Bacon Holdings Limited v Bally McCahill Limited
[2019] NZHC 2592
•9 October 2019
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2017-404-2102
[2019] NZHC 2592
BETWEEN BACON HOLDINGS LIMITED
Plaintiff
AND
BALLY McCAHILL LIMITED
First Defendant
BRESA LIITED
Second Defendant
Hearing: 9 October 2019 Appearances:
M J Fisher and K Ng for the Plaintiff T M Molloy for the First Defendant
No appearance for the Second Defendant
Judgment:
9 October 2019
ORAL JUDGMENT OF ASSOCIATE JUDGE R M BELL
Solicitors:
Claymore Partners Ltd (J D Ryan), Auckland, for the Plaintiff
Snedden & Associates (D W Snedden), Auckland, for the First Defendant McVeagh Fleming (J D Turner), Auckland, for the Second Defendant
Copy for:
M J Fisher/K Ng, Auckland, for the Plaintiff Tom Molloy, Auckland, for the First Defendant
BACON HOLDINGS LIMITED v BALLY McCAHILL LIMITED [2019] NZHC 2592 [9 October 2019]
Introduction
[1] Bacon Holdings Limited applies for further discovery under r 8.19 of the High Court Rules 2016 against Bally McCahill Limited, the first defendant. The application for further discovery has a schedule setting out the documents sought. In essence, the documents come down to two main groups:
(a)documents in the control of the first defendant relating to its dealings with Pamela Management Limited in connection with the sale and purchase of piggery land and a dairy farm under an agreement of 9 June 2016, which have any references to the plaintiff; and
(b)any documents in the control of the first defendant, including any records of meetings or discussions at meetings, including board meetings, from 2009 until now, dealing with the piggery business and the piggery lease to the plaintiff.
Background
[2] Bally McCahill owns land in Ostrich Farm Road, Patumahoe. There are two lots:
(a)An 8.5-hectare lot which has been used as a piggery farm; and
(b)An adjoining property used as a dairy farm.
[3] In 2009, the sole director of Bally McCahill was Mr Bernard Joseph McCahill, known to everyone as Barney McCahill. He died in 2013. His daughter, Cathy, is now a director of the company.
[4] Bacon Holdings Limited occupies the piggery property. Mr Kevin Morris is the director of Bacon Holdings Limited. In 2009, Bacon Holdings Limited took a written lease of the piggery land. The written lease was for one year but Bacon
Holdings Limited has continued to occupy that land. The case for Bacon Holdings Limited is that it has done so under an oral agreement made between Mr Morris and Mr McCahill that the lease would run till 2024. Understandably, Bally McCahill Limited relies on the absence of writing to say that the alleged agreement is not enforceable. In response, Bacon Holdings Limited says it is unconscionable for Bally McCahill Limited to deny the lease. It relies on acts of part performance.
[5] In 2016, Bally McCahill Limited entered into an agreement to sell both the piggery land and the dairy farm to Pamela Management Limited. The people behind Pamela Management Limited are not connected with either Bacon Holdings Limited or Bally McCahill Limited. Bacon Holdings Limited had lodged caveats against both titles which prevented the sale to Pamela Management Limited from settling. Settlement has been deferred to await the outcome of this proceeding.
[6] Bally McCahill Limited has also granted a lease of the dairy farm to Otereti Holdings Limited. That company is associated with the people behind Pamela Management. Otereti has in turn subleased the land to the second defendant. The second defendant is not the subject of the discovery application and has not taken any part in this hearing.
[7] There is a timing aspect to the application for further discovery. The close of pleadings date was 12 July 2019. The application for further discovery was lodged only a few days before that. The first defendant filed its affidavit of documents in September 2018. The case has been set down for a 10-day hearing commencing 18 November 2019. Because that hearing is imminent, I am giving an oral decision now to avoid any delays arising from reserving the decision. The plaintiff has already served its evidence and the defendants have also served their evidence.
[8] I was concerned whether dealing with a discovery application after evidence has already been exchanged would create difficulties. Mr Fisher explained that any documents that were freshly disclosed could be included in the bundle of documents for the hearing (which had not yet been prepared) and the documents could be used evidentially at the hearing. Mr Molloy did not disagree with that. Generally, it is undesirable to deal with discovery applications after the close of pleadings date as it
diverts the parties from preparation for the hearing. But in this case, I am satisfied that that is not a major stumbling block for the plaintiff.
[9] Directions for discovery were given on 6 December 2017. On 4 December 2017, the parties filed a joint memorandum setting out terms for tailored discovery, including groups of documents each side was to discover. The defendants' discovery obligations included:
(l)all documents relating to the negotiations for an agreement to sell the land (including the piggery land) to Pamela Management Ltd, to the extent such documents relate or refer to any lease by the plaintiff of the piggery land.
[10] On applications for further discovery under r 8.19 it is standard to refer to the matters set out by Asher J in Assa Abloy New Zealand Limited v Allegion (New Zealand) Limited:1
(a)Are the documents sought relevant and if so how important will they be?
(b)Are there grounds for belief that the documents sought exist? This will often be a matter of inference. How strong is that evidence?
(c)Is discovery proportionate (balancing the time and cost of discovery against the potential value of discovery)? and
(d)Weighing and balancing these matters, is it appropriate for the Court to make an order, in light of its discretion in applying r 8.19?
[11] I was advised that the discovery by the first defendant included the agreement for sale and purchase between Bally McCahill Limited and Pamela Management Limited and the lease by Bally McCahill Limited to Otereti Holdings Limited, but no other documents falling within the tailored discovery group relating to Pamela Management Limited have been disclosed.
1 Assa Abloy New Zealand Limited v Allegion New Zealand Limited [2015] NZHC 2760 at [14].
[12] For the plaintiff, Mr Fisher explained that the plaintiff views the transaction with Pamela Management Limited as having considerable importance which it will rely on at trial. Bacon Holdings Limited’s case is that, at least up until about 2015, Bally McCahill Limited had been negotiating in good faith with the plaintiff for the terms of a formal lease. That had been contemplated in the original agreement to lease made in 2009. The parties were close to agreement, apart from a rent issue. Bacon Holdings Limited contends that once Bally McCahill Limited decided to sell the land, its attitude to Bacon Holdings Limited hardened. Its lawyer sent a letter to Bacon Holdings Limited alleging that the original 2009 lease had expired and that since then, Bacon Holdings Limited had been occupying the piggery land under a monthly tenancy terminable on notice.
[13] Bacon Holdings Limited submits that the dealings between Bally McCahill Limited and Pamela Management Limited, not just the formal agreements, will be relevant because it will use those dealings to contend that the defence by Bally McCahill Limited cannot be accepted in light of what seems to be a favourable sale to Pamela Management Limited.
[14] For Bally McCahill Limited, Mr Molloy submitted that that was not relevant to the issues in the case, which were confined to the plaintiff's claim of an oral agreement made in 2009 between Mr Morris and Mr Barney McCahill. If the relevance question were to be decided under the adverse documents test, I could see the strength of Mr Molloy's submission. It is not apparent to me that documents going to the reasons why the first defendant is defending the case are necessarily relevant under the adverse documents test, which is about what documents are admissible to prove the case for each side. However, the parties have agreed on the terms for tailored discovery. In setting the terms for tailored discovery, the parties have made their own assessment as to what is relevant for discovery and what is not. Under tailored discovery, the Court can direct more extensive discovery than might be required when standard discovery under the adverse documents test is required. Accordingly, I do not accept the relevance objection by Bally McCahill Limited.
[15] The agreement for sale and purchase between Bally McCahill Limited and Pamela Management Limited records that the property was sold subject to tenancies,
and it gives a gross rental figure. The agreement is subject to a due diligence period and apparently the agreement went unconditional at the end of the period. The tenancies were not only the lease of the piggery land but also a lease of the dairy farm and residential tenancies.
[16] Mr Molloy accepted that Bally McCahill Limited had not disclosed any documents relating to the sale to Pamela Management Limited, except the agreement itself. I queried that with him. Under r 8.19, a Judge may order further discovery if it appears from the nature or circumstances of the case or from any document filed in the proceeding that there are grounds for believing that there may be documents that in the control of a party which should be discovered. As a matter of ordinary practice, it would be thought that the purchaser of Bally McCahill Limited's property, subject to undefined tenancies, would take steps to find out about those tenancies. A purchaser may be concerned to ensure that written agreements are in place so that there will be sound arrangements between the existing tenant and the incoming purchaser. Any information that the vendor would have given to the purchaser on the tenancies would be important and would typically be in writing. Any information that Bally McCahill Limited gave to Pamela Management Limited about the arrangements in place between Bally McCahill Limited and Bacon Holdings Limited is obviously relevant because it may show statements by Bally McCahill Limited which go against the defence that it is running. There might, for example, be descriptions of the arrangements in place that are inconsistent with its defence. Mr Molloy accepted the point and did not seriously take issue with my suggestion that an updating affidavit on that point should address communications between Bally McCahill Limited and Pamela Management Limited in relation to the proposed sale of the property and also information disclosed during the due diligence period.
[17] I regard those documents as coming within the category of tailored discovery, directed in December 2017. Those documents ought also to cover any further documents which Bacon Holdings can use to impeach the defence by Bally McCahill Limited. That broadly covers the first category of documents sought.
[18] The plaintiff also seeks discovery of other internal records of Bally McCahill Limited. On this Bacon Holdings Limited has not given me reason to believe that I
cannot rely on Bally McCahill Limited's affidavit of documents. The director of Bally McCahill Limited has explained that the company has not kept those records. In the light of that I make no orders for discovery under that head.
Conclusion
[19] I require Bally McCahill Limited to swear an affidavit deposing as to any documents in its control, or that have been in its control, relating to its dealings with Pamela Management Limited to the extent that those documents refer to the arrangements between Bacon Holdings Limited and Bally McCahill Limited. That affidavit is to be filed and served within two weeks of today, 23 October 2019. Copies of the documents disclosed under that affidavit are to be provided at the same time.
[20] There will be costs to Bacon Holdings Limited on a category 2 basis. I trust that counsel will be able to confer and agree costs. If they cannot, memorandum may be filed.
……………………………….
Associate Judge R M Bell
SCHEDULE
The documents sought by the plaintiff from the first defendant are:
1.all and any documents, including letters, emails, comprising communications between the first defendant ("Bally McCahill") or its representatives and Pamela Management Limited ("PML") or its representatives in connection with the sale and purchase of the piggery land and the dairy farm under the agreement dated 9 June 2016 between Bally McCahill as vendor and Pamela Management Limited as purchaser ("the Pamela Agreement") and any variation of that agreement, including but not limited to:
(a) documents disclosed by Bally McCahill to PML during the due diligence period and subsequently in relation to Bacon Holdings' rights and interests in the piggery land or to the terms of the piggery lease;
(b) documents effecting any variations to the Pamela Agreement, including a Deed of Variation dated on or about 20 January 2017;
(c) documents comprising communications between the Bally McCahill or its representatives and Pamela Management or its representatives relating to:
(i)the conduct of this proceeding, including any express requirements or wishes or aspirations of Pamela Management as to the conduct of the proceeding by Bally McCahill and/or the terms on which Pamela Management would agree to Bally McCahill settling the claim by Bacon Holdings in the proceeding, including the terms of a lease of the piggery;
(ii)settlement of the Pamela agreement;
(iii)the possible cancellation of the Pamela Agreement;
(d) documents recording or referring to the content of discussions relating to the matters referred to in paragraph (c) above.
2.all or any documents of Bally McCahill or of any director of Bally McCahill, including mail communications from or to any director, comprising records of meetings, or discussions at meetings including monthly board meetings:
(a) from 2009 to the present day containing references to the piggery or piggery lease with Kevin Morris or Bacon Holdings;
(b) from June 2016 to the present day referring or relating to the wishes, aspirations, expectations or requirements of PML in connection with the settlement of the Pamela Agreement or the terms of a formal deed of lease of the piggery.
The word document and documents referred to above have the same meaning as in rule 1.3 of the High Court Rules.
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