Carolan v NZ Real Estate Credit Limited
[2016] NZHC 1239
•9 June 2016
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2014-404-000483 [2016] NZHC 1239
BETWEEN MICHAEL JOSEPH CHRISTIAN
CAROLAN Plaintiff
AND
NZ REAL ESTATE CREDIT LIMITED First Defendant /
First Counterclaim Plaintiff
GEORGE KERR Second Defendant
Defendants continued over
Hearing: 25 May 2016 Counsel:
D M Salmon and E D Nilsson for the Plaintiff
C M Hanafin for the DefendantsJudgment:
9 June 2016
JUDGMENT OF EDWARDS J
This judgment was delivered by Justice Edwards on 9 June 2016 at 4.30 pm, pursuant to
r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Date:
Counsel: J K Goodall, Auckland
Solicitors: Lee Salmon Long, Auckland
Lowndes Jordan, Auckland
CAROLAN v NZ REAL ESTATE CREDIT LTD and ORS [2016] NZHC 1239 [9 June 2016]
EQUITY PARTNERS CAPITAL MARKETS LIMITED
Third Defendant /
Second Counterclaim Plaintiff
EQUITY PARTNERS LIMITED Fourth Defendant /
Third Counterclaim Plaintiff
EQUITY PARTNERS ASSET MANAGEMENT LIMITED Fifth Defendant /
Fourth Counterclaim Plaintiff
CLAYMORE FINANCIAL SERVICES LIMITED
Sixth Defendant /
Fifth Counterclaim Plaintiff
Introduction
[1] The defendants seek further discovery from the plaintiff. The documents sought fall within eight separate categories identified in an amended application dated 18 May 2016 (defendants’ application).
[2] The defendants claim that the documents are relevant to the terms on which advances were made to the plaintiff, and the level of remuneration he received when employed by some of the defendant companies.
[3] The plaintiff opposes the defendants’ application on the grounds that it is out of time, the documents sought are either irrelevant to the dispute or are in the control of the defendants, and he has already provided discovery of all documents relevant to the dispute. He submits that an order for further discovery at this late stage is likely to prejudice the six day trial due to commence on 27 June 2016.
[4] The plaintiff also seeks an award of costs on his application for discovery from the defendants (plaintiff’s application). That application was not argued in full due to the defendants providing further documents in response to the application two days prior to the hearing.
Claim and counterclaim
[5] The plaintiff commenced this proceeding in March 2015, and filed an amended statement of claim on 8 May 2015. The parties are agreed that the key issues arise out of the defendants’ defence and counterclaim filed on 25 May 2015.
[6] Those key issues concern the terms upon which advances totalling $1.165m were made by the third and fifth defendants (EPCM and EPAM respectively) to the plaintiff in 2007 and 2008. The advances were made to assist the plaintiff ’s purchase of a residential property in Remuera (Property).
[7] The plaintiff was employed by EPCM in 2007, and then EPAM in 2008. EPCM and EPAM are part of the Equity Partners Group. Prior to joining EPCM in
2007, the plaintiff was employed by Macquarie Bank.
[8] The defendants say the advances made to the plaintiff were a loan made on terms requiring repayment within three years, and accruing interest at eight per cent per annum compounding. They say the advances are secured by a mortgage over the Property in EPAM’s name.
[9] The plaintiff says the advances were not repayable unless or until that remuneration matched what he had been receiving from Macquarie Bank. He says the defendants have breached promises to remove the mortgage over the Property. Interim orders are in place preventing him from dealing with the Property pending resolution of this proceeding.
Procedural history
[10] A standard discovery order was made on 28 July 2015, and affidavits of documents were exchanged in September and October 2015.
[11] Timetabling orders made in February 2016 required interlocutory applications to be filed by 19 February 2016. Neither party filed applications by that date.
[12] On 8 March 2016 the plaintiff filed a supplementary affidavit in which he discovered financial information for the period 2007 to 2009.
[13] The defendant’s application was originally filed on 2 May 2016. An affidavit filed by Ms Cederwell, a solicitor at the firm acting for the defendants, was filed in support. That affidavit annexes correspondence between the parties concerning discovery and sets out the steps taken by the defendants to locate the documents sought by the plaintiff.
[14] A telephone conference was held before Heath J on 13 May 2016. Timetabling orders were made by consent in respect of the defendants’ original application, and the plaintiff’s application for discovery which was filed later that day together with affidavits in support.
[15] The plaintiff filed a further supplementary affidavit of documents on
17 May 2016 which related ostensibly to documents on a Buddle Findlay file in the name of the plaintiff.
[16] On 18 May 2016, the defendants filed an amended application for discovery. The amended application expanded the categories of documents sought in the original application in a significant way. Further affidavits sworn in support of the defendants’ application and in opposition to the plaintiff’s application were also filed at this time.
[17] On 23 May 2016, the defendants served the plaintiff with further documents
in response to the plaintiff’s application. The plaintiff swore an affidavit on 24 May
2016 deposing to his understanding that this discovery eclipsed the original discovery provided by the defendants, and expressing concerns about prejudice to the trial date.
[18] By the time of the hearing on 25 May 2016, the parties had reached a degree of consensus as to exchanges of briefs of evidence and the inspection of the defendants’ documents. Consent orders were made with a view to maintaining the trial date of 27 June 2016.
Relevant legal principles
[19] The defendants’ application is made under r 8.19. That rule allows a judge to order a party to file an affidavit and to make documents available for inspection, if it appears that there are grounds for believing that a party has not discovered documents that should have been discovered.
[20] The principles relevant to orders for particular discovery under r 8.19 are summarised in Robert v Foxton Equities Ltd as follows:1
(a) A document should be discovered if it is relevant to matters which will actually be in issue before the Court.
(b) Relevance is determined by the pleadings.
1 Robert v Foxton Equities Ltd [2014] NZHC 726, [2015] NZAR 1351 at [8].
(c) On an application for particular discovery under r 8.19, there must be prima facie evidence that the document exists and is in the party’s control (although the applicant need not prove that the document actually exists).
(d) The applicant need no longer establish “necessity” for an order (in contrast to former r 300). However, the supposed regulatory relaxation may not be substantial: the order will still only be made in relation to documents that “should have been discovered”.
(e) The Court retains an overriding discretion as to whether to make an order.
[21] Discoverability is to be assessed in light of the rules governing discovery orders and the proportionality assessment undertaken in sch 9 pt 1, to the High Court Rules. Particular discovery under r 8.19 can be refused for documents that would otherwise be relevant if that discovery would be contrary to the interests of justice.2
[22] The original discovery order in this case was a standard discovery order as provided for in r 8.7. That rule requires the parties to disclose 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.
[23] The starting point is the presumption that the affidavits of documents already filed are conclusive; the party making the r 8.19 application has the burden of establishing that they are incomplete.3
Defendants’ application
Leave
[24] The plaintiff opposes the defendants’ application on the grounds that it was
filed outside the date for filing interlocutory applications and after timetabling orders
2 Air National Corporate Ltd v Aivea Holdings Ltd [2012] NZHC 2258 at [17]; and Assa Abloy
New Zealand Ltd v Allegion (New Zealand) Ltd [2015] NZHC 2760 at [14].
3 McCullagh v Robt Jones Holdings Ltd [2015] NZHC 1462, (2015) 22 PRNZ 615 at [7].
were made in respect of the original application on 13 May 2016. On behalf of the defendants, Ms Hanafin submits that the opposition lacks merit, but as a matter of formality seeks leave to bring the application out of time.
[25] I am satisfied that there is a reasonable explanation for the delay in filing the amended application. Discovery has clearly been a challenge for the defendants with difficulties encountered in locating documents held by third parties. Those difficulties provide some explanation for why neither party filed their applications by the required deadline.
[26] The late amendment to the defendants’ application also appears to have arisen, at least in part, from inspection of the plaintiff’s supplementary discovery. Affidavits in respect of that supplementary discovery were filed on 8 March 2016 and 17 May 2016, that is, after the deadline for interlocutory applications. The latter affidavit was filed after the original discovery application was filed, and after the timetabling orders were made on 13 May 2016. Discovery issues have been ongoing and remain so even at this late stage in the proceeding.
[27] There is some doubt about whether leave is required in the circumstances as it is at least implicit in the orders made on 13 May 2016 (by consent) that both parties’ applications could be brought out of time. Nevertheless, I accept that those orders did not necessarily extend to the amended application which was filed after the orders were made. In any event I am satisfied that grounds for leave have been made out and accordingly grant leave to the defendants to file their application out of time.
Bayleys Real Estate file
[28] The defendants seek discovery of a file held by Bayleys Real Estate, including a copy of the agreement for sale and purchase for the Property. Ms Hanafin submits that the documents sought will shed light on the timeline of events leading up to the loan being agreed and then advanced.
[29] The pleadings do not disclose any issue about the timeline of events, the purchase price for the Property, or the terms on which the plaintiff purchased the Property. The documents seem to have little, if any, relevance to the key issues in dispute.
[30] In addition, there are no grounds for believing that the Bayleys Real Estate file is in the plaintiff ’s control. Bayleys Real Estate was the vendor’s agent for the sale of the Property. The plaintiff was the purchaser. The file may well contain a copy of the sale and purchase agreement which the plaintiff would be entitled to request, but there are no grounds for belief that the file will hold any other documents over which the plaintiff has control.
[31] I am not satisfied that the documents sought are relevant documents in the plaintiff’s control which ought to be discovered. I accordingly decline to order discovery of this category of documents.
BNZ file
[32] The defendants seek the plaintiff’s file held by the BNZ for the finance of the purchase of the Property. BNZ advanced further funds for the purchase which were secured by a mortgage over the Property dated 3 September 2007. Ms Hanafin submits that the BNZ file is likely to hold records relating to how the Property was financed including any details concerning second tier lending (i.e. the advances) provided to secure the loan.
[33] I accept that the BNZ file may contain documents over which the plaintiff has control and which may be relevant to the dispute. But there is no evidence which would elevate this mere possibility to grounds of belief that such documents exist and have not been discovered by the plaintiff.
[34] Even if documents on the BNZ file did exist, they are unlikely to be of central importance to determination of the issues in dispute. Other discovered documents relating to the terms of the advances negotiated between the parties are likely to bear more directly on the key issues in the proceeding.
[35] On balance, I do not consider there to be a sufficient basis to warrant an order that documents within this category be discovered and I decline to make such an order.
The plaintiff/Princeps payment records and invoices
[36] The defendants seek discovery in the following categories:
1.1.8All documents recording all payments made to and/or received by Mr Carolan and/or Princeps Capital Limited (Princeps) by Equity Partners Capital Markets Limited (EPCM), Equity Partners Asset Management Limited (EPAM), Torchlight Investment Group (TIG) or any related entity during the period 20 June 2007 to 30 July 2014. This should include, but not be limited to, provision of any payslips and the bank account records for ASB Bank accounts 12-3109-
0042064-000 and 12-3109-0097233-000.
1.1.9 Bank account records showing the payment of salary/bonuses to the
Plaintiff by EPAM/EPCM.
1.1.10 All invoices rendered by Mr Carolan and/or Princeps to TIG, EPCM, EPAM, and/or any other related entities during the period 20 June
2007 to 30 July 2014 in respect of all discretionary advisory fees,
monthly advisory fees, advisory fees or similar.
[37] Records of payments made to the plaintiff are clearly relevant to the dispute. The relevance of records showing payments made to Princeps is less clear as there is no pleading that payments made to that entity should be taken into account in calculating the remuneration paid to the plaintiff. However, the plaintiff has discovered some Princeps’ bank statements and for the purposes of this application, I accept that Princeps’ documents may therefore be relevant to the dispute.
[38] The plaintiff’s position is that he has discovered all relevant documents falling within these categories. The defendants have not filed any evidence giving rise to a belief that the plaintiff has further payment records in his possession or control which he has not discovered. In the absence of such evidence, the plaintiff’s affidavit of documents is presumed to be conclusive.
[39] It is apparent from the description of the documents that many are likely to be in the control of the defendants. I do not accept Ms Hanafin’s submission that as the documents are relevant to the plaintiff’s defence it is for him, as opposed to the
defendants, to discover those documents. Relevance is relevance to the proceeding and not to the party,4 and r 8.7 requires discovery of documents which both support and are adverse to a party’s case.
[40] It is not clear from the evidence filed in support of the application why the defendants have not discovered these documents. The application does not identify specific documents which may have been required to fill in any gaps in the financial information. A discreet discovery request of that nature would be difficult to resist, assuming grounds for believing the specified documents were in the plaintiff’s control could be established. However, as currently drafted, the further discovery sought covers a wide range of documents spanning a seven year period. An order made in such wide ranging terms would effectively require the plaintiff to retrace steps already taken in meeting his discovery obligations. There are insufficient grounds to warrant such an onerous exercise in my view.
[41] I decline to order discovery of these categories of documents.
Tax returns for Princeps/consultancy agreement
[42] The defendants seek copies of all tax returns for Princeps covering the period
16 December 2007 to 30 July 2014. A copy of the written consultancy agreement between Princeps and EPCM, EPAM, or other related entities is also sought.
[43] The extent to which these documents will bear upon the dispute is not apparent from either the pleadings or affidavit evidence filed in support of the application.
[44] The consultancy agreement is likely to be in the defendants’ control but there is no evidence explaining why that document has not been discovered by the defendants, nor why discovery from the plaintiff is required.
[45] The plaintiff has already provided discovery of those Princeps statements he considers relevant. There is no basis upon which the conclusiveness of that affidavit
4 See Coote v Murray [2013] NZHC 91 at [12].
may be challenged. Orders requiring further discovery of these categories of documents are not appropriate in the circumstances.
Emails or letters of resignation
[46] The defendants seek emails or letters of resignation (signed or unsigned) and sent by the plaintiff to either EPCM or EPAM during the period 20 June 2007 to
30 July 2014 in relation to his resignation or proposed resignation as an employee or director of the defendant companies.
[47] Ms Hanafin submits that letters and emails of resignation are relevant to the issue of remuneration. She submits that if the plaintiff resigned he cannot blame the defendants for the fact he did not meet the same level of remuneration at Macquarie Bank.
[48] I am not persuaded that these documents have anything other than marginal relevance to the issues in dispute. In any respect, they are all documents within the control of the defendants. To the extent the defendants regard them as relevant, then they ought to have discovered them. There is no evidence explaining why they have not been discovered, and no evidence to suggest that the plaintiff ought to have discovered them but has not.
[49] I decline to order discovery of this category of documents also.
Plaintiff ’s application for costs
[50] The plaintiff seeks costs on its application for discovery. That application was not fully argued, or determined, given the defendants’ late disclosure of a number of documents two days before the hearing.
[51] Issues regarding discovery and its impact (if any) on the trial date are still extant. Leave has been specifically reserved to the plaintiffs to seek directions from the Court should issues arise as a result of inspection of the defendants’ documents provided in response to the plaintiff’s application.
[52] It is premature to determine costs in those circumstances. However, I grant leave to file further memoranda as to costs once all issues associated with the application have been finally resolved. Alternatively, these costs may be sought as part of any costs awards made on the determination of the substantive proceeding.
Result
[53] Leave is granted to bring the defendants’ application out of time.
[54] The defendants’ application is declined. The plaintiff is entitled to an order of costs on a 2B basis in respect of that application. I decline to certify for second counsel.
[55] I decline to make a costs order on the plaintiff’s application for further
discovery at this stage but grant leave to file further memoranda as to costs once all issues associated with the application have been finally resolved.
Edwards J
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