Chief Executive of the Department of Corrections v Fujitsu New Zealand Limited
[2023] NZHC 1900
•20 July 2023
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE
CIV-2021-485-423
[2023] NZHC 1900
BETWEEN HIS MAJESTY THE KING IN RIGHT OF NEW ZEALAND ACTING BY AND
THROUGH THE CHIEF EXECUTIVE OF THE DEPARTMENT OF CORRECTIONS
PlaintiffAND
FUJITSU NEW ZEALAND LIMITED
Defendant
AND
DASSAULT SYSTÈMES AUSTRALIA PTY LIMITED
Third Party
Hearing: 19 July 2023 Appearances:
K J Dobbs for Department of Corrections
C Elliott KC and M B Wigley for the Defendant
C F Finlayson KC and J E Standage for the Third PartyJudgment:
20 July 2023
JUDGMENT OF COOKE J
(Application to strike out defence for discovery breaches)
[1] In these proceedings the Department of Corrections (Corrections) sues Fujitsu New Zealand (Fujitsu). Corrections alleges misrepresentation, breach of the Fair Trading Act 1986, and breach of contractual warranty in connection with the provision of software services by Fujitsu. The provision of those services related to the rostering of Corrections staff and existing payroll systems. Fujitsu in turn sues its sub- contractor, Dassault Systémes Australia Pty Ltd (Dassault), on the basis that Fujitsu relied on Dassault to provide the software which would be used to meet Corrections’ needs. Fujitsu advances similar causes of action against Dassault. The trial is scheduled to take place before me over four weeks commencing 11 September 2023.
CHIEF EXECUTIVE OF THE DEPARTMENT OF CORRECTIONS v FUJITSU NEW ZEALAND LIMITED [2023] NZHC 1900 [20 July 2023]
[2] By application dated 3 April 2023, Fujitsu applies to strike out Dassault’s defence to its claim and “debarring it from defending the claims”. The basis of that claim is that Dassault breached r 8.3 of the High Court Rules 2016 by failing to take all reasonable steps to preserve documents that were reasonably likely to be discoverable in the proceedings. In particular, Dassault failed to ensure that email communications of Dassault staff had not been deleted in accordance with Dassault’s normal business procedures, particularly when staff left Dassault’s employment. The application is opposed by Dassault notwithstanding its acceptance that r 8.3 was breached.
Procedural shortcomings
[3] Fujitsu’s application was one of a list of applications concerning discovery, particulars, confidentiality, and other matters that were first scheduled for hearing before me on 7 and 8 June 2023. At the beginning of the June hearing, I observed that many of the issues were well capable of being resolved by further discussion between counsel, and that they did not warrant a judgment of the Court following a two day fixture.1 I then heard argument on one of the issues (concerning confidentiality) before adjourning to allow such discussions to take place. As a result of those discussions agreement was reached on the contested matters, including on the confidentiality matter which had just been argued. This included agreed directions for the hearing of Fujitsu’s strike out application which it still wished to pursue. That is the application that has now been heard before me on 19 July 2023.
[4] Shortly before the hearing of the strike out application, Dassault filed a lengthy further affidavit of over 50 pages (including exhibits). This caused Fujitsu to apply to adjourn the hearing the afternoon before it was due to occur. I declined that adjournment indicating that I would consider an application for the Court to take into account an affidavit not filed in accordance with the timetable at the hearing itself. In addition Fujitsu and Dassault had both failed to comply with the requirements of r 7.39 concerning the page limit for their written submissions. Rule 7.39 provides that the synopsis of argument for a defended interlocutory application must not exceed ten
1 Most of the applications concerned discovery in relation to which there is an express duty of cooperation under r 8.2 of the High Court Rules 2016.
pages. Fujitsu’s submissions were 28 pages, and Dassault’s submissions were 17 pages. I indicated that I would also address the failure to comply with r 7.39 at the hearing.
[5] At the start of the hearing I declined leave for the affidavit filed by Dassault to be taken into account, noting that Dassault could apply for leave for particular correspondence exhibited to the affidavit to be taken into account by the Court if, in fact, it turned out to be relevant. In addition, I indicated that the point of the rules in relation to submissions for interlocutory applications, including the page limit in r 7.39, was to ensure that such submissions are focused, and directed to the issues that truly matter.
[6] In those circumstances, and in the context of the background described above, I gave a direction that oral submissions from each of the parties could be no longer than one hour each. That is the kind of direction that the Court should not hesitate to make in appropriate cases to ensure that the object of the Rules as set out in r 1.2 is met. As it happened senior counsel for both the relevant parties, who have both only been recently instructed, were able to comfortably comply with this direction. The hearing scheduled for a full day was then completed by the morning adjournment.
Dassault’s defaults
[7]Rule 8.3 provides:
8.3 Preservation of documents
(1)As soon as a proceeding is reasonably contemplated, a party or prospective party must take all reasonable steps to preserve documents that are, or are reasonably likely to be, discoverable in the proceeding.
(2)Without limiting the generality of subclause (1), documents in electronic form which are potentially discoverable must be preserved in readily retrievable form even if they would otherwise be deleted in the ordinary course of business.
[8] It is accepted that Dassault has breached its obligations under this rule. Moreover the breach does not arise from a single error, but arises as a consequence of
a series of failures. For Dassault, Mr Finlayson KC accepted that its compliance was inadequate, and said that Dassault accepted the seriousness of the situation.
[9] Litigation between the parties was in contemplation from 26 April 2019. Dassault claims litigation privilege for the proceedings from this time. From that point steps needed to be taken to ensure that relevant evidence was preserved, especially in the case of electronic information.2 However, no steps were taken by Dassault to preserve documentation. Dassault’s internal policies continued to operate, including the deletion of electronic information, especially email communications.
[10] Joshua Khaw, Dassault’s General Counsel for Australia and New Zealand, has sworn a series of affidavits seeking to explain the circumstances. He said that he personally made the first request to Dassault’s Head Office in France for the retention of all emails sent between all parties to the proceedings within specified date ranges on 9 October 2020. No explanation is provided in relation to the period from April 2019 to October 2020. Mr Khaw says that this request was declined by Dassault’s Head Office for technical reasons due to its breadth. On 23 November 2020 he submitted a revised application. This was not approved by Head Office until 14 October 2021, approximately a year later. No explanation has been provided by Dassault for the failure for this further period. Moreover, Mr Khaw had used Dassault’s billing records to identify the relevant employees whose emails needed to be retained. Unfortunately, there were also other relevant employees who had worked on the project who had not recorded time on that system, and who were accordingly not covered by the request.
[11] It transpires that, particularly when employees left the employ of Dassault, their email information was deleted after a period of time in accordance with usual business protocols. In addition, even when employees remained in Dassault’s employ their emails may have been deleted after a period of time as a result of data storage limits. It is therefore clear that relevant emails will have been deleted as a consequence of these, and other factors.
2 See Gillian Coumbe “Discovery of ‘inaccessible’ e-documents” [2012] NZLJ 63 at 66.
[12] Dassault has since made attempts to recover some of the deleted material, and that has been possible to the extent that the information may have been saved on local servers, or on particular computers. In the case of some emails the information is available from other parties to the email exchanges. I accept that Dassault has been making efforts to remedy the situation, and that further information has been provided as a consequence. Nonetheless, it seems likely that relevant documents will have been destroyed and are not recoverable.
[13] It is important to reiterate that the obligation not to destroy evidence relevant to an anticipated proceeding is an important one. Dassault’s failures are multifaceted. It initially took no proper steps at all, and then when it identified that steps to preserve documents should be taken the response was limited to a “request” to the Head Office. The preservation of documents is a legal obligation, not something for which the Head Office needed to grant permission. There was then an unexplained gap of a year before that request was acted upon, and even then it seems likely that emails were continually deleted as time passed. Moreover, there has not been adequate explanation of the reasons for Dassault’s ongoing failures. These breaches are significant, and serious.
Test to be applied
[14] There is no express provision that regulates the consequences of a party’s failure to meet the obligation in r 8.3, although r 8.33(1) provides that an order under pt 8 may be enforced under the Contempt of Court Act 2019. Rule 8.33(2) then clarifies that r 8.33(1) does not limit or affect “any power or authority of the court to punish a person for not complying with a court order”.
[15] The jurisdiction of the Court accordingly arises under its inherent powers. Although it does not directly apply, I consider that the appropriate approach is to apply r 7.48(1) and (2), applicable to pt 7, by way of analogy. Rule 7.48 provides:
7.48 Enforcement of interlocutory order
(1)If a party (the party in default) fails to comply with an interlocutory order or any requirement imposed by or under subpart 1 of Part 7 (case management), a Judge may, subject to any express provision of these rules, make any order that the Judge thinks just.
(2)The Judge may, for example, order—
(a)that any pleading of the party in default be struck out in whole or in part:
(b)that judgment be sealed:
(c)that the proceeding be stayed in whole or in part:
(d)that the party in default be fined, ordered to do community work, or committed to prison under section 16 of the Contempt of Court Act 2019:
(e)if any property in dispute is in the possession or control of the party in default, that the property be sequestered:
(f)that any fund in dispute be paid into court:
(g)the appointment of a receiver of any property or of any fund in dispute.
(3)An interlocutory order may only be enforced by the following (in accordance with subpart 4 of Part 2 of the Contempt of Court Act 2019):
(a)an order imposing a fine or community work:
(b)a warrant committing the person to prison:
(c)a sequestration order.
[16] Adopting this approach is consistent with the Court of Appeal’s decision in Kent Sing Trading Co Ltd v JNJ Holdings Ltd which addressed failures to comply with discovery obligations more generally.3 There the Court said:4
The learned authors of Disclosure explain that, where there has been a failure to comply with a disclosure obligation, the court can intervene in order to ensure a fair trial.5 The court has a broad range of orders it may make at its discretion to enforce a party’s obligations on disclosure, the three main options being:6
(a)an extension of time within which the defaulting party must comply;
(b)an extension of time under an unless or conditional order, spelling out the consequences of the failure to comply, including a strike-out of the case of the defaulting party; and
(c)an immediate order striking out the statement of claim or defence of the defaulting party.
3 Kent Sing Trading Co Ltd v JNJ Holdings Ltd [2019] NZCA 388 at [42]–[48].
4 At [43]–[44] (footnotes included).
5 Paul Matthews and Hodge M Malek Disclosure (5th ed, Sweet and Maxwell, 2017) at [17.05].
6 At [17.05]. Although the text relates to the rules in England and Wales, they are for all intents and purposes the same as those applying in New Zealand.
They say that a proceeding may only be struck out:7
… where there has been a deliberate and continuing refusal to provide disclosure or where the default has made the fair trial of an action impossible or prevented the court from doing justice.
[17] The Court also identified that the Court could draw adverse inferences from the destruction of documents at the trial when making factual findings.8
[18] Mr Finlayson referred to Moody Kiddell and Partners Pty Ltd v Arkell where Jagot J, then of the Federal Court of Australia listed eight principles to be applied when addressing the consequences of a party so failing to meet discovery obligations.9 I agree that this list of principles appears comprehensive and relevant. However, in terms of the ultimate test the approach outlined in r 7.48(1), and by the Court of Appeal, seems to me to be appropriate.
Application in the present case
[19] The application of the above principles to the present case means that Fujitsu’s application to strike out should be dismissed.
[20] First, this is not a case of deliberate default. Rather it is a case of electronic documentation being destroyed in the ordinary course of business, and a failure by Dassault’s legal offices, and by Dassault itself, to take effective steps to prevent that destruction in accordance with its obligation. As I have said, the series of breaches are serious. However, this is not a case where Dassault has deliberately destroyed evidence. That does not prevent the Court from striking out a statement of defence, and making orders preventing a defendant from actively defending a case, but the Court will only do so when the destruction of evidence has made it impossible for there to be a fair trial.
[21] The second point is that it is not possible for the Court to conclude that a fair trial of the current claim is not possible at this interlocutory stage. Mr Elliott KC addressed some of the internal Dassault emails that had been discovered to
7 At [17.07].
8 At [47]–[48] and [65].
9 Moody Kiddell and Partners Pty Ltd v Arkell [2013] FCA 1066 at [25]–[26].
demonstrate the type of material that would likely have been destroyed, and why it was of significance. Nevertheless, the Court is not able to reach any firm conclusions on the significance of the material that has been deleted at this stage in this type of case. This case will involve a four week trial of some complexity. The material put forward is a small fraction of the evidential material that would be relevant at trial. I do not have the evidence of the relevant witnesses at this stage. Attention was drawn to particular sentences in particular emails, but I am not aware of the context in which these emails were written. It would be inappropriate for the Court to purport to reach any firm conclusions about the implications of the material that has been deleted at this stage, particularly in relation to a case that will undoubtedly have a degree of technical complexity. A Court would only strike out a defence in advance of trial in exceptional cases, and it is a power to be “exercised sparingly given the drastic nature of the remedy”.10 I do not accept the submission from Mr Elliott that the burden shifts to the defaulting party to prove a fair trial is possible. Given the drastic nature of a striking out order, and the right of access to the Court, the applicant must satisfy the Court to the high standard required.
[22] The third related point is that even on the basis of the information I have I am far from convinced that it is impossible for there to be a fair trial on Fujitsu’s claim against Dassault. That claim is essentially that Dassault misrepresented what its software was capable of doing, which in turn led to Fujitsu making misrepresentations to Corrections. The key evidential issues will be to identify the representations that were made about the software, and then establishing whether the representations were true. As to the first question, the nature of the representations appears reasonably clear as they were formulated in the contractual documentation passing between Corrections, Fujitsu, and Dassault. The internal emails of Dassault employees are not likely to be relevant to identifying what the representations were. As to whether the representations were true, that is primarily to be derived by evidence of the actual capabilities of the software and Corrections’ requirements. This will no doubt be ascertained by expert evidence, as well as some factual evidence about the capabilities of Dassault’s software. I accept that the internal emails of Dassault employees will be
10 Moody Kiddell, above n 9, at [26(2)]; citing Clark v State of New South Wales (2006) 66 NSWLR 640; [2006] NSWSC 673 at [63] and [147]; and Palavi v Radio 2UE Sydney Pty Ltd [2011] NSWCA 264 at [93]–[95].
of relevance to that question. But that relevance will only be indirect. The most direct evidence of that question will be evidence of the performance capabilities of the software itself. So, although the internal emails would be of assistance, I do not see why their absence means that a fair trial of Fujitsu’s claims against Dassault is impossible.
[23] It is also relevant that Fujitsu’s claims against Dassault will only arise if Fujitsu is liable to Corrections. I asked all counsel if they could identify a scenario in which Corrections succeeded against Fujitsu, but Fujitsu did not then succeed against Dassault. Counsel were unable to do so, although Mr Finlayson did draw my attention to the positive defences that Dassault had pleaded, such as a clause in the sub-contract said to prevent Fujitsu relying on its representations. But generally counsel accepted that Dassault’s liability to Fujitsu would likely follow Fujitsu’s liability to Corrections. In those circumstances, it is difficult to see how Fujitsu’s claim against Dassault has been prejudiced to the point of a fair trial being impossible. Dassault’s liability is likely to follow as a matter of course. That point resulted in Mr Elliott arguing that the absence of the Dassault internal emails might prejudice Fujitsu’s defence of Corrections’ claim — that is that the missing emails would assist in demonstrating that Dassault’s software was capable of meeting the represented characteristics. That is the opposite of the argument Fujitsu advanced in its written submissions, to the effect that the internal emails would have evidenced an awareness by Dassault’s employees that the representations were untrue. There is no evidence before me to suggest that the deleted emails would have assisted Fujitsu in advancing a claim that the representations were correct.
[24] I also note that in its most recent pleading Fujitsu has added a new cause of action against Dassault – alleging that the deletion of the emails involved a breach of contract. Fujitsu relies on a particular contractual obligation that Dassault allegedly had to retain relevant information. Whilst I am presently unclear what Fujitsu’s remedy would be for a breach of this obligation it is relevant that Fujitsu contends that it has a remedy for the deletion of the relevant emails.
[25] The final point is that once the fuller extent of the relevance of any deleted documentation becomes apparent at trial, the Court can apply the normal evidential
principles associated with drawing adverse inferences. That was a point made by the Court of Appeal in Kent Sing Trading Co Ltd v JNJ Holdings Ltd.11 This seems to me to be the most appropriate consequence for a party who has not deliberately destroyed evidence, but who has nevertheless committed a serious default, at least in this kind of case. In addition, were it to emerge at trial that the deletions were so serious that Dassault’s defence effectively amounted to an abuse of process, the Court could reconsider a strike out application.
[26] Sensing that what the likely outcome of the application was going to be, Mr Elliott submitted that if the Court was not minded to grant Fujitsu’s application it should be adjourned and then dealt with at trial. I do not think that is the appropriate course. There is a danger that it would divert attention at the trial to allegations about parties failing to meet discovery obligations, which would not be appropriate even if Fujitsu is pursuing the new cause of action it has pleaded. The Court would only move from drawing adverse inferences to completely striking out a defence in exceptional circumstances. Mr Elliott relied on the decision of the English and Welsh High Court in Active Media Services Inc v Burmester in this respect.12 But there Calver J said:13
The Court must always consider, therefore, whether a fair trial is possible and to this end have regard to the defaulting party’s … rights of access to the Court, and whether the remedy of a strike out would be proportionate and fair in all the circumstances of the case (which is much less likely in a case where the trial has concluded and the Court is in a position to assess the effect of the destruction of the documents and/or failure to call relevant witnesses), or whether some other remedy will safeguard the position of the innocent party.
Hollander suggests in paragraph 11-16 that “where the defaulting party has been less than candid about the destruction exercise, the court may consider it cannot be sure exactly how widespread the destruction has been, and what its effect will be, and thus may find it more difficult to reach a conclusion that a fair trial is still possible.” I respectfully agree with that general sentiment but in a case where the trial has concluded the position is, as I explain above, somewhat different. Indeed, it is for this reason no doubt that as Hollander goes on to state: “it would be a very rare case in which, at the end of a trial, it would be appropriate for a judge to strike out a case rather than dismiss it in a judgment on the merits in the usual way”. I agree.
(emphases in original)
11 Kent Sing Trading Co Ltd v JNJ Holdings Ltd, above n 3, at [47]–[48] and [65].
12 Active Media Services Inc v Burmester [2021] EWHC 232.
13 At [307]–[308], citing Hollander: Documentary Evidence (13th ed), Sweet & Maxwell Ltd, London, 2018.
[27]For these reasons I do not adjourn the application.
[28] The only matter that has troubled me is that when a party such as Dassault has breached its obligations under r 8.3 it should not be able to avoid adverse consequences of the default. I am nevertheless satisfied that there are significant adverse consequences here even though Fujitsu’s application will be dismissed. First, there is the reputational impact on Dassault, and indeed the Dassault personnel who are responsible for the default. Secondly, the potential for the drawing of adverse inferences on a claim of financial significance, as well as the consequences of criticism of the party by the Court should not be underestimated. Finally, there is the potential for further consequences as to costs.
[29] As to the final point, whilst Fujitsu has been unsuccessful it would not be appropriate to now award Dassault costs of the application. Given Dassault’s default the question of costs will be reserved to be determined in connection with the proceedings overall. Costs can then be addressed when the full circumstances of the case, and the implications of the failures, are better known.
[30]For these reasons the application is dismissed, and costs are reserved.
Cooke J
Solicitors:
Bell Gully, Wellington for the Plaintiff
Wigley and Company, Wellington for the Defendant MinterEllisonRuddWatts, Auckland for the Third Party
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