B J & a C McCarthy Limited v Greenacres Franchise Group Limited HC Auckland CIV 2007-404-7876

[2010] NZHC 1505

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2007-404-007876

BETWEEN  B J & A C MCCARTHY LIMITED Plaintiff

ANDGREENACRES FRANCHISE GROUP LIMITED

Defendant

Hearing:         12 May 2010

Appearances: A D Branbrook for the Plaintiff

D J Chisholm for the Defendant

Judgment:      12 May 2010

JUDGMENT OF ASSOCIATE JUDGE CHRISTIANSEN

This judgment was delivered by me on

12.05.10 at 3.30pm, pursuant to

Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date……………

Solicitors/Counsel:

C Lyon, Barrister & Solicitor, Newmarket – [email protected]

A D Banbrook, Barrister, Auckland – [email protected]

G Barclay, Claymore Partners Limited, Auckland – [email protected]

D Chisholm, Barrister, Auckland – [email protected]

B J & A C MCCARTHY LIMITED V GREENACRES FRANCHISE GROUP LIMITED HC AK CIV 2007-

404-007876  12 May 2010

[1]      The plaintiff has applied for an order for particular discovery.

[2]      The plaintiff is the licensee of the defendant for the licence and management of  lawn  mowing  contracts  in  the  central  Auckland  area  (the  territory).    The defendants have licenced other persons for the licencing and management of lawn mowing contracts in other areas [territories] around Auckland.  The licence prohibits the defendant from providing lawn mowing services to persons other than those licenced to a particular territory.

[3]      The licensee is required to pay 10 per cent of gross annual turnover.  As well a sum of $5,000 annually is paid to an advertising fund.  The plaintiff has held the central Auckland licence territory since 1995.

[4]      In its statement of claim the plaintiff alleges that between July 2006 and September 2009 inclusive the defendant committed serial breaches of the terms of the licence, causing loss to the plaintiff.   The statement of claim describes 49 instances over that period of 39 months when it claims the defendant:

(a)Failed  on  a  series  of  occasions  to  preserve  the  exclusivity  of  the plaintiff’s licence, and

(b)Failed on  a number of occasions to take appropriate or  any action against parties acting in breach of the plaintiff’s licence.

[5]      The plaintiff pleads that the defendant exercised control over parties from other territories who breached the plaintiff’s exclusive control over the central Auckland territory.

[6]      It is clear that the list of the 49 instances in question in the statement of claim comprises the total of the plaintiff’s claims of breaches.

Application for particular discovery

[7]      The plaintiff seeks the following documents or group of documents:

(i)The territory maps for lawn mowing franchises in the North Shore, West Auckland, South Auckland and East Auckland territories.

(ii)The monthly computer printouts for lawn mowing franchises in the North Shore, West Auckland, South Auckland and East Auckland territories for the period commencing 1 April 1998 and concluding 31

March 2009.

(iii)Financial statements for Greenacres Franchise Group Limited for the years 31 March 1999 to 31 March 2009 inclusive.

(iv)A  document  or  documents  recording  the  number  of  franchisees licenced with each of the North Shore, West Auckland, South Auckland and East Auckland territories as at 31 March each year in the period from 31 March 1999 to 31 March 2009.

(v)A documents or documents recording the revenue by territory and franchisee broken down into equipment sales, licence sales, sales of parcels of goodwill related to groups, customer (other than upon the sale of  a  new  franchise  licence)  royalty fees  or other  revenue  that relates to the Greenacres law mowing franchise business for the years ended 31 March 1999 to 31 March 2009 inclusive.

Legal principles applicable

[8]      Rule 8.24 enables the Court to order further discovery if it appears “from evidence or from the nature or circumstances of the case ...” there are grounds for believing further discovery ought to be required.

[9]      No  longer  is  there  an  onus  on  an  applicant  to  show  that  discovery  is necessary.   Rule 8.24 invites a more liberal approach in determining discovery obligations.  The rule enables an order for discovery to be made if ‘there are grounds

for believing that documents have not been discovered and they should have been

...’[1]

[1] ANZ National Bank Limited and ING (NZ) Limited v Tower Insurance Limited and Vero Insurance

Limited (HC, Auckland) CIV 2008-404-7271, 1 September 2009 Wylie J

[10]     However refined principles may now be, the Court must return to the matter of relevance to test demands for further discovery.  In this respect the often quoted in dicta of Brett LJ refers:

It seems to me that every document relates to the matters in question in the action, which not only would be evidence upon any issue, but also which it is reasonable to suppose, contains information which may – not which must

– either directly or indirectly enable the party requiring the affidavit either to advance his own case or to damage the case of his adversary.  I have put in the words “either directly or indirectly”, because it seems to me a document can properly be said to contain information which may enable the party requiring the affidavit either to advance his own case or to damage the case of his adversary, if it is a document which be fairly lead into a train of enquiry, which may have either of these two consequences. [2]

[2] in Compagnie Financiere et Commerciale du Pacifique v Peruvian Guano Co (1882) 11WBD 55 and

63

[11]     I accept Mr Banbrook’s submission that a broad test as to relevance applies. He submits the particular documents sought will enable the plaintiff “to advance its claim to recover damages for losses sustained by its business as a result of breach of terms of the master licence agreement... in the alternative whether the particular discovery sought will enable it to breach the defence of [the defendant] which is effectively that although there may have been some incidents that were technically breaches of the licence agreement... [the plaintiff] has suffered no.... measurable loss as a consequence of those breaches”.

[12]     In most instances of categories of documents identified the plaintiff justifies discovery upon the basis that “they will disclose underlying trends in the franchise operation of the defendant... which need to be identified and excluded in the assessment of a damages claim....”   Such are the words used by Mr CA Walker, chartered accountant whose affidavit supports the plaintiff’s application.

[13]     In effect the plaintiff wants to access information that will help it quantify its claim for damages.   The emphasis is on crystallising the plaintiff’s assessment of

damages.  Because the issue concerns a franchise agreement the plaintiff says it must need to know what is going on overall with other franchisees.  As Mr Banbrook put it to the Court, if over ten years it is determined there is a 10 per cent decline overall in franchisee income then a 10 per cent decline in the plaintiff’s situation would not be actionable because its loss would be no greater than any other.

[14]     Mr Walker deposes that calculations of loss cannot be considered in isolation from the operations of others.  Therefore he submits the group as a whole needs to be reviewed.   Mr Banbrook says such information would be directly relevant to the damages claim.

[15]     Mr Banbrook says most of the information required can be obtained from printouts provided monthly by operators to the defendant.  As such it would be easily retrievable.    The  plaintiff  is  prepared  to  pay  the  cost  of  the  supply  of  that information.  It will give appropriate undertakings to ensure confidentiality.

[16]     Mr  Banbrook  submits  that  the  core  of  the  enquiry  concerns  the  loss  of revenue as a result of ‘serial’ breaches over a number of years.  If that information sought may assist, then according to current principles, it is discoverable.

Considerations

[17]     Counsel agree that the territorial maps sought have been/will be supplied although the defendant does not concede that they are relevant to the proceeding. Indeed it is hard to see how they could be because all of the alleged 49 breaches surely occurred within the central Auckland territories.

[18]     As to the balance of the plaintiff’s application it is my firm view that the application should be declined.

[19]     The pleaded breaches are limited to those 49 occasions when third parties allegedly cut lawns in the plaintiff’s territory and when notification was given to the defendant.

[20]     The plaintiff has pleaded breaches of implied terms of what is effectively a master franchise agreement.  The implied terms are to take “reasonable steps” or take “appropriate  enforcement  action  in  the  event  of  notification”  to  preserve  the plaintiff’s exclusive licence.  What reasonable steps for appropriate action might be is not pleaded by the plaintiff.  The defendant is only obliged to provide discovery of documents relating to a pleaded fact or breach in the pleadings but the only breaches referred to in the statement of claim are those 49 instances previously referred to. Yet, damages are claimed for an earlier period of time without giving any basis as to how those damages are quantified or linked back to the pleaded breaches.   The plaintiff wants reports and records covering a period of 10 years.

[21]     Mr Chisholm submits that Mr Walker is misconceived with his expectations regarding how this information will assist the purpose of linking that information to a claim covering 49 instances over a period of about 40 months.   There is no explanation given as to why a comparison exercise including other operators doing other businesses is relevant to show a nexis with the 49 instances.  In fact Mr Walker does not explain at all the relevance of the records in question to the breaches in dispute.  I agree with Mr Chisholm.  It is not all clear to me how evidence of other contractual relationships is relevant in this case.

[22]     Mr Chisholm’s submission that it would appear that Mr Walker has been instructed to prepare and create a damages claim (without reference to the pleaded breaches) rather than provide evidence in support of the claim that has already been pleaded by the plaintiff, is apt.

Result

[23]     The application is dismissed.

[24]     Costs on a 2B basis will apply unless counsel wish to argue otherwise.  Any such argument is to be filed and served within seven days and any response thereto, within seven days thereafter.

Associate Judge Christiansen