C&P Holdings Limited (in liquidation) v Boyd

[2018] NZHC 1392

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2016-404-2489

[2018] NZHC 1392

BETWEEN

C&P HOLDINGS LIMITED (in liquidation) First Plaintiff

VIVIEN JUDITH MADSEN-RIES AND HENRY DAVID LEVIN

Second Plaintiffs

AND

NICOLA EALINE BOYD

First Defendant

BLAKE WILLIAM BOYD and NICOLA ELAINE BOYD
Second Defendants

BRUCE KENNETH DELL

Third Defendant

Hearing:	14 March 2018
Counsel:	N Malarao and L Deane for Plaintiffs G C Jenkin for Defendants
Judgment:	13 June 2018

JUDGMENT OF ASSOCIATE JUDGE SMITH

This judgment was delivered by Associate Judge Smith on 13 June 2018 at 9.30am, pursuant to

r 11.5 of the High Court Rules

Registrar/Deputy Registrar Date:

Solicitors:Meredith Connell (Office of the Crown Solicitor), Auckland, for Plaintiffs Bruce Dell Law, Auckland, for Defendants

C&P HOLDINGS LTD (in liq) v BOYD [2018] NZHC 1392 [13 June 2018]

[1]    This is an application by the plaintiffs for an order for non-party discovery of bank statements and other banking records held by  the  ASB  Bank  (ASB)  and ANZ Bank (ANZ), in respect of a company called Adventure Discoveries Early Learning Centre Ltd (ADELC). ADELC is not itself a party to the proceeding. It was put into liquidation on 15 February 2012, and subsequently removed from the Companies Register.

Background

The parties

[2]    The second plaintiffs (the liquidators) are the liquidators of the first plaintiff (the Company). The liquidators were appointed when the Company was put into liquidation on the application of the Commissioner of Inland Revenue, on 11 March 2016.

[3]    The first defendant (Mrs Boyd) was a director of the Company from the time of its incorporation on 3 July 2008, and she was a shareholder in the Company when it was put into liquidation.

[4]    Mrs Boyd and her husband, the second defendant Blake Boyd, are the trustees of a trust known as the Boyd Family Trust (the Trust). The plaintiffs say that between 22 May 2012 and 27 June 2014 the third defendant (Mr Dell) was also a trustee of the Trust.

Circumstances leading to the claim

[5]    ADELC was incorporated on 7 May 2004. Mrs Boyd was the sole director, and she and Mr Boyd were the registered shareholders. ADELC carried on business in the pre-school learning field, under the name Adventure Discoveries.

[6]    On 15 June 2010, ADELC borrowed the sum of $250,000 from ASB, pursuant to a facility agreement entered into with ASB. At the same time, ASB granted ADELC a credit facility of $20,000. For convenience, I will refer to these advances as "the ADELC 2010 loans".

[7]    On 26 January 2011, ASB lent a further $94,000 to ADELC. I will call this loan "the ADELC 2011 loan".

[8]    Both the ADELC 2010 loans and the ADELC 2011 loan were guaranteed by the trustees of the Trust, including Mr Dell.

[9]    In late 2011, ADELC decided to sell its business and undertaking to the Company. Mrs Boyd sent an email to Mr Dell's law firm on 1 November 2011, in the following terms:

I am wanting to liquidate [ADELC] and have been to BDO for some advice. As the business wasn't profitable and no assets remain in it then they have advised doing a sale and purchase agreement for $1. The new business located at the new location will trade under another company.

Can you organise a sale and purchase agreement for me dated 1 September as below.

Seller: [ADELC] Buyer: [the Company] Sale price: $1

Transfer date to be 1 October 2011

…

[10]   Mr Dell's firm replied on 9 November 2011, advising that they needed to know what was being sold by way of tangible and intangible assets (if any), and whether the lease then held by ADELC was being assigned. Mrs Boyd replied the same day, advising that there were no fixed assets being sold, as all had been written off in the accounts. Nor was there any goodwill, as the business was not profitable.

[11]   Mr Dell's firm then prepared a form of agreement for sale and purchase, showing a total purchase  price  of  $1.  They  emailed  the  form  to  Mrs Boyd  on 11 November 2011, making the suggestion that Mrs Boyd let her accountant double- check the form before it was signed and completed. They drew attention to the need to complete schedule 3 of the form of agreement, relating to GST information.

[12]   The form of agreement for sale and  purchase  sent  by  Mr Dell's  firm  to Mrs Boyd on 11 November 2011 had provision for completion of dollar figures beside the headings "Tangible Assets", "Intangible Assets", and "Stock and Trade", but no

figures were inserted for those items. The only figure inserted was the sum of $1 beside the heading "Total Purchase Price".

[13]   The plaintiffs issued the present proceeding in the belief that the form of agreement for sale and purchase just referred to was the only document recording the basis on which the Company acquired the business  and undertaking of ADELC  on 1 November 2011. However, when discovery was completed by the defendants a different form of agreement (the Signed Agreement) was produced. The Signed Agreement is dated 1 July 2011, and Mrs Boyd appears to have signed it on behalf of both ADELC and the Company.

[14]   The principal differences between the Signed Agreement and the unsigned form of agreement prepared by Mr Dell's firm are:

(a)the Signed Agreement was dated 1 July 2011;

(b)the Signed Agreement had attached to it a lengthy list of chattels sold with the business; and

(c)the Signed Agreement provided a "breakdown" of the purchase price of

$1. The figure of $144,001 was included beside the heading "Tangible Assets", and the figure $210,000 was included beside the heading "Intangible Assets". There was then a debit item of $354,000, described as "liabilities with ASB Bank".

[15]   On the face of it then, if the sale and purchase transaction was completed on the basis of the Signed Agreement, the Company was acquiring total assets of

$354,001, but agreeing to take over $354,000 of ADELC's liability to ASB.

[16]   By late 2011 ADELC had run into financial difficulties. The Commissioner of Inland Revenue filed an application to liquidate ADELC in December 2011. ADELC was put into liquidation on 15 February 2012.

[17]   As noted above, the trustees of the Trust had guaranteed the obligations of ADELC under the ADELC 2010 loans and the ADELC 2011 loan. Following the

February 2012 liquidation of ADELC, the prospect of these guarantees being called upon by ASB must have been very real, although it appears from the Signed Agreement that the Company had assumed an obligation to ADELC to discharge ADELC's $354,000 liability to ASB, and that the Company was to receive from ADELC assets of sufficient value to cover that obligation.

[18]   In the event, the Company did not discharge ADELC's obligation to ASB. Instead, on 22 May 2012, the trustees of the Trust entered into a loan agreement with ASB, under which ASB advanced $354,000 to the Trust (the "May 2012 ASB Loan"). The May 2012 ASB Loan was recorded in the loan agreement as being used to repay the ADELC 2010 loans and the ADELC 2011 loan. On the evidence produced so far, it seems likely there was no actual movement of money – ASB would simply have applied the $354,000 advanced to the Trust on 22 May 2012 to the discharge of the ADELC 2010 loans and the ADELC 2011 loan.

[19]   At about the same time as the trustees were borrowing the $354,000 from ASB in May 2012, the trustees entered into a deed with the Company described as a "deed of acknowledgement of debt". Although the document is dated 11 May 2012, it is clear from the content of the document that it must have been completed at some time after 22 May 2012, when the trustees entered into their loan agreement with ASB.

[20]   The document dated 11 May 2012 (I will call it "the May 2012 deed") recorded that the Trust had advanced money to the Company for the purpose of the Company purchasing the assets and liabilities of ADELC. The introductory part of the May 2012 deed went on to record:

D Pursuant to the loan agreement dated 22 May 2012 between [ASB] (Facility Schedule 12-3209-0452052-91-002) and [the Trust], [the Company] is hereby indebted to [the Trust] for the sum of $354,000.

[21]   The operative part of the May 2012 deed recorded that the advance from the Trust to the Company would remain outstanding as a debt payable by the Company to the Trust on demand, and that the Trust could at any time demand that the Company repay the debt in whole or in part. The Company was also obliged to pay on demand interest on the debt from time to time outstanding during the 12 months preceding the

demand, at the rate charged by ASB under the loan agreement between ASB and the Trust.

[22]   I record that the liquidators produced with their evidence a second copy of the May 2012 deed. It was identical in all respects to the May 2012 deed, except that it bore the date 11 May 2011. In an affidavit in opposition to the non-party discovery application, Mrs Boyd explained that she had handwritten the wrong date on a copy of the May 2012 deed. In the end, that explanation was not challenged by the plaintiffs at the hearing, which proceeded on the basis that there was only one May 2012 deed, completed at some time soon after 22 May 2012 (when the trustees borrowed the

$354,000 from ASB).

[23]   Pausing there, the defendants say that there was nothing untoward about these transactions. The Company had agreed with ADELC to pay the $354,000 owed by ADELC to ASB, and that was in effect the consideration for the tangible and intangible assets of ADELC the Company was to acquire. The $354,000 debt owing to ASB was repaid by the trustees in May 2012, but (by the agreement between the Company and the Trust recorded in the May 2012 deed) the Trust's payment to ASB was treated, as between the Trust and the Company, as an advance by the Trust to the Company.

[24]   The defendants say that if there was any issue at all about these transactions, it could only have been whether the Company got full value for the $354,000 it agreed to pay to acquire the assets of ADELC. The defendants say that it clearly did: in or about May 2015, the Company sold the Adventure Discoveries business to an unrelated party for $430,000 plus GST. That sale is not disputed by the plaintiffs, and the defendants say that it provides sufficient evidence that the Company did obtain full value in exchange for its commitment to assume responsibility for ADELC's liabilities to ASB.

[25]   The defendants say that all payments made by the Company to the trustees after May 2012 are properly to be regarded as payments made by the Company in partial discharge of debts owed by the Company to the Trust.

[26]   As far as the amounts paid are concerned, the defendants point to the fact that the $354,000 referred to in the May 2012 deed was not the only advance from the Trust to the Company. On 31 May 2010, the Company and the Trust had entered into an earlier deed of acknowledgement of debt, under which the Company acknowledged a debt to the Trust of $67,620.20. After the May 2012 deed, the total owed by the Company to the Trust was $421,620.20 (the $67,620.20 plus the $354,000 owing under the May 2012 deed).

[27]   The last matter to which I need to refer at this stage arises out of an "updating" affidavit provided by the second plaintiff Mr Levin on 20 February 2018. Mr Dell had only been added as a party to the proceeding in October 2017, and his discovery list was not received until 22 December  2017.  Among  the  documents  disclosed  by Mr Dell were a number of documents which, read together, suggest that ADELC may never have received $250,000 of the total $270,000 lent by ASB when it made the ADELC 2010 loans.

[28]   The documents produced by Mr Dell show that in September 2009 the Trust entered into an agreement to purchase a property in Fordyce Avenue in Auckland, for

$1,312,000. Settlement statements relating to the purchase of the Fordyce Avenue property show that the Trust borrowed $677,000 from an unrelated party, and financed the balance of the purchase price with the assistance of a vendor loan of $570,000. The vendor loan of  $570,000  was  the  subject  of  a  term  loan  agreement  dated 16 December 2009, which provided that the principal was repayable in one sum on 17 June 2010, with monthly interest.

[29]   Two days before the vendor loan was due for payment (that is, on 15 June 2010) the ADELC 2010 loans were made, under which ADELC was to receive

$250,000 with a further $20,000 to be made available on a revolving credit facility. Also on 15 June 2010, the Trust entered into a loan agreement with ASB to borrow

$450,000 (the June 2010 ASB Loan).

[30]   Mr Levin produced with his updating affidavit a statement from Bruce Dell Law dated 17 June 2010, which appears to show that the June 2010 ASB Loan and

$250,000 of the ADELC 2010 loans, were applied:

(a)towards the repayment of the vendor finance on the purchase of the Fordyce Avenue property – $574,503.87; and

(b)in reduction of a debt owed by the Trust to the ANZ Bank – $115,000; and

(c)meeting legal costs and disbursements – $11,000.

The liquidators' investigations and plaintiffs' amended statement of claim

[31]   Following their appointment, the liquidators concluded that the Company's liabilities had been greater than its assets from at least 31 March 2009, and that it had been unable to pay its debts from at least 31 March 2012.

[32]   In the course of their investigation of the Company's activities prior to liquidation, the liquidators ascertained that, in the period between 1 January 2011 and 11 March 2016, the Company had made payments totalling $306,360 to the Trust. Allowing for some payments made by the Trust to the Company in this period, net payments from the Company to the Trust within the period were $291,710.

[33]   The plaintiffs' most recent statement of claim (the Claim) is dated 9 June 2017. It pleads a total of six causes of action, two of which (the fifth and sixth causes of action) allege breaches by Mrs Boyd of her duties as a director of the Company. The other four causes of action are broadly concerned with the (net) payments of $291,710 paid by the Company to the Trust between January and 11 March 2016.1

[34]   In their first cause of action, the plaintiffs say that they are entitled to recover these payments under s 348 of the Property Law Act 2007 (the PLA), as payments made by the Company with intention to prejudice creditors, at a time when the Company was insolvent. In their second cause of action, the plaintiffs plead that the net payments of $291,710 were effectively advances from the Company, which the

1      In the period between 1 January 2011 and 25 January 2014, the plaintiffs say that the Company made payments to or for the benefit of the Trust totalling $37,745. In the same period the Company received into its ASB account payments from the Trust totalling $8,650, giving a total net payments figure for the period of $29,095. The "total net payments" to the Trust for the period from 26 July 2014 to 11 March 2016 was $262,615.

Trust is obliged to repay. The third cause of action alleges that $261,615 of the amounts paid by the Company to the Trust were paid at a time when the Company was insolvent, and within the "specified period"2 before the liquidation of the Company. The liquidators say that they are entitled to recover these payments under ss 292 and 294 of the Companies Act 1993 (the Act). The fourth cause of action is a cause of action by the liquidators against Mr and Mrs Boyd as trustees of the Trust, under s 297 of the Act (transactions made at an undervalue).

[35]   The third and fourth causes of action are expressed to be in the alternative to the first and second causes of action.

[36]   Because Mr Dell's discovery was not available when the Claim was filed, the Claim does not refer to the matters addressed in Mr Levin's updating affidavit, including the apparent use of funds advanced by ASB to ADELC to discharge obligations of the Trust relating to the acquisition of the Fordyce Avenue property.

The defendants' amended statement of defence (the Defence)

[37]   The defendants deny that they are liable on any of the plaintiffs' causes of action.

[38]   They plead that the Company survived through injections of capital from them and the Trust, and that the Adventure Discoveries business operated by the Company had significant goodwill, which was not reflected in the balance sheet.

[39]   They admit that between 1 January 2011 and 25 January 2014 the Company made payments to the Trust, or for the benefit of the Trust, totalling $37,745, and that within the same period the Company received payments from the Trust totalling

$8,650. In addition, the defendants say that the Trust paid $36,556 to the bank on behalf of the Company, to reduce the Company's bank indebtedness. They say that the Trust had earlier made payments to or for the benefit of the Company, in the period between April 2009 and January 2011, amounting to a further $71,220.

2      In this case, the period of two years before the making of the application to the Court for an order putting the Company into liquidation.

[40]   The defendants say that the payments made by the Company to the Trust between 1 January 2011 and 25 January 2014 were either payments made to reimburse the Trust for instalments due to ASB on the bank loan, or reimbursement of advances made by the Trust to the Company for cashflow purposes.

[41]   The defendants admit that the Company made payments to the Trust in the period 26 January 2014 to 11 May 2016 totalling $268,615.08, and that in the same period the Company received payments from the Trust totalling $6,000. In addition to the $6,000, they say that the Trust also made payments of about $56,612 to the bank on behalf of the Company. They say that a further payment of $150,000 was paid to ASB (via the Trust bank account) from the proceeds of the sale of the Adventure Discoveries business in June 2015. Allowing for those payments, the defendants say that, within the specified period prescribed by s 292 of the Act, the Trust received net payments from the Company totalling $55,003.

[42]   The defendants deny the plaintiffs' allegation that the Company had no obligations or liabilities to ASB in respect of the May 2012 ASB Loan.

Discovery

[43]   The parties have completed standard discovery in the Court proceeding, in accordance with an order of the Court made on 7 February 2017.

[44]   The plaintiffs say that the discovery provided by the defendants has been insufficient, in that records of some transactions, and relevant bank statements, have not been disclosed by the defendants in their discovery lists.

[45]   The defendants say that they have disclosed all relevant documents that are in their power.

The application for non-party discovery and the defendants' notice of opposition

The application

[46]The documents sought by the plaintiffs from ASB are the following:

(a)Bank statements for the period 15 June 2010 to 15 February 2012 in respect of the following bank accounts held with ASB by East Auckland Sports and Learning Centre Limited (formerly known as Adventure Discoveries Early Learning Centre Limited) (Removed) (ADELC):

(i)       account number 12-3209-0448328-91-005;

(ii)      account number 12-3209-0448328-00;

(iii)     account number 12-3209-0448328-91-001; and

(iv)     any other bank account held by ADELC with ASB, (together, ADELC's ASB Accounts).

(b)All documentation relating to ADELC's ASB Accounts, including but not limited to:

(i)banker's diary notes or internal emails or memoranda relating to these accounts;

(ii)account application and operating authority forms; and

(iii)any correspondence with ADELC or its representatives regarding these accounts.

(c)All documents relating to loan facilities associated with ADELC's ASB Accounts, including but not limited to:

(i)loan applications (and any documents provided in support), offers, loan agreements, guarantee documents, and security documents;

(ii)correspondence with ADELC or its representatives in relation to these loan facilities;

(iii)correspondence with any trustees or representatives of [the Trust] in relation to these loan facilities; and

(iv)any loan documents which record how the loan funds advanced under these facilities were applied.

(d)Any financial statements of ADELC or other such financial records.

[47]The documents sought from ANZ are:

(a)All documents relating to loan facilities advanced by ANZ and/or the National Bank of New Zealand Limited (National Bank) to ADELC and which were repaid on or after 15 June 2010 (ANZ Loans), including but not limited to:

(i)loan applications (and any documents provided in support), offers, loan agreements, guarantee documents, and security documents;

(ii)correspondence with ADELC or its representatives in relation to these loan facilities; and

(iii)correspondence with guarantor(s) or a representative in relation to these loan facilities.

(b)If any of the ANZ Loans were refinancing of earlier loan facilities advanced by ANZ and/or the National Bank to ADELC, all documents relating to those loans, including but not limited to:

(i)loan applications (and any documents provided in support), offers, loan agreements, guarantee documents, and security documents;

(ii)correspondence with ADELC or its representatives in relation to these loan facilities; and

(iii)correspondence with guarantor(s) or a representative in relation to these loan facilities.

(c)Bank statements for the period from 7 May 2004 to 15 June 2010 for:

(i)the bank accounts held by ADELC with ANZ [which were] associated with the loan facilities referred to at paragraph (a) and (b); and

(ii)any other accounts held by ADELC with ANZ which the loan funds advanced pursuant to the loan facilities referred to at paragraph (a) and (b) were transferred to,

(together, ADELC's ANZ Accounts).

(d)All documentation relating to ADELC's ANZ Accounts that exist on and/or are available to be restored to the SDA system, including but not limited to:

(i)banker's diary notes or internal emails or memoranda relating to these accounts;

(ii)documentation for entities whose liabilities are guaranteed by ADELC and/or [the Company];

(iii)any account application and operating authority forms relating to ADELC's ANZ Accounts; and

(iv)any correspondence with ADELC or its representatives regarding these accounts.

[48]   The plaintiffs ask for orders directing ASB and ANZ to file affidavits within 20 working days, stating whether the documents sought are or have been in their control.

[49]   In an affidavit sworn in support of the non-party discovery application, the liquidator, Mr Levin, deposed that the plaintiffs were seeking discovery against the two banks:

… to ascertain what ADELC applied the funds obtained through its loan facilities for, and in particular to see if it in any way benefitted the Company and/or [the Trust]. These documents have bearing on the question why the Company entered into the [May 2012 deed], thereby assuming liability to [the Trust] for $354,000.

The notice of opposition

[50]   In their notice of opposition, the defendants say that the plaintiffs are seeking the discovery to support only their first cause of action, which includes an allegation that the May 2012 deed was a fraud on creditors, and should be set aside. But even if loan monies from ASB and/or ANZ were on-lent by ADELC to the Company or to the Trust, that would provide no explanation as to why the Company entered into the May 2012 deed or the earlier deed of acknowledgement of debt entered into on 31 May 2010.

[51]   The defendants note that the non-party discovery application relates solely to ADELC. They say that the present proceeding has nothing to do with ADELC, but concerns the Company and the Trust only.

[52]   More generally, the defendants say that the non-party discovery application is no more than a fishing expedition by the plaintiffs. They say that the plaintiffs have produced no evidence to support their theory, which is based on speculation at best. They note in that context that the plaintiffs are seeking documents from ANZ which relate to a period prior to the date the Company was even incorporated. On the pleadings and the evidence produced, the documents sought are irrelevant; if the banks had been parties to the proceeding they would not have been obliged to disclose them.

[53]   Finally, the defendants object to the discovery on the basis that the documents sought are confidential to ADELC. They say that the banks should not be required to disclose them for that reason.

The positions of the non-parties

[54]   As required by the rules, the application for non-party discovery has been served on ASB and ANZ. Both banks have indicated that they will abide the decision of the Court.

Memorandum filed by plaintiffs after the hearing

[55]   At the hearing, I asked Mr Malarao and Ms Deane to let me have a memorandum setting out the particular paragraphs in the pleadings (the Claim and the Defence) to which the documents sought in the application are said to be relevant.

[56]   Counsel filed a memorandum promptly after the hearing, submitting that the documents sought from both ASB and ANZ are relevant to particular identified paragraphs in the Claim and the Defence.

Applications for non-party discovery – legal principles

[57]   The application is made under r 8.21 of the High Court Rules. That rule provides:

(1)This rule applies if it appears to a Judge that a person who is not a party to a proceeding 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 Judge 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 the documents have been but are no longer in the person's control, the person's best knowledge and belief as to when the documents 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; and

(c)if the documents are in the control of the person, to make those documents available for inspection, in accordance with rule 8.27, to the 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.

[58]   The issue of costs on a non-party discovery application is addressed by r 8.22. That rule materially provides:

8.22     Costs of discovery

…

(3)If an order is made under rule 8.20(2) or 8.21(2), the Judge may, if the Judge thinks it just, order the applicant to pay to the person from whom discovery is sought the whole or part of that person's expenses (including solicitor and client costs) incurred in relation to the application and in complying with any order made on the application.

[59]   In Vector Gas Contracts Limited v Contact Energy,3 Kós J noted that the jurisdiction under r 8.21 is discretionary. His Honour identified the following principles for the exercise of the discretion:

(a)The Court should consider whether the documents sought meet the standard discovery test under r 8.7. However, the former test established in Peruvian Guano [under which the duty to disclose could extend to documents which might put the other party onto a train of enquiry that would help or hinder either party's case] may still inform a non-party discovery order.

(b)While the forerunner of the present r 8.214 required that the non-party discovery be "necessary", and that word does not appear in r 8.21, that is a distinction without a difference. What is necessary includes, but is not limited to, circumstances where other sources of information are

3      Vector Gas Contracts Limited v Contact Energy [2014] NZHC 3171; [2015] 2 NZLR 670 at [28]- [31].

4      Rule 8.26, in force until 31 January 2012.

materially incomplete or unreliable, or the documents will "make a real difference", and are not merely marginal.

(c)Disclosure restrictions for confidential information can be imposed where an identifiable public, rather than private, interest exists. However, that is a matter for inspection, rather than discovery.

[60]   The standard discovery test for relevance referred to by Kós J is stated in the High Court Rules as follows:5

8.7      Standard discovery

Standard discovery requires each party to disclose the documents that are or have been in that party's control and that are—

(a)documents on which the party relies; or

(b)documents that adversely affect that party's own case; or

(c)documents that adversely affect another party's case; or

(d)documents that support another party's case.

[61]   While noting that on occasion non-party discovery might be informed by a "train of enquiry" approach, Kós J did note in Vector that "excursions on the train of inquiry" are not to be encouraged.6 Kós J did note that non-party discovery will be ordered where the availability of the documents sought will make determining particular issues less difficult, and the result more reliable,7 but the Court of Appeal has held more recently that the relevance of the documents, assessed against the pleadings, remains the hallmark of discovery.8

[62]   In respect of applications for non-party discovery specifically against banks, the Court of Appeal held in Wallis Brothers Limited v Canterbury Bye Products Limited 9 that a non-party discovery order (for documents including account information and the bank's diary notes) may be necessary where discovery by the parties has created confusion in relation to key factual issues. However, the Court held

5      High Court Rules, r 8.7.

6      Vector Gas Contracts Limited v Contact Energy, above n 3, at [29].

7 At [59].

8      Chatfield & Co Limited v Commissioner of Inland Revenue [2016] NZCA 614 at [21].

9      Wallis Bros Limited v Canterbury Bye Products Limited (1985) 5 PRNZ 590 (CA).

that a non-party discovery order should only be made after the parties have completed ordinary discovery.

[63]   On the issue of confidentiality of documents held by a bank for a non-party, the learned authors of McGechan on Procedure say:

HR8.21.07      Discovery against banks

The Banking Act 1982 provided for an additional means of obtaining discovery against banks, whether the records concerned related to a party to the proceeding or not. That Act was repealed as from 30 June 1995 by the Banking Act Repeal Act 1995. Banks must therefore now be regarded in the same way as any other non-party to litigation.

However, some of the principles developed under the Banking Act cases will continue to be of relevance. It will generally be appropriate for a customer whose records are being sought to have an opportunity to be heard: James v Mabin (No 3) [1929] NZLR 899 (SC); R v Williams Bacon & Co Ltd [1969] NZLR 228 (SC); Allingham v BNZ (1988) 2 PRNZ 616 (HC); Cycle Mfg Co

Ltd v Williamson HC Auckland CP1572/89, 27 May 1992. The appropriate time for the application is after general discovery and interrogatory processes: Wallis Bros Ltd v Canterbury Bye Products Ltd (1985) 5 PRNZ 590 (CA); Butler v Holden (1990) 3 PRNZ 660 (HC).

The issues in the case

[64]The following are the issues to be decided:

(1)Are the documents sought by the plaintiffs relevant on the present pleadings?

(2)Will the documents sought from the banks "make a real difference", and provide more than merely marginal assistance?

(3)Should non-party discovery be ordered in respect of documents that were subject to duties of confidentiality owed by the banks to ADELC?

Discussion and conclusions

[65]I will address in turn each of the issues identified in [64] above.

Issues (1) – Are the documents sought by the plaintiffs relevant on the present pleadings?

[66]In my view they are not.

[67]   Mr Levin said in his affidavit that the non-party discovery is sought to ascertain how ADELC applied the funds it borrowed from the banks, "in particular to see if it in any way benefited the Company or [the Trust]". The documents sought are said to "have bearing on the question why the Company entered into the [May 2012 deed], thereby assuming liability to [the Trust] for $354,000".

[68]   The first and most obvious point is that the documents all relate to ADELC, and ADELC is not a party to this proceeding. Secondly this case (and particularly the first and third causes of action, on which the plaintiffs placed particular reliance on the application10) is substantially concerned with transactions between the Company and the Trust; it is not directly concerned with transactions that may have occurred between (say) ADELC and the Trust.

[69]   In those circumstances I think it was for the plaintiffs to identify particular transactions in which ADELC and one or both of the banks were involved, and explain how that transaction or transactions will or might shed light on one or more of the issues in this case. In my view the plaintiffs have failed to do that.

[70]   The principal issues to which the non-party discovery application was directed appear to be the validity of the May 2012 deed (did it create or record a genuine liability from the Company to the Trust?), and whether payments subsequently made by the Company to the Trust were made in partial discharge of that liability (or for some other reason, such as diverting to the Trust money that should have been available to pay the Company's creditors).

[71]   The plaintiffs submit that central to any determination of the reason for the Company's payment of funds to the Trust, will be an examination of the real nature of the transactions between ADELC, the Company, and the Trust, and whether there was

10     Although the plaintiffs say the documents sought will also be relevant on the fifth and sixth causes of action.

any legitimate basis for the Company's entry into the May 2012 deed. Specifically in respect of the May 2012 deed, the plaintiffs submit:

(a)Under the May 2012 deed, the Company indemnified the Trust for the May 2012 ASB Loan, for which the Company had no prior liability. They submit that it was the Trust that was solely liable under the May 2012 ASB Loan, and it was also the Trust that was liable under the ADELC 2010 Loans and the ADELC 2011 Loan (which were restructured into the May 2012 ASB Loan following ADELC's liquidation). It is also now known that the Trust benefitted from the ADELC 2010 Loans.

(b)The reference in the May 2012 deed to the purchase by the Company of ADELC's assets and liabilities (so as to require an advance from the Trust), and the second (unexplained) version of the sale and purchase agreement between the Company and ADELC relied on by the defendants, is inconsistent with Mrs Boyd's contemporaneous instructions to the Company's solicitor.

(c)The reference in the May 2012 deed to the Trust advancing money to the Company simply did not happen. The Trust never received funds from ASB to advance to the Company. The May 2012 deed was also entered into at least six months after the Company purchased the Adventure Discoveries business from ADELC.

[72]   The documents sought must meet a test of apparent relevance to the issues identified by the plaintiffs, and the starting point for any consideration of apparent relevance must be the "adverse documents" test prescribed by r 8.7 of the High Court Rules. Under that rule, each party is required to disclose documents on which the party relies, or which adversely affect that party's or another party's case, or which support another party's case.

[73]   I do not accept the plaintiff's submission that the documents they seek meet the adverse documents test for standard discovery in this case. In particular, it is not

explained how the documents sought will adversely affect the plaintiffs' or the defendants' cases on the critical questions of the validity of the May 2012 deed, and the reasons for the payments subsequently made to the Trust by the Company.

[74]   The plaintiffs submit that the documents regarding ADELC's facilities are relevant because they will show whether or not the May 2012 ASB Loan, which gave rise to the May 2012 deed, was a restructure due to ADELC's liquidation. But even if the documents did show that, it would not necessarily show that the May 2012 deed was not what it appears to be, or explain why the payments were later made to the Trust by the Company. It is difficult to see how the bank documentation would be likely to support or adversely affect either party's case.

[75]   The question of whether the Signed Agreement is a genuine document may well be an important issue at trial. If it is valid, the position would appear to be that, when it acquired the Adventure Discoveries business, the Company assumed an obligation to ADELC to discharge ADELC's liability to ASB under the ADELC 2010 loans and the ADELC 2011 loan. If that is so, one can see why the Trust, as guarantor of those loans and having agreed to borrow money (the May 2012 ASB loan) from ASB to discharge those liabilities, might have required the Company (which had agreed when it acquired the business to step into ADELC's shoes as primary obligor vis a vis ASB) to reimburse it. In that way, the use of the May 2012 ASB loan funds to discharge ADELC's liability to ASB might have been regarded by the Company and the Trust as an advance by the Trust to the Company.

[76]   Whether that is the correct interpretation to put on the events, including the Signed Agreement and the May 2012 deed, is another matter, and it is one I do not have to resolve in this judgment. It is enough to say that it is difficult to see that any of the documents sought by way of non-party discovery from the banks would be likely to shed any light on the matter. It seems improbable that ADELC would have been concerned with questions as to how matters might be restructured between the Company and the Trust following the Company's acquisition of the business in late 2011, particularly as ADELC appears to have been in financial trouble at the time (according to the Claim, it was put into liquidation in February 2012).

[77]   Turning to the particular documents sought, I accept Mr Jenkins' submission that the categories of documents are so broad as to border on ‘fishing'. Some appear to be clearly irrelevant.

[78]   For example, in relation to the ANZ documents, the plaintiffs are seeking documentation from ANZ for the period from 7 May 2004 to 15 June 2010. But the Company was only incorporated on 3 July 2008. Without a better explanation than the plaintiffs have provided, it is difficult to see how ADELC documents going back several years before the Company was incorporated would be relevant.

[79]   The very broad nature of the documents sought from ASB suggests that the plaintiffs are hoping they might find something of assistance, without being able to point to any specific documents or transactions, and without showing how the documents might assist their case or damage the case of the defendants. All bank statements, bank diary notes, and bank internal emails or memoranda over a period as long as 20 months is casting the net too wide, at least without identifying a particular transaction or transactions, and explaining how that transaction or transactions is/are relevant to the issues in the Claim and the Defence. The same is true in respect of the loan documents that are sought, and it is not at all clear how ADELC financial statements or records might be relevant to the issues in the Claim and the Defence.

[80]   The same broad considerations apply in respect of the documents sought from ANZ. I do not consider r 8.21 was intended to give a party a free licence to trawl through the non-party's documents in the hope of finding something that will be of assistance – demonstrating that the documents sought are relevant remains an important consideration. The fact that the documents sought from ANZ include bank statements going back as far as 7 May 2004, and any banker's diary notes and internal memoranda or emails going back to the same date, suggest that the plaintiffs have not sought in their application to identify particular documents (or categories of documents) going to particular issues. In my view that is fatal to the application.

[81]   The plaintiffs submit that the documents sought are relevant under the former Peruvian Guano, approach to discovery11, under which the Courts applied a broader relevance test that extended to include documents which would or might put a party onto a "train of enquiry" that would assist its case or damage its adversary's case. They submit that the discovery sought will or might put the plaintiffs onto a reasonable train of enquiry into the real nature of the transactions between ADELC, the Company and the Trust. Although the Peruvian Guano approach may still inform non-party discovery applications to some extent, as Kós J noted in the Vector case excursions on the train of inquiry are not to be encouraged.12 I am satisfied that the documents sought do not meet the standard discovery test under r 8.7, and I do not see it as necessary or appropriate to apply the "train of enquiry" approach to relevance in this case.

[82]   To obtain non-party discovery there must be grounds for the belief that the non-party has documents that would be discoverable if the non-party was a party to the proceeding. If the banks were joined as parties to this proceeding, I am not satisfied they would have any obligation to disclose the documents sought: with few exceptions (eg any correspondence between ASB and the Trust relating to ADELC's loan facilities with ASB, and any correspondence between the banks and ADELC's guarantors) the documents have not been shown to involve any parties to the proceeding, and to the extent the documents sought would appear to involve parties to this proceeding it is not clear that the documents exist or how they might be relevant.

Issue  (2)  –  Will  the  documents  sought  from  the  banks  "make  a  real  difference",  and provide more than merely marginal assistance?

[83]   Given my findings on Issue (1), it is not necessary to address this issue, other than to state briefly why I consider the application also fails on this test.

[84]   As outlined in Vector Gas13, necessity for the making of a non-party discovery order remains implicit in r 8.21. The rule requires the Court to have a reasonably strong sense that non-party discovery of the kind and extent sought is necessary, and that the documents sought may make a real difference, and are not merely marginal.

11     Compagnie Financière et Commerciale du Pacifique v Peruvian Guano Co (1882) 11 QBD 55 (CA).

12     Vector Gas Contracts Ltd v Contact Energy Ltd, above n 3, at [29].

13 At [59].

Having concluded that the documents have not been shown to be relevant, I have little difficulty concluding that the plaintiffs have not shown that discovery of the documents sought would "make a real difference" to the issues in the case.

[85]   The plaintiffs submit that the existing evidence regarding the key factual issues in the proceeding is insufficient and conflicting. In Wallis Bros v Canterbury Bye Products14 the Court of Appeal did consider that the confusion as to trading revealed in the discovery already provided, justified an order for discovery of bank accounts and banker's diary notes. But that is not the situation here. There may be some confusion in this case (for example, over the two different forms of agreement for sale and purchase), but it is not at all clear how the documents sought from the banks would or might help remove the confusion. I am therefore not satisfied that the documents sought will or may "make a real difference" on the key issues as to the true nature of the transactions, and the reasons for the payments to the Trust.

Issue (3) – Should non-party discovery be ordered in respect of documents that were subject to duties of confidentiality owed by the banks to ADELC?

[86]   In view of the answers I have given on issues (1) and (2), there is no need to address this issue.

Result

[87]   The application for non-party discovery is dismissed. Costs are awarded to the defendants on a 2B basis, with disbursements to be fixed by the registrar.

Associate Judge Smith

14     Above n 9, at 597.