Brauninger v Westend

[2020] NZHC 2512

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV 2020-404-000809

[2020] NZHC 2512

UNDER

The District Courts Act 2016

IN THE MATTER OF

an Appeal against a Decision of the District Court at Auckland

BETWEEN

STUART BRAUNINGER AND MICHAEL TOLOLI

Appellants

AND

PETER JAMES WESTEND and SUSAN

JAYNE WESTEND trading as PJ and SJ WESTEND PARTNERSHIP
First Respondents

AND

CAMBRIDGE VETERINARY SERVICES 1980 LIMITED

Second Respondent

Hearing:

22 September 2020

Appearances:

P W Ahern for the Appellants

No appearance for the First Respondents D M O’Neill for the Second Respondent

Judgment:

24 September 2020

JUDGMENT OF CAMPBELL J

This judgment was delivered by me on 24 September 2020 at 3.30pm Pursuant to Rule 11.5 of the High Court Rules

…………………………

Registrar/Deputy Registrar

Solicitors/Counsel:

Morrison Kent, Auckland

Vosper Law Solicitors, Cambridge D M O’Neill, Barrister, Hamilton Legal Associates, Auckland

BRAUNINGER v WESTEND [2020] NZHC 2512 [24 September 2020]

Introduction

[1]    The appellants, Mr Brauninger and Mr Tololi, had interests in Linwood Park Stud Limited (Linwood). In August 2017 Linwood was in financial difficulty, and was attempting to put together a scheme of arrangement with its creditors. Two of its creditors were the first respondents (the Westends) and the second respondent (Cambridge Vets). The respondents had brought a liquidation proceeding against Linwood. The liquidation proceeding endangered the attempt to put together a scheme of arrangement.

[2]    In mid-August 2017 the appellants, Linwood and the first and second respondents entered into a deed. In the deed Linwood acknowledged its debts to the respondents and agreed to a payment plan to clear those debts. The appellants guaranteed Linwood’s obligations under the deed. The respondents agreed to discontinue their liquidation proceedings.

[3]    The deed also contained a confidentiality clause, under which each party undertook to keep the deed’s existence and contents strictly confidential. From the appellants’ perspective confidentiality was important, as they (and Linwood) believed that if Linwood’s other creditors found out about the deal with the respondents, there would be no prospect of obtaining a scheme of arrangement with those creditors.

[4]    Within days of the deed being signed the appellants were told that the Westends had breached the confidentiality clause. The appellants took the view that this breach entitled them to cancel the deed. They purported to cancel. The respondents immediately issued proceedings, suing the appellants on their guarantees.

[5]    The respondents’ proceedings were the subject of a short trial in the District Court. Judge Sharp said that the only defence raised by the appellants was an affirmative one: that the Westends had breached the confidentiality clause, entitling the appellants to cancel the deed.1 Her Honour held that the appellants had not proved any breach.  She therefore gave judgment to the respondents.  Mr Brauninger and  Mr Tololi appeal.

1      Westend v Brauninger [2020] NZDC 7354

Factual narrative

[6]    In March and April 2017 the Westends and Cambridge Vets both engaged a debt collection agency to assist them in recovering debts from Linwood. The agency served statutory demands on Linwood.

[7]    By June 2017 the Westends and Cambridge Vets had served a liquidation proceeding on Linwood, though it had yet to be advertised. Linwood’s largest creditor, Mr Talbot, started trying to put together a scheme of arrangement with Linwood’s creditors. Initially Mr Talbot’s proposal was that the scheme would include the Westends and Cambridge Vets. The scheme would essentially have provided for the creditors to recover all of what was owed to them, but with deferred payments so as to allow Linwood to conduct a managed sell-down of its assets.

[8]    The Westends and Cambridge Vets decided to hold out to maximise their own recovery. In due course their solicitor, Mr Jaques, negotiated on their behalves with Linwood and the appellants. This led to the deed of arrangement at issue in the current proceeding.

[9]    Mr Jaques sent a first draft of the deed of arrangement to Mr Brauninger on the evening of 10 August 2017. Mr Brauninger emailed Mr Jaques the next day with various comments. These included that there was no confidentiality clause, which  Mr Brauninger said “will need to be added.”

[10]   A confidentiality clause was then added to the deed. The appellants signed the deed and emailed a copy to Mr Jaques on 13 August 2017.

[11]   Under the deed Linwood agreed to make an initial payment of $25,000 to each of the respondents on 23 August 2017.

[12]   On 22 August 2017, Mr Talbot advised Mr Tololi that he had been contacted by one of Linwood’s other creditors, a Mr Green, who had said that the Westends had told him of the deed of arrangement. Mr Tololi and Mr Brauninger were concerned by this. Mr Brauninger emailed Mr Talbot that day,  noting his understanding that  Mr Green was made aware of the deed of arrangement by the Westends.

Mr Brauninger’s email said that the deed of arrangement had a strict confidentiality clause, and:

If this has been broken I need full details and written confirmation from the person to whom this information was given.

…

Can you please confirm if it is correct that [Mr] Green has indeed contacted you as detailed above and if so, elaborate as to what was said.

[13]   A few hours later Mr Talbot replied, saying that he was waiting for an email from the creditor concerned which would confirm what was said by the Westends about  the  deed  of  arrangement.  Later   that   evening  (still  22  August  2017)   Mr Brauninger forwarded his email exchange to Mr Jaques. Mr Brauninger said the matter was very serious and that “From the information I have so far (and provided it can be corroborated) it appears your clients are to blame for this new and untimely development.” Mr Brauninger asked for a meeting the next day.

[14]   The same evening,  Mr Talbot  forwarded to Mr  Brauninger an email that  Mr Green had sent to Mr Talbot. The email said:

(a)Mr Green’s business partner, Mr Earnshaw, had told him that he had spoken with Ms Westend, who had told him (Mr Earnshaw) that a deal had been struck between Linwood and the respondents.

(b)Mr Green had spoken to Mr Westend “earlier on” and Mr Westend reiterated that he and Cambridge Vets were going to strike a deal with Mr Tololi and Linwood “tomorrow.”

[15]   The next day, 23 August 2017,  Mr  Brauninger  and  Mr  Tololi  met  with Mr Jaques. They say that at the meeting they handed a copy of Mr Green’s email to Mr Jaques. They outlined their concerns about what they saw as the breach of confidentiality. They say that they then explained that the breach undermined any ability of Linwood to meet its obligations under the deed, and that as a result the breach “cancelled the obligations of [Linwood] and ourselves under the Deed of Arrangement.”

[16]   Mr Tololi’s evidence, which was not challenged, was that Mr Jaques replied that as far as he was concerned the appellants were not entitled to cancel the deed, and Linwood still had to make the payments that were due that day. Mr Jaques’ evidence on this point, also not challenged, was that he told the appellants that “what they were complaining of (if true) did not form a material breach of the Deed” such as to permit them to cancel.

[17]   The next day each respondent issued a proceeding against the appellants under the guarantees. The two proceedings were eventually consolidated.

[18]   The appellants had further discussions with Mr Talbot in an attempt to get the overall creditors’ scheme back on track. The discussions did not succeed. Linwood was placed in receivership and liquidation.

The hearings in the District Court

[19]   A short trial was allocated for the hearing of the proceedings. Under the short trial procedure, evidence in chief is given by way of affidavits served in advance of the trial. Parties may give notice requiring deponents to attend the hearing for oral cross-examination.2

[20]   The short trial began on 2 April 2019. Mr Jaques appeared as counsel for both the Westends and Cambridge  Vets.  During  re-examination  of  the  first  witness (Mr Hitchcock of Cambridge Vets) it became apparent to the Judge that the hearing could not continue with Mr Jaques as counsel. This was because Mr Jaques was likely required to be a witness (as there was a dispute about what was said at the meeting between Messrs Brauninger, Tololi and Jaques on 23 August 2017), and because there was a conflict between the interests of the Westends and Cambridge Vets. Judge Sharp adjourned the hearing to allow the respondents to engage new and separate counsel. She also gave leave to the Westends and Cambridge Vets to call Mr Jaques as a witness.

2      For the features of a short trial in the District Court, see rr 10.3 and 10.4 of the District Court Rules 2014.

[21]   The hearing resumed on 4 March 2020. By then the Westends had served an affidavit from Mr Jaques. He was the first witness called when the hearing resumed. He was cross-examined.

[22]   The central dispute in the trial was whether the Westends had breached the confidentiality clause (and, if so, whether that entitled the appellants to cancel the deed). The appellants pleaded that breach as an affirmative defence.

[23]   I have described earlier that the appellants became aware of the alleged breach through a report from Mr Talbot, who also forwarded to the appellants an email that he received from Mr Green. In his email Mr Green reported that one of the alleged breaches was reported to him by Mr Earnshaw. The appellants did not serve affidavits from any of Mr Talbot, Mr  Green or  Mr  Earnshaw.  The  appellants did  ask  for  Mr Green’s email to be included in the common bundle, as they intended to put it to the respondents’ witnesses. The respondents declined to include Mr Green’s email in the common bundle, on the ground that it was inadmissible hearsay. The respondents did,  however,  include  in  the  common  bundle  the   email   exchange   between  Mr Brauninger and Mr Talbot.

[24]   Faced with the respondents’ refusal to include Mr Green’s email in the common bundle, the appellants’ counsel (Mr Ahern, who also appeared on the appeal) appended a copy of the email to his opening submissions. He also put the email to Mr Jaques, and produced it as an exhibit through him. He also put to Mr Westend that he had breached the confidentiality obligation. Mr Westend denied this.

[25]   After the conclusion of the evidence, and during closing submissions, it was identified that the respondents were seeking judgment for only a limited amount. The proceedings had been issued the day after the first instalments of $25,000 were payable by Linwood to each respondent. The statements of claim accordingly sought judgment only for those amounts. They had not been updated. The Judge granted leave to the respondents to amend their statements of claim to pursue the full amount that was by then payable under the deed.

The District Court decision

[26]   The Judge identified that the first issue was whether the Westends had breached the confidentiality clause in the deed. On this issue the burden of proof was on the appellants. The Judge held that the appellants had not proved the breach, “given that the only evidence proffered by them of a possible breach is hearsay and inadmissible under the Evidence Act 2006”.3 This was a reference to Mr Green’s email. The Judge criticised Mr Ahern for having “attempted to adduce evidence from the Bar” by attaching that email to his opening submissions. She said that the email “is inadmissible and I completely discount it”.4

[27]   Mr Brauninger and Mr Tololi had each made affidavits deposing to their belief that the Westends had breached the confidentiality provision. Neither respondent had required Mr Brauninger or Mr Tololi to attend the hearing for cross-examination. The Judge said this mattered not. While the Court had to accept that Mr Brauninger and Mr Tololi believed there to have been a breach, their belief did not prove a breach. Their belief was based on inadmissible hearsay evidence. Mr Westend had, in cross- examination, denied that he or Ms Westend had breached the confidentiality clause “and that is where the matter must remain”.5

[28]   Having made that finding, the Judge did not consider whether a proved breach would have enabled the appellants to cancel the deed. But she did indicate, obiter, that any breach could not have allowed the appellants to cancel the deed as against Cambridge Vets (the allegation having been that the Westends, but not Cambridge Vets, breached confidentiality).6

The appeal

[29]   The appellants applied for leave to adduce further evidence on the appeal. Independently of whether leave was granted, the appellants argued that:

3      Westend v Brauninger [2020] NZDC 7354 at [10].

4 At [14].

5 At [15].

6 At [17].

(a)The Judge was wrong to find that the breach had not been proved. They say that the Judge focussed only on Mr Green’s email, that she erred in criticising counsel for the manner in which the email was produced, and that she did not consider other evidence of breach.

(b)The breach (if found) was of an essential term, entitling the appellants to cancel the deed.

(c)The appellants were entitled to cancel the deed as against both the Westends and Cambridge Vets.

[30]   If I do not accept those arguments, the appellants have a fall-back position. They say that the Judge should not have allowed the respondents to amend their statements of claim after the evidence had concluded, and therefore that the judgment sum should be reduced to reflect the unamended statements of claim.

The first respondents’ representation on the appeal

[31]   Before turning to the substantive issues arising on the appeal, I note one unsatisfactory aspect of the way the appeal proceeded. Mr Jaques prepared and filed, as counsel, the written synopsis for the first respondents, the Westends. This was despite the trial below having  been  adjourned  because  it  became  apparent  that Mr Jaques could not continue as counsel as he was likely required to give evidence, and his having then given evidence (and having been cross-examined) at the resumed trial.

[32]   Mr Jaques was not able to act on the appeal without first having obtained leave from the Court to do so.7 Mr Jaques had not sought leave. He merely included within his written synopsis a submission that he considered it appropriate for him to appear as counsel on the appeal, essentially on the ground that his evidence was not material or contentious.

7      Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008, r 13.5.2.

[33]   As soon as I became aware of this issue I convened a telephone conference. Having heard from counsel I directed that Mr Jaques could not act or appear as counsel on this appeal. I recorded this in a minute dated 18 September 2020.

[34]   The first respondents subsequently filed a memorandum saying that they would not be represented at the hearing of the appeal, but that they wished it to proceed in their absence, with the steps that they had taken so far “accepted to the extent they can be”. This is why there was no appearance for the first respondents at the hearing. I have nonetheless taken into account the synopsis that was filed on their behalf.

Application to adduce further evidence

[35]   The appeal was filed on 2 June 2020. On 10 September 2020 the appellants applied for leave to adduce further evidence on the appeal. The proposed further evidence was an affidavit from Mr Talbot. In the affidavit Mr Talbot recounts a telephone conversation that he says he had with Mr Westend on 22 August 2017. The appellants say  that  Mr  Talbot’s  evidence  would  contradict  the  evidence  that  Mr Westend gave at trial that he had not breached confidentiality.

[36]   During the hearing I declined the appellants’ application. I said I would give reasons in my substantive judgment. Those reasons follow.

[37]   An application to adduce further evidence on appeal is made under r 20.16 of the High Court Rules 2016. The principles governing such applications remain those succinctly expressed by Tipping J in Rae v International Insurance Brokers (Nelson Marlborough) Ltd:8

The principles upon which further evidence is admitted are designed to balance the interests of the person seeking to adduce such evidence on the one hand with the interests of the opposite parties on the other. They are also designed to reflect the public interest in ensuring, so far as is possible, that parties put up their best case at trial. Any other approach would be very wasteful of resources. The conventional requirements are that the further evidence must be fresh, it must be credible and it must be cogent. Evidence is not regarded as fresh if it could with reasonable diligence have been produced at the trial.

8      Rae v International Insurance Brokers (Nelson Marlborough) Ltd [1998] 3 NZLR 190 (CA) at 192–193.

… While the absence of freshness is not an absolute disqualification, the criteria for admission in such circumstances must be very strict. In our view, when the evidence is not fresh it should not be admitted unless the circumstances are exceptional and the grounds compelling.

[38]   The proposed further evidence is not fresh. It could have been produced at trial with a modicum of diligence. Mr Tololi has made an affidavit in support in which he has deposed that it was only after the District Court judgment was delivered that he became aware that Mr Talbot had spoken with Mr Westend on 22 August 2017. Even if that is so, the test is not whether the applicant knew of the evidence before the trial. It was clear to the appellants from the time that they became aware of the alleged breach on 22 August 2017 that they needed further information from Mr Talbot.    Mr Brauninger’s email to Mr Talbot on 22 August 2017 says as much. The appellants had the opportunity to obtain that further information. Mr Brauninger deposed that he had further discussions with Mr Talbot soon after learning of the alleged breach. There is no evidence of any hindrance that the appellants faced in obtaining evidence from Mr Talbot prior to the trial.

[39]   In those circumstances, allowing this application would have been deeply contrary to the public interest in ensuring that parties put up their best cases at trial.

[40]   Mr Ahern’s submissions in support of the application realistically anticipated that there was an issue with whether the proposed evidence was fresh. He emphasised that absence of freshness is not an absolute disqualification. That is correct. But, as Tipping J said in Rae, in that event the circumstances need to be exceptional and the grounds compelling. Mr Ahern submitted that the circumstances were exceptional because Mr Talbot’s affidavit would be evidence that Mr Westend had been untruthful in his evidence. I reject this submission. These circumstances are not exceptional –  in many instances the point of adducing further evidence will be to contradict other evidence given at trial.

[41]   I note for completion that, had I allowed the application, Mr Westend proposed to adduce an affidavit rebutting Mr Talbot’s account.

Was the Judge wrong to find that the breach had not been proved?

[42]   Mr Ahern submitted that the Judge erred in criticising him for the manner in which Mr Green’s email was adduced, and that this led the Judge to focus unduly on that email, and to overlook other evidence of breach. Mr Ahern said that the evidence as a whole proved that there had been a breach of confidentiality.

[43]   I accept that the Judge erred in her criticism of Mr Ahern. First, the Judge prefaced that criticism by saying that Mr Green’s email “was never exhibited in evidence”.9 That is incorrect. The notes of evidence record that the email was produced as an exhibit through the cross-examination of Mr Jaques. Secondly, the Judge was critical of Mr Ahern having attached the email to his opening synopsis. That criticism was not warranted. The email should have been included within the common bundle, with the respondents’ admissibility objection noted. The respondents refused to include the email in the bundle.10 Mr Ahern’s attaching the email to his opening synopsis was merely a proxy for what the respondents should have done in any event. It follows from these two points that it was not correct to say that Mr Ahern “attempted to adduce evidence from the Bar”, let alone to say that what he had done was “improper”.11

[44]   I also accept that there is substance to Mr Ahern’s submission that the Judge was incorrect to say that Mr Green’s email was the only evidence proffered by the appellants of a breach. Mr Ahern pointed to other evidence at trial on the question of breach. I now turn to that.

[45]   First, Mr Ahern noted that Mr Brauninger’s email exchange with Mr Talbot, in which Mr Brauninger recorded his understanding that Mr Westend had breached confidentiality, and Mr Brauninger’s email to Mr Jaques, which recorded the same understanding, were included within the common bundle without any objection by the respondents. Mr Ahern said that the consequence of incorporating these emails in the common bundle, as set out in r 9.5(1)(a) of the District Court Rules 2014, was that

9      Westend v Brauninger [2020] NZDC 7354 at [13].

10     I note that this occurred before the engagement of Mr O’Neill as counsel for Cambridge Vets in the District Court.

11 At [14].

they were “to be considered to be admissible”. It followed, he submitted, that the emails were admissible for all purposes, including as evidence of the truth of their contents – namely, that Mr Westend had breached the deed.

[46]   I do not accept that submission.  Rule 9.5(1)(a) has to be read together with   s 132 of the Evidence Act 2006. So read, it is clear that the rule does not operate to admit into evidence documents being offered to prove the truth of their contents, unless an exception to the hearsay rule applies.12 No such exception was suggested.

[47]   Mr Ahern was on firmer ground with his second (and main) point. This was that there was evidence that the allegations of breach had been put to Mr Jaques, and that the respondents (particularly the Westends) had not made any contemporaneous denial of the allegations. Instead, Mr Ahern said, the respondents had merely argued that the breach did not entitle the appellants to cancel the deed.

[48]   I accept that the failure to make any contemporaneous denial of an allegation can be evidence of the truth of the allegation. But the probative value of such evidence will always depend on the particular circumstances of the alleged failure to make a denial. Sometimes an allegation will call out for a denial, and the other party’s complete silence will speak volumes. But this is not such a case. The allegations were passed on to Mr Jaques at about 9.00 pm on 22 August 2017. The appellants met with Mr Jaques at 12.30 pm the next day. There was no evidence to suggest that Mr Jaques had in the meantime obtained the Westends’ response to the allegations. Mr Jaques’ unchallenged evidence was that at the meeting he said to the appellants that the allegation “if true” did not form a material breach of the deed. The very next day the respondents issued their proceedings against the appellants.

[49]   While I accept that the respondents did not, either orally in writing, send a clear denial of the allegation to the appellants, their immediate issue of proceedings sent the same message. The absence of an express contemporaneous denial is therefore only very weak evidence of a breach.

12     Burrell Demolition Ltd v Wellington City Council HC Wellington CIV-2006-485-1274, 12 March 2008 at [118]–[126] per Clifford J.

[50]   The third strand of evidence that Mr Ahern relied on was in Mr Westend’s cross-examination. When it was first put to him that he had discussed the deed with Mr Green, Mr Westend was firm in his answer: “I never discussed any of that sort of thing with Wayne Green.” Mr Ahern contrasted this with Mr Westend’s later answer to a similar proposition, which answer he said was equivocal: “I don’t think I did and I’m pretty sure I didn’t.” In my view there is nothing in this. The slight change in  Mr Westend’s answers is explained by the slightly different context of the latter part of the cross-examination.   The later answer was prefaced by a proposition put to   Mr Westend that he had had conversations from which people inferred that a deal had been done – a proposition which he had not finished answering.

[51]   The final strand of evidence on which Mr Ahern relied was Mr Green’s email. Mr Ahern acknowledged that the email was hearsay and generally inadmissible (to the extent that the appellants sought to rely on it as evidence of the breach). But Mr Ahern said that the email should have been admitted under the exception in s 18 of the Evidence Act 2006, as there was reasonable assurance that the statement in the email was reliable, and undue expense or delay would have been caused if Mr Green had been required to be a witness.13 I do not accept this submission. It is true that the amounts at stake were relatively modest, and that the hearing was conducted as a short trial. But it would have been a simple matter to call Mr Green as a witness. Little expense would have been involved, and no discernible delay.

[52]   In summary, the appellants were alleging, as an affirmative defence, that the Westends had breached the confidentiality clause. The burden was on the appellants to prove this. It appears that there were three witnesses who potentially could have given direct evidence in support of the appellants’ allegation. The appellants did not lead evidence from any of those witnesses. The only admissible evidence of breach was the respondents’ failure to make an express denial of the allegation. That evidence was very weak. Mr Westend denied the allegation of breach.  In these circumstances I agree, although for slightly different reasons, with the Judge’s ultimate conclusion that the appellants did not prove a breach of the confidentiality provision.

13 At the hearing Mr Ahern also relied, faintly, on the exception in s 34 of the Evidence Act 2006. Section 34 would have applied if Mr Green’s email contained an admission by Mr Westend. It did not.

[53]   Given my conclusion on that point, I do not need to consider whether the breach, if it had been proved, would have entitled the appellants to cancel the deed as against either or both of the respondents.

Appellants’ fall-back position: amendment of claims after closing

[54]   In the written submissions Mr Ahern submitted, as a fall-back position, that the Judge should not have allowed the respondents to amend their claims after the evidence had closed. In oral submissions Mr Ahern did not press this point far. He was right not to do so. No prejudice could have been caused to the appellants by the amendment. Mr Hitchcock and Mr Westend deposed in their affidavits that Linwood had not made any payments under the deed. That remained their evidence at trial. They were not challenged on that evidence. I infer there was no challenge because the fact of non-payment was not in dispute. The entire focus of the trial was on whether the appellants had been entitled to cancel the deed.

Result and costs

[55]The appeal is dismissed.

[56]   In the unlikely event that costs cannot be agreed, the parties may file memoranda as follows: the respondents within 20 working days of the date of this judgment, the appellants within a further 10 working days. Each memorandum must not exceed three pages (excluding schedules or annexures). I can indicate that my provisional view is that:

(a)The respondents are entitled to costs from the appellants, except in respect of the telephone conference that was convened on 18 September 2020.

(b)The appellants and the second respondents are entitled to costs from the first respondents for that conference.

Campbell J