Colville v Colville
[2022] NZHC 766
•12 April 2022
IN THE HIGH COURT OF NEW ZEALAND GREYMOUTH REGISTRY
I TE KŌTI MATUA O AOTEAROA MĀWHERA ROHE
CIV-2021-418-17
[2022] NZHC 766
BETWEEN MATHEW ROBERT COLVILLE
Plaintiff
AND
ADAM KEITH COLVILLE
First Defendant
PETER JONATHAN BLIGHT
Second DefendantSTONEWOOD HOMES
Non-Party
Hearing: 5 April 2022 Appearances:
A R B Barker QC and J E Palairet for Plaintiff
D M Hughes and L H Scott for First and Second Defendants No appearance for Non-Party
Judgment:
12 April 2022
JUDGMENT OF ASSOCIATE JUDGE LESTER
COLVILLE v COLVILLE [2022] NZHC 766 [12 April 2022]
[1] Mathew Colville (Mathew) , the plaintiff, and Adam Colville (Adam), the first defendant, are brothers. They were, up until October 2020, equal shareholders in a company called Housing West Coast Limited, which operates the G J Gardner franchise for the West Coast. Mathew and Adam have fallen out and their relationship is acrimonious.
[2] Mathew bought out Adam’s 50 per cent interest in Housing West Coast Ltd for a substantial sum. The agreement included a restraint of trade in the following terms:
1.THE Vendor covenants with the PURCHASER that he will not directly or indirectly be engage, participate in or have any direct or indirect interest whether as an owner, partner, director, shareholder, officer, employee, agent, consultant, representative, contractor or subcontractor or in any other capacity in the business detailed in the schedule in competition with Housing West Coast Limited.
… SCHEDULE
Business the design, sales, marketing, management, accounting, estimating and construction of any houses, commercial or industrial buildings, units or duplexes.
[3] Mathew alleges that Adam has acted in breach of the restraint and that the second defendant, Peter Blight (Mr Blight), is party to those breaches in his role as a director and shareholder of West Coast Residential Limited (WCRL) which owns the Stonewood Homes West Coast franchise.
[4] As will be developed below, Mr Blight previously owned the Stonewood Homes franchise for the West Coast and re-acquired that franchise in May 2021.
[5] Adam and Mr Blight dispute that the restraint has been breached, and Adam says the restraint is unreasonable both as to its breadth and duration.
[6] While the parties have exchanged discovery, cross-applications for further and better discovery were for hearing on 5 April 2022. By the time of the hearing, those cross-applications were largely resolved. Mr Barker QC, counsel for Mathew, tabled a draft proposed order covering the areas of agreement and noting the issues that
remained for hearing. Those orders, which reflect my findings on the disputed areas, appear at the end of this Judgment.
Discovery principles
[7] The principles that apply to an application under r 8.19 High Court Rules 2016 (the Rules) are well settled. They were summarised by Asher J in Assa Abloy New Zealand Ltd v Ellegion (New Zealand) Ltd as follows:1
(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?
(c)Is the discovery sought proportionate?
(d)Weighing and balancing those matters, in the Court’s discretion applying r 8.19, is an order appropriate?
Disputed categories of discovery
[8] Mathew seeks discovery of all communications between Adam and WCRL, Peter Blight Builder Ltd (PBBL) and Hammer Down Developments Ltd (HDDL).
[9] Adam and Mr Blight agreed to discover communications relating to Adam’s participation or involvement in WCRL, but they say that documents relating to PBBL or HDDL are not relevant to the present proceeding.
[10] A further category of disputed documents concern records relating to an advance of $200,000 made by Adam to WCRL in late May 2021. Mr Blight signed the franchise agreement to re-acquire the Stonewood Homes franchise for the West Coast on 18 May 2021, with the advance from Adam being made the following week.
1 Assa Abloy New Zealand Ltd v Allegion (New Zealand) Ltd [2015] NZHC 2760, [2018] NZAR 600 at [14].
Mathew says there is an obvious connection between the timing of the advance and WCRL taking on the Stonewood Homes franchise. Adam and Mr Blight say the advance was a personal loan from Adam to Mr Blight which has since been repaid.
[11] On 18 March 2022, Mathew applied for non-party discovery against the head franchisee of Stonewood Homes. Mathew’s counsel is working through that application directly with counsel for Stonewood Homes. That application is adjourned to a telephone conference timetabled below.
[12] As to Adam and Mr Blight’s application for further and better discovery, Mathew has agreed to provide certain documents sought by Adam and Mr Blight, subject to confidentiality being agreed.
Is there reason to believe the documents exist and would they be relevant?
HDDL
[13] Adam and Mr Blight say Adam has no involvement in WCRL. In relation to PBBL, they say Adam is only an employee working on the tools and while a shareholder and director of HDDL, that company has no involvement in any activity that would be a breach of the restraint of trade.
[14] Mr Barker submitted those claims should be compared with the evidence. Mr Barker’s submission was, in short, that the circumstances mean it can be inferred that the documents sought must exist.
[15] HDDL was incorporated on 20 May 2021, at the same time that WCRL acquired the Stonewood Homes franchise and Adam advanced money to Mr Blight. HDDL purchased land in Hokitika. Mr Blight was interviewed for a Facebook Group
called “The Coast Club” while standing on the land purchased by HDDL. During the interview, Mr Blight said:
Q:It’s a beautiful day here and I’m with Peter Blight. Peter, you’re the Stonewood Homes man now?
A:Yes, that’s correct. We’ve bought the Stonewood Homes franchise for the West Coast. So we’ve bought this piece of land and we’re going to build a show home and an office.
Q: So this is opposite the church on the main highway and what, you’re about a minute and half to the supermarket.
A: Yeah, something like that. Not far at all. So the plan for this site is to have a show home where we’re standing, an office next door, and then we’re going to do two house and land packages over there. We’ve got expressions of interest in one of them already so I don’t think they’ll last too long.
[16] When Mr Blight said: “We’ve bought this piece of land”, he must be referring to HDDL as it is the owner of the land. Mr Barker’s submission was to the effect that when Mr Blight said in the same breath “[w]e’ve bought the Stonewood Homes franchise”, an inference can be drawn that he was referring to himself and Adam. Further, HDDL’s land is the intended site of the Stonewood Homes franchise show home and office, reinforcing the connection between HDDL and WCRL.
[17] In my view, the basis upon which the Stonewood Homes office and show home were planned to be built on HDDL’s land will be relevant to the relationship between those companies and their relationship with Adam. For example, what benefit was intended to accrue to HDDL from allowing its land to be used for WCRL/Stonewood Homes’ purposes? What discussions were there about the acquisition of the land and its uses given the timing noted at [15] and the matters outlined below?
[18] Mr Barker also referred to an email from Stonewood Homes circulated on 3 June 2021 which said:
We are delighted to welcome Peter & Adam as our newest Franchisee to the Stonewood family.
[19] The email gave Adam’s cell phone number which is apparently the same number he used while working with his brother, Mathew, at the GJ Gardner franchise. The Stonewood Homes website also referred to Adam as a “New Home Consultant”.
[20] There is an affidavit from Adam and Mathew’s mother where she says Adam told her he had bought “… two building companies, including a Stonewood Homes Franchise on the West Coast”.
[21] Mr Barker submitted this apparent connection between Adam and Stonewood Homes, run by WCRL, and the plan to build the Stonewood Homes’ show home and office on HDDL’s land, made discovery by HDDL appropriate. I agree. Given what Stonewood Homes said about Adam and HDDL’s connection to Stonewood Homes, as confirmed in Mr Blight’s interview, it is a reasonable conclusion to reach that there are some documents concerning the matters described by Mr Blight in his interview.
[22] Bare denials by Adam and Mr Blight are not an answer to these points. As Mr Barker said, discovery is about challenging the positions asserted by the parties.
PBBL
[23] Adam says he is an employee only of PBBL and as an employed labourer he is not breaching the restraint of trade. If this claim is correct, it is accepted it would not be a breach of the restraint of trade as there is a carve-out for such work. There is an affidavit of another employee of PBBL confirming that Adam works 9am to 5pm “on the tools”.
[24] What Mathew wishes to explore is whether the statement by Adam that he is “merely an employee” is correct. The employment and tax records of PBBL will be relevant to that claim as will other documents such as timesheets relating to the work undertaken by Adam. Mathew does not accept Adam is, in reality, merely an employee of PBBL, relying again on the material already referred to.
[25] I do not accept Mr Hughes’, counsel for the defendants, submission that Mathew has not met the discovery threshold, that is, Mathew has not demonstrated there are reasonable grounds for believing documents exist or that they are relevant. If Adam is correct that he is merely an employee, there will be documents arising from that role. Such are relevant to the disputed issue of Adam’s role in PBBL and the discovery sought is appropriate.
The $200,000 loan
[26] Mr Hughes submits that documents relating to the use of the $200,000 loan are not relevant to this proceeding. In his letter of 8 March 2022, Mr Hughes said the provision of a personal loan from Adam to Mr Blight did not breach the terms of the restraint of trade. While the personal loan was paid directly into an account in the name of “West Coast Residential Ltd”, the loan is said to be a personal loan from Adam to Mr Blight and there is a corresponding record of Mr Blight contributing shareholder funds to WCRL. Mr Hughes advised in the letter that the $200,000 loan was repaid to Adam in full and there is an offer to provide relevant extracts from Adam’s bank statements evidencing the repayments, if necessary.
[27] Given the timing of the transfer of funds from Adam to WCRL, Mathew was concerned that the payment was Adam investing in the Stonewood Homes franchise obtained by WCRL immediately prior to the transfer.
[28] Mr Blight says no documents exist in relation to the loan, being an oral arrangement.
[29] There will be documents within WCRL recording its accounting treatment of the funds received. Mr Hughes offered in his 8 March 2022 letter to provide relevant extracts from Adam’s bank statements evidencing the repayments. In my view, details of the account from where the money was repaid will also be relevant. The narrations on those transactions may be relevant.
[30] Accordingly, as the status of the $200,000 payment by Adam into WCRL is an issue, documents that can throw light on that payment should be discovered.
[31] Mr Hughes accepted that, with the reduction of the areas of discovery in issue, the discovery now sought was not be disproportionate.
[32] It follows I am satisfied that the issue of whether the disputed categories of documents should be discovered is resolved in Mathew’s favour and that is reflected in the orders set out below. It will be seen that, other than the issues in paragraph [1](b), (c) and (d), counsel had agreed all other matters.
Remaining applications
[33] The issues as set out at (3) of the orders below by agreement are to be addressed at a telephone conference held for one hour at 2.15pm on Wednesday 22 June 2022.
Orders
[34]The following orders are made:
(1)The defendants are each by Friday 29 April 2022 to provide an affidavit giving further discovery of the following categories of documents, current or deleted:
(a)All email correspondence on any email addresses used by the defendants mentioning the purchase of the Stonewood Homes franchise, Adam Colville’s involvement/role in the franchise in any capacity, and GJ Gardner/Mathew Colville since 1 January 2021 (the Commencement Date);
(b)All correspondence between the defendants since the Commencement Date about the Stonewood Homes Franchise, GJ Gardner, the loan, Mathew Colville, and/or design, sales, marketing, management, accounting, estimating, and construction of any houses, commercial or industrial, buildings, units or duplexes by any means, including Facebook messenger, text message, and all email correspondence;
(c)Any other documents or communications relating to Adam Colville’s participation or involvement in West Coast Residential Limited, Peter Blight Builder Limited or Hammer Down Developments Limited (the Relevant Companies) or any participation in, or direct or indirect interest in, a business involving the design, sales, marketing, management, accounting, estimating and construction of any houses,
commercial or industrial buildings, units or duplexes in the West Coast area;
(d)All relevant bank statements and all other documents concerning the alleged $200,000 loan by the first defendant to the second defendant of May 2021 including all documents relating to the purpose of that loan, the terms of that loan, what the loan was used for and when it was repaid;
(e)Correspondence and documents between the defendants and Brad and Lily Houston regarding the Houston House, and attachments.
(2)(a) The defendants will each by Friday 29 April 2022 provide an affidavit verifying which:
(i)email addresses (including all work and personal email addresses); laptops and computers;
(ii)mobile phones; and
(iii)storage devices, including hard drives, electronic storage devices, and cloud storage repositories (Devices);
have been used by them since the Commencement Date in connection with their involvement with the Stonewood Homes West Coast Franchise or any other “Business” in which the first defendant may have been involved (the Property) and includes any Devices that have been used to communicate between them.
(b)The defendants will deliver up the Property to an independent computer forensic expert (the Expert), who will be instructed by both parties, for cloning and/or inspection;
(c)The Expert will conduct an examination of the Property, which may include inspecting and/or cloning the Property. The inspection will also consider whether documents are or may have been deleted from the Property.
(d)The defendants must assist the Expert in carrying out the orders, including ensuring all data is in a readily retrievable format and providing all credentials, passwords and access codes to enable access to accounts, systems and repositories.
(e)The Expert will prepare a stocktake of documents based off the following key-word searches applied over between 1 January 2021 and 30 November 2021:
(i)Accounts associated with Peter Blight: keyword searches of “Colville”, “Adam/Adam Colville”; “GJ Gardner”; “Loan”
(ii)Accounts associated with Adam Colville: “Blight”; “Peter/”Peter Blight”; “Mat/Mathew Colville”; “GJ Gardner”; “Stonewood”; “Loan”; “Franchise”;
(f)The Expert will write an affidavit outlining the process applied and key findings, including the identification of deletion of documents. The expert will be free to identify any other areas of concern he may have as to the extent of the Property and Devices he has been able to review.
(g)An independent third-party barrister or solicitor, jointly instructed by both parties, will prepare an affidavit of relevant documents arising out of the inspection;
(h)The Expert must keep clones of computers or devices obtained in safe custody until the discovery and inspection process is complete;
(i)The defendants must preserve all relevant documents, communications and devices until trial.
(j)In general terms:
(i)the plaintiff will be liable for costs of the inspection if it does not reveal any relevant and material documents;
(ii)the defendants will be liable for the costs of inspection to the extent it reveals relevant and material documents that have not been discovered, and/or that materials have been deleted.
(k)If the parties cannot agree on the costs of the inspection within ten working days of receipt of the affidavit of documents prepared by the independent third-party barrister or solicitor, the issue should be referred back to the High Court.
(l)Leave is reserved to both parties to apply to the High Court in respect of the above orders.
(3)The following applications are otherwise adjourned for further mention after 5 June 2022:
(a)the plaintiff’s application for further and better discovery;
(b)the defendants’ application for further and better discovery;
(c)the plaintiff’s application for non-party discovery.
(4)Costs on the various applications are reserved until the telephone conference on 22 June 2022.
Associate Judge Lester
Solicitors:
Malloy Goodwin Harford, Auckland (for Plaintiff) Copy to counsel:
A Barker QC and J Palairet, Barristers, Auckland (for Plaintiff) Anthony Harper, Auckland (for Defendants)
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