Bay Cities Real Estate Limited v Re/Max New Zealand Limited
[2012] NZHC 2845
•6 November 2012
IN THE HIGH COURT OF NEW ZEALAND NAPIER REGISTRY
CIV-2010-441-134 [2012] NZHC 2845
BETWEEN BAY CITIES REAL ESTATE LIMITED Plaintiff and First Counterclaim Defendant
ANDRE/MAX NEW ZEALAND LIMITED Defendant
ANDELANOR MACDONALD AND DAVID SANDERSON GAUNT
Second Counterclaim Defendants
Hearing: 17 October 2012 (Heard at Napier)
Counsel: PSJ Withnall - Counsel for Plaintiff
JL Bates - Counsel for Defendants
Judgment: 6 November 2012
JUDGMENT OF ASSOCIATE JUDGE D.I. GENDALL
Under r 11.5 of the High Court Rules I direct the Registrar to deliver this judgment on 6 November 2012 at 3.30 pm.
Solicitors: Michael Chung Law Office, Solicitors, PO Box 85, Wellington
Quigg Partners, Barristers & Solicitors, PO Box 3035, Wellington
BAY CITIES REAL ESTATE LIMITED V RE/MAX NEW ZEALAND LIMITED HC NAP CIV-2010-441-134 [6 November 2012]
Introduction
[1] Before the Court is an application for further and better discovery brought by the plaintiff. According to the plaintiff this application arises out of misgivings. It has about the adequacy of the defendants’ discovery and disclosure which has taken place to date.
[2] This application is opposed by the defendants.
Background Facts
[3] The background facts to this matter are summarised at paras [5] – [7] in an earlier decision I gave in this proceeding on 7 December 2010 (as cited at para [4] of the decision of His Honour Justice White dated 8 June 2011 refusing a review of that decision) as follows:
[5] On 4 August 2004, the plaintiff entered into two Franchise Agreements with the defendant, allowing the plaintiff to use the Re/Max Real Estate System and operate under the Re/Max Banner in Napier and in Hastings for a term of 5 years. Another similar agreement was entered into for the area of Taradale in November 2007. The plaintiff ’s obligations under these Franchise Agreements were guaranteed by Ms McDonald and Mr Gaunt.
[6] In its substantive proceeding, the plaintiff claims that the defendant made certain misrepresentations as to the business to the plaintiff at a Re/Max presentation held in Napier in May 2004, and that it was induced to enter into the Napier and the Hastings Franchise Agreements in reliance on these misrepresentations. The alleged misrepresentations generally concern the number of real estate offices and sales people in Napier and Hastings at the time; the average gross commission of a Re/Max sales person in Napier and Hastings; what would be/are the fixed costs of operating a sales office; expected earnings of the owner of a Re/Max Franchise; training that would be provided by the defendant to the plaintiff; and the defendant’s level of experience and knowledge in the real estate industry.
[7] The defendant denies these allegations. It claims that the plaintiff relied on its own legal, accounting, business and/or financial advice and on its own independent investigation of the Re/Max system, and further on the knowledge and experience of Ms McDonald when entering into the Franchise Agreement. It claims that, under the terms of the Franchise Agreements, the plaintiff expressly acknowledged and accepted that it had not received any warranty or guarantee, express or implied, as to potential volumes of profit, turnover or success of the franchise business; and that it went further and the plaintiff confirmed that no representations or promises had been made to induce it to enter into the agreements.
The plaintiff has claimed damages totalling something in excess of $4 million against the defendants being the net profits as represented together with its actual trading losses for a five year period.
[4] In response, the defendants have filed a statement of defence and a counter claim against the plaintiffs claiming first, in excess of $50,000.00 for the Napier Franchise, secondly, in excess of $94,000.00 for the Hastings Franchise and thirdly in excess of $14,000.00 for the Taradale Franchise. These amounts are all said to be outstanding franchise fees in each case in breach of provisions in the respective Franchise Agreements.
Discovery Application
[5] In the present discovery application brought by the plaintiff, discovery is sought of the following documents which are outlined in the Schedule to that application:
Schedule
1. All records and documents (as defined in Rule 1.3 of the High Court Rules
2008) comprising franchise sales presentation material from 2004 onwards, including the underlying documentation such as financial planning models and spreadsheets on which the presentation made to the Plaintiff in May
2004 was based.
2. All records and documents (as defined in r 1.3 of the High Court Rules
2008) of the actual franchise presentations by Gary Ahearn and Barry
Grieve on behalf of the Defendant.
3. Minutes of broker owner meetings from 2004.
4. All records and documents (as defined in Rule 1.3 of the High Court Rules
2008) of presentations, including PowerPoint presentations prepared for the recruitment of agents from 2004 (known as the 60 Minute presentations).
5. All email correspondence and attachments both as between the Defendant and the Plaintiff, particularly by and/or Gary Ahearn and/or Barry Grieve on behalf of the Defendant and as between Messrs Ahearn and Grieve in relation to the Plaintiff from May 2004 to August 2005.
6. All records and documents (as defined in Rule 1.3 of the High Court Rules
2008) of disputes raised by other franchisees of the Defendant in New Zealand arising from representations made in the course of franchise sales presentations to those franchisees between May 2004 and June 2007 of the kind pleaded at paragraph 8 of the Statement of Claim in this proceeding dated 3 March 2010.
[6] In the defendants’ Notice of Opposition to the present application dated 6
September 2012, the following grounds are advanced in support of this opposition:
(a) The Defendant has made reasonable searches for franchise sales presentation material from 2004 onwards, and has supplied that to the Plaintiff.
(b) Item 2 of the Schedule of Documents is a request in the nature of a fishing expedition, and whatever “actual” franchise presentations made by former employees of the Defendant are not relevant to the proceedings as framed by the pleadings.
(c) Item 3 is similarly a fishing expedition, and the minutes of broker/owner meetings are not relevant to the issues as framed by the pleadings.
(d) The Defendant has diligently searched for, by contracting of a specialist IT consultant, email correspondence and has provided those to the Plaintiff as listed in a Supplementary Affidavit of Documents.
(e) Item 6 is also in the nature of a fishing expedition. (f) The requests are oppressive.
(g) Upon the further ground set out in the Affidavit of Christopher Mark Chapman sworn 18 June 2012, and a further affidavit to be sworn by him in reply to the Plaintiff ’s affidavit.
Counsels’ Arguments and My Decision
[7] The plaintiff has applied for further and better discovery from the defendants as it says this is necessary for it to properly pursue its causes of action here.
[8] The application is made in reliance on r 8.19 High Court Rules which provides:
8.19 Order for particular discovery against party after proceeding commenced
If at any stage of the proceeding it appears to a Judge, from evidence or from the nature or circumstances of the case or from any document filed in the proceeding, that there are grounds for believing that a party has not discovered 1 or more documents or a group of documents that should have been discovered, the Judge may order that party—
(a) to file an affidavit stating—
(i) whether the documents are or have been in the party's control; and
(ii) if they have been but are no longer in the party's control, the party's best knowledge and belief as to when the documents ceased to be in the party's control and who now has control of them; and
(b) to serve the affidavit on the other party or parties; and
(c) if the documents are in the person's control, to make those documents available for inspection, in accordance with rule 8.27, to the other party or parties.
[9] Addressing this new r 8.19, in Managh (as liquidator of Titan Building (HB) Limited) (in liq) v Hasselman, HC, Napier, CIV-2011-441-824, 1 June 2012, Associate Judge Osborne noted:
[4] Rule 8.19 (formerly 8.24) refers to an order for particular discovery, rather than to further and better discovery, but its use is in relation to a situation where a party has provided discovery which is found to be deficient.
[5] Rule 8.19 gives the Court a discretion to order particular discovery where there are grounds for believing that a party has not discovered one or more documents or a group of documents which ought to have been discovered.
[6] The predecessor rule, r 300, required an applicant to establish that the order is necessary. The present rule does not – an amendment representing a “significant relaxation” of the previous threshold: ANZ National Bank Ltd v Tower Insurance Ltd.
[7] That said it will be rare for an order to be made for particular discovery if it is not necessary to do justice between the parties. See Cynotech Securities Ltd v People Ltd.
[8] The plaintiff must generally establish a prima facie indication the documents are or have been in the party’s control, but the plaintiff does not need to prove that the documents actually exist. See Simunovich Fisheries Ltd v Television New Zealand Ltd (No 6).
[9] The plaintiff must also establish that the documents sought are relevant as posited by the authors of McGechan at HR 8.19.03(3):
“The touchstone of relevance should be fashioned or tailored to reflect those matters which will be actually in issue before the Court.”
[10] And, a little earlier, in Karam v Fairfax New Zealand Limited, HC, Auckland, CIV-2010-404-5021, 10 May 2012, Associate Judge Osborne had stated:
[131] The discovery rules which came into effect on 1 February 2012 were designed to reduce disproportionate cost and delays caused by discovery and to reduce the tactical use of discovery. They do that in a number of ways. Particularly relevant to this case are the duties to:
(a) Co-operate to ensure that the processes of discovery and inspection are proportionate and facilitated by agreement on practical arrangements (r 8.2(i)); ...
[11] According to the plaintiff the present application arises out of its misgivings about the adequacy of the defendant’s discovery. The plaintiff contends the defendant has only given discovery of what it wants to and not what it is required to discover in terms of the High Court Rules.
[12] As general background here, it does seem that following earlier queries made by the plaintiff, a process of further disclosure by the defendant followed
culminating in the defendant filing and serving a supplementary affidavit of documents sworn 18 June 2012. The plaintiff considers that notwithstanding this, there are still shortcomings in this discovery provided by the defendant.
[13] The plaintiff contends that the documents sought here are relevant and should be discovered. It disputes the defendant’s contentions first, that this is simply a fishing expedition and secondly, that it is indeed speculative whether any further relevant documents might exist. The plaintiff argues that grounds for the belief that the documents sought exist are present and that there are clearly significant omissions in the defendant’s discovery to date.
[14] Finally, in considering questions of relevance in the present case, it must be noted that this is to be determined under the former Peruvian Guano test as the earlier orders for discovery in this proceeding were made well before the new discovery rules came into effect on 1 February 2002 – GDF I LLP v Melview (Kawarau Falls Station) Investments Limited (In Receivership) [2012] NZHC 1432.
[15] The present application is opposed by the defendants broadly on the basis first, that some of the requests are simply fishing expeditions, secondly that the defendant has made reasonable searches for the franchise sales presentation material requested and has supplied what it has been able to find to the plaintiff, thirdly, that the documents sought are in any event not relevant and fourthly, that the requests are oppressive.
[16] Essentially as I see the position the documents sought in the present application fall into two broad categories:
(a) Items 1 and 5 in the Schedule noted at para [5] above – essentially franchise sales presentation material and underlying documentation on which the presentations made to the plaintiff in May 2004 were based, together with email correspondence and attachments between the plaintiff and the defendant at the time. At first glance I need to say that all these documents would seem to be relevant in terms of the Peruvian Guano test which applies here, and should be discovered.
(b)The remaining documents sought in Items 2, 3, 4 and 6 of the Schedule noted at para [5] above – these essentially appear to relate to presentations to other franchise holders and disputes with those franchisees from May 2004 onwards. In my view I need to say at the outset that it is not so clear whether these documents may be discoverable here.
[17] I now consider each group of the specific documents sought in turn.
Items 1 and 5
[18] As I have noted above these are essentially documents relating to the franchise sales presentations and underlying documentation on which those presentations were made to the plaintiff in May 2004, together with email correspondence and attachments between the plaintiff and the defendant at the time.
[19] There seems little doubt in my view that these documents would be seen as relevant here in terms of the wide Peruvian Guano test. In the plaintiff’s statement of claim in this proceeding it is alleged that the defendant, in selling its real estate system, misrepresented the position to the plaintiff and that induced the plaintiff to purchase the franchises. These further documents sought under Items 1 and 5 of the Schedule would appear to me to relate directly to the franchise sales presentation made to the plaintiff, the background and underlying documents and communications between the parties at the relevant time. In my view these must be relevant to issues as to whether the pleaded representations were made to the plaintiff, their nature and the very basis on which they might have been made. The documents in question should have been discovered and, if indeed they may no longer be within the control of the defendants, then that should be specified in an appropriate affidavit. An order for discovery of these documents is to follow.
Items 2, 3, 4 and 6
[20] As I have noted above these documents relate essentially to presentations by the defendant to all franchise holders including those other than the plaintiff, and
with respect to disputes with those other franchisees arising from representations made in the course of those presentations from May 2004 onwards.
[21] On this aspect, counsel for the defendant in his supplementary submissions before me referred to decisions in Kennedy v Dodson [1895] 1 Ch334, EG Music v SF (Film) Distributors Limited [1978] FSR 121 and Thorpe v Chief Constable of the Greater Manchester Police [1989] 1WLR 665. These English decisions appear to indicate that ordering discovery may not be appropriate in cases of what may turn out to be similar fact situations on the basis that this discovery exercise could be likely to be oppressive. Evidence of improper conduct on other occasions, or evidence of other instances of negligence it is said are generally irrelevant to particular claims which are before the Court. It is on this basis that counsel for the defendant argued before me that the additional documents sought are not relevant to the plaintiff’s present claim and therefore are not discoverable.
[22] On these aspects, counsel for the plaintiff strongly contested this position taken by the defendant. First, he stated that if these propensity or similar fact issues were relevant to the credibility of the defendants, then they certainly should be discoverable here under the wide Peruvian Guano test which applies in this case. He maintained that these might tend to suggest that, if the defendant is saying one thing to one potential franchisee, it will be saying the same thing to others such as the plaintiff here.
[23] Secondly, and most importantly, according to counsel for the plaintiff, all this arises because there is generally a bare denial by the defendant in its statement of defence of almost everything pleaded in the plaintiff’s statement of claim. That therefore means that the plaintiff has been required to show that the representations in question were made, were false, were relied upon and induced the plaintiff to enter into the franchise contracts.
[24] As to the defendant’s suggestion advanced before me that discovery should be limited to pleadings and therefore the further discovery sought here is not appropriate, counsel for the plaintiff contended that this was a narrow literal approach which was wrong under the Peruvian Guano test and overlooked the
context of the whole case here. He went on to say that it is artificial to contend that there was only one meeting between the plaintiff and the defendant here to agree on the Franchise Agreement terms and only one document in which everything was concluded. Commercial negotiations he maintained rarely took place in just that way. In addition, the pleadings according to the plaintiff do not say this.
[25] Finally, the plaintiff contended that the defendant’s present position is simply that it will not check back beyond 2005. This was the date that a new computer system was installed by the defendants. Clearly from the defendant’s submissions it seems that to consider documents before the installation of this system would be difficult. That, however, is not the test here.
[26] On these aspects, in my view, there is something in the submissions advanced to me by the plaintiff. This case draws into question the particular Remax business model and the representations made to the plaintiff prior to its acquisition of the Napier, Hastings and Taradale franchises. The plaintiff’s request for documentation relating to other presentations to potential franchisees in my view would constitute documents that might directly or indirectly advance the plaintiff or defendant’s case here or damage their opponents case. They may well be documents that are or may be relevant to issues in this proceeding, or which may lead to a train of enquiry as noted in the Peruvian Guano test. And in my view the defendant in its pleading has placed a number of these matters directly in issue when, at paras 15(d) and (g) of its statement of defence and counter claim filed 22 July 2010 it states in part:
15. The plaintiff further expressly acknowledged and accepted on the terms of clause 33 of the Franchise Agreements, and is estopped from denying that:
....
(d) The defendant .............. has encouraged the plaintiff to contact existing RE/MAX Affiliates to gain a better understanding of the requirements and benefits of owning a RE/MAX franchise.
.....
(g) The defendant has supplied to the plaintiff all information concerning RE/MAX, RE/MAX International and the development and operation of the Office in order to make an informed decision to enter into the Franchise Agreements.
[27] In balancing all relevant considerations here, I am satisfied that a proportionate approach requires discovery of these documents outlined in items 2, 3,
4 and 6 of the Schedule to be undertaken. A reasonable search for those documents must be carried out in terms of r 8.14 High Court Rules and a proper affidavit of documents in terms of r 8.15 and 8.16 should be provided.
Conclusion
[28] For all the reasons outlined above it will be apparent that the plaintiff’s
discovery application succeeds in its entirety.
[29] An order is now made that the defendant within 20 working days of the date of this judgment is to file and serve an affidavit stating whether documents of the kind described in the Schedule to the application (being all those documents set out at para 5 of this judgment) are in its control or, if they have been, but are no longer in its control, when to the best of the defendant’s knowledge and belief such documents ceased to be in its control and who has control of them now.
[30] Inspection of those documents by the plaintiff is to be carried out within a further 15 working days of that date.
[31] As to costs on the present application, the plaintiff has been successful and I see no reason why it should not be entitled to an order for costs in the usual way. Costs are therefore awarded to the plaintiff on this application against the defendant on a category 2B basis together with disbursements as fixed by the Registrar.
‘Associate Judge D.I. Gendall’
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