Carl Yung Gems Limited v Leading Design Jewellery Limited HC Auckland CIV 2007-404-2545

[2010] NZHC 1182

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2007-404-2545

BETWEEN  CARL YUNG GEMS LIMITED Plaintiff

ANDLEADING DESIGN JEWELLERY LIMITED

First Defendant

ANDGARY DENE CAMERON Second Defendant

ANDTIMOTHY ROBERT HYDE-SMITH Fourth Defendant

ANDANTHONY EDWARD FAED MACMILLAN

Fifth Defendant

Hearing:         2 July 2010

Appearances: R O Parmenter for Plaintiff

K S Muston for First, Second, Fourth and Fifth Defendants

Judgment:      6 July 2010

JUDGMENT OF COOPER J

This judgment was delivered by Justice Cooper on

6 July 2010 at 11.00 a.m., pursuant to r 11.5 of the High Court Rules

Solicitors:

Registrar/Deputy Registrar

Date:

Daniel Overton & Goulding, PO Box 13017, Onehunga

P J Castle, PO Box 9670, Newmarket, Auckland 1001

Copy to:
R O Parmenter, PO Box 1052, Shortland Street, Auckland

M Fisher, PO Box 3236, Shortland Street, Auckland 1140

CARL YUNG GEMS LIMITED V LEADING DESIGN JEWELLERY LIMITED AND ORS HC AK CIV-

2007-404-2545  6 July 2010

[1]      This proceeding was commenced in May 2007.  Regrettably, the parties have become enmeshed in arguments about discovery.  In a judgment dated 28 May 2009, Associate Judge Sargisson dealt with an application made by the defendants for particular discovery.  There was then an application for a review of her orders.  That application was dealt with by Courtney J in a judgment delivered on 11 December

2009.

[2]      There are now issues as to whether or not the plaintiff has complied with the order made by Courtney J in resolving the application for review.  In an application dated 7 May 2010, the first, second, fourth and fifth defendants assert a number of respects in which it is said the plaintiff has failed to comply with the order.  They now seek orders that the plaintiff file and serve a further supplementary affidavit that complies with those orders.  In the alternative, a new order is sought in terms of a schedule attached to the application, which specifies the required subject matter of the affidavit that the defendants claim should be filed.

Background

[3]      The plaintiff (“CYG”) claims against the first defendant (“LDJ”) for unpaid invoices in respect of the supply of jewellery.   In response, LDJ has filed a counterclaim in which it alleges that CYG breached the terms of an agreement in relation to the price and weight of jewellery that was to be supplied.

[4]      The issue between the parties as to discovery relate to documents which, if they exist, are relevant to the counterclaim.  Courtney J summarised LDJ’s claim at [5] and [6] of her judgment and I can adopt those paragraphs for present purposes:

[5]       Leading Design had orders from retail customers that it had to fulfil. It alleges that the agreement with Carl Yung Gems included the following terms:

a)Carl Yung Gems would manufacture in China and deliver to Leading Design in Auckland all jewellery, diamonds and coloured stones required by Leading Design to fulfil its orders.

b)       The price Carl Yung Gems would charge would not exceed

80%  of  the  price  Leading  Design’s  retail  customer  had

agreed to pay so that at all times Leading Design’s profit margin would be 20%.

c)        Leading Design would pay Carl Yung Gems half of its 20%

margin by way of debt repayment instalments.

d)Carl Yung Gems would manufacture and deliver diamonds and gemstones at prices specified in price lists and give reasonable notice of changes.

e)Carl  Yung  Gems  would  manufacture  and  deliver  9-carat gold jewellery based on a price of NZ$12 per gram and give reasonable notice of any change.

[6]       Leading Design says that it placed orders for jewellery with Carl Yung Gems at an agreed weight and price.  It alleges various breaches by Carl Yung Gems, including exceeding the agreed price for 9-carat gold jewellery, delivering jewellery at weights below the specified and agreed weight, delivering jewellery at weights above the specified weight and charging accordingly, exceeding agreed prices, and charging for jewellery based on the average weight of product rather than the agreed price.

[5]      Courtney J noted that the focus of the application for particular discovery was on  documents  that  might  relate  to  the  weight  of  LDJ’s  confirmed  orders  for jewellery.  She recorded a submission by counsel for LDJ that any documents that showed the weight of confirmed orders would tend to show that there was an agreement that jewellery be supplied according to weight, and would support LDJ’s allegations if the recorded weight were not the same as the weight LDJ says was agreed at the time of the order.

[6]      In affidavits sworn in support of CYG’s application for further discovery, Mr Gary Cameron (the second defendant, and a director of LDJ) had discussed order confirmation documents which he considered would demonstrate that price and weight had been agreed at the time of the order being placed.  It was his evidence that  documents  comprising  such  order  confirmations,  Customs  import documentation and CYG’s invoices to LGJ would be kept together as part of the records required to be kept for Customs purposes.  At [11] Courtney J said:

[11]      The Associate Judge found that the documents being described by Mr Cameron  were  not  “customs  documents”.     Although  she  did  not elaborate on that conclusion it is apparent that she was treating a “customs document” as a document created either specifically by or for the Customs Department.   Further, the Associate Judge found that, whilst Carl Yung Gems clearly held Customs documentation of a general kind, she could not be satisfied that such documentation existed in relation to individual orders.

This conclusion was, undoubtedly, fortified by the supplementary affidavit filed by Ms Yung.

[7]      Subsequently, in a further affidavit which was before Courtney J but not before Associate Judge Sargisson, Mr Cameron had explained that by referring to “Customs importation and clearance documentation” he had intended to refer not only to documents produced specifically in respect of the Customs’ procedures, but also the various documents required by the Customs and Excise Regulations 1996, which must be retained by any importer.

[8]      At [14] – [15], Courtney J observed:

[14]      I accept that on the basis of the pleadings and the evidence there is a real issue as to whether Leading Design’s orders specified the weight and price  of products.    Documents  that  are  relevant  to that  issue should  be discovered.   The description “New Zealand Customs importation and clearance documentation” in its strict sense would mean documents created by or for New Zealand Customs; the fact that other documents of a general nature exist which are required by the Customs and Excise Regulations 1996 to be retained would not alter their nature so as to make them “customs documents”.     In  this  sense,  the  Associate  Judge  was  correct  in  her conclusion.  However, the description was not something to be approached in a strict way.  This was an application by Leading Design and it is apparent from Mr Cameron’s evidence that he was using this descriptive phrase as a kind of shorthand, to convey the idea of any documents connected with the importation  process.    No  doubt  the  application  could  have  been  better worded.   But the important point is that Carl Yung Gems is obliged to discover all documents that are relevant, having regard to the pleadings.

[15]     Under  Regulation  59  Customs  and  Excise  Regulations  1996  an importer is required to retain records generated by or otherwise come into its possession or control that are necessary to verify, amongst other things, the importation of any goods and the manufacture of any goods subject to excise duty.  Such records can include ordering and purchase documentation such as orders, confirmations of orders, invoices and correspondence between the importer and any party related to the transaction.  If any of these documents contain information such as references to weight and price relevant to the issues in the substantive proceedings, they should have been discovered. The fact that they might not fall within a strict reading of the category for which particular discovery was sought does not relieve Carl Yung Gems of the obligation.

[9]      The order that she made was set out in [17]:

[17]      I therefore make an order that Carl Yung Gems file and serve a second supplementary list of documents that include but are not limited to any relevant document required to be retained under the Customs and Excise Regulations  1996.     For  clarity,  I  repeat  that,  regardless  of  how  the

application  was  worded,  if  documents  exist  that  are  relevant  to  the allegations against Carl Yung Gems these are to be discovered.

Affidavit by Ms Priscilla Yung

[10]     Following the delivery of Courtney J’s judgment, an affidavit was filed by Ms Priscilla Yung.  This was her “fourth supplementary affidavit on behalf of the plaintiff” to the defendants’ application for further discovery.   Ms Yung is CYG’s financial controller.   In her affidavit, she recorded CYG’s consistent denial that it had ever agreed with the defendants to sell jewellery on a “per weight basis” and its assertion that the goods were sold to the first defendant on a “per unit” basis.  At paragraphs 5 and 6 she deposed:

5.        So, when the defendants keep on complaining that we have not disclosed documents showing the weights of the articles/pieces imported, we keep on saying that there are no such documents because there was no such deal (sale based on weight).

6.        On behalf of the plaintiff, I say that:

a.there are no relevant Customs’ documents which we have not disclosed;

b.there are no Customs’ documents showing weights of articles/pieces;

c.there  are  no  Customs’  documents  which  refer  to  the importation of pieces for Leading Design (or any other customer).

[11]     In the seventh and final paragraph of her affidavit, Ms Yung discussed two attachments.  The first, Exhibit “A” was an order form that had been sent to CYG by LDJ in February 2007.  She asserted that it showed LDJ was “ordering per piece and not weight per piece”.  The second attachment, Exhibit “B”, was a copy of material which she had downloaded from CYG’s Customs site, being an import entry for

21 January 2007.  She commented that CYG does not keep “Customs forms as such” and that “[e]verything is done on-line these days”.   She commented in relation to Exhibit “B” that it contains no reference to a customer, that the only reference to weight was to the weight of a package and not to individual items, and made other observations.

LDJ’s present application

[12]     LDJ  maintains  that  Ms Yung’s  affidavit  is  an  insufficient  response  to

Courtney J’s orders.  Particular issues raised are that:

a)       Ms Yung  had  used  the  expression  “Customs’  documents”  (as  in paragraph 6, quoted above) without defining what she meant. Consequently, it was unclear whether when using that term she was referring generally to documents relating to the transactions between CYG and LDJ which were required to be kept under the Customs and Excise Regulations 1996, or solely to documents which CYG had transmitted or delivered to the Customs Department.

b)Ms Yung asserted that there were no Customs documents showing weight  of  articles/pieces  yet  Exhibit  “A”  had  contradicted  her assertion.  That was because it contained references to weight, was an example of a document containing the information which had been contained in documents exchanged between CYG and LDJ on each occasion an order was placed, and the plaintiff was required under s 95  of  the  Customs  and  Excise  Act  1996  and  clause  59  of  the Customs and Excise Regulations 1996 to keep all documents of that kind in New Zealand for not less than seven years.  LDJ also asserts that there is no basis for Ms Yung’s contention that the reference to “weight” in Exhibit “A” was the average/expected weight rather than the actual weight of the item imported.

[13]     Ms Muston  raised  various  other  alleged  shortcomings  in  respect  of  the discovery given to date by CYG.  In particular, LDJ referred to:

a)       An allegation that CYG had discovered only 641 of the 1,681 order confirmations in respect of which it has not received payment, without explaining the  whereabouts  of  the  missing confirmations.    Of  the confirmations actually discovered the price which appeared on the order confirmation as originally transmitted to CYG has allegedly

since been obliterated without any explanation being offered as to why or when this was done.

b)CYG has not discovered the Chinese translation of LDJ’s order confirmations or other documents of CYG containing references to weight or price.

c)       CYG has not discovered any of the invoices to which it had chosen to appropriate payments made by LDJ in reduction of debt.   It is said that such invoices would contain references to weight and price and would disclose the extent of overcharging.

CYG’s position

[14]     For CYG, Mr Parmenter asserted that it had done everything necessary to comply  with  its  discovery  obligations  in  general  and  Courtney J’s  orders  in particular.  As to the issue of discovery generally, he noted that the application dealt with by Associate Judge Sargisson had identified five discrete areas in respect of which LDJ had sought further discovery.  Of those, he submitted that it was only in respect of items in the third and fifth categories which remained in dispute after Associate Judge Sargisson’s decision.  They were respectively:

a)       New Zealand Customs importation and clearance documentation for each confirmed order (showing weight, price, quantity and description).

b)CYG’s handwritten notes on the New Zealand Customs importation and clearance documentation for each confirmed order.

[15]     Documents within the scope of paragraph (b) were clearly a subset of those covered by paragraph (a).  Mr Parmenter contended that it was only documents in those categories that had been the subject of Courtney J’s decision.  That submission is in accordance with the fact that at [7], Courtney J specifically referred to that category of documents under the heading “The Documents Sought”.  Consequently,

although Courtney J had referred in [17] to documents “that include but are not limited” to relevant documents required to be kept under the Customs and Excise Regulations 1996, and had gone on to state “if documents exist that are relevant to the allegations against Carl Yung Gems these are to be discovered”, the order should be seen to be limited to documents in the category in question.

[16]     That  being  the  case,  Mr  Parmenter  submitted  that  Ms Yung’s  fourth supplementary affidavit had been right to concentrate on Customs’ documentation. In paragraph 6 she had directly focused on those documents and what she said at that paragraph had to be read together with what she had said at paragraphs 3 and 4 of an earlier affidavit that she swore on 4 November 2008:

3.        Customs’  documentation:    I  understand  from  Mr Parmenter  that there is some “disbelief” from the defendants in respect of para 6 of my supplementary affidavit of documents, when I said:

The third category of documents concerns Customs Importation and Clearance.   There are no Customs Importation and Clearance documentation for each confirmed order from Leading Design.  The goods came in bulk mixed with other customers goods.  There are no separate documents for Leading Design’s orders.   Also, goods for different orders could come in one parcel but goods for one order could be spread over several parcels.

4.        In order to make my position clear, I attach as Exhibit 1, 4 pages of “Details of Import Entry” for our company.   As can be seen, there is no possible way to work out whether the items imported are for Leading Design or any of our other customers.

Discussion

[17]     It is necessary first to decide on the ambit of the order that was made by Courtney J.  In that respect, I accept Mr Parmenter’s submission that it cannot have been the Judge’s intention to reopen the whole issue of discovery.  I consider that in context, the order made at [17] it is to be seen as requiring CYG to give further discovery within the general category of documents described as “New Zealand Customs importation and clearance documentation for  each confirmed  order  for jewellery made by LDJ (showing weight, price, quantity and description)”. Documents covered would not be limited to those which were created by or for New Zealand Customs but would include other documents, required to be retained under

the Customs and Excise Regulations 1996, where they include information such as references to weight and price.  I reach that conclusion reading paragraphs [7], [14], [15] and [17] of the judgment together.

[18]     In  her  affidavit  of  16 March  2010,  Ms Yung  deposes  that  there  are  no relevant Customs documents which have not been disclosed, that there are no Customs’ documents showing rates of articles or pieces of jewellery and that there are no Customs’ documents which refer to the importation of pieces for LDJ or any other customer.  However, she does not state the sense in which she had been using the expression “Customs documents”.   In my view, she should swear an affidavit which makes the position plain and relates to the categories of documents as I have just defined them in the preceding paragraph.

[19]     As  to  other  specific  items  mentioned  by  Ms Muston,  orders  and  order confirmations are part of the material which is required to be kept under Regulation

59 of the Customs and Excise Regulations.   It might be inferred from Ms Yung’s latest affidavit that all of the order confirmations have been discovered.   In an affidavit that she affirmed on 7 March 2008, Ms Yung asserted at paragraph 7 that the relevant confirmations were discovered in three Eastlight folders and a compact disc which had been made available for inspection by CYG in the discovery process. In a second affidavit affirmed on 27 May, she advised that the first supplementary affidavit was accurate.   However, in paragraph 9 of an affidavit that he swore on

18 April 2008 Mr Cameron said:

9.        At paragraph 7 of the supplementary affidavit, Ms Yung has deposed that the relevant documents are contained in three Eastlight folders.  I have inspected the three folders in question.  They comprise only 641 copies of the  1681  order  confirmations  for  which  the  plaintiff  has  not  received payment.   In respect of 572 of those order confirmations, the agreed price which had been inserted into every order confirmation document before it was transmitted by the first defendant to the plaintiff has since been obliterated or otherwise removed from the order, in some cases it is apparent that “twink” has been used.  In remaining 69 of the 641 order confirmations discovered, the price has not been obliterated.

[20]     Further, in an affidavit that he swore on 30 July 2008, Mr Cameron noted that

Ms Yung had failed to address the discrepancies that he had noted at paragraph 9 of

his affidavit of 18 April 2008 relating to the fact that the documents discovered by

CYG comprised only 614 of the 1,681 order confirmations in question.

[21]     Mr Parmenter   addressed   this   matter   in   submissions   by   noting   that Mr Cameron  had failed to refer to the compact disc to which Ms Yung had referred in addition to the Eastlight folders.  He indicated from the Bar that there were about

700 documents on the compact disc.   It seems appropriate in the circumstances to require Ms Yung to confirm by way of a further affidavit whether the documents identified by Mr Cameron as not having been discovered are in fact contained on the compact disc.  I note in this respect that Mr Parmenter simply referred to “about 700 documents” without saying what they were.

[22]     In the further affidavit which I have directed she should file, Ms Yung should explain  what  the  true  position  is  in  respect  of  the  order  confirmations  that Mr Cameron alleges have not been discovered.  If there are order confirmations that were once but are no longer in CYG’s control she should state when they ceased to be in its control and who now has control of them.

[23]     As to the issue about obliteration of details on the order confirmations, I do not consider that is a matter which can be the subject of a required explanation in respect of the discovery exercise.  If it wishes to pursue that matter further, it may be that LDJ should administer interrogatories, or simply rely on cross-examination at the trial.

[24]     Another specific issue raised concerns the Chinese translation of LDJ’s order confirmations or other documents of CYG containing references to weight or price. If there are Chinese translations of LDJ’s order confirmations, then I am of the view that they would be discoverable under the terms of [17] of Courtney J’s judgment. In her further affidavit, Ms Yung should deal specifically with documents in this category.

[25]     As to the issue raised concerning invoices to which CYG has chosen to appropriate payments made in reduction of debt by LDJ, I do not consider that that is an issue arising out of non-compliance with Courtney J’s order.   The issue was

evidently addressed in the affidavits sworn by Mr Cameron on 7 December 2007 and

30 July 2008;  if there was a real issue as to a failure to discover relevant documents under this head it should have been raised before now.

[26]     I am not prepared to make any further orders in relation to discovery, nor to grant the alternative orders that were sought in the application.

Result

[27]     Mr Yung is to file a further affidavit dealing with the matters to which I have referred at paragraphs [18], [22] and [24] above.   The affidavit is to be filed and served on or before Friday 16 July 2010.

[28]     As LDJ and CYG have each enjoyed a measure of success in respect of the present application it will be appropriate for costs to lie where they fall.

[29]     The proceeding is to be the subject of a case management conference before an Associate Judge on a date, as soon as possible after 16 July 2010, to be fixed by the Registrar.