be met:
(a)a final decision has been pronounced by a court or tribunal of competent jurisdiction; 21
(b)the parties subject to the estoppel must be parties to the final decision, or their privies;22
(c)an issue estoppel can only be founded upon determinations which are fundamental to the earlier decision and without which it cannot stand; other determinations cannot support an issue estoppel however definite the language in which they are expressed; 23 and
(d)it must be clear, and without room for doubt, that the issues in the two proceedings are identical.24
[92]The requirements in [91] (b) and (d) require emphasis in this case.
[93] To ascertain whether an issue estoppel might exist in this case, the Court would need to determine whether the defendants, who were not parties to the arbitration, are CCL’s privies. Then, there would need to be a careful analysis of the individual issues disclosed from the arbitration pleadings and the awards, to determine first whether the
20 Evidence Act 2006, s 50(1).
21 Shiels v Blakeley [1986] 2 NZLR 262 (CA) at 266.
22 Shiels v Blakeley at 266.
23 Talyancich v Index Developments Ltd [1992] 3 NZLR 28 (CA) at 38.
24 Shiels v Blakeley, above n 21, at 267.
particular finding was fundamental to the award; and secondly, whether the issue/finding in the arbitration is identical to the issue in the present proceeding.
[94] ATC’s application identifies the particular estoppel(s) that it says arise from the arbitration awards in the broadest terms. The “findings as to the defects, delays and defaults and liability of CCL under the construction contract, and the termination of the contract by ATC” and “findings as to quantum and loss incurred by ATC with CCL” does not identify an individual issue or issues in relation to which an estoppel might arise. Nor does ATC seek to establish that any individual issue is identical to an issue in the present proceeding. This point is important here because there are complexities around the nature of ATC’s losses under the construction contract, and the nature and extent of ATC’s losses under the causes of action in this proceeding.
[95] Furthermore, whether an issue estoppel arises in this proceeding because of the arbitration is a substantive issue for trial, not a procedural or interlocutory issue. Consistent with that, ATC pleads that the arbitration awards constitute an issue estoppel and an estoppel of record at paragraph 31 of its ASOC. Furthermore, ATC appears to accept that whether an issue estoppel exists as against the defendants is a matter for trial in its application at paragraph 1(c)(iii), and in its written submissions.25
[96] None of the provisions of the High Court Rules relied on by ATC confer a power to determine a substantive trial issue. Rules 7.8 (Pre-trial conferences), 7.43A (Directions as to the conduct of proceedings) and 7.44 (Power to grant interlocutory order or interlocutory relief) are procedural provisions, providing a judge with the power to make procedural directions and determine interlocutory matters.
[97] In any event, this is not a pre-trial conference. It is a hearing of an application by ATC for interlocutory orders. The Court’s power to make interlocutory orders is provided for in r 7.43 of the High Court Rules. An interlocutory order concerns a matter of procedure or grants some relief ancillary to that claimed in a pleading.26
25 Synopsis of Submissions on Behalf of Plaintiff in Relation to Plaintiff’s Application, dated 10 April 2024, at [45] and [48].
26 High Court Rules, r 1.3
Whether or not an estoppel arises in any given situation is not a matter of procedure. Nor does it involve the granting of some relief ancillary to that claimed in a pleading.
[98] Accordingly, even if ATC had articulated a legal basis for a finding of issue estoppel against the defendants (which it has not), such a finding could not be made by a procedural direction or an interlocutory order.
[99] Having said that, I support the intent of ATC’s application – to obtain clarity on the scope of the issues in dispute in this proceeding; specifically, whether factual and legal issues determined in the arbitration relating to the defaults of CCL under the construction contract and the loss caused to ATC because of those defaults are live issues in this proceeding. Presently, ATC and the Corporate/Petrou defendants are at odds on this point. That is evident from their dispute about the scope of ATC’s discovery – with ATC resisting discovery of documents discovered in the arbitration relating to issues, cost increases and delays during construction and purporting to rely on the findings of the arbitrator; and the Corporate/Petrou defendants insisting that these documents are relevant to issues in dispute in this proceeding and must be discovered.
[100] Plainly, it is important that the parties are clear on which issues fall to be determined at trial before they prepare their evidence. That they are not clear has created difficulties for the discovery process, culminating in the Corporate/Petrou defendants’ application for particular discovery and ATC’s response. I mean no criticism of the parties here; the position is complex due to the nature of ATC’s claims and the arbitration that took place before these proceedings were commenced.
[101] However, the point remains that ATC’s current application before the Court is not the appropriate mechanism to address this difficulty. The order sought at paragraph 1(c)(i) of ATC's application must be dismissed, together with its application for consequential directions at paragraph 1(c)(ii)–(v).
[102] In a separate minute I will direct a case management conference to agree a suitable procedural pathway to resolve this issue before the parties commence preparing their evidence. One option might be for ATC to apply for a determination
(as to whether an issue estoppel exists in relation to specific issues determined in the arbitration) before a High Court Judge as a separate decision under r 10.15 of the High Court Rules.27 A preliminary step might be for the parties to attempt to agree a statement of the facts determined in the arbitration which need not be proved in this proceeding (if any) and the facts that are not agreed.
Corporate/Petrou defendants’ application for particular discovery
[103] The Corporate/Petrou defendants originally applied for orders for particular discovery of six discrete (overlapping) categories of documents; and orders setting aside ATC’s claim to confidentiality over 170 documents (largely redactions), preventing inspection by the Corporate/Petrou defendants. The documents were provided unredacted on a counsel-to-counsel basis.
[104] The orders setting aside redactions for confidentiality are no longer sought. On 5 April 2024 ATC provided all the documents to the Corporate/Petrou defendants on an open basis, except 166 documents redacted for irrelevance.28 By the hearing the Corporate/Petrou defendants’ counsel has not had the opportunity to review all the redactions but said a sample led them to question the irrelevance of the material. Despite that, during the hearing counsel for ATC and the Corporate/Petrou defendants agreed that they should be able to agree a position once the Corporate/Petrou defendants have reviewed all the redactions.
[105] Turning to the application for particular discovery, the Corporate/Petrou defendants seek discovery of six (overlapping) categories:
(a)documents relating to the tender process and ATC’s due diligence before appointing CCL as contractor under the construction contract;
27 An example of such an issue estoppel argument being determined in advance of trial is Young v Harper (1889) 7 NZLR 419 (CA). See also the commentary in Justice C C Fraser, Laws of New Zealand Estoppel (online ed) at 89.
28 Second Affidavit of Documents of Brent Mark Warren on Behalf of the Plaintiff, dated 5 April 2024, at Part 1B.
(b)documents relating to the parent company guarantee – whether it was required during contract negotiations and when ATC or its agents identified that the guarantee had not been provided;
(c)documents relating to ATC’s consideration of and knowledge about the Canam group of companies prior to entering into the construction contract, documents from ATC’s agents regarding CCL’s ability to perform its contractual obligations, and emails, meeting notes or call logs providing updates or information to ATC’s board regarding CCL’s entry into the Construction Contract;
(d)documents relating to the performance of the construction contract including monitoring of the project and the problems, cost increases and delays that arose;
(e)documents discovered in the proceedings between ATC and Lane Neave in relation to the pre-contractual negotiations and due diligence, any meetings regarding the financial position and resources of the Canam group of companies, the parent company guarantee, and the problems, cost increases and delays that arose after entry into the construction contract;
(f)documents relating to ATC’s termination of the construction contract.
[106]A complete list of the categories of documents sought is at Schedule C.
[107] The Corporate/Petrou defendants seek orders that ATC discover the six categories of documents and is required to search for the documents across 10 specified sources, including all documents discovered in the arbitration.
[108] ATC’s response to each of the categories sought by the Corporate/Petrou defendants is at Schedule B to the affidavit of Leonard Oughton. ATC does not dispute that 12 of the 14 sub-categories of documents are relevant or discoverable. Rather, it
maintains that all relevant documents across the 12 sub-categories that are in ATC’s control have already been discovered.
[109] ATC explains its discovery and search processes across three affidavits. In ATC’s first affidavit of documents by Rodney Croon dated 13 October 2023, he deposes that ATC has searched/reviewed:
(a)“relevant documents” from the arbitration discovery, including documents relied on by ATC’s witnesses before and during the arbitration “which are relevant to these proceedings”;
(b)“relevant documents” referred to and relied on by the arbitrator in making his findings in the arbitration;
(c)records from the Companies Office of the Canam Group companies;
(d)all “relevant documents” from ATC’s legal advisors’ files and records that are not privileged;
(e)limited correspondence with the defendants prior to the proceedings being issued;
(f)correspondence with the CCL liquidators and their reports on the liquidation;
(g)financial reports and related assessments of CCL and the Canam group of companies undertaken by KordaMentha during 2018;
(h)board reports that do not contain privileged legal advice concerning the proceedings;
(i)documents and information provided in the interlocutory applications in this proceeding.
[110] In his second affidavit (in support of ATC’s notice of opposition to the Corporate/Petrou defendants’ application), Mr Oughton explains that ATC and/or its solicitors have:
(a)reviewed the email inbox of ATC’s CEO (Dominique Dowding) from 2014 to 2019 (using keyword searches);
(b)searched physical and electronic files held by ATC’s former solicitors, Lane Neave, using keyword searches;
(c)searched electronic files held by ATC for the period leading up to the request for tender of CCL to complete the construction of Building A at 223 Green Lane West down to completion of the construction of Building A, using keyword searches.
[111] In a third affidavit (the second discovery affidavit), Brent Warren deposes that ATC has taken the following “further” steps:
(a)electronically searched the complete email inbox of Ms Dowding
(b)searched electronic and physical files uplifted from Lane Neave;
(c)searched historic files of ATC’s current solicitors relating to the construction contract;
(d)searched electronic and physical files held by ATC (with the help of ATC’s IT team).
[112] As noted above, the first issue for the Court to consider is whether the categories of documents sought are relevant. If so, the second issue is whether there is reason to believe that documents in those categories exist, are in the control of ATC, and have not been discovered. The third issue is whether it would be proportionate to order discovery.
Are the documents sought relevant?
[113] Except for two sub-categories of documents, ATC does not explicitly dispute that the documents sought by the Corporate/Petrou defendants are relevant or discoverable.
[114] The first disputed sub-category is “documents regarding whether the Parent Company Guarantee was required during and at the close of negotiation of the terms of the Construction Contract”. ATC says that it relies on the finding of the arbitrator in the second arbitration award that the construction contract required the PCG. Therefore, ATC maintains that discovery of the first and second arbitration awards is adequate and discovery of all the documentation which led to that finding would be disproportionate and oppressive.
[115] If I am not mistaken, ATC has misunderstood the nature of the documents sought. The Corporate/Petrou defendants do not request documents relevant to whether CCL was obliged to procure the PCG from CGL under the terms of the contract. Rather, they request any documents that show whether ATC or its advisers did in fact request CCL to procure the PCG. Documents in this category are plainly relevant and must be discovered, if they have not been already.
[116] The second disputed sub-category is “documents relating to problems with, costs increases or delay in relation to [construction] that arose after entry into the Construction Contract, including emails, meeting notes, or call logs where these issues would have been discussed”. ATC says that it intends to rely on the arbitration awards as evidence of the defaults, delays and defects experienced during the project and does not consider that it is required to discover these documents.
[117] Despite that, ATC says as a pragmatic solution it proposes to provide a USB containing the 128,934 arbitration documents in searchable form so the Corporate/Petrou defendants can conduct their own searches for documents they consider to be relevant. The Corporate/Petrou defendants have refused to accept the USB as they say ATC is attempting to shift the discovery burden onto them.
[118] I agree with the Corporate/Petrou defendants that documents within this group could be relevant to ATC’s claim that the CCL directors breached their duties and engaged in reckless trading by entering into the construction contract and failing to properly monitor CCL’s performance of the contract and/or ensure CCL had adequate resources to perform the contract. Simply, the documents will show what went wrong during the project and therefore could be relevant to whether the directors should have foreseen these issues and/or should have taken steps during construction to better monitor or support CCL’s performance of the contract.
[119] ATC is not able to resist discovery of these documents on the ground that it intends to rely on the findings of the arbitration awards on these issues. Unless issue estoppel is found to exist in relation to the issues to which these documents relate, or the parties agree to be bound by the arbitrator’s factual determinations, the only way to confine discovery of the documents discovered in the arbitration is through the usual parameters of relevance and proportionality.
[120] Having said that, this class of documents is widely defined and, when applied to all the sources identified by the Corporate/Petrou defendants, can be expected to involve a great number of documents and duplication of documents likely to be found in other sources. The central issue then, to which I will return, is whether a discovery order relating to this group of documents across all the identified locations is proportionate.
Are there grounds to believe that relevant documents exist that are in the control of ATC and have not been discovered?
[121] The Corporate/Petrou defendants point out that ATC has discovered only 1,102 documents, including only 169 emails. They emphasise that during the most relevant time (2014 – 2019), ATC had a large board of directors, a senior management team, a property committee responsible for oversight of ATC property holdings (including the development site), a project control group responsible for oversight of the project, and many advisors and contractors.
[122] The Corporate/Petrou defendants say that ATC appears not to have searched these sources for relevant documents:
(a)files of ATC board members during the relevant periods, including non- ATC email addresses used by non-executive directors;
(b)files of ATC senior management beyond the CEO, Dominique Dowding;
(c)all minutes of the property committee or other documents relating to the property committee’s work during the period of due diligence, tender evaluation and entry into the construction contract with CCL;
(d)project control group documents held by ATC, or in the control of project control group members (including external agents); and
(e)documents held by ATC’s advisors and consultants (and therefore agents) involved in the project.
[123] They also suggest that ATC has not conducted complete searches of relevant sources, and that it is unclear whether ATC has specifically searched for the six categories requested.
[124] The Corporate/Petrou defendants contend that it is impossible to know whether ATC has conducted reasonable searches because it has refused, despite requests, to provide details of the electronic searches it says it has undertaken as required under r 8.15(2).29
[125] In response, ATC says that it is clear from its affidavits and the documents it has discovered that it has searched the following locations, including for the specific six categories requested by the Corporate/Petrou defendants (except for the two disputed sub-categories):
(a)Ms Dowding’s incoming and outgoing email folders;
(b)electronic and physical files from its former solicitors Lane Neave;
29 As applied in Everest Serviced Apartments Ltd v Body Corporate 511909[2021] NZHC 1725 at [66].
(c)all ATC’s electronic and physical files;
(d)ATC’s property committee minutes and reports.
[126] ATC appears to concede that it has not searched the following sources identified by the Corporate/Petrou defendants:
(a)files of ATC’s board members during the relevant period;
(b)files of members of ATC’s senior management during the relevant period besides Ms Dowding;
(c)ATC’s property committee records beyond minutes and reports;
(d)ATC’s project control group records (beyond minutes held by Ms Dowding);
(e)documents in the possession of ATC’s advisors and consultants (beyond its current and former solicitors).
[127] From what I can discern, ATC maintains that searches of the files of its board members, senior management, the project control group, and its agents are not necessary as any relevant records will have been located through the searches of Ms Dowding’s documents.
[128] ATC also concedes that it has not searched the arbitration discovery for the second disputed sub-category of documents recording the problems, cost increases and delays that arose after the contract commenced.
[129] ATC disputes that it is required to specify any further detail about its searches, including the search methodology and search terms used. It emphasises that it has provided standard discovery pursuant to the order of Associate Judge Andrew.30 ATC appears to suggest that the Corporate/Petrou defendants are now effectively seeking
30 Auckland Trotting Club Inc v Canam Group Ltd (now Medway Ltd) CIV-2022-404-001110, 17 November 2022.
tailored discovery when they did not cooperate with ATC to agree a tailored discovery order further to the direction of the Associate Judge.
[130] I am satisfied that the locations and sources identified by the Corporate/Petrou defendants are potentially material sources of relevant information. ATC accepts that it has not searched these locations for all the categories sought. Therefore, there are grounds to believe that there are further relevant documents, acknowledging though that these documents are likely to be duplicated in locations that have already been searched. That consideration is relevant to proportionality and the Court’s overall discretion, to which I now turn.
Is the discovery sought proportionate?
[131] In my assessment the orders sought by the Corporate/Petrou defendants are mostly reasonable and proportionate in the context of a complex proceeding involving an alleged loss of approximately $85 million that is set down for a five-week trial.
[132] I do not accept that it would be disproportionate to require ATC to search the files of board members, senior management, the project control group, and the property committee to the extent they have not already been searched.
[133] However, I consider that the discovery orders sought by the Corporate/Petrou defendants are disproportionate in the following respects.
[134] First, the requirement that ATC search the arbitration discovery and discover any documents within the six categories sought is excessive and will involve a great deal of duplication of information found in other sources.
[135] This concern is particularly relevant for the disputed category of “documents relating to problems with cost increases or delays in relation to construction that occurred after the construction contract commenced including emails, meeting notes or call logs discussing the issues”. As noted, it can be inferred that there will be a vast number of documents recording issues, cost increases and delays during the troubled three-year period of construction. This information will be found in other sources already searched by ATC, including CCL’s contractor reports; programme reports,
meeting minutes and reports; reports from the quantity surveyors; board packs and appendices; project status reports and appendices; property committee group meeting minutes, emails, and reports; financial status reports; and emails, meeting minutes and call logs between CCL and ATC discussing these matters. Further, this judgment will require ATC to search the files of its board members and senior management during the period. On that basis, I do not consider an order requiring discovery of the six categories from the arbitration discovery to be necessary or proportionate.
[136] However, I give the Corporate/Petrou defendants leave to approach the Court for discovery orders relating to the arbitration documents, if necessary, after it has reviewed ATC’s further discovery following the further searches ordered in this judgment. I emphasise that any application (which may be made informally) will need to identify specific documents or classes of documents that have not already been discovered by ATC from other sources.
[137] The second aspect of the orders sought that is disproportionate is the requirement that ATC search for the six categories in the files of 20 advisers/consultants involved in the construction project. These include project managers, quantity surveyors, four engineers to the contract, various other specialist engineers, the architect, a landscape designer, and other consultants.
[138] I infer that the files of these organisations are thought to hold documents recording the nature and causes of the project delays, cost increases and problems. For the same reason given above, discovery from these sources is unnecessary and disproportionate at this stage. Any relevant information can be expected to be found in ATC’s own files and the other sources already searched or to be searched. If, following ATC’s further discovery, the Corporate/Petrou defendants identify specific documents or classes of documents that are missing, they may approach the Court for an order concerning the particular agent thought to hold the information.
Orders
ATC’s application for particular discovery
[139] I order that, within 20 working days, the Corporate/Petrou defendants must provide particular discovery of the following categories of documents pursuant to r
8.19 of the High Court Rules:
(a)annual financial statements for the individual Related Parties for FY15 to FY23 (1(a) of Schedule A);
(b)consolidated annual financial statements for the Related Parties for FY15 to FY23 (1(b) of Schedule A);
(c)documents relating to the dividend of $6,752,149 declared by CGL in FY17, including the directors’ certificate (part of 1(c) of Schedule A); and
(d)documents relating to the 2022 restructure recording the sale or transfer of assets or liabilities from one Related Party to another (1(f) of Schedule A).
[140]The balance of ATC’s application is dismissed.
[141] I order the Corporate/Petrou defendants to take reasonable steps to obtain these documents from the Related Entities. Within 20 working days Mr Petrou must file and serve an affidavit stating the reasonable steps that have been taken to obtain the documents and the outcome of those steps. Mr Petrou must also address the accountants’ working papers concerning reconciliation of the treasury account, as per paragraph [37].
ATC’s request for further particulars
[142] I order CGL to provide more explicit responses at paragraphs 25 and 66 of its ASOD.
[143]I order Mr Petrou to plead to paragraph 53 of the ASOC.
[144]The balance of ATC’s application is dismissed.
ATC’s application for pre-trial directions concerning issue estoppel
[145]This application is dismissed.
Corporate/Petrou defendants’ application for particular discovery
[146] I order that, within 20 working days, ATC must search the following locations and sources for the categories of documents referred to in Schedule C:
(a)files of ATC’s board members during the relevant period;
(b)files of members of ATC’s senior management during the relevant period besides Ms Dowding;
(c)ATC’s property committee records beyond minutes and reports;
(d)ATC’s project control group records (beyond minutes held by Ms Dowding).
[147] Additionally, to the extent ATC has not searched the sources and locations already searched for the two disputed sub-categories (paragraphs [114] and [120]), it must search these sources.
[148] Within 20 working days of the Court making these orders, ATC must file and serve on the applicants an affidavit that in accordance with r 8.15(2), states the steps taken to complete discovery, including the approaches to search, the search terms used, the parties or individuals from which documents were requested and, if those parties or individuals no longer have documents, affidavits from those individuals setting out the attempts made to retrieve the documents and why they no longer have them.
Associate Judge Gardiner
Solicitors:
Dawson Harford, Auckland Lindsay & Francis, Auckland
M Black, Auckland
D Chisholm KC, Auckland
SCHEDULE A
For the financial years from FY15 to FY23 (inclusive):
(a)The annual financial statements of the individual Related Parties referred to in paragraph 26 of the affidavit of Marnus Beylefeld, including:
(i)statements of financial performance;
(ii)statements of financial position;
(iii)statements of changes in equity;
(iv)statements of cashflow (if the particular entity elected to prepare those);
(v)notes to the financial statements; and
(vi)accounting policies of the reporting entity;
(b)The consolidated annual financial statements of the Related Parties that were consolidated with the financial results of any of the other Related Parties;
(c)The directors’ solvency assessments/certificates at each financial year-end, including workpapers, spreadsheets, and communications prepared for the approval of any dividends declared by any of the Related Parties during this period. Specifically, this includes the dividend of $6,752,149 paid during FY17;
(d)The companies’ budgets for each financial year;
(e)The directors’ or management’s workpapers and documentation regarding any valuation of the Relevant Entities' work-in-progress (WIP), or 'projects', or 'jobs', at each year-end;
(f)Documentation recording the sale or transfer of assets or liabilities from one of the Related Parties to another of the Related Parties (beyond the four Sale and Purchase of Shares Agreements received from the Defendant in discovery).
[2] The monthly management accounts of each Related Party for each month from April 2018 (being the start of FY19) up to March 2023 (being the end of FY23), including the particular month’s statement of financial position and statement of financial performance for each month.
[3] From April 2018 (being the start of FYl9) to March 2023, monthly reconciliations of balances between the Related Parties transacted through the "Treasury Account".
[4]For the financial years from FY19 to FY23 (inclusive):
(a)Relevant documentation about any commitments of financial support that any of the Related Parties gave to any of the other Related Parties.
(b)Valuations of plant, property, equipment, intangible assets, or businesses, or shares, relating to the liquidation or the restructure.
(c)A list of ‘projects’, ‘work-in-progress’ or 'jobs' that existed and were transferred between Related Parties during the restructure and liquidation.
(d)Business plans, projections, forecasts, or budgets, that were provided to any bank by any of the Relevant Entities.
(e)Business plans, projections, forecasts, budgets, application forms, or letters of financial support, that were provided to any provider of construction bonds to any of the Related Entities.
(f)Documentation involving in FY21 the forgiveness by CGL of a related party receivable, being a debt owing by Canam Building Limited of
$20,159,065. This includes any resolutions, insolvency certificates and company minutes.
[5] Copies of CCL’s records and any other information provided by the Defendants to the liquidators of CCL upon their appointment and subsequently.
SCHEDULE B
First Defendant
Paragraph 8: Canam Group of Companies (First ASOC paragraph 8)
[1] Further particulars are required in support of the allegation of other changes to the group structure and the allegation that structure chart marked 4 to the First ASOC is an unreliable representation of the wider group structure.
Paragraph 25: Canam Construction Limited's Defaults under Construction Contract (First ASOC paragraph 25)
[2] Particulars are required specifying the grounds upon which Canam Group Limited (CGL) pleads a bare denial to all the allegations and particulars pleaded at paragraphs 25(a)-(g) of the First ASOC. The plaintiff seeks further particulars of the basis for each of the allegations pleaded at paragraphs 25(a)-(g).
Paragraph 66: Second Cause of Action (First ASOC paragraph 72(a)-(j))
[3] CGL's Statement of Defence to the ASOC pleads a bare denial to all allegations and particulars pleaded at paragraph 72(a)-(j)) of the First ASOC. CGL thereby denies that there were no company resolutions or minutes and deny there was no single treasury account (subparagraphs (b) and (c)).
Second Defendant
Paragraph 8: Canam Group of Companies (First ASOC paragraph 8)
[4] Further particulars are required in support of the allegation of other changes to the group structure and the allegation that structure chart marked 4 to the First ASOC is an unreliable representation of the wider group structure.
First-Named Third Defendant
Paragraph 8: Canam Group of Companies (First ASOC paragraph 8)
[5] Further particulars are required in support of the allegation of other changes to the group structure and the allegation that structure chart marked 4 to the First ASOC is an unreliable representation of the wider group structure.
Paragraph 15(c): The Construction Contract-Available Resources (First ASOC paragraph 15)
[6] Paragraph 15(c) of Mr Petrou’s Statement of Defence to the First ASOC pleads CCL had sufficient resources to carry out the Construction Contract. Mr Petrou only pleads that there was cash flow to manage the construction costs of the project for a period of two months until the first payment was received. Further particulars are required of what other available resources were available to carry out the contract (aside from the cash flow referred to above).
Paragraph 53: CCL's Financial Statements signed by Petrou (First ASOC paragraph 53)
[7] The plaintiff requires further particulars of paragraph 53 whether Mr Petrou admits or denies that he signed CCL’s financial statements as referred to above.
Fourth Defendant
Paragraphs 8 and 12: Canam Group of Companies (First ASOC paragraph 8 and 12)
[8] Further particulars are required in support of the allegation of other changes to the group structure and the allegation that structure chart marked 4 to the First ASOC is an unreliable representation of the wider group structure.
Paragraph 43: First Cause of Action - Contribution (First ASOC paragraph 73(q))
[9] The Fourth Defendants deny paragraph 73 of the First ASOC which records the Companies Office records showing that on 29 March 2022, with retrospective effect from 1 April 2020, CGL was restructured (and the other matters pleaded in paragraph 73(q)).
[10] Further particulars are required in support of what is denied about the Companies Office records showing that the restructuring did occur and with retrospective effect from 1 April 2020.
SCHEDULE C
Tender Process
[1] Documents relating to ATC's due diligence in respect of appointing Canam Construction Limited (CCL) as the Contractor under the Construction Contract for Building A and its entry into the Construction Contract, specifically;
(a)Notes from meetings or calls between ATC and its advisors and/or ATC and representatives of CCL; and
(b)Any documents regarding ATC or its agents or third parties regarding due diligence and entry into the Construction Contract, including any emails, meeting notes, call logs, reports, memoranda, calendar invitations or other documents.
The Parent Company Guarantee
[2] Documents regarding whether the Parent Company Guarantee was required during and at the close of negotiation of the terms of the Construction Contract.
[3] Documents regarding ATC or its agents' identification of the Parent Company Guarantee not having been provided. Including emails, meeting notes, meeting minutes or call logs which identify meetings between members of ATC and its representatives where there would have been discussion of the need or absence of the Parent Company Guarantee.
Entry into the Construction Contract
[4] Documents relating to ATC’s consideration of Canam as a developer of the Alexander Park project (Building A) prior to issuing a request for Tenders for contractors.
[5] Documents related to ATC’s knowledge of the Canam group of companies' financials, structure, manner of operations and/or ability to perform projects of a similar nature to Building A, including:
(a)in relation to previous projects;
(b)in relation to the Construction Contract; and
(c)generally.
[6] Documents relating to communications and reports from KordaMentha, N-Compass or any other agent of ATC regarding CCL's ability to perform its contractual obligations in relation to Building A.
[7] Emails, meeting notes, or call logs where the CEO of ATC or other ATC directors or project related agents may have provided updates or information to the board regarding CCL's entry into the Construction Contract.
Documents relating to the Project
[8] Subcontractor agreements for the subcontractors engaged by CCL for Building A.
[9] Documents relating to problems with, costs increases or delay in relation to Building A that arose after entry into the Construction Contract, including emails, meeting notes, or call logs where these issues would have been discussed.
[10]Outstanding Engineer Reports referred to in ATC Board Meetings;
[11] Further documents which meet the following classifications to the extent not already discovered;
(a)Contractor’s Report,
(b)Programme Reports,
(c)Property Committee meeting minutes and reports,
(d)White Associates reports;
(e)The Board packs and appendices;
(f)Project status reports and appendices;
(g)PCG meeting minutes;
(h)Contractor reports for Building A
(i)Email communications, meeting minutes or reports from the Property Committee assembled by ATC to oversee property owned by ATC;
(j)Reports such as Financial Status Reports prepared by Kingstons Partners Limited or other ATC agents;
(k)Emails, meeting notes, call logs between CCL and ATC or ATC and its agents which discuss or provide any of the above documents or issues concerning the project; and
(l)any other similar documents that relate to Building A.
Arbitration Documents
[12] Documents discovered by any party in the CIV-2021-404-002011 proceeding regarding the Construction Contract that relate to:
(a)any precontractual negotiations regarding:
(i)a Parent Company Guarantee from CGL; and/or
(ii)the financial positions and resources of CCL and/or the Canam group of companies;
(b)any due diligence that related to the financial position and resources of CCL and/or the Canam Group of Companies;
(c)any meetings that took place to review or discuss the financial position and resources of CCL and/or the Canam Group of Companies or any
other of the representations in Schedule 2 of the Concession Agreement;
(d)the Parent Company Guarantee intended to be provided by CGL; and
(e)issues, cost increases or delays that arose after entry into the Construction Contract.
Documents relating to termination
[13] Documents relating to ATC's decision to terminate the Construction Contract, including any cost benefit analysis undertaken.
[14]Clarification email referred to in ATC.00172.
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