Comfortplus Limited (in liq) v Portsmouth Investments Limited (in liq) HC Christchurch CIV-2010-409-002043
[2011] NZHC 2047
•20 December 2011
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
CIV-2010-409-002043
BETWEEN COMFORTPLUS LIMITED (IN LIQUIDATION)
First Plaintiff
ANDFUJITSU GENERAL NEW ZEALAND LIMITED
Second Plaintiff
ANDPORTSMOUTH INVESTMENTS LIMITED
Third Plaintiff
ANDPORTSMOUTH INVESTMENTS LIMITED (IN LIQUIDATION) First Defendant
ANDD F BROSNAN Second Defendant
ANDJ C JACKSON Third Defendant
ANDK KOTZIKAS Fourth Defendant
ANDL M ALEXANDER, G J PAULL AND S R TOMLINSON
Fifth Defendants
Hearing: Determined on the papers
(Heard at Christchurch)
Appearances: E J Collins for Plaintiff
J P Forsey for Fifth Defendants
No other parties taking part in this issue
Judgment: 20 December 2011
JUDGMENT OF ASSOCIATE JUDGE OSBORNE
as to costs of inspection
COMFORTPLUS LIMITED (IN LIQUIDATION) V PORTSMOUTH INVESTMENTS LIMITED (IN LIQUIDATION) HC CHCH CIV-2010-409-002043 20 December 2011
[1] The fifth defendants apply for an order that the plaintiffs pay costs of inspection under r 8.29 High Court Rules.
[2] Rule 8.29 provides –
Where process impeded by discovery of irrelevant documents
If a Judge considers that a party has impeded the process of discovery and inspection by including documents in an affidavit that are not required to be included, the Judge may order the party to pay costs to a party or parties specified in the order.
The process of discovery and inspection in this case
[3] This litigation arises from dealings of the second defendant, Mr Brosnan, who was a sole director and shareholder of the first plaintiff (ComfortPlus) and of the third plaintiff (Portsmouth) both of which have been put into liquidation. The subject matter of the proceeding is the transfer of a Dunedin property from Mr Brosnan to Portsmouth in November 2006 and from Portsmouth to the fourth defendant in the same year. The issues as between the plaintiff and the third, fourth and fifth defendants are whether they knowingly assisted each other with a dishonest state of mind to benefit the second and third defendant to the detriment of the creditors of Comfortplus and of Mr Brosnan.
[4] Discovery and inspection were ordered at the first case management conference. It is common ground that the Peruvian Guano approach to discovery applied.
[5] The plaintiffs’ affidavit of documents was in a traditional format, identifying with reference to each document its number, date, original or copy, description, and sender and recipient. Reference was made to a total of 5,927 documents.
[6] Mr Forsey, for the fifth defendants, accepts that the Peruvian Guano test applies to discovery in this case. He notes however that there remains a limit to the nature of the line of enquiry that is envisaged by that test. He points particularly to the requirement under r 8.18(2) that a listed document must relate to a matter in question in the proceeding. Relevance is to be tested by the matters in question, not the subject matter of the proceeding: see NZ Rail v Port Marlborough [1993] 2
NZLR 641. If a document is not relevant, it should not be included in the List of
Documents required under r 8.18: M v L [1999] 1 NZLR 747, 751 (CA).
[7] The decision of Barker J in Pizza Restaurants (NZ) Ltd v Pepsico Australia Pty Ltd HC Auckland CL35-92 11 December 1992 is authority for the proposition that if a party is put to the cost of inspecting what turn out to be irrelevant documents, then an appropriate award of costs may be made regardless of the outcome of the substantive litigation. This approach may be contrasted with the commentary in McGechan on Procedure, HR 8.29.02 where the authors state that it is likely that in most cases the Court would prefer to defer consideration of a costs application under r 8.29 until all relevant issues are substantively determined. That commentary may be most applicable where uncertainties in the extent and definition of issues in the proceeding means that discovered documents may arguably remain relevant or potentially relevant for the time being. On the other hand, it is consistent with the policy of the costs regime within the High Court Rules, and in particular r
14.2, that the Court not hesitate to deal with costs at an interlocutory point if the issue can be appropriately determined at that point.
[8] In this case the fifth plaintiff has supported its application for costs through an affidavit from a solicitor, Shannon Mony, employed by the solicitors for the fifth defendant. She deposed (amongst other things) that –
(a) Upon receipt of the plaintiffs’ list of documents, Duncan Cotterill wrote to the plaintiffs' solicitor, ahead of inspection, drawing attention to the volume of documents listed for inspection and drawing
attention particularly to High Court Rules 8.18 and 8.29, and reserving the fifth defendants' position on costs.
(b)The plaintiffs' documents in fact made available for inspection occupied 11 large boxes.
(c) Included in those boxes were:
Several other full sets of proceedings where not only judgments or orders were listed but also full copies of pleadings and correspondence between counsel, process servers and the like, blank cheque butts, correspondence relating to the installation of heat pumps by the first defendant company, full copies of confidential employee files including personal grievance claims, car rental forms and parking tickets, invoices and statements between the first defendant company and suppliers, invoices for hotel accommodation, various miscellaneous pamphlets, insurance correspondence, PAYE records, day planners, trade price lists, employer’s liability insurance documents, correspondence with Hire Pool, IRD records, tax correspondence and website print outs of publicly available information.
(d)Ms Mony found on inspection that many of the boxes of documents were not individually numbered and that there were included dividers, blank pages and physical files which did not record any information but were listed as discoverable documents.
(e) On her inspection Ms Mony inspected seven of the 11 boxes and found one relevant document, the inspection taking two hours to complete and amounting (with travel time to a three hour commitment).
(f) Duncan Cotterill, for the fifth defendants then requested copies of a number of documents (some of which were requested because the fifth defendants’ original documents had been caught up in Duncan Cotterill’s premises because of the Christchurch earthquakes).
(g)Immediately following inspection Duncan Cotterill wrote to the plaintiff’s solicitors confirming that there would now be an
application to this Court for indemnity costs in relation to the
“massive volume of documentation which is clearly irrelevant”.
(h)The solicitor acting for the third defendant wrote an email to the plaintiff’s solicitor, shortly afterwards, complaining of similar excess of discovery, referring to documents which were unnumbered and unlabelled, the difficulty of then determining which discovered documents were relevant to the current proceedings, and stating that he was not prepared to waste his time and his client’s money on sorting through the documents in that way. He required the filing of an amended list of documents listing only the relevant documents.
(i)The plaintiff’s solicitor responded by stating that there had been no breach of the High Court Rules and that an amended list of documents would not be provided.
The position of counsel for the plaintiffs
[9] Mr Collins, for the plaintiffs, made reference to observations by Tipping J in M v L (above [6]) at 750 in which his Honour referred to the expansive nature of the concept of relevance under the Peruvian Guano test.
[10] Mr Collins then related that to this particular proceeding. Mr Collins identified particularly –
(a) The plaintiff’s allegation that the financial position of ComfortPlus was dire from its incorporation date in that it remained insolvent from incorporation through to liquidation.
(b)That financial position of ComfortPlus had a bearing on the actions of all defendants as alleged in the statement of claim and particularly of the first defendant (Portsmouth) and the second defendant (Mr Brosnan).
(c) The eight headings to the statement of claim (including such matters as the financial position of ComfortPlus; the liquidation of ComfortPlus; the disposal of assets by Mr Brosnan; the incorporation of Portsmouth; the liquidation of Portsmouth; and various property transactions indicated the range of issues in the proceeding).
(d)The detailed allegations pleaded within those headings included as to how ComfortPlus was operated; the way in which it had traded as an insolvent company; how Portsmouth had operated; how Portsmouth had been left in an insolvent position; and how ComfortPlus was used as a vehicle for the lifestyle of the second and third defendants.
[11] Mr Collins submitted that detail as to the operation of both ComfortPlus and Portsmouth was relevant to the issues in the proceeding. The liquidator’s working files, his investigations and anaylsis (including the source documents he had obtained) were all relevant.
[12] Mr Collins emphasised that issues of relevance in the proceeding could not be determined by the matters in issue for each of the defendants. The issues confronting the fifth defendants would not completely overlap with those involving the other defendants and might well be narrower. The plaintiffs’ obligation to give discovery relates to the entire case.
[13] Mr Collins submitted that the plaintiffs’ list of documents contained only information relevant to the issues in the proceeding.
[14] Mr Collins further submitted that the system used for the plaintiffs’ listing made for targeted and efficient inspection by the other parties. He noted that all documentation (excluding the liquidator’s working files) was categorised through numbering of individual pages so that if a document contained ten pages each page had a separate number. Each file (as indicated by an affidavit of Amy Haste) was categorised into numbered folders.
[15] Mr Collins submitted that the ease of inspection was indicated by the fact that Ms Mony’s own affidavit refers to two hours for counsel for the fifth defendants to inspect the files.
[16] Mr Collins submitted that the fifth defendants have not demonstrated that they incurred any costs to inspect the so-called “irrelevant” documents. He noted that there is no quantification of the inspection of the irrelevant category.
[17] Mr Collins referred to Ms Mony’s evidence and in relation to categories of
documents identified by Ms Mony as irrelevant submitted –
(a) In relation to “full sets of proceedings where judgments were issued”, Mr Collins noted that evidence had been filed in such proceedings and that the evidence was relevant in the present proceeding notwithstanding that orders were obtained;
(b)In relation to matters such as blank cheque butts, copies of confidential employee files and parking tickets Mr Collins submits that because the running of the Company is an issue in the proceeding the documents of the nature in question are relevant in showing such matters as employees carrying out work on company time, employees incurring expenses, and company money (via cheques) being used to pay for goods and services.
[18] The evidence disclosed has led, in Mr Collins’ submissions, to the liquidator and to counsel for the plaintiffs having a train of enquiry which led to the allegations in this proceeding. The documents in that regard are required to be available to the defendants as well as to plaintiffs.
Discussion
[19] The simple fact that the plaintiffs' discovered documents fill 11 sizeable boxes does not of itself indicate that the plaintiffs have discovered irrelevant
documents. That is particularly so when one considers that the affairs of two companies which have passed into liquidation are involved.
[20] What is of more concern is the nature of some of the categories of documents which Ms Mony has identified in her evidence. The Court is left with a considerable unease as to whether a number of those documents are truly relevant. While Mr Collins has offered his explanation as to the relevance of some of the categories, it is not immediately clear to me why items such as blank cheque buts might indeed be relevant. It is all too easy to use the “line of enquiry” approach to justify an insufficiently focussed discovery exercise. The Court can understand on Mr Collins’ argument as to the involvement of employees in certain actions that some parts of an employee file might be relevant but it is difficult to understand why the full copy of such files, including personal grievance claims, should have been discovered. Nevertheless, it would be inappropriate to deal with costs on a final basis at this point upon the basis of a sense of unease or suspicion. To obtain an order of costs in relation to unnecessarily required inspection under r 8.29, the applying party must satisfy the Court that that party has been impeded. The applying party has the burden of proof.
[21] Given that the plaintiffs in this case seek to justify their inclusion of documents upon a “line of enquiry” approach, there will be a much more reliable time at which to assess relevance against that approach, namely when the briefs of evidence are in and the witnesses are speaking to the issues as they boil down at trial.
[22] This is a case where the fifth defendants have appropriately raised the possibility of costs being fixed and awarded at this point. Mr Collins has offered explanations of relevance which may or may not prove to be justified in due course. But for now there is not a basis for rejecting Mr Collins’ contentions out of hand.
[23] In the circumstances, the fifth plaintiffs’ application for a special costs award pursuant to r 8.29 is adjourned for further consideration when the costs of this litigation more generally are dealt with.
Associate Judge Osborne
Solicitors:
Collins & May Law Office – [email protected] – [email protected] Young Hunter - [email protected] [email protected] [email protected] Wynn Williams - [email protected] -
Duncan Cotterill - [email protected] [email protected]
0
0
0