Burmeister v O'Brien HC Tauranga CIV 2005-470-396
[2007] NZHC 1863
•19 June 2007
IN THE HIGH COURT OF NEW ZEALAND TAURANGA REGISTRY
CIV 2005-470-396
UNDER the Land Transfer Act 1952, the Credit Contracts and Consumer Finance Act 2003 and the Fair Trading Act 1986 BETWEEN
K. S BURMEISTER AND V.J. BURMEISTER
Plaintiffs
AND
J.L. O’BRIEN First Defendant
AND
G.S. O’BRIEN Second Defendant
AND
P. E. PATTERSON Third Defendant
AND
G.P. CLAYTON Fourth Defendant
AND
J.F. CLAYTON Fifth Defendant
AND
M. HENLEY-SMITH Sixth Defendant
AND
AUCKLAND SAVINGS BANK Seventh Defendant
Hearing:
13 June 2007 (Heard at Rotorua)
Appearances: Mr Chesterman for plaintiffs
Mr von Dadelszen for Harding & Associates Ltd, a non-party
Judgment: 19 June 2007 at 3 p.m.
JUDGMENT OF ASSOCIATE JUDGE J P DOOGUE
Solicitors:
Sharp Tudehope, Private Bag 12020, Tauranga
Bannister & von Dadelszen, P O Box 745, Hastings
BURMEISTER V O’BRIEN AND ORS HC TAU CIV 2005-470-396 19 June 2007
Background
[1] This is an application for non-party discovery under r 302 High Court Rules.
[2] Mr Burmeister has filed two applications seeking orders under s 302 against Harding & Associates Limited. They appear to be in identical terms and are dated respectively 12 October 2006 and 20 October 2006. The application is made in reliance on Rule 302.
[3] The general factual circumstances giving rise to these proceedings is set out in a judgment given by Associate Judge D H Abbott 24 April 2007 on a summary judgment application. In brief, the plaintiffs’ claim that they were persuaded to enter into a ‘buy back’ scheme and as a result of that they were duped into a series of arrangements which resulted in their residential property at 1 Lotus Avenue, Tauranga being transferred to a family trust associated with the O’Briens, the first and second defendants. Their counsel described the plaintiffs as being commercially naïve. They thought that they were taking part in a scheme which allowed them to turn their unencumbered home into an income generating investment. They thought the property would be put into a ‘secure family trust’ and they would receive regular weekly payments while the house was held in the trust.
[4] In mid-April 2002 the plaintiffs’ signed documents purporting to record the arrangement between them and ICMG Group. These documents were an agreement and a Deed of Acknowledgement of Debt which the Burmeisters entered into with another ICMG Group company, Opol Limited.
[5] The exact path that all the transactions followed is not of essential importance in this judgment. The Burmeisters, however, allege that the arrangements which resulted in them being replaced as registered proprietors of their house property by parties associated with the O’Brien Trust were fraudulent. The present position is that their house property is owned by strangers who they do not know and the property is encumbered with a large mortgage which the new proprietors granted over their estate and interest in the land. The mortgagee is threatening to enforce its security. The mortgagee has been joined as a party to the substantive proceedings. I
was told in the course of submissions that the Burmeisters house property is worth in excess of $300,000. They are otherwise people of modest means. They are in receipt of legal aid for these proceedings.
[6] Harding & Associates Limited is a firm of accountants. The former third defendant, Ms P E Patterson, is a director of that firm and is an accountant. She became a trustee of the O’Brien Family Trust. The third defendant’s practice acted as an accountant for the O’Brien Trust for some years. The practice also acted for ICMG Group. The first defendant, Mr O’Brien, was a director and shareholder of some of their group companies, including ICMG Property Company Limited. ICMG Property Limited was involved as an intermediary in the process by which the house property at Lotus Avenue in Tauranga was transferred from the Burmeisters to the O’Brien Family Trust by a process which is not clear to me. ICMG Property Limited transferred the Lotus Avenue property to the O’Brien Family Trust in September 2001. Thereafter, the O’Brien Family Trust sought to raise finance over the Lotus Avenue property. The third defendant as trustee signed mortgage documents. It was partly her action in so doing which resulted in her being joined as a third defendant in the proceeding. She has since been dismissed from the proceeding by an order made by Associate Judge Abbott in the judgment that I have referred to above at paragraph [3].
[7] The plaintiffs at an earlier stage in the proceedings obtained an order requiring the third defendant to provide an affidavit of documents. Because her involvement with the transaction arose out of her position as an accountant who carried out work under the aegis of Harding & Associates Limited, her response to the order requiring her to provide an affidavit of documents essentially meant that she had to search the records held by Harding & Associates which related to the O’Brien Family Trust.
[8] Ms Patterson deposed in her affidavit in opposition to the present application that, prior to her swearing her own affidavit of documents 16 September 2005, she and employees of the company located all relevant documents that they held in relation to the matter and provided them to the solicitors. Broadly speaking, the affidavit of documents, which Ms Patterson swore in September 2005, appears to
have been concerned with documents relating to the O’Briens and the O’Brien
Family Trust.
[9] In his affidavit in support of his application, sworn 12 October 2006, Mr Burmeister deposes that the O’Brien Family Trust purchased the property from ICMG Property Limited and that Harding & Associates Limited carried out professional work for ICMG Group. Obviously it was the expectation of the applicant/plaintiff that the non-party respondent to this application should discover documents relating both to the O’Brien Family Trust and to the ICMG Group. At the hearing before me there was some dispute about the extent of the work Harding
& Associates Limited had carried out for ICMG but it is plain from the affidavit that Ms Patterson filed, it did have documents relating to ICMG and that, implicitly at least, Ms Patterson accepted those documents were relevant to the plaintiffs’ claim. But, in any case, the involvement of ICMG Group companies in the alleged fraudulent arrangement means that any documents which Harding & Associates Limited hold which relate to ICMG and its part in the Burmeister transaction are relevant for the purposes of discovery.
[10] Essentially, the respondents’ stance was that the Court should not make the order that was requested because it cannot be satisfied that the order is necessary. In detail that submission was founded on further subsidiary propositions that were set out in Mr von Dadelszen’s submissions at para 4.10 as follows where he submitted:
(a) There are no grounds for believing that any further evidence of probative value is held by the non-party.
(b) Other discovery processes undertaken by other parties (the order obtained by the first and second defendants against the statutory managers) or available to the plaintiffs (against the Serious Fraud Office) would make available everything the non-party ever held, and, further, the originals of such documents.
(c) In the absence of evidence the plaintiffs’ imprecise allegations and causes of action remain baseless and speculative.
[11] As well as the submission that the order was not necessary, Mr von Dadelszen submitted that the application was also resisted on the grounds that it was oppressive and of a ‘fishing’ nature.
The High Court rules
[12] The jurisdiction to make orders of the kind which the plaintiff seeks is contained in r 302:
302 Order for particular discovery against non-party after proceeding commenced
(1) this rule applies if it appears to the court that a person who is not a party to a proceeding (the person) may be or may have been in the control of
1 or more documents or a group of documents that the person would have
had to discover if the person were a party to the proceeding. (2) the court may, on application, order the person—
(a) to file an affidavit stating—
(i) whether the documents are or have been in the person's control; and
(ii) if they have been, but are no longer, in the person's control, the person's best knowledge and belief as to when they ceased to be in the person's control and who now has control of them; and
(b) to serve the affidavit on a party or parties specified in the order.
(3) an application for an order under subclause (2) must be made on notice to the person and to every other party who has filed an address for service.
(4)the court may not make an order under this rule unless satisfied that the order is necessary at the time when the order is made.]
There must be discoverable documents
[13] The starting point is to examine whether the Non-Party is likely to have control of discoverable documents. To do so, I apply the traditional test posed in Compagnie Financière et Commerciale du Pacifique v Peruvian Guano Co (1882)
11 QBD 55 (CA), at p 63.
“It seems to me that every document relates to 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, as 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 may fairly lead him to a train of inquiry, (which may have either of these two consequences,”)
[14] Judged by those criteria, it would appear likely, in the absence of some explanation establishing that the position is otherwise, that the Non-Party has documents in its control which are relevant to the proceeding.
Is the order necessary?
[15] Mr von Dadelszen particularly stressed the concluding part of r 302:
(4)The Court may not make an order under this rule unless satisfied that the order is necessary at the time when the order is made.
[16] He also referred to the judgment of McGechan J in Clear Communications
Limited v Telecom Corporation of New Zealand Limited (M119/93, HC WGN, 30
March 1993).
(5)The r301 power to order a third party to make discovery is subject to r321 requirement such order be “necessary”. In this context, “necessary” means “reasonably necessary”: Sterling Pharmaceuticals (NZ) Limited v The Boots Company NZ Limited (1991) 3 PRNZ 337, 340. The categorisation lies somewhat indefinitely between absolute essentiality, and mere desirability. Otherwise, the power to order, or not, is fully discretionary. In the exercise of that discretion there is no pre-disposition for or against third party discovery. Obviously, its purpose is to be borne in mind. It is, like all discovery, to assist the litigation party concerned to prepare for hearing in advance, reducing risks of surprise and adjournment. More particularly, it is to ease the position of the party who has been unable by request to inspect the third party’s documents, and is faced with the severe risk of calling the third party on a subpoena duces tecum to produce previously unseen documents into evidence. Obviously, its potential problems are to be borne in mind. Outsiders will be protected against direct expenses of involvement through r302, but there are likely still to be effects not readily compensated. The Court certainly is not to encourage flagrant fishing expeditions. Moreover, where the document realistically can be obtained in some other fashion, it may well be appropriate not to impose the burden of third party discovery. The potential for delay, as with all interlocutory matters, is to be borne in mind, as also is the possibility of abuse for extraneous commercial purposes.
[17] Mr von Dadelszen also submitted:
1.9 Bearing on the determination under Rule 302(4) on the necessity for the Order, and “the state of the proceedings at this time,” I submit that the following issues are pertinent (covered in Sections 2.0, 3.0 and 4.0 below):
(a) The Plaintiffs have sought discovery from the Statutory Managers of the ICMG Group and from the Serious Fraud Office, and that discovery will, or should, make available to the Plaintiffs all documents Harding & Associated Limited could now produce.
(b) To the extent that Harding & Associated Limited hold documents relating to the First and Second Defendants’ O’Brien Family Trust, such documents have already been made available.
(c) The application is oppressive and constitutes a “fishing expedition” to see if there are documents the plaintiffs do not know exist and which may support some existing or other cause of action.
[18] It would appear that Mr von Dadelszen’s submission, which assumes that discovery has been ordered from the Serious Fraud Office, is not correct. I understand that it is correct to the extent that the statutory managers of the ICMG Group have been required to provide discovery.
[19] I am prepared to accept that if the applicant for an order under s 302 has already obtained discovery from another party, and that it seems likely that all the relevant documents would have been obtainable from that source, then it is not necessary to direct that still further party/ies give discovery. I therefore next examine whether it is factually the case that discovery from the other parties and non-parties will have revealed all the relevant documents.
[20] In the first place, I do not have the necessary information to conclude that the Statutory Managers of ICMG came into possession of all of the documents. In particular, I do not know whether they received all of the documents which Harding
& Associates Limited have or had under their control.
[21] Next, there seems to be doubt arising from my examination of the affidavit of documents which Ms Patterson was required to swear as a non-party in September
2005, that ICMG documents were covered in that affidavit. No doubt that is because at an earlier stage, June 2003, the Serious Fraud Office requisitioned Harding and Associates Ltd to provide to it the documents relating to ICMG and an associate
company Toi Te Atatu Limited pursuant to s 9 of the Serious Fraud Office Act 1990. Harding & Associates Limited acted promptly on that requisition and sent off various files clearly linked to ICMG and its associated companies 12 June 2003. Therefore, at the date when she gave her affidavit of documents, Ms Patterson would not have in her possession all of the documents that the firm had earlier sent to the SFO. I reach that conclusion for the following reasons.
[22] In her affidavit of documents 16 September 2005 Ms Patterson gave the customary deposition as follows:
8.I list in part three of the schedule the documents that are no longer in my control and state when, to the best of my knowledge and belief, each document ceased to be in my control and the persons who, to the best of my knowledge and belief, now have control of each document.
[23] Then in part three she gave a description of the documents no longer in her control as follows:
Part Three
Documents which relate to matters in question in this proceeding but which are no longer in the possession or power of the Third Defendant. It is not known when the Third Defendant ceased to be in control of these items, most having been sent to the Serious Fraud Office for their investigations some time ago. The Serious Fraud Office has since returned some items, but it is not known if all documents provided to them have been returned.
[24] After Ms Patterson had given her affidavit of documents, the Serious Fraud Office returned some of the files to Harding & Associates Limited. Ms Patterson deposed that after Harding & Associates Limited had been served with the present application she and Mr Harding searched the records returned by the Serious Fraud Office and extracted documents which she considered had relevance to the O’Brien Family Trust. She stated in her affidavit 6 November 2006:
11.We located a box which was returned to us from the Serious Fraud Office which was full of documents unrelated to the O’Brien Family Trust. However, within this box we did locate three documents two of which I am certain I have not seen before.
[25] She then annexed a series of documents which seemed to relate to the settlement of the ‘purchase’ by which the O’Brien Family Trust acquired the Burmeister’s property from ICMG. There were also some other documents.
[26] As an aside, I observe that the part of the affidavit in which she referred to documents returned from the Serious Fraud Office, she did not specifically refer to documents relating to ICMG. It is possible that the reference to the O’Brien Family Trust was intended to be a compendious reference to documents relating to, inter alia, ICMG. But I cannot be certain of that.
[27] Her evidence continued that the documents which Harding & Associates Limited sent to the Serious Fraud Office were returned in a ‘disassembled state’. Documents were sent back to Harding & Associates Limited which were not that firms documents ‘to begin with’. She then said:
17.I have no confidence that any of the documents which the Serious Fraud Office may hold would be in a fit and proper state and I was most concerned at the state of our documents when they were returned to us.
[28] She then deposed that Harding & Associates Limited had made a complaint to the Serious Fraud Office about what it asserted was the improper, non- professional management of documents that Harding & Associates Limited had sent to it.
[29] To summarise:
a) Documents relating to ICMG are held by two and perhaps three entities.
i)Harding & Associates Limited have received back documents from the Serious Fraud Office which may relate to ICMG.
ii)The Serious Fraud Office says that it has sent the balance of the documents to the statutory mangers of ICMG.
iii)The third possibility is that the Serious Fraud Office have retained some of the ICMG documents.
[30] In these circumstances discovery is attended by unusual difficulties. Because the documents have been transient, it is hard to have confidence that the three lists of documents filed thus far, cumulatively would cover all the documents held by those three entities at different times. ICMG documents were held by Harding & Associates Limited but had gone to the Serious Fraud Office by the time Ms Patterson gave her affidavit. Documents were sent to the Serious Fraud Office to the statutory managers but it is unclear whether all the documents from the Serious Fraud Office had been received by the statutory managers at the time when they gave their affidavit of documents.
[31] In the unusual circumstances of this case, I would suggest now that the ‘dust has settled’ the documents are likely to have reached their permanent homes and a reliable search can be made at each of the three destinations to which the documents were dispersed. It follows from that that I consider it is necessary within terms of the Rule for Mr Burmeister to have discovery of the documents held by Harding & Associates Limited. Mr von Dadelszen made the point that the documents that have come back from the Serious Fraud Office may be only copies and may not include all the originals that were sent to the Serious Fraud Office by Harding & Associates Limited or may include other documents that were never sent by Harding & Associates Limited to the Serious Fraud Office. With respect, I do not see this issue as being relevant to whether or not discovery is necessary. The fact is that these are ICMG documents – irrespective of their provenance.
[32] Nor does it matter that the documents are copies. The objects of discovery are not limited to turning up documents that would be admissible as evidence at trial. Therefore Mr von Dadelszen’s submission that the best evidence rule would prevent admission of copies of documents is beside the point.
[33] The next step is to decide whether or not in my discretion I should order discovery.
[34] I am concerned at the effect that making a further order for discovery would have on Harding & Associates Limited. I say ‘further order’ because the order originally made against Ms Patterson was in effect an order requiring her to depose as to documents which were in the possession of Harding & Associates Limited. It seems unlikely that the documents were in her control if, as I assume, she is an employee of Harding & Associates Limited.
[35] In order to come to a practical solution in this matter, I suggested at hearing of this application that in the first instance it might be helpful for Mr Chesterman to inspect the carton of documents that have come back to the Serious Fraud Office. That could be done on an informal basis. If it was felt necessary, a suitable undertaking could be obtained from Harding & Associates Limited that all of the documents received back from the Serious Fraud Office were included in the bundle to be made available to the plaintiffs’ counsel.
[36] I remain of the view that that is the appropriate way to deal with matters. I will defer further consideration of the present application until I hear back from the parties as to whether or not they are prepared to cooperate in the way that I have suggested. At the hearing before me the non-party declined to cooperate in such an exercise. It was the non-party’s prerogative to so refuse. However, if the non-party wishes to save itself the expense and trouble of filing a further affidavit of documents, then this would be a practical route to that objective.
[37] If the matter does not resolve, then the parties should let me have memoranda within 21 days updating the position and I will consider whether or not I should make orders for non-party discovery. If the proposal I have made is not taken up, it would be helpful if any correspondence exchanged between the parties which throws light on the difficulties that arose should be put before me as annexures to any memoranda.
[38] I have already heard the parties on the matter of costs, but if they consider that further submissions on that issue may be helpfully included in their memoranda, I will consider them.
J.P. Doogue
Associate Judge
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