Cayman Spectrum (NZ) Co v Spark New Zealand Trading Limited
[2023] NZCA 428
•7 September 2023 at 11.00 am
| IN THE COURT OF APPEAL OF NEW ZEALAND I TE KŌTI PĪRA O AOTEAROA |
| CA275/2023 [2023] NZCA 428 |
| BETWEEN | CAYMAN SPECTRUM (NZ) CO |
| AND | SPARK NEW ZEALAND TRADING LIMITED |
| Hearing: | 21 August 2023 |
Court: | Goddard, Whata and Downs JJ |
Counsel: | A F Pilditch KC and M B Wigley for Appellants |
Judgment: | 7 September 2023 at 11.00 am |
JUDGMENT OF THE COURT
AThe appeal is dismissed.
BThe appellants must pay costs to the respondent for a standard appeal on a band A basis, with usual disbursements.
____________________________________________________________________
REASONS OF THE COURT
(Given by Goddard J)
Introduction
Cayman Spectrum (NZ) Co (Cayman), the first appellant, formerly carried on business as a holder of management rights in New Zealand radio spectrum. At all relevant times, the shareholders in Cayman were the second appellant, Everest Wireless Partners LLP (Everest) and Craig Wireless Systems Limited (Craig Wireless). Each held 50 per cent of the issued shares in Cayman.
In 2015 Cayman owned a block of 2.5 GHz spectrum. Craig Wireless owned and controlled (through subsidiaries) two blocks of 2.3 GHz spectrum.[1] Spark New Zealand Trading Limited (Spark) owned various spectrum blocks, including a block adjacent to Cayman’s 2.5 GHz block.
[1]We refer to Craig Wireless and its subsidiaries collectively as “Craig Wireless”.
Mr Boyd Craig was at the relevant time a director of Craig Wireless. Cayman had two directors at this time: one appointed by Everest and one appointed by Craig Wireless. Mr Craig was the director of Cayman appointed by Craig Wireless.
In 2015 and 2016 various dealings took place between Cayman and Spark in relation to the Cayman 2.5 GHz spectrum, and between Craig Wireless and Spark in relation to the Craig Wireless 2.3 GHz spectrum. Cayman and Everest have brought proceedings against Spark in relation to those transactions. They allege that Mr Craig procured Cayman’s entry into the transactions without authority to do so on behalf of Cayman, and in breach of his fiduciary duties to Cayman. They claim compensation and other relief from Spark on the basis that:
(a)Spark received benefits from those transactions, with knowledge of Mr Craig’s breaches of fiduciary duty (the knowing receipt causes of action); and
(b)Spark dishonestly assisted Mr Craig’s breaches of fiduciary duty (the dishonest assistance causes of action).
The appellants’ claims against Spark are set down for a four-week trial in the High Court beginning on 1 November 2023.
Spark applied to strike out certain paragraphs of the appellants’ second amended statement of claim (2ASC) under r 15.1 of the High Court Rules 2016. Justice Lang struck out the challenged paragraphs on the basis that they were irrelevant, so had the potential to cause prejudice or delay: Spark should not be required to respond to those aspects of the pleading.[2]
[2]Cayman Spectrum (NZ) Co v Spark New Zealand Trading Ltd [2023] NZHC 1063 [High Court judgment].
The appellants appeal against the decision of the High Court striking out those parts of their pleading. The High Court granted leave to bring the appeal under s 56(3) of the Senior Courts Act 2016. The appeal was entered on the fast track to ensure it could be determined prior to trial.
Background
In order to understand the issues on appeal, it is necessary to describe the transactions that are the focus of the proceedings in a little more detail.
In November 2015 Mr Craig negotiated a number of agreements with Spark. On behalf of Craig Wireless (and its subsidiaries) he negotiated a sale of the Craig Wireless subsidiaries’ rights in the 2.3 GHz spectrum to Spark under two sale and purchase agreements (SPAs). On behalf of Cayman, Mr Craig negotiated two agreements with Spark:
(a)A guard band agreement (GBA) that enabled Spark to make more extensive use of the spectrum it held adjacent to the 2.5 GHz spectrum owned by Cayman. Spark paid $1 for Cayman’s consent to use the “guard band” component of Spark’s spectrum.
(b)A network services agreement (NSA) under which Spark agreed to make use of the Cayman spectrum in order to enable Cayman to meet implementation requirements (also referred to as “use it or lose it” obligations) imposed by the Crown on spectrum purchasers. The NSA also granted Spark a right of last refusal in relation to purchase of Cayman’s 2.5 GHz spectrum, and the right to receive 20 per cent of the gross proceeds of any future sale by Cayman of that spectrum.
The GBA was executed in late November 2015. The NSA was executed in early December 2015.
The appellants claim that Mr Craig did not have authority to commit Cayman to the GBA and the NSA. They also claim that the GBA provided for valuable rights to be surrendered in favour of Spark for $1: that is, this was in effect a sale of those rights at an under value, contrary to the best interests of Cayman. Broadly speaking, the appellants’ case is that Mr Craig purported to act on behalf of Cayman without authority, and in doing so he sacrificed the interests of Cayman in order to maximise the benefit to Craig Wireless from the SPAs.
The appellants go on to plead that Spark terminated the NSA and stopped using the Cayman spectrum in July 2016, when the contract was due to run to December 2016. They allege that Spark did this so that Cayman would fail to meet its continuing implementation requirements in relation to the Cayman spectrum, and would be at risk of forfeiting that spectrum, thus preventing its sale to new entrants into the relevant telecommunications markets including companies controlled by Mr Malcolm Dick, who is currently the sole director of Cayman (appointed by Everest).
The appellants also plead that Spark entered into various ancillary arrangements with Craig Wireless and/or Cayman, including making an advance of $1 million to a Craig Wireless subsidiary secured over the Cayman spectrum.
The claims pleaded in the 2ASC
The appellants plead five causes of action in the 2ASC:
(a)In the first cause of action, Cayman alleges that Spark received rights under the NSA, GBA and SPAs in the knowledge that Mr Craig was breaching the fiduciary duties he owed to Cayman by causing it to enter into the GBA and NSA. Cayman claims an account of profits and/or a constructive trust over the Craig Wireless spectrum and/or compensation based on the value of the rights Spark obtained under the GBA.
(b)In the second cause of action, Cayman alleges that Spark dishonestly assisted Mr Craig to breach his fiduciary duties to Cayman by engaging in the pleaded conduct in the period November 2015 to December 2016, including by entering into the NSA and GBA and performing those agreements, by entering into the ancillary arrangements, and by terminating the NSA. Cayman claims an account of profit and/or compensation based on the value of the rights Spark obtained under the GBA.
(c)In the third cause of action, Cayman seeks a declaration that the NSA, GBA and SPAs constitute in substance either a single agreement or a series of collateral contracts, and related relief. The relief sought includes a declaration that the GBA, NSA and SPAs are not valid and binding because Cayman, as one of the parties, has not entered into those agreements.[3]
(d)The fourth cause of action is the same as the first, but substitutes Everest for Cayman as the claimant.
(e)The fifth cause of action is the same as the second, but substitutes Everest for Cayman as the claimant.
[3]Although relief is sought in relation to the SPAs, we note that the Craig Wireless subsidiaries that were parties to the SPAs are not parties to the proceeding brought by the appellants.
Mr Pilditch KC, who appeared for the appellants, emphasised that the 2ASC alleges that Spark acquired additional information about the conduct of Mr Craig over time. Even if Spark did not have the requisite knowledge for knowing receipt or dishonest accessory liability at the time the original agreements were entered into in late 2015, the appellants have pleaded that:
(a)Mr Craig’s breaches of duties were not confined to entry into the SPAs, the GBA and the NSA. They continued over the period November 2015 to December 2016, as the agreements were performed and as ancillary arrangements were entered into.
(b)Spark assisted these breaches of duty by the conduct it engaged in over time, including by performing the agreements and by entering into the ancillary arrangements.
(c)In relation to some or all of these breaches, Spark’s assistance was provided with the requisite knowledge to found liability.
The elements of dishonest assistance liability
The focus of the argument before us was on the causes of action for dishonest assistance liability, which is also sometimes referred to as dishonest accessory liability. The appellants say that the paragraphs that were struck out in the High Court are relevant to these causes of action.
It was common ground before us that the essential elements of such a claim are:
(a)A breach of trust or breach of fiduciary duty by some person (here, Mr Craig).
(b)Participation by the defendant in that breach of trust/fiduciary duty, including by procuring or assisting the breach.
(c)Dishonesty on the part of the defendant in participating in the breach. Whether the defendant was dishonest turns on whether the defendant has actual knowledge that the transaction was one in which they cannot honestly participate. Wilful blindness, which equates in equity with actual knowledge, also suffices.[4] The knowledge that is relevant here is knowledge of the breach of trust or fiduciary duty: this is both necessary, and sufficient, to establish dishonesty. Dishonesty cannot be established by showing that the defendant was committing some other wrong, or acting for some other unlawful purpose.
High Court judgment
[4]Sandman v McKay [2019] NZSC 41, [2019] 1 NZLR 519 at [77]–[78].
The Judge summarised the paragraphs of the 2ASC that Spark sought to strike out (the challenged paragraphs) as follows:[5]
(a)Paragraphs 82(e), 84, 85, 86(a) and 86(b) – in these paragraphs the plaintiffs contend that, in entering into the three sets of agreements, Spark intended to prevent new entrants from acquiring spectrum within the 2300 and/or 2500 ranges and thereby intended to reduce competition in the telecommunications market.
(b) Paragraph 100 – this paragraph alleges that a meeting took place on 16 December 2015 between representatives of Spark and Mr Malcolm Dick, a director and shareholder of Blue Reach Holdings Limited (Blue Reach), another player in the telecommunications industry. During the meeting Mr Dick communicated his interest in acquiring the 2300 and 2500 spectra. Spark allegedly failed to inform him as to the existence and relevant contents of the NSA.
(c)Paragraph[s] 163 to 179 – these allegations relate to events that began in February 2016. At this time, Spark offered to provide funding to one of its competitors, Two Degrees Mobile Ltd (2degrees), to enable it to acquire the management rights held by Cayman in relation to the 2500 spectrum. This occurred at a time when Spark knew that Mr Dick and his company Blue Reach were interested in acquiring the Cayman 2500 spectrum. The plaintiffs allege Spark intended this arrangement to ensure that management rights within the 2500 spectrum were controlled by the three principal players in the telecommunications market, two of whom were Spark and 2degrees. The effect of the arrangement was to lessen competition within the market and prevent new entrants (specifically Mr Dick and Blue Reach) from acquiring 2500 spectrum.
(d) Paragraphs 184 to 186 – in these paragraphs the plaintiffs contend that Spark’s decision to terminate the NSA in July 2016 was for the purpose of keeping new entrants (including Blue Reach) out of the telecommunications market.
(e) Paragraphs 194 and 195 – in these paragraphs the plaintiffs allege that the purpose of steps taken by Spark following termination of the NSA was to deprive new entrants, including Blue Reach, of the 2500 spectrum.
(f) Paragraph 202 – in this paragraph the plaintiffs allege that the terms of the NSA enabled Spark to control any sale of Cayman’s management rights in relation to the 2500 spectrum and thereby reduce competition to Spark, including competition from new entrants.
[5]High Court judgment, above n 2, at [14].
The Judge recorded that the Court has the power to strike out a pleading under r 15.1 of the High Court Rules where that pleading is likely to cause prejudice or delay or is otherwise an abuse of the process of the Court. Pleadings that are irrelevant to the pleaded cause of action have potential to cause prejudice or delay, because they require the opposing party to respond to the pleading when this should not be necessary.[6]
[6]At [16].
The Judge proceeded on the basis that the focus in the proceedings would be on the circumstances in which Cayman, through Mr Craig, and Spark entered into the SPAs, the GBA, and the NSA (the agreements). He considered that Spark’s knowledge during the period leading up to execution of the agreements in late November/early December 2015 would be crucial to determination of whether Spark knowingly entered into the agreements in circumstances where an honest person in its position would not have done so.[7]
[7]At [17]–[18].
The Judge noted that most of the challenged paragraphs related to allegations that Spark entered into the agreements, and subsequently terminated the NSA, for the purpose of keeping other players out of the telecommunications market. It went without saying that acquisition by Spark of further spectrum had the potential to reduce competition in the market because it removed the ability of other participants, including new entrants, to acquire that spectrum. But it was not alleged that Mr Craig entered into the agreements with the objective of assisting Spark to reduce competition at the appellants’ expense. Thus, the Judge said, it followed that the allegations relating to Spark’s allegedly anti-competitive conduct were unconnected to any alleged breach by Mr Craig of his duties to the appellants. They were also irrelevant to any knowledge Spark may have had about matters suggesting Mr Craig was acting in breach of his duties to the appellants.[8]
[8]At [22].
The Judge considered that the challenged paragraphs raised a concern that the appellants may be attempting to use the proceeding to mount a general challenge to Spark’s allegedly anti-competitive conduct even though this is not related to whether Spark knowingly assisted Mr Craig to breach his obligations to the appellants. He said that “[i]t would be wrong to permit this to occur because it would result in considerable time being devoted to the issue during the trial when it will not assist the Court to determine the core issues relating to the claim as pleaded.”[9]
[9]At [23].
The Judge considered that the allegations in paragraphs 82(e), 84, 85, 86(a) and (b) contain general allegations that in entering into the agreements, Spark intended to prevent new entrants from acquiring the right to acquire spectrum, and that this had the effect of reducing competition in the telecommunications market. These pleadings would increase the length and complexity of the trial considerably. Spark would have to respond to them in considerable detail. They would also undoubtedly be the subject of considerable attention in cross-examination of Spark’s witnesses. This would create unnecessary delay, cost and unfair prejudice to Spark. The Judge did not consider that Spark should be required to respond to these paragraphs.[10]
[10]At [24]–[26].
Paragraph 100 related to a meeting between Mr Dick and Spark’s representatives on 16 December 2015. The Judge considered that given the timing of the meeting, it could not be relevant to Spark’s knowledge when it entered into the agreements in late November/early December 2015. Spark should not be required to respond to this paragraph.[11]
[11]At [27]–[29].
Paragraphs 163–179 of the pleading related to a proposal under which Spark offered to fund the acquisition by 2degrees of Cayman’s management rights for 2.5 GHz spectrum. This proposal was made approximately three months after Spark had entered into the agreements. It did not constitute information that was within Spark’s knowledge when it entered into those agreements. It had no connection with them. The Judge considered that this material could only be led as a form of propensity evidence: but propensity reasoning was unlikely to be of assistance in resolving the issues for trial.[12] If these allegations were permitted to proceed, the Judge considered that the trial would be lengthened significantly. He was satisfied that Spark should not be required to respond to the allegations about the 2degrees proposal.[13]
[12]At [30]–[31].
[13]At [32]–[33].
Paragraphs 184–186 and 194–195 related to Spark’s decision to terminate the NSA in July 2016, and its actions following termination. The appellants allege that Spark acted during this period with the intention of lessening competition within the telecommunications market by keeping new entrants out of the market. The Judge considered that the events that led to and followed the termination of the NSA in July 2016 could not be relevant to Spark’s knowledge when it entered into the NSA nine months earlier. Those events had no relevance to the core issues the High Court would be required to decide. Spark should not be required to respond to these allegations.[14]
[14]At [34]–[35].
Paragraph 202 alleged that the NSA effectively enabled Spark to control any sale of Cayman’s 2.5 GHz spectrum, and thus enabled it to reduce competition in the telecommunications market. For the same reasons given in relation to the other challenged pleadings, the Judge considered this allegation was irrelevant to the core issues the High Court would be required to decide. Spark should not be required to respond to it.[15]
[15]At [36].
The challenged paragraphs were struck out.[16]
Appellants’ submissions on appeal
[16]At [37].
Mr Pilditch KC emphasised three matters.
First, he submitted that the Judge was wrong to treat the time of entry into the agreements in late 2015 as the relevant cut-off date for ascertaining Spark’s knowledge of breaches of fiduciary duty by Mr Craig. The pleading alleged ongoing breaches and accretion of knowledge by Spark over time, from before the agreements were entered into in late 2015 through to late 2016.
Second, Mr Pilditch emphasised the guidance provided by the authorities on the relevance of a defendant’s motive for assisting breaches of trust or fiduciary duty. He referred to the observation of the Privy Council in Royal Brunei Airlines Sdn Bhd v Tan, adopted by this Court in McKay v Sandman, that:[17]
[W]hen called upon to decide whether a person was acting honestly, a court will look at all the circumstances known to the third party at the time. The court will also have regard to personal attributes of the third party, such his experience as intelligence, and the reason why he acted as he did.
[17]Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378 (PC) at 391 (emphasis added), quoted by this Court in McKay v Sandman [2018] NZCA 103, [2018] NZAR 707 at [67]. See also generally Sandman v McKay, above n 4.
Mr Pilditch also referred to the following passage from Royal Brunei Airlines:[18]
All investment involves risk. Imprudence is not dishonesty, although imprudence may be carried recklessly to lengths which call into question the honesty of the person making the decision. This is especially so if the transaction serves another purpose in which that person has an interest of his own.
[18]At 389 (emphasis added).
Mr Pilditch submitted that because dishonesty was alleged, the statement of claim was required to plead detailed facts supporting that allegation.[19] Thus, Mr Pilditch said, the commercial advantages to Spark from entry into the agreements, including benefits from reduced competition, are relevant to the appellants’ claims and are properly pleaded. The greater the benefits, the more willing a party may be to knowingly assist a breach of fiduciary duty, or wilfully turn a blind eye to the potential for such a breach. Benefits to Spark from reduced competition were relevant to the appellants’ claims, because they shed light on why Spark acted as it did.
[19]Citing High Court Rules 2016, r 5.17; and Schmidt v Pepper New Zealand (Custodians) Ltd [2012] NZCA 565 at [15].
Third, Mr Pilditch submitted that by striking out the challenged paragraphs the Judge had effectively ruled that evidence about benefits to Spark could not be given at trial. This pre-empted decisions about relevance and scope of evidence that should be made by the trial judge. There was no material risk of prejudice or delay as a result of the challenged paragraphs as the extent of evidence called in relation to all of these matters could be controlled by the trial judge under s 8 of the Evidence Act 2006. However striking out the challenged paragraphs before trial pre-empted that decision.
Discussion
Relevant pleading principles
The High Court Rules require that a statement of claim show the general nature of the plaintiff’s claim to the relief sought. It must give sufficient particulars of time, place, amounts, names of persons, nature and dates of instruments, and other circumstances to inform the court and the party or parties against whom relief is sought of the plaintiff’s cause of action.[20]
[20]Rule 5.26(a) and (b).
That is, the pleading should define the claim before the court so the court knows what it is required to rule upon; and it should fairly inform the defendant of the case which it must meet.
Each paragraph must so far as possible be confined to a single topic.[21] This makes it easier to follow. More importantly, it assists in identifying and narrowing, so far as possible, the issues between the parties. A defendant is much more likely to make appropriate admissions in response to a paragraph containing a single clear allegation of fact than in response to a lengthy multi-pronged paragraph. The broader and more discursive a paragraph in a statement of claim, the less likely it is to elicit a response that assists the parties and the court to identify the real issues for trial.
[21]Rule 5.14(2).
The pleading must as a bare minimum set out the facts which, if proved at trial, would establish the plaintiff’s cause of action against the defendant. Thus, in the case of a claim that a defendant dishonestly assisted a breach of fiduciary duty, the statement of claim must at a minimum plead:
(a)the specific acts that are alleged to amount to a breach of fiduciary duty by the relevant fiduciary, and the factual background relevant to the allegation that those acts amounted to a breach of fiduciary duty;
(b)the specific acts that the defendant is alleged to have done by way of assistance or participation in those breaches; and
(c)the knowledge that it is alleged the defendant had of the breaches of fiduciary duty, at the time it assisted or participated in those breaches.
If a state of mind other than mere knowledge is alleged, particulars must be given of the facts relied on in alleging that state of mind.[22] That is because a state of mind (which is not directly observable) is usually established through inference from other (directly observable) facts.
[22]Rule 5.17(2) and (3).
A more detailed factual narrative is now expected than was once common.[23] But the pleading need not set out how an alleged fact will be proved. Nor need it contain the full detail which will be contained in the evidence to be given at trial. It need not (and should not) venture into what the plaintiff knows or believes about those facts: thus for example the repeated use of the phrase “upon belief” in the 2ASC in this case is neither necessary nor appropriate.
[23]Price Waterhouse v Fortex Group Ltd CA179/98, 30 November 1998 at 19.
Pleadings matter. As this Court said some 25 years ago:[24]
It has become fashionable in some quarters to regard the pleadings as being of little importance. There was an echo of that approach in the implicit suggestion floated in this case that exchange of briefs of evidence before trial might be seen as curing any lack of particularity in the pleadings. Any such view is misguided. Pleadings which are properly drawn and particularised are, in a case of any complexity, if not in all cases, an essential road map for the Court and the parties. They are the documents against which the briefs of evidence are or should be prepared. They are the documents which establish parameters of the case, not the briefs of evidence.
The pleading in this case
[24]At 17.
The 2ASC is lengthy, discursive, argumentative, and in places opaque. It sets out a general narrative that runs for some 204 paragraphs, before pleading each of the five causes of action described above. Many paragraphs combine multiple factual allegations, explanatory/argumentative material, and propositions of law. It makes extensive use of defined terms of broad and uncertain scope, including terms that are defined as having shifting meanings over time (such as “Spark’s Knowledge”, defined by reference to the knowledge that Spark acquired over the course of the relevant events).
We set out by way of example an extract from the allegations concerning Spark’s discussions with 2degrees about acquisition of the spectrum owned by Cayman, which was included in the challenged paragraphs struck out in the High Court (emphasis in original):
170.Upon belief, supported by the timing and Spark’s knowledge as to Mal and Blue Reach’s interest in the Cayman MR, this was done in reaction to that meeting and to keep the Cayman MRs away from Mal, Blue Reach and/or new entrants. That belief is also supported by the commercial unreality of an MNO helping and funding a competitor into MRs, enabling it to compete more strongly, implying another motive, namely retention within the 3 MNOs to stop new entry. Further particulars will be provided following discovery and interrogatories.
171.Given that 2degrees is a competitor of Spark, as one of three MNOs, a substantial purpose of Spark was to have the spectrum going to 2degrees in order to retain the market limited to 3 MNOs.
172. Whatever the purpose, the effect would have been as pleaded in the last paragraph.
173.A further purpose was to keep a new entrant out such as Mal and Blue Reach.
174. Whatever the purpose, the effect would have been as pleaded in the last paragraph.
175.From the outset, the said purpose and effect, even if limited to just funding 2degrees into the Cayman MRs, breached the Commerce Act 1986 as, among other things, (a) under s 27 such funding has “the purpose, or has or is likely to have the effect, of substantially lessening competition in a market”, where facilitating keeping a new entrant out of the market has that purpose and effect; and (b) unconsummated steps toward such transactions are also in breach of the Commerce Act (s 80).
176.That conclusion was readily known at the time by telecommunications regulatory/competition lawyers, as a straightforward conclusion.
Putting to one side the (irrelevant and inappropriate) reference to the appellants’ belief, paragraph 170 of the 2ASC runs together multiple allegations about what was done by Spark, and the purpose for which it was done, coupled with commentary. We struggle to see how a defendant could plead to this paragraph other than by denying it. Nor is it easy to understand what the court would be required to determine in light of the inevitable denial.
An even more problematic example of a pleading that combines multiple factual allegations and legal commentary is paragraph 175 of the 2ASC, which alleges breaches of s 27 of the Commerce Act 1986. The commercial advantages to Spark from participation in the transactions may be relevant to Spark’s motive, and to an assessment of its honesty. But as Mr Pilditch accepted in the course of argument, whether those commercial advantages were legitimate or illegitimate, and in particular whether they involved breaches of the Commerce Act, could not be relevant to the claims against Spark.
Similarly, whether particular conclusions about the application of the Commerce Act were “readily known” at the time by certain categories of lawyer, as pleaded in paragraph 176 of the 2ASC, is irrelevant. As is whether that would be a “straightforward conclusion”.
Similar issues arise in relation to the following paragraphs in the 2ASC (emphasis in original):
184.[Spark] took those steps, both in deciding to do so, and in implementing that plan, for the (or a) purpose of keeping new entrants out including Blue Reach and Mal, consistently with the 2degrees/Cayman Initiative.
185. That is evidenced by, among other things an email exchange between Lindsay, John and Sasha on 10 June 2016: “I can’t see how Cayman can be in compliance… I don’t think it changes our current course of action but could be a useful angle should any sale to Blue Reach be on the cards”.
186.That was sent 10 days after Spark first wrote formally to Cayman, Craig Wireless and Everest, requiring a bank guarantee of WWNZL’s liability under the NSA, which was the first formal step leading ultimately to termination. Upon belief, a purpose of that notice was to keep new entrants out including Blue Reach as evidenced by the 10 June 2016 email exchange. Telecommunications regulatory and competition lawyers would have been aware of the likely competition law breaches that entails. Further particulars will be provided following discovery and interrogatories.
Paragraph 184 of the 2ASC bundles together a number of different allegations, including allegations of broad anti-competitive purpose. Paragraph 185 appears to plead the evidence relied on to establish that purpose, which is not necessary. Paragraph 186 is discursive, refers to the belief of the appellants about certain matters, and in the last sentence goes on to make allegations that are unhelpfully general (which telecommunications, regulatory and competition lawyers?), allegations about the “likely” legal significance under the Commerce Act of actions taken, and serious allegations of knowing participation in these “likely” competition law breaches by some or all of the (unnamed) lawyers involved.
Should the challenged paragraphs have been struck out?
We accept Mr Pilditch’s submission that the inquiry into Spark’s knowledge of breaches of fiduciary duty by Mr Craig is not confined to the period up to November/December 2015, when the agreements were entered into. Because the appellants allege that there were continuing breaches of duty, and continuing acts of assistance by Spark, Spark’s knowledge about breaches of duty over the entire period through to December 2016 may be relevant to the pleaded claims. There is no bright line temporal cut off.
We also accept Mr Pilditch’s submission that the benefit to Spark from entry into the agreements and subsequent dealings may be relevant when ascertaining Spark’s motives, and whether Spark acted honestly. There could be no objection to a pleading that entry into the agreements and subsequent dealings provided benefits to Spark, coupled with concise particulars of those benefits (direct and indirect). Indeed such a pleading would be helpful and appropriate in framing the claim that the court will need to rule on, and that Spark as defendant will need to meet. The existence of benefits to Spark from the agreements seems unlikely to be controversial: that is after all why commercial entities enter into transactions. Obviously Spark saw it as advantageous to acquire the Craig Wireless spectrum, and to enter into the GBA and NSA. And as the Judge observed, it goes without saying that acquisition by Spark of further spectrum had the potential to reduce competition in the market because it removed the ability of other participants, including new entrants, to acquire that spectrum.[25]
[25]High Court judgment, above n 2, at [22].
However Mr Pilditch was right to concede that allegations that Spark acted in breach of the Commerce Act, or other regulatory regimes, are wholly irrelevant to the equitable claims pleaded against Spark. An inquiry into these allegations of unlawful conduct would be lengthy, complex, time consuming and expensive. The Judge was plainly right to strike out allegations of this kind. Likewise, allegations that (unspecified) telecommunications, regulatory and competition lawyers would have been aware of such breaches are wholly irrelevant, and have the potential to add considerable time, complexity and cost to the trial. They are distractions from the issues for trial. Again, the Judge was plainly right to strike out allegations of this kind.
The appellants’ argument that the lengthy pleadings about matters such as Spark’s discussions with 2degrees are necessary to enable evidence to be given about those matters is based on a misunderstanding of the relationship between pleadings and evidence. Ultimately, it was we think common ground before us that:
(a)Strictly speaking, matters going to Spark’s reasons for entering into the agreements and related dealings need not be pleaded, as motive is not an essential element of the dishonest assistance cause of action.
(b)However facts relevant to the commercial benefits to Spark from these dealings could properly be (concisely) pleaded, to assist in identifying the matters in issue at trial.
(c)Whether or not the benefits to Spark from the dealings are pleaded, they are relevant matters that can be explored in evidence at trial as they are relevant to Spark’s motives for acting as it did. Evidence can be given that is relevant to pleaded allegations that are in dispute, for example because it enables inferences to be drawn about the likelihood that those allegations are correct, without needing to set all that evidence out in the pleadings.
We are satisfied that the 2ASC contains sufficient pleadings about the benefit to Spark from the relevant dealings, and why Spark acted as it did, without the challenged paragraphs. It will be for the trial judge to determine whether the evidence adduced by each party is relevant to the matters in issue at trial, and whether the probative value of the evidence in relation to those issues is outweighed by the risk that the evidence would needlessly prolong the proceeding.[26]
[26]Evidence Act 2006, ss 7 and 8.
Mr Pilditch sought to reassure us that the time occupied by evidence in relation to the benefits to Spark from reducing competition would not be significant. The appellants have already filed their briefs of evidence for trial. Mr Pilditch indicated that restoring the evidence relating to the struck out paragraphs would only result in the addition of a further six pages or so of evidence in chief from the appellants. Some time would be occupied by the cross-examination of Spark witnesses on these topics, but he did not expect it to be lengthy.
For Spark, Mr Kennedy readily accepted that it was open to the appellants to explore the benefit to Spark from entering into the agreements, provided this was done in a proportionate manner that did not needlessly prolong the proceeding. He accepted that it would be open to the appellants to do so on the basis of the pleading as it stands, without the challenged paragraphs. We agree.
It follows that the challenged paragraphs are not necessary to enable the appellants to present their claims at trial, and to call relevant and proportionate evidence about benefits to Spark in support of those claims. It will be for the trial judge to determine whether evidence adduced by the appellants, and
cross-examination by them, falls within the boundaries set by ss 7 and 8 of the Evidence Act.The difficulty with the very detailed and far reaching allegations set out in the challenged paragraphs about Spark’s desire to keep spectrum away from new entrants is that these would then become the benchmark against which the trial judge would be required to assess relevance of evidence. These allegations, if they remained, would open up a broad field of inquiry about market definition, competitive dynamics in the relevant markets, whether Spark had an anti-competitive purpose, whether the dealings had anti-competitive effects, whether any such purpose or effect breached the Commerce Act, and what lawyers with relevant expertise would have appreciated about the lawfulness of the dealings. They would constrain the ability of the trial judge to appropriately limit the scope of evidence about benefits to Spark, and Spark’s commercial objectives, in a manner proportional to their secondary significance as facts shedding light on Spark’s motives, and thus on the likelihood of Spark acting in a manner that dishonestly assisted breaches of fiduciary duty by Mr Craig. All this in a context where the existence of direct benefits to Spark from entering into the agreements was, in any event, obvious.
We agree with the Judge that the challenged paragraphs of the 2ASC would be likely to increase the length and complexity of the trial considerably. Spark would need to respond to these serious allegations, and doing so would be complex and time-consuming. That is especially clear in relation to the allegations of breach of the Commerce Act, and illegitimate anti-competitive purposes and benefits. But it also applies to the lengthy pleadings in relation to Spark’s dealings with 2degrees, and the allegations in relation to Spark’s motives for those dealings. Whether any of this is relevant is best addressed at trial through the lens of ss 7 and 8 of the Evidence Act, assessed for relevance and proportionality against the remaining allegations in the 2ASC.
We thus agree with the Judge that the challenged paragraphs in the 2ASC are likely to cause prejudice or delay. They were appropriately struck out.
Result
The appeal is dismissed.
The appellants must pay costs to the respondent for a standard appeal on a band A basis, with usual disbursements.
Solicitors:
Wigley and Company, Wellington for Appellants
MinterEllisonRuddWatts, Auckland for Respondent
5
3
0