Commercial Factors Limited v Scenic Circle Hotels Limited
[2019] NZHC 568
•25 March 2019
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE
CIV-2016-409-001141
[2019] NZHC 568
BETWEEN COMMERCIAL FACTORS LIMITED
Plaintiff
AND
SCENIC CIRCLE HOTELS LIMITED
First Defendant
AND
SCENIC HOTELS LIMITED
Second Defendant
Hearing: (by telephone conference) 25 March 2019 Appearances:
P J Dale QC for Plaintiff
J B M Smith QC and J W L Wass for Defendants
Judgment:
25 March 2019
JUDGMENT OF OSBORNE J
on interlocutory applications
Introduction
[1]The plaintiff applies for various orders which I will group:
(a)addition of parties (a second plaintiff and a third defendant) and leave to file a third amended statement of claim;
(b)further discovery.
[2] The applications are opposed although, through Mr Smith QC, the defendants have offered “under protest” to provide some additional documents if the Court would consider that appropriate.
COMMERCIAL FACTORS LIMITED v SCENIC CIRCLE HOTELS LIMITED [2019] NZHC 568 [25 March 2019]
Background
[3] This proceeding was commenced on 23 November 2016. Relying upon discussions and communications between the parties in the period 2009 to 2011, the plaintiff sought a declaration as to the existence and subsequent termination of a joint venture and an enquiry into damages.
[4] Trial directions were made in April 2018. A ten-day trial to commence on 1 April 2019 was subsequently allocated on 29 June 2018, with the close of pleadings date fixed at 31 October 2018.
[5] The plaintiff filed these interlocutory applications on 19 March 2019. Counsel cooperated to have opposition and evidence filed in time for a hearing by way of telephone conference this morning.
[6] Having regard to the closeness of trial I indicated that, upon hearing submissions, I would promptly issue a judgment with very brief reasons but with leave to the parties to request full reasons if they require them.
The application for joinder and leave to file a third amended statement of claim
The parties’ positions
[7] The plaintiff seeks to join Pacific Hotels Ltd (PHL) as third defendant. It was a company established as an intended joint venture company. It was incorporated by:
(a)Scenic Hotels International Ltd (SHIL), a company associated with the first defendant; and
(b)Haydon 2 Ltd, a company associated with the plaintiff.
[8] It is Haydon 2 Ltd which the plaintiff proposes to join as second plaintiff. Each of the two shareholders appointed a director of PHL, being Terence Haydon in the case of Haydon 2 Ltd and Lani Hagaman in the case of SHIL.
[9] Ms Hagaman in recent years has had the day-to-day governance of PHL despite Mr Haydon’s remaining on the Companies Office register as a director.
[10] When the plaintiff’s briefs of evidence were served with additional discovery on 4 March 2019, the defendants became aware that Ms Hagaman has been dealing with a substantial claim on an insurance policy taken out by PHL, on which a substantial (part) payment has already been made to PHL.
[11] Mr Haydon is aggrieved that the defendants have refused to deliver up further information concerning PHL’s operations to Mr Haydon. The plaintiff views PHL’s board as dead-locked and does not wish to have Ms Hagaman dealing further with the insurance policy.
[12] Against that background, the plaintiff brought the interlocutory applications in order to add a fourth cause of action which would seek the winding up of PHL at the suit of its shareholder (Haydon 2 Ltd), both upon the basis that PHL is insolvent and that it is just and equitable that the company be put into liquidation.
[13] The defendants oppose the application for joinder of the two parties in question and for leave to file an amended statement of claim. As to the substance, they say amendment and joinder are unnecessary as SHIL is prepared to vote in favour of a special resolution under s 241(2)(a) Companies Act 1993 to place PHL in liquidation by the appointment of a liquidator. As to procedure, they say that the lateness of the application with trial so close and the procedures which would properly be involved with a liquidation application (including advertisement and discovery) make the late amendment and joinder inappropriate.
[14] Subsequently, Mr Haydon has filed an additional affidavit in which he describes the winding up of the company as a last resort because there are potential tax losses which would have no value to either party if PHL is liquidated. Mr Haydon therefore has re-thought his intended approach and now favours the joinder of the additional parties but “leaving [the resolution of the liquidation application] until the conclusion of these proceedings” when the Court will be sufficiently familiar with the issues to be able to form a view as to what should happen.
[15] The plaintiff explains the lateness of the applications, largely by reference to the information as to the insurance claim, as recently made available through the provision of briefs of evidence.
Outcome on joinder and leave applications
[16] The joinder and leave applications should be dismissed. They come too late before trial. The steps that would be necessary following on from a liquidation application would make an adjournment of the trial inevitable, meaning in the Court’s present work-load situation, a fresh trial date late this year at the earliest. In relation to events which are 10 years old and in a case where the relief sought is partly based on equity and conscience, the present trial date must not be jeopardised.
[17] Further, Mr Haydon’s indicated preference for the proposed joinder to be followed by an effective parking of the liquidation application reinforces the conclusion that any liquidation application should be pursued in its own right under the stand-alone procedures appropriate to company liquidation.
Discovery
The parties’ position
[18] The plaintiff seeks further and better discovery as set out in the schedule to this judgment. This is against a background in which the parties agreed and the Court directed at the outset that there should be standard discovery. Discovery was then completed and the pleadings closed on that basis.
[19] The principal reasons advanced by Mr Haydon for additional discovery appear in his affidavit to relate (under a heading “The Valuation”) to matters relating to the relevance of all financial information (including the insurance claim) to the valuation of the business conducted by PHL.
[20] There is evident in Mr Haydon’s affidavit, however, a second basis for the application. Mr Haydon refers to a document disclosed by the defendants’ solicitors in March 2019. It is identified as being dated 17 March 2018 and, it was therein stated (by a Scenic Hotel employee) in the context of PHL’s insurance arrangements, that:
The property is owned by Pacific Hotels Ltd, a joint venture company with the shareholders being Scenic Hotels International Ltd and Haydon 2 Ltd.
[21] Mr Dale identifies that statement as being relevant to issues between the parties as to whether intended arrangements became the subject of legal commitment whether by agreement, estoppel or otherwise, as pleaded.
[22] Mr Dale submits that, upon the basis of standard discovery, the defendants are obliged to disclose at least any documents which contain any similar references to ownership arrangements or understandings. (This latter submission was without prejudice to Mr Dale’s submissions in support of the broader discovery application).
[23] Mr Smith submitted that the breadth of the discovery application was inappropriate for a number of reasons, which I need not traverse in detail.
Outcome on discovery application
[24] The breadth of the present discovery application is inappropriate in the context of this trial. The plaintiff on its present pleadings seeks only an enquiry into damages. Through Mr Dale, it was confirmed that it does not intend to rely on updated valuation evidence, instead relying on historical valuations. The need for financial information of the breadth now sought does not arise. If the plaintiff was to seek a scope of discovery well beyond that which the parties had consented to and implemented, it was incumbent on the plaintiff to do so before the close of pleadings or, if late, well ahead of the last two weeks before trial. During these last two weeks before trial, the parties and counsel are entitled to have their focus on trial preparation.
[25] That leaves the much more restricted sub-category of documents, within the category of those concerning the PHL insurance claim (paragraph 2 in the Schedule). If, as is the case of the document quoted at [19] above, there have been written communications consistent with the plaintiff’s case, then such are covered by the duties in standard discovery and the ongoing duty of disclosure. As the defendants have not filed a supplementary affidavit relating to that document and indicating whether similar documents do or do not exist, an order will be made in that respect.
[26]Apart from in that regard, the discovery application will be dismissed.
Costs
[27] My preliminary view is that the defendants must be regarded as the largely successful parties on the application. An award of 75 per cent of a 2B calculation of costs in their favour would appear to be appropriate. I will nevertheless reserve costs.
[28]I order:
(a)The notice of interlocutory applications dated 18 March 2019 is dismissed save in relation to an aspect of the order requested in paragraph 1(d).
(b)The defendants are to file and serve an affidavit in terms of rr 8.18 –
8.19 High Court Rules by noon, 27 March 2019 (with leave to submit an emailed copy to the Court ahead of filing the original if time does not permit the physical filing), with the affidavit to list the 17 March 2018 Project Scoping and Definition Report and any other previously undiscovered documents either now or formerly in the possession or control of either defendant which refer to any aspect of post-2012 ownership arrangements for the hotel property identified at paragraph 9 of the second amended statement of claim.
(c)The costs and disbursements of the applications are reserved.
ADDENDUM: TRIAL DIRECTIONS
[29] I confirm that the trial will commence as scheduled at 10.00 am, 1 April 2019, and that the following steps are to be observed:
(a)Plaintiff’s opening submissions today;
(b)Defendants’ opening submissions Friday, 29 March 2019.
[30] I have not seen on the file the indexed common bundle. On the assumption that the bundle has been completed I direct that the plaintiff immediately file the Court’s copy. If it is not yet complete, it is to be completed and filed without delay.
Osborne J
Solicitors:
P J Dale QC, Auckland for Plaintiff
J B M Smith QC, Wellington for Defendants
Schedule – Particular discovery sought
1.All financial information concerning the performance of the Royal Tongan International Hotel (the Hotel), including (but not limited to), information relating to budgeted expenditure and forecast, bookings, bank accounts and anticipated capital expenses.
2.Correspondence between the Defendants and National Pacific Insurance (Tonga) Limited (or its agents, including any loss adjusters) concerning PHL’s claim in respect of damage to the Hotel in Cylcone Gita.
3.Any management or supply agreement(s) entered into with PHL.
4.Any statutory notices issued to PHL in respect of the Hotel.
5.Any plans of the Hotel.
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