Crafar v Safe Business Solutions Limited
[2022] NZHC 624
•30 March 2022
IN THE HIGH COURT OF NEW ZEALAND NEW PLYMOUTH REGISTRY
I TE KŌTI MATUA O AOTEAROA NGĀMOTU ROHE
CIV-2021-443-063
[2022] NZHC 624
BETWEEN MARTIN JAMES CRAFAR
Appellant
AND
SAFE BUSINESS SOLUTIONS LIMITED
Respondent
Hearing: 24 March 2022 Appearances:
A C Beck for Appellant
S Hughes QC for Respondent
Judgment:
30 March 2022
JUDGMENT OF GENDALL J
This judgment was delivered by me on 30 March 2022 Pursuant to Rule 11.5 of the High Court Rules
Registrar/Deputy Registrar Date
CRAFAR v SAFE BUSINESS SOLUTIONS LIMITED [2022] NZHC 624 [30 March 2022]
Introduction and background
[1] In 2020 the respondent, Safe Business Solutions Limited (the Company) had three shareholders, being the appellant Martin James Crafar (Mr Crafar), Charlaine Grace Barnfather (Ms Barnfather) and Robert Charles Thomson (Mr Thomson).
[2]All three were employees of the company.
[3] Differences arose between them and it was agreed that Mr Crafar would resign as an employee of the Company and he would sell his shares to the other shareholders. This was at a price $165,000, and he was also to receive a transfer of a company vehicle valued at something over $12,600.
[4] To record settlement and resolution of the dispute a written Settlement Agreement was entered into on 12 June 2020.
[5]Such agreement contained a restraint of trade clause whereby at para 8.1:
“The Vendor (Mr Crafar) agrees that for a period of two years from the settlement date he will cease to be a Shareholder of the Company and within a radius of 100 kilometres of the city of New Plymouth (he) will not:
(a) Engage directly or indirectly in any other directly competing business (either on their own account, or as a director or shareholder of any organisation that operates in the same or a substantially similar industry as the company) in competition with the Company; or
(b) Directly or indirectly solicit, canvass … the clients or customers or contractors away from the Company; or
(c) Directly or indirectly assist financially any other business … in competition with the Company.”
[6] Three days later on 15 June 2020, Mr Crafar’s wife registered a company in New Plymouth under the name Hash Services Limited (HASH) of which she is the sole shareholder and director. Mrs Crafar is by occupation a travel agent. Mr Crafar has been employed by HASH since his resignation from the Company working as HASH’s General Manager. HASH it is alleged offers services identical to those offered by the Company.
[7] The Company now brings this proceeding against Mr Crafar, alleging that he has breached the restraint of trade agreement given as an essential part of the sale of his shares in the Company. At trial, the Company says it will argue:
(a)that HASH is a device to avoid the Settlement Agreement;
(b)that Mr Crafar is a de facto director of HASH;
(c)that Thomas Cloke (Mr Cloke) — whose involvement I will discuss shortly — is an agent for Mr Crafar; and
(d)that Mr Cloke effectively on behalf of Mr Crafer has directly solicited the Company’s customers to join HASH in a detailed email he sent to them.
[8] As to that email, (the email) it was sent by Mr Cloke on 15 June 2020 to a large number of parties, many of whom are members of an ancillary organisation, the Taranaki Groundspread Fertiliser Association (TGFA). A large proportion of the recipients were also customers of the Company up until Mr Crafar’s departure. Of those approached so far, the Company maintains 11 have moved their business to Mr Crafar and Hash.
[9]The body of the email from Mr Cloke relevantly includes the following:
“It is with very much regret that, I wish to inform you that Marty Crafar has had to relinquish his directorship with SBS (Safe Business Solutions) due to circumstances beyond his control. In my opinion Marty was the cornerstone of SBS, I am sure that those of you who have worked with Marty will agree. It disappoints me as I introduced most of you to Marty, and as you, have
worked very closely with him, his quality of work was recognised by outside Agencies.
I am advising you that I am backing this Health and Safety Provider, that will assist your every requirement, Hash (Health and Safety Help). I am confident along with other backers of this company, they will provide the excellent service you have become accustomed to.
Should you wish to seek the engagement of their Services in the first instance contact myself, contact details below.
Regards Tom Cloke
Should you have any queries please do not hesitate to contact me.”
[10] The Company says it seems no coincidence that Mr Cloke’s email was sent on 15 June 2020, the day that HASH was incorporated.
[11] These proceedings followed, brought in the District Court by the Company against Mr Crafar, claiming that he has clearly breached the restraint of trade agreement he reached with the Company on 12 June 2020.
[12] When this matter goes to trial in the District Court, the Company says it will be submitted that Mr Cloke was acting as Mr Crafar’s agent throughout, and therefore Mr Crafar clearly breached cl 8.1 of the Settlement Agreement.
District Court discovery decision
[13] The matter before me is an appeal to this Court against a District Court discovery decision relating to this proceeding made on 18 November 2021. The Company had applied for orders that Mr Crafar make particular discovery here on the grounds that the discovery he had provided was inadequate. In the application, the Company sought:
(a)correspondence between Mr Crafar, HASH and former customers of the Company;
(b)emails between Mr Crafar and Mr Cloke regarding the business of the Company;
(c)correspondence between Mr Crafar, Mr Cloke and former customers of the Company;
(d)diary entries for meetings, calls between Mr Crafar, Mr Cloke and former customers of the Company.
[14] In the District Court Mr Crafar opposed the discovery application on the grounds that:
(a)he had provided as required and had sworn an affidavit in support of the list of documents provided;
(b)the Company did not provide any grounds for believing that there are further documents that should have been discovered; and
(c)Mr Crafar had no further documents to discover and there were no grounds to go behind his affidavit.
[15] Overall, Mr Crafar also contended that the Company had not provided to the Court any proper basis on which it could exercise a discretion to order particular discovery here.
[16] The Company’s application before Judge Greig in the District Court succeeded. In a decision dated 18 November 2021, the District Court ordered Mr Crafar to provide all the documents sought.
[17] The District Court said it relied on the fact that Mr Cloke sent the email he did to former clients of the Company. The Court said it was:
“Unlikely that he did so of his own volition. There is a reasonable probability that documents of the nature sought by the Company do exist.”1
1 Para 19 of the District Court decision [2021] NZDC 22609.
The law
[18] Particular discovery is governed by r 8.19 of the District Court Rules 2014. The rule provides that an order for particular discovery may be made if:
“… at any stage of the proceeding it appears to a Judge, from evidence or from the nature or circumstances of the case or from any document filed in the proceeding, that there are grounds for believing that a party has not discovered one or more documents or a group of documents that should have been discovered …”.
[19] The prerequisite for an order under r 8.19 is that there must be some ground for believing that the particular documents sought should have been discovered and this has not occurred. The onus rests on a plaintiff or claimant to show this.
[20] Documents that “should have been discovered” are those that fall under r 8.7 of the District Court Rules:
“Standard discovery requires each party to disclose the documents that are or have been in that party’s control and that are —
(a)documents on which the party relies; and
(b)documents that adversely affect that party’s case; and
(c)documents that adversely affect another party’s case; and
(d)documents that support another party’s case.
[21] The position in the past that Courts have generally taken is that an affidavit of documents sworn by a party is to be regarded as prima facie correct, and that there needs to be a proper basis for going behind such an affidavit.
[22] A leading case in this area is the High Court decision in Assa Abloy NZ Limited v Allegion (NZ) Limited,2 where the Court identified a four-stage test for discovery:
“(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?
2 Assa Abloy NZ Ltd v Allegion (NZ) Ltd [2005] NZHC 2760 at [14].
(c)Is discovery proportionate, assessing proportionality in accordance with Part 1 of the Discovery Checklist in the High Court Rules?
(d)Weighing and balancing these matters, in the Court’s discretion, applying r 8.19, is an order appropriate?”
[23] For present purposes, the Court in Assa Abloy also held that a party seeking discovery need establish no more than “grounds for belief” that the documents sought exist. At para 15 of that decision Asher J stated:3
“Clearly the existence of the document or documents does not have to be established on the balance of probabilities or on a more likely than not basis. The threshold embodied in “grounds for belief” is not that high … In my view all that is necessary is to show that there is some credible evidence which assessed objectively indicates that the documents that are sought exist. It is not necessary to be more precise than this.”
[24]It is necessary also to bear in mind the overall concept of proportionality here.
Mr Crafar’s appeal
[25] In his present appeal Mr Crafar contends the District Court made a number of errors. Although the Court did refer to the relevant discovery principles, Mr Crafar complains that it did not analyse the situation in any detail, nor did it identify grounds for going behind Mr Crafar’s affidavit or for concluding that further documents existed. Lastly, Mr Crafar says the District Court did not address the question of who was in “control” of the documents sought to be discovered in terms of r 8.7 of the District Court Rules — in other words, for the documents in question here to be discoverable by Mr Crafar, they must at least be, or have been, in his control.
[26] On this last aspect, Mr Beck, counsel for Mr Crafar, contended that in this case because of this “control” aspect, jurisdictional requirements for a discovery application like the present are simply not met. He also suggested that Mr Crafar has no ability to force third parties, (Mr Cloke and HASH) to produce documents of any kind and therefore the present application is one wrongly brought by the Company. I will turn to address this “control” issue in more detail shortly. But in the meantime I digress to mention one further aspect which Mr Beck urged upon me.
3 Above n 2.
[27] This aspect concerned the desirability here of a non-party discovery application being brought in terms of the rules. On this Mr Beck maintained, instead of its present discovery application, the Company should have brought one for non-party discovery presumably against Mr Cloke and HASH. He contended this is exactly the situation the non-party discovery rules are designed for.
[28] To his credit, Mr Beck before me also acknowledged that, had the Company adopted this proper course of bringing a non-party discovery application, there would have been no basis for Mr Crafar to oppose that application himself, notwithstanding that Mr Cloke or HASH may have done so.
[29] I turn next to the question as to whether further relevant documents may exist. This issue is quickly disposed of. The email from Mr Cloke already discovered is clearly relevant to the Company’s claim here. I am satisfied there is an objectively reasonable belief there will be other documents in existence to meet the test in the Assa Abloy case.4 A reasonable inference to this effect can be drawn from all the available information and circumstances before the Court. And, on relevance questions, again to his credit Mr Beck acknowledged that Mr Crafar could not contest the relevance of any documents that may exist relating to Mr Cloke’s email and the matters he raises there.
[30] That in itself in my view provides grounds here for going behind the affidavit of documents Mr Crafar has provided. Mr Crafar was not shown as a recipient of the email from Mr Cloke. This must beg the question how did Mr Crafar have this email when he included it in his first affidavit of documents? An obvious inference is that either Mr Cloke gave a copy of the email to Mr Crafar or that this occurred instead from one of its recipients. And as I see the situation, a reasonable inference from Mr Cloke’s email is that he was actively soliciting business for Mr Crafar and HASH from the Company’s existing clients. In my view this is likely to suggest a close connection between Mr Cloke and Mr Crafar.
[31] It is useful now to return to this issue of “control” of the documents sought to which I refer at paras [25] and [26] above, which I now do. Discovery orders in
4 Above n 2.
terms of r 8.19 are limited here to documents which are within a party’s “control”. Although “control” is not defined in the District Court Rules, it is instructive to refer to the position as it relates to the High Court Rules 2016 noted in McGechan on Procedure at para HR 8.7.02 where it is noted:
“A document is in the control of a party, even if in the possession of another, if the party has an enforceable right to access the document: Biggs v Biggs [2018] NZHC 1592 … at [228] citing Dotcom v Attorney-General [2014]
NZHC 1343.”
[32] McGechan on Procedure goes on to further address this definition of “control” at para HR 8.7.02(3) where the learned authors state in part:
“The definition of “control” in r 1.3 embraces the classic definition of “power” from Lonrho Limited v Shell Petroleum Co Limited [1980] 1 WLR 627 (HL), where Lord Diplock said (at [635]);
“The expression “power” must, in my view, mean a presently enforceable legal right to obtain from whoever actually holds the document inspection of it without the need to obtain the consent of anyone else”.
“In Guttenbeil v Tower Insurance Limited [2012] NZHC 2106 at [29], Associate Judge Bell distinguished between:
·documents which an agent produces for his principal (discoverable); and
·documents which the agent produces in the course of work for a principal but which the agent retains as his or her own property, such as working papers (not discoverable).”
[33] Here the Company wishes to obtain documents from Mr Cloke and HASH. So far as Mr Cloke is concerned, it does so relying on its allegations that he is an agent of Mr Crafar as his principal here. In response, Mr Crafar endeavours to dispute that Mr Cloke is his agent. As to this relationship between Mr Cloke and Mr Crafar, I am satisfied in relation to Mr Cloke that:
(a)His email letter includes a number of references to Mr Crafar and makes plain that he knew those to whom he was writing were clients of the Company.
(b)He encouraged them in no uncertain terms to shift their business to HASH and for Mr Crafar’s benefit.
(c)He invited those wishing to shift their business to HASH to contact him “in the first instance”.
[34] By that, and his other comments in the email letter, I am satisfied the Company has done enough to suggest that Mr Cloke in these circumstances is likely to be an agent of Mr Crafar for purposes that are relevant here.
[35] Accepting this, there is a further argument as I see it that reasonable “grounds for belief” are made out that further relevant documents may exist that are within the control of Mr Crafar as principal in his agency arrangement with Mr Cloke. Those documents I accept are relevant here and need to be discovered here.
[36] So far as HASH is concerned, the Company’s case as I understand it, proceeds on the basis that Mr Crafar, as the General Manager of HASH, is in fact a deemed director of HASH. There is an argument too that HASH is simply a device Mr Crafar has arranged to avoid the limitations of the Settlement Agreement. HASH it seems now has a number of the Company’s customers as its own customers. The District Court was satisfied that the Company is entitled to any records from HASH showing how these customers came to transfer their allegiance to it. In the District Court, Judge Greig found that there is a prima facie foundation for asserting that the incorporation of HASH was such a device to avoid the Settlement Agreement and that Mr Crafar, along with his wife, is in fact a director of HASH such that discovery should be ordered.
[37] I accept that no error occurred in the District Court decision regarding this aspect.
[38] Lastly, I turn to proportionality questions. On this, I accept arguments advanced to me on behalf of the Company that matters involved here are serious from the Company’s perspective, irrespective of the fact the amount in dispute may in overall terms seem relatively small. Clearly, this is an important matter for the Company. It entered into the settlement agreement with the outgoing shareholder, Mr Crafar in good faith, an agreement which the Company maintains he has breached by soliciting Company customers in breach of his restraint of trade undertaking.
[39] Whilst, to an extent I agree with the contention advanced before me by Mr Beck that ideally this matter could have proceeded by way of a non-party discovery application, on balance I am satisfied in all the present circumstances that no major error occurred in the District Court decision such that this appeal should succeed. I dismiss the jurisdictional argument which Mr Beck endeavoured to raise before me that on any reasonable consideration here, the documents sought could not be said to be in Mr Crafar’s “control”.
[40] I am satisfied therefore, although perhaps by a reasonably fine margin, that the Company for present purposes has done enough to show that valid grounds exist for a general belief that:
(a)Mr Cloke is Mr Crafar’s agent;
(b)that Mr Cloke solicited the customers of the Company on behalf of Mr Crafar;
(c)that such solicitation is in breach of cl 8.1 of the Settlement Agreement;
(d)that HASH is in fact under the control of Mr Crafar; and
(e)that Mr Crafar is in breach of cl 8.1 of the Settlement Agreement.
Result
[41] For all the reasons I have outlined above, I am satisfied there is no reviewable error in the decision of the District Court sufficient to overturn the discovery orders made in the judgment of Judge Greig outlined at para [25] of that decision.
[42]This appeal is therefore dismissed.
Costs
[43] Given that outcome I see no reason why costs here should not follow the event in the usual way.
[44] Costs on this appeal are therefore awarded to the Company against Mr Crafar on his unsuccessful appeal on a category 2B basis together with reasonable disbursements (if any) as approved by the Registrar.
Gendall J
Barrister:
Andrew Beck Barrister, Greytown Susan Hughes, QC, New Plymouth
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