Colville v Colville
[2023] NZHC 619
•24 March 2023
IN THE HIGH COURT OF NEW ZEALAND GREYMOUTH REGISTRY
I TE KŌTI MATUA O AOTEAROA MĀWHERA ROHE
CIV-2021-418-17
[2023] NZHC 619
BETWEEN MATHEW ROBERT COLVILLE
Plaintiff
AND
ADAM KEITH COLVILLE
First Defendant
PETER JONATHON BLIGHT
Second Defendant
Hearing: 21 March 2023 Appearances:
A R B Barker KC for Plaintiff
A D Marsh for Second Defendant
First Defendant – appearance excusedJudgment:
24 March 2023
JUDGMENT OF ASSOCIATE JUDGE LESTER
COLVILLE v COLVILLE [2023] NZHC 619 [24 March 2023]
[1] This proceeding involves a dispute between two brothers, Mathew and Adam Colville and whether Adam breached a restraint of trade he gave when he sold his half shareholding in Housing West Coast Limited to his brother. Housing West Coast Ltd operates the G J Gardiner housing franchise for the West Coast.
[2] Mathew alleges Adam has acted in breach of the restraint of trade and that the second defendant, Peter Blight, is party to those breaches as director and shareholder of West Coast Residential Ltd, the company which owns the Stonewood Homes franchise for the West Coast.
[3] Adam and Peter, together with his wife, were equal shareholders in a company called Hammer Down Developments Ltd, incorporated on 20 May 2021. Peter’s company, West Coast Residential Ltd, acquired the Stonewood Homes franchise for the West Coast on 18 May 2021.
[4] In the week following West Coast Residential Ltd entering the franchise agreement, Adam paid $200,000 to West Coast Residential Ltd, albeit Adam and Peter say that sum was a personal advance between them.
[5] Mr Marsh, counsel for Peter, advised me during the hearing that West Coast Residential Ltd paid the franchise fee to Stonewood Homes on 3 June 2021.
[6] Hammer Down Developments Ltd purchased land in Hokitika. Peter gave an interview where he said: “We’ve bought this piece of land”, which in context referred to Hammer Down Developments Ltd as it was the owner of the land. Hammer Down Developments Ltd’s Hokitika land was the intended site of the Stonewood Homes franchise show home and office, suggesting a connection between West Coast Residential Ltd and Hammer Down Developments Ltd.
[7]An email from Stonewood Homes circulated on 3 June 2021 reads:
We are delighted to welcome Peter and Adam as our newest franchisee to the Stonewood Family.
[8] Some more detail of the events giving rise to Mathew’s belief that Adam had breached his restraint of trade and that was known to Peter, is contained in an earlier
judgment from 12 April 2022 when Mathew obtained orders for further and better discovery.1 In the 12 April 2022 Judgment, Adam and Peter were ordered to provide discovery of the documents relating to the $200,000 loan. While their evidence was that the loan was an oral agreement, given the money was paid directly into West Coast Residential Ltd, documents showing how that company treated the funds received, where the money was paid from and the narrations surrounding those transactions, were held to be relevant.
[9] Mathew has applied for further discovery in relation to two categories of documents. The first is Adam’s sale of his shares in Hammer Down Developments Ltd and the second relates to details of the franchise fee paid by West Coast Residential Ltd to Stonewood Homes sometime in late May/early June 2021. That disclosure is opposed by Peter.
[10] While Mathew’s application requires leave, given the close of pleadings date has passed, Mr Marsh’s submissions realistically focused on the substance of the applications rather than the issue of leave. Given the view I have taken of the substance of the application, leave is granted.
Applicable principles
[11] These are not in dispute. The principles that apply to an application under r 8.19 of the High Court Rules 2016 (the Rules) are well settled. They were summarised by Asher J in Assa Abloy New Zealand Ltd v Allegion (New Zealand) Ltd as follows:2
(a)Are the documents sought relevant, and if so, how important will they be?
(b)Are there grounds for belief that the documents sought exist? This will often be a matter of inference. How strong is that evidence?
1 Colville v Colville [2022] NZHC 766.
2 Assa Abloy New Zealand Ltd v Allegion (New Zealand) Ltd [2015] NZHC 2760, [2018] NZAR 600 at [14].
(c)Is the discovery sought proportionate?
(d)Weighing and balancing these matters, in the Court’s discretion applying r 8.19, is an order appropriate?
[12]It is not disputed that the documents exist. The dispute concerns relevance.
Category 1: Details of Adam’s sale of shares in Hammer Down Developments Ltd
[13] Recently, Adam has sold his half share in Hammer Down Developments Ltd to Peter. Mathew seeks discovery of documents leading up to and including that sale.
[14] Mathew’s claims in this proceeding concern arrangements of which he has no direct knowledge. Mathew cannot give evidence of the discussions between Adam and Peter (if any) in relation to the Stonewood Homes business. Mathew is dependent upon inferences being drawn from the timing of transactions and what the documents show.
[15] At the heart of Mathew’s claim against Peter is the nature of the relationship between Peter and Adam, the dynamics of that relationship, their financial arrangements and what Peter knew.
[16]As Mr Marsh said in reply, Mathew’s submission on this point is as follows:
“… that documents relating to the separation of the defendants’ interests may further shed light on the nature of the relationship between Adam and Peter as the two investors, and the nature of their activities of [Hammer Down Developments Ltd].
[17] Mr Marsh referred to the above passage, in effect, to say that this aspect of Mathew’s request for discovery was speculative and while Mr Marsh did not say that the application represented a fishing expedition, that was the tenor of his submission. Mr Marsh submitted that all the documents concerning Adam’s exit from Hammer Down Developments Ltd will show is an equal division of assets held by that company which he said will not be relevant to the nature of the relationship.
[18] I note here that Adam, in material filed with the Court, recorded that he did not object to the documents sought in this category being provided to Mathew’s lawyers for review on a confidential basis.
[19] In that material, Adam advised in relation to his exit from Hammer Down Developments Ltd:
There were no negotiations, it was mutually agreed at the accountants that I would take out what I put in, which was land, and the amount of the shares left in the company would be paid back to me.
[20] Mr Marsh advised there was a cash payment made to Adam by Peter to equalise the division of assets. While the agreement for the sale of Adam’s shares has been disclosed, the cash payment has been redacted.
[21] In my view, Adam’s contributions to Hammer Down Developments Ltd at the time it was incorporated or during the shareholding, are relevant. Adam’s position is that he got out what he put in. The extent Adam committed to Hammer Down Developments Ltd will, on the basis of what he has told the Court, be reflected in what he received when he sold out of Hammer Down Developments Ltd. The extent to which Adam committed to Hammer Down Developments Ltd, that is, the level of contributions he made to that company are relevant to Mathew’s case that Adam was breaching his restraint of trade, given the link that company has to the Stonewood Homes’ show home.
[22] Again, where Mathew does not have direct evidence as to the relationship between Adam and Peter, contemporary documents that may throw light on that relationship are all the more important. This is not a case where the volume of discovery is substantial and in my view, the material sought is relevant.
[23] I do not accept Mr Marsh’s submission that documents relating to the division of the value in Hammer Down Developments Ltd will not assist Mathew in assessing or examining the nature of the relationship between Adam and Peter. Based on Mr Marsh’s submissions, the material will at least show that Adam and Peter were equal contributors to Hammer Down Developments Ltd but Mathew is entitled to review the documents in respect of that issue himself.
[24] In addition, the documents sought by Mathew include all documents leading up to Adam and Peter’s decision to separate their business interests and their negotiations. While Adam has said there were no negotiations, it would seem from the material he has filed that Hammer Down Developments Ltd’s accountant will have some relevant material given the accountant’s reported involvement in the sale.
[25] Accordingly, I am satisfied it is appropriate that there be an order for further and better discovery against Adam and Peter in terms of para [1](a), (b) and (c) of Mathew’s on notice application for further and better discovery.
Category 2: The franchise fee
[26]Mathew seeks discovery of:
(a)Any documents and/or correspondence relating to the total franchise fee payable by West Coast Residential Limited to Stonewood Homes NZ Franchisor Ltd in May 2021, including details of how and when this payment was made, who it was made by and to whom it was paid, including email, text and all other forms of communications.
[27] Mr Barker, counsel for Mathew, submitted that this material was relevant as to the status and purpose of Adam’s $200,000 loan said by him to be a personal loan to Peter but paid to West Coast Residential Ltd.
[28] Mr Barker submitted that knowing the value of the franchise fee and the extent to which Adam contributed to that fee (if at all) was relevant. For example, the high point would be that if the franchise fee was $400,000 and the materials show that Adam provided half of that sum and Peter provided the other half, that would lead to a submission that Adam and Peter had agreed to fund the franchise fee equally. Mr Barker recognised that if the $200,000 loan was in fact not used for the franchise fee at all, such may be unhelpful to Mathew’s case.
[29] Mr Marsh submitted that the quantum of the franchise fee was not relevant. He submitted that whether the loan may have contributed to the franchise fee is a submission Mathew can make from the fact of the date of the loan payment into the
account and from the date Peter has said it was paid out (by implication an acceptance that some of the loan was applied to the franchise fee). Whether the loan money is contributed in part or to all of the franchise fee, Mr Marsh said this did not matter, his submission being that a contribution was a contribution. Therefore, Mr Marsh submitted Mathew does not need to see the figure or know whether and to what extent Peter contributed to the franchise fee.
[30] I do not accept this submission. If, for example, Adam and Peter contributed equally to the franchise fee then Mathew would be entitled to submit that fact supported Adam and Peter having a joint arrangement to acquire the Stonewood Homes’ franchise.
[31] Accordingly, Adam and Peter are ordered to provide the discovery sought at para [1](d) of the application.
Confidentiality
[32] There is an order that the amount of the franchise fee is to be confidential to counsel and experts only. I said that if I concluded these documents were discoverable, Mr Marsh would, upon compiling those documents, have an opportunity to raise any further confidentiality issues with Mr Barker.
[33] Given the proximity of the hearing date, Mr Marsh is to advise Mr Barker whether confidentiality is sought in respect of any other aspect of these documents within five working days of the release of this Judgment. If counsel cannot agree on any confidentiality issues arising, then leave is reserved to apply in respect of that issue.
Compliance issues
[34] One of the orders made in the 12 April 2022 Judgment was that Adam and Peter were to deliver up their electronic devices to an independent computer forensic expert who was to clone the devices and search the cloned copies using key words and within a give date range.
[35] The defendants appointed their forensic computer specialist who has recently filed an affidavit in which he confirms he has read the Code of Conduct for expert witnesses and agrees to comply with it. In his affidavit, he describes the process by which he cloned the various devices and that he provided the results of his searches to the defendants’ lawyers.
[36] Accordingly, it seems that while the original order contemplated an independent computer forensic expert, the defendants engaged the expert. Mathew acknowledges there is some ambiguity in the way the order was framed.
[37] Mr Barker recognised that the proximity of the hearing date means it is likely to be not practical to now engage an independent computer expert to re-examine the cloned material. Mr Barker noted that Adam, in the documents he filed with the Court, included a letter between his then solicitor and the computer expert. Clearly, Adam has waived privilege in that letter. In that correspondence, the expert refers to completing a report. Mr Barker sought a copy of that report.
[38] Given the waiver of privilege in relation to this correspondence, I am satisfied that Adam could not maintain privilege in relation to the report.3 Adam has produced the correspondence in support of his submission that no further orders are required in respect of the inspection of the electronic equipment. The expert in that correspondence refers in his answers to his report. The expert’s correspondence cannot be fully understood without the report which is referred to. The waiver of privilege extends to documents it is necessary to have to fully understand the document in which privilege has been waived.
[39] Accordingly, I find Adam has waived privilege in his report and indeed it was privileged given the orders intended that the expert be independent.
[40] Given Mr Chappell has confirmed that he is acting as an expert under the Rules, in my view, it is appropriate that he provide a copy of the report, whether it remains in draft or is finalised.
3 Evidence Act 2006, s 65(2).
[41] Immediately following the hearing, Mr Marsh clarified that he had located a copy of a draft report from which he takes that Mr Chappell completed separate reports in relation for counsel acting for Peter and Adam.
[42] Mr Chappell is to provide to Mathew’s counsel, a copy of the report he prepared in relation to Adam Colville within five working days of the date of this Judgment on the basis Adam has waived privilege in that report. If Mr Marsh considers the draft report he has located for Peter is privileged, then he is to explain the basis of that privilege to Mr Barker within three working days of the date of this Judgment. My preliminary view is that with Peter having filed an affidavit from the expert which I expect covers the same matters as the report, Peter has waived any privilege that may have existed in the report. Mr Marsh is also to confirm within the same time frame whether a final report was prepared by Mr Chappell. If there is an issue as to whether the report prepared for Peter is to be disclosed, counsel are to request a telephone conference with me.
Costs
[43]Costs are reserved.
Associate Judge Lester
Solicitors:
Malloy Goodwin Harford, Auckland (for Plaintiff) Anthony Harper, Auckland (for First Defendant)
Kannangara Thomson, Christchurch (for Second Defendant)
Copy to counsel:
A R B Barker KC, Barrister, Auckland (for Plaintiff)
A D Marsh, Barrister, Christchurch (for Second Defendant)
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