Cayman Spectrum (NZ) Co v Spark New Zealand Trading Ltd
[2023] NZHC 1094
•10 May 2023
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2018-404-2687
[2023] NZHC 1094
BETWEEN CAYMAN SPECTRUM (NZ) CO
First Plaintiff
EVEREST WIRELESS PARTNERS I LP
Second PlaintiffAND
SPARK NEW ZEALAND TRADING LIMITED
Defendant
Hearing: 1 May 2023 Appearances:
F Pilditch KC and M B Wigley for Plaintiffs Z Kennedy and T Leggatt for Defendant
Judgment:
10 May 2023
Reissued:
15 May 2023
JUDGMENT OF LANG J
[on application by plaintiffs for leave to use discovered documents outside the proceeding]
This judgment was delivered by me on 10 May 2023 at 2.30 pm, pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar Date……………
Solicitors:
Wigley and Company, Wellington F Pilditch KC, Auckland
O J Skilton, Barrister, Auckland
CAYMAN SPECTRUM (NZ) CO v SPARK NEW ZEALAND TRADING LTD [2023] NZHC 1094 [10 May 2023]
[1] In this proceeding the plaintiffs seek orders requiring the defendant, Spark New Zealand Trading Ltd (Spark), to disgorge profits it earned after acquiring management rights to operate broadband spectrum within the 2500 range. It acquired those rights in 2015 from the first plaintiff, Cayman Spectrum (NZ) Co (Cayman). The plaintiffs contend the circumstances in which Spark acquired the rights render it guilty of knowingly assisting one of Cayman’s directors, Mr Boyd Craig, to deprive Cayman of those rights in breach of his duties as a director of the company.
[2] The current version of the statement of claim also contains allegations about the circumstances in which Spark acquired spectrum within the 2300 range in 2015 from Woosh Wireless Holdings Ltd (Woosh) and Craig Wireless New Zealand Spectrum Operations Ltd (Craig Wireless), two other companies associated with Mr Craig. These transactions required Spark to obtain clearance from the Commerce Commission (the Commission) under s 66 of the Commerce Act 1986.
[3] Through the discovery process the plaintiffs have come into possession of documents that they believe demonstrate wrongdoing during the clearance process by several of Spark’s senior employees, some of whom are qualified lawyers. The plaintiffs believe the documents show that these persons misled the Commission in material respects when it was considering the application for clearance. They say this is likely to have resulted in Spark and its employees committing offences under either the Commerce Act or the Crimes Act 1961.
[4] The controlling force behind the plaintiffs is Mr Malcolm Dick, a well known figure in the telecommunications industry. He is also the director and shareholder of Blue Reach Services Ltd and Blue Reach Wireless Ltd (Blue Reach), both of which are active in the industry. Blue Reach has joined the plaintiffs in seeking orders permitting them to provide copies of the documents to the Commission and the New Zealand Law Society (the Law Society). They wish to provide the documents to those bodies in support of formal complaints they propose to make about the conduct of Spark and its employees.
[5]Spark opposes the application.
Background
[6] Spark is a long-established provider of telecommunication services in New Zealand. It entered into the agreements to acquire the 2300 spectrum from Woosh and Craig Wireless in November 2015. Spark then filed its application for clearance with the Commission on 18 December 2015.
[7] Blue Reach was aware of the application for clearance but did not seek to take part in the clearance process. Clearance was subsequently granted and Spark duly acquired the rights in April 2016.
[8] In 2018, Blue Reach issued a proceeding against Spark in this Court. It claimed that Spark had engaged in misleading conduct under s 9 of the Fair Trading Act 1986 by providing misleading information to the Commission in relation to the application for clearance. The claim was struck out on the basis that it was precluded by s 106(9) of the Commerce Act.1 This provides that information, documents and evidence provided to the Commission are privileged “in the same manner as if [they were provided] in proceedings in a court”.2 The Court of Appeal upheld the High Court’s decision.3 An application by Blue Reach for leave to appeal to the Supreme Court was also declined.4
[9] Blue Reach has therefore now exhausted the legal options available to it to directly challenge the information Spark provided to the Commission in support of the application for clearance. It has now joined the plaintiffs in the present application in a final effort to have its complaint about Spark’s conduct investigated.
[10] The documents that the applicants wish to provide to the Commission and Law Society comprise an unredacted version of the application for clearance5 together with internal memoranda and minutes of meetings prepared by members of Spark’s staff. They also include documents relating to a proposal under which Spark offered to fund
1 Blue Reach Services Ltd v Spark New Zealand Trading Ltd [2018] NZHC 847, [2018] NZAR 912.
2 Commerce Act 1986, s 106(9).
3 Blue Reach Services Ltd v Spark New Zealand Trading Ltd [2019] NZCA 2, [2019] NZAR 333.
4 Blue Reach Services Ltd v Spark New Zealand Trading Ltd [2019] NZSC 65, [2019] NZAR 1515.
5 The Commission provided this to the plaintiffs’ counsel on the basis that it was only to be used for the purposes of the present proceeding.
the acquisition by Two Degrees Mobile Ltd (2degrees) of spectrum in the 2500 range. This proposal ultimately did not proceed.
Relevant principles
[11]Rule 8.30(4) of the High Court Rules 2016 provides as follows:
8.30 Use of documents
..
(4)A party who obtains a document by way of inspection or who makes a copy of a document under this rule—
(a)may use that document or copy only for the purposes of the proceeding; and
(b)except for the purposes of the proceeding, must not make it available to any other person (unless it has been read out in open court).
(Emphasis added)
[12] The restrictions contained in r 8.30(4) embody the common law principle that a party who obtains documents using the discovery process impliedly undertakes not to use them for collateral or ulterior purposes.6
[13] In Hunter Grain Ltd v Price, Rodney Hansen J observed that the Court will not generally release or modify the implied undertaking given on discovery unless special circumstances exist and where it would not cause injustice to the person giving discovery.7 Rodney Hansen J also noted that the enquiry involves consideration of the proximity of any connection between the proceeding in which the documents were discovered and the purpose for which the documents are proposed to be used.8
[14] In a subsequent decision delivered in the same proceeding, Asher J held that the Court will find special circumstances exist where there is something that “takes the matter out of the ordinary course” where the restriction on collateral use generally
6 Hunter Grain Ltd v Price HC Tauranga CIV-2008-470-192, 3 August 2010 at [18].
7 At [51].
8 At [52].
applies.9 Asher J noted that an application to use material for a purpose not related to the subject matter of the proceeding is unlikely to be successful.10
[15]In Wilson v White, the Court of Appeal observed:11
Care must be taken to ensure that any exception does not swamp the rule. It is commonplace for parties to litigation to challenge misconduct against others and to seek discovery in support of such allegations. To allow discovered documents which reveal (or are thought to reveal) such misconduct to be disclosed for other purposes on the basis of a public interest exception would be very destructive of the underlying principle.
[16] It is worth noting at this point that some of the documents that are relevant to the present application were referred to during a hearing that I conducted on 7 February 2023 to determine several discovery applications the plaintiffs were advancing at that time. The plaintiffs also sought orders under s 67 of the Evidence Act 2006 disallowing Spark’s claim to privilege in relation to the documents on the basis that there was a prima facie case that the documents were compiled or prepared for a dishonest purpose or to assist Spark to commit an offence. The plaintiffs ultimately withdrew their applications at the conclusion of the hearing, so I was not required to determine them.
[17] When the present application was heard, both counsel advanced submissions addressing the possibility that r 8.30(4)(b) may permit the documents to be used outside the present proceeding because they were referred to during the hearing on 7 February. Rule 8.30(4)(b) permits a party to use documents obtained in discovery for other purposes if they are read in open court. However, the hearing on 7 February was conducted in chambers as required by r 7.34(1), no direction having been given that it be conducted in open Court. It follows that r 8.30(4)(b) does not apply.
9 Hunter Grain Ltd v Price HC Tauranga CIV-2008-470-192, 18 August 2010 at [13] citing the decision of the Federal Court of Australia in Holpitt Pty Ltd v Varimu Pty Ltd (1991) 103 ALR 684 (FCA) at 687.
10 At [17].
11 Wilson v White [2005] 3 NZLR 619 (CA) at [64].
[18] I therefore propose to deal with the application on the basis that the Court is being asked to exercise its inherent power to control the use parties may make of information obtained through the Court process.12
The argument
[19] On the applicants’ behalf Mr Pilditch accepts that the application is primarily driven by Blue Reach because it was the only party affected by the transactions for which the Commission gave clearance. The plaintiffs were not concerned in any way with the clearance application. Mr Pilditch emphasises that the plaintiffs nevertheless came into possession of the documents legitimately through the discovery process. Mr Pilditch also submits that Mr Dick and Blue Reach cannot be criticised for seeking to refer the documents to the appropriate authorities for investigation if they believe the documents disclose wrongdoing by Spark and its employees.
[20] Mr Pilditch also relies on the fact that Blue Reach has now exhausted the legal avenues available to it to challenge the propriety of the information Spark provided to the Commission. He says it is in the public interest for the issues raised by the discovered documents to be examined by statutory authorities who have the necessary expertise and resources to determine whether wrongdoing has occurred.
[21] Mr Pilditch also submits that Spark and its employees will not be prejudiced by this. The Commission and/or the Law Society may determine that the information contained in the discovered documents does not warrant any further action being taken. In that event the persons who are the subject of the complaints will not be put to any trouble. If, however, the Commission and/or the Law Society considers the matter to be worthy of investigation, this should properly occur.
[22] Mr Pilditch submits that the Court is not equipped to make any definitive analysis of the issues the discovered documents raise. It should entrust that process to the Commission and the Law Society, both of which are well equipped to undertake the type of analysis that will be required to determine whether wrongdoing has occurred.
12 Taylor v Attorney-General [2021] NZHC 1546 at [23].
[23] Mr Pilditch also points out that Mr Dick is not alone in suggesting that the material contained in the documents is likely to be of interest to the Commission. The applicants have filed three affidavits from Mr Ben Hamlin, who was formerly employed as a solicitor by the Commission. He confirms that in his view the Commission may well be interested in the material Spark has discovered.
[24] Spark takes issue with the admission of Mr Hamlin’s affidavit because he was party to discussions that occurred between Spark’s legal representatives and the Commission at the time Spark was responding to the Blue Reach litigation. Spark has filed an affidavit by one of its solicitors, Mr Sasha Daniels, who was involved in these. Mr Daniels says Mr Hamlin’s role at that stage was to provide the Commission with legal advice regarding the issues raised by the Blue Reach litigation.
[25] Mr Daniels says the meetings and correspondence were conducted on a confidential basis and involved Spark providing the Commission with a significant amount of information that was subject to litigation privilege. This included information as to Spark’s litigation strategy. Spark therefore objects to Mr Hamlin now giving evidence in support of the present application.
[26] Mr Hamlin says he does not recall being involved in the meetings and correspondence to which Mr Daniels refers. He says other staff members at the Commission were responsible for dealing with the issues that arose in the Blue Reach litigation and he was only peripherally involved. He also says he prepared his initial affidavit without taking those matters into account.
Decision
[27] Several factors are relevant to the exercise of the Court’s discretion in this context. First, the plaintiffs in the present proceeding plainly have no legitimate interest in Blue Reach’s proposal to provide the discovered material to the Commission and the Law Society. They cannot claim they were harmed as a result of any wrongdoing by Spark and its employees during the clearance process.
[28] As Mr Pilditch realistically accepts, Blue Reach and Mr Dick are the driving forces behind the present application. They are not parties to the present proceeding
and have no interest in it beyond their desire to be able to use the discovered documents in support of the complaints they propose to lodge with the Commission and the Law Society. Importantly, however, Blue Reach only obtained access to the documents through Mr Dick’s controlling interest in the plaintiffs. He came into possession of the documents on their behalf and not on behalf of Blue Reach. In that sense Blue Reach has come into possession of the documents opportunistically and in circumstances where it did not have any legal right to view the documents.
[29] Secondly, the purpose for which Blue Reach wishes to use the material has no connection with the present proceeding. This proceeding is not concerned in any way with the information Spark and its employees provided to the Commission when obtaining clearance for the acquisition of the spectrum.
[30] Thirdly, the pleadings relating to the 2degrees proposal have now been struck out. Had that occurred before the parties undertook discovery, Spark would not have been required to discover documents relating to the proposal.
[31] Fourthly, I do not accept Mr Pilditch’s submission that Spark and its employees will not be prejudiced if the documents are disclosed to the Commission and the Law Society. At the very least, they may be asked to provide an explanation for their actions. This is likely to occur during the period leading up to the trial of the present proceeding, which is due to commence in November 2023. It would be an unwelcome and stressful distraction from their efforts to prepare for the trial.
[32] Fifthly, I do not accept that the Court is precluded from making any assessment of the culpability of any misconduct that discovered documents may disclose. This may be a relevant factor in determining whether to grant leave for such material to be disclosed to the appropriate investigative bodies. The Court will obviously be more likely to allow this to occur where, on their face, the documents contain information suggestive of significant dishonesty or criminal activity. Conversely, where that is not the case the Court may be less likely to allow the documents to be used in that way.
[33] At the heart of Blue Reach’s complaint is its assertion that Spark’s employees failed to advise the Commission that they were aware Blue Reach intended to become
involved in the provision of retail telecommunications services in the future. When Spark lodged its application for clearance on 18 December 2015 it knew Mr Dick was subject to a restraint of trade imposed when he had earlier sold a business. This prohibited him from providing retail services in the telecommunications sector. He continued to be involved in the provision of wholesale fixed wireless access (FWA) services.
[34] The discovered material shows that Spark’s staff were aware in November 2015 that Mr Dick was likely to seek to become involved in the retail sector once the restraint expired. Spark’s evidence on this point is that it had learned of this through industry gossip and speculation rather than from Mr Dick himself. For present purposes the source of Spark’s knowledge is of little moment.
[35] Spark also became aware, because Mr Dick had told it, that Blue Reach was interested at that time in acquiring further broadband within the 2500 range. Mr Pilditch says this meant that Spark was obliged to advise the Commission of that fact, and of Blue Reach’s likely move into retail services when Mr Dick ceased to be subject to the restraint of trade. Instead, Spark’s employees advised the Commission that Blue Reach was likely to have sufficient 2500 spectrum for its fixed wireless wholesale services. Meeting minutes also show that, when Commission staff asked about Blue Reach’s activities on 17 December 2015, [name redacted] responded “We understand they are offering wholesale FWA services. Wholesale only. Who knows what end game is”.
[36] Mr Pilditch says that Spark’s employees must have known the Commission would focus on the state of competition within the relevant sector of the industry in the future. He contends the documents show that Spark’s staff misled the Commission by focussing on Blue Reach’s current activities and failing to mention their understanding about Blue Reach’s future intention to move into retail services.
[37] The difficulty with this argument is that, as part of the application for clearance, Spark was required to advise the Commission of the most likely counterfactual to Spark acquiring the rights to the 2300 spectrum. This relates to the most likely outcome if Spark was unable to purchase those rights from Woosh and Craig Wireless.
Spark’s application stated that the most likely counterfactual was that Blue Reach or Vodafone NZ (another provider of telecommunication services in New Zealand) would acquire the 2300 spectrum. In my view this amounted to clear and unambiguous advice to the Commission that Spark considered Blue Reach was likely to have an interest in acquiring the spectrum for which clearance was being sought.
[38] Furthermore, at the meeting on 17 December 2015 [name redacted] told the Commission that Spark believed one other party had been involved in discussions to acquire the 2300 spectrum. He said he was not aware of the identity of this party but believed it was likely to be either Blue Reach or Vodafone NZ.
[39] The Commission therefore knew when it received the application for clearance that Spark was aware of Blue Reach’s likely interest in the acquisition of the 2300 spectrum. If the Commission thought this was a relevant consideration it could have made further enquiries of Spark to ascertain how it had formed the view that Blue Reach may be interested in acquiring the spectrum. Alternatively, it could have made enquiries of Blue Reach regarding its future intentions in the retail field. As matters transpired, the Commission concluded in its clearance decision that the most likely counterfactual was that the 2300 spectrum would be retained by Woosh and Craig Wireless. It therefore did not place weight on either [name redacted] advice that Blue Reach may have been involved in earlier discussions to acquire the spectrum or the counterfactual Spark had posited in the application.
[40] I am also influenced to some extent by preliminary conclusions I reached regarding several of the discovered documents at the hearing on 7 February 2023. After counsel for the plaintiffs had taken me through the documents, I advised them that in my view they did not come close to establishing the necessary grounds to justify the Court making orders under s 67 of the Evidence Act. In other words, I did not consider the documents established prima facie evidence of dishonesty or criminal offending. This observation ultimately prompted the plaintiffs to withdraw their application.
[41] The applicants submit that the discovered documents constitute evidence that Spark’s staff members misled the Commission and thereby committed an offence
under s 103(2) of the Commerce Act. They also contend the documents are evidence of offences against several provisions of the Crimes Act. These include perjury (s 109), making a false statement or declaration (s 111), conspiring to defeat the course of justice (s 116) and obtaining a benefit by deception (s 240).
[42] The threshold under the present application is obviously lower than under that required under s 67 of the Evidence Act. The Court is not being asked to determine, even to a prima facie standard, whether the documents contain evidence of dishonesty or criminal wrongdoing. However, even applying the lower threshold required for present purposes, I consider the discovered documents cannot be viewed in isolation. They need to be viewed in light of what Spark told the Commission both before it filed the application for clearance and in the application itself. When this is done the discovered documents fall well short of constituting evidence of commission of any of the offences to which the applicants refer.
[43] Furthermore, the Commission will no doubt be aware of the present application just as it was made aware of Spark’s decision to apply to strike out the earlier Blue Reach litigation. If the Commission wishes to examine the propriety of the information Spark provided in support of the clearance application it has ample investigative powers to enable it to do so. In all likelihood this would lead to the Commissioner being provided with copies of the discovered documents if it thought they may be relevant. For present purposes, however, I do not consider it necessary or appropriate to make orders authorising the applicants to provide the Commission with those documents.
[44] The Law Society also has the power under Part 6 of the Lawyers and Conveyancers Act 2006 to investigate the role played by Spark’s legally qualified staff in the clearance process if it wishes to do so. It has already been placed on notice about the issues raised by the present application in a report that Mr Wigley has apparently lodged with the Law Society raising his concerns about those matters. It is not yet known whether the Law Society will take any action on the basis of Mr Wigley’s report but it clearly has the power to do so if it considers that to be appropriate. I therefore do not consider it necessary or appropriate to make orders authorising the applicants to provide the Law Society with the discovered documents.
[45] In light of the conclusion I have reached on this issue I have not found it necessary to determine whether Mr Hamlin’s prior involvement in the Blue Reach litigation disqualifies him from giving evidence in support of the present application. I am satisfied that it would not be appropriate to exercise my discretion in favour of the applicants.
Result
[46] The application for leave to use the documents for a collateral purpose is accordingly declined.
Costs
[47] Spark is the successful party and is entitled to an award of costs and disbursements in its favour. If the parties cannot reach agreement regarding this issue, they may file concise memoranda and I will determine it on the papers.
Lang J
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