D & E Buses Limited v Gupta
[2021] NZHC 1498
•22 June 2021
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2019-404-1089
[2021] NZHC 1498
BETWEEN D & E BUSES LIMITED
Plaintiff
AND
ANUJ GIRIRAJ GUPTA as trustee of the ANUJ and PALLAVI FAMILY TRUST
First Defendant
PALLAVI JAIN aka PALLAVI GUPTA as
trustee of the ANUJ and PALLAVI FAMILY TRUST
Second Defendant
GIRIRAJ GUPTA aka GIRI GUPTA as
trustee of the ANUJ and PALLAVI FAMILY TRUST
Third Defendant
SUMITRA NZ LIMITED
Fourth DefendantNEWMARKET INTERNATIONAL MOTOR INN LIMITED (in liq)
Third Party
Hearing: 16 June 2021 Appearances:
D Hayes for the Plaintiff
SRJ Hamilton for the Defendants
Judgment:
22 June 2021
JUDGMENT OF ASSOCIATE JUDGE SUSSOCK
This judgment was delivered by me on 22 June 2021 at 4.15pm pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
D & E Buses Limited v Gupta & Ors [2021] NZHC 1498 [22 June 2021]
Introduction
[1] D & E Buses Limited has applied for further and better discovery from the defendants. The application has been made very late in what has been an unnecessarily protracted proceeding beginning in the District Court in 2016.
[2] The claim relates to the ownership of chattels in a motel. The defendants accept that they do not own the chattels but dispute whether D & E Buses owns them either. The defendants have joined the previous operator of the motel as a third party seeking a declaration as to ownership of the chattels. The defendants say further that, in any event, the chattels were of poor quality and have been replaced.
[3] A four day trial is scheduled to commence on Monday, 23 August 2021, with the plaintiff’s briefs of evidence due last Friday, 18 June 2021. As a result of multiple breaches of the timetable orders, unless orders were made providing that if the plaintiff’s briefs were not served on time, the proceeding would be struck out. The Registry has confirmed the plaintiff’s briefs were filed by the deadline and so the matter is to proceed. This decision is delivered urgently as the defendants’ briefs are due to be served on Friday, 16 July 2021.
[4] D & E Buses has applied for orders requiring the defendants to discover invoices, statements of account and complete journal entries in relation to the replacement, repair and maintenance of the chattels, as well as the accounting records for Sumitra NZ Limited.
[5] The defendants oppose the application on the basis that they have already discovered all of the documents in their possession. The defendants accept that there were previously some relevant documents in their possession but say they no longer hold them and requiring them to obtain copies would be disproportionate to their importance.
[6] Within the categories of documents sought, it appears that the only category that still requires the Court’s determination is the invoices for replacement chattels and repair and maintenance:
(a)Counsel for the defendants advised the Court that the signed statements of account for the Anuj and Pallavi Family Trust (Trust) have now been provided to the plaintiff. Counsel for the plaintiff was not, however, aware of this. Counsel for the defendants will confirm and if they have not been, will provide the signed statements as soon as possible. I include an order confirming this below.
(b)The defendants’ evidence is that all statements of account, journal entries and accounting records for Sumitra NZ have been provided. This is no longer challenged by the plaintiff.
[7] The focus of the hearing was therefore on whether copies of invoices in relation to the repair, maintenance and replacement of chattels should be required to be provided.
[8] Mr Gupta deposed in the defendants’ first supplementary affidavit of documents that the defendants had a folder containing these invoices but it was misplaced in early 2020 and that a computer virus in July 2020 prevented access to electronic copies.
[9] The defendants say that the only way to obtain copies of the invoices now will be for the defendants to examine their bank accounts, of which there are approximately 130 pages, and work out who each of the relevant payments is to, contact that supplier and request a copy of the invoice. The invoices date back to December 2015 when the defendants began operating the motel. The defendants say the time and cost of this exercise would be disproportionate.
Issue
[10] The issue is whether the defendants should be required to obtain copies of the relevant invoices from their suppliers to allow discovery at this stage in the proceeding.
Substantive claim
[11] The first to third defendants are the trustees of the Trust. The Trust operates a motel on Great South Road, Newmarket, Auckland pursuant to a lease that the fourth defendant, Sumitra NZ, entered into with the Dilworth Trust Board in December 2015.
[12] D & E Buses alleges that it owns chattels in the motel operated by the defendants and seeks either:
(a)the value of the chattels as at the date of possession of the motel being
$220,300 (or such sum as the Court considers just);
(b)damages for conversion of the chattels or payment for the period until the chattels are returned, calculated at $42,500 per calendar month from 24 December 2015; or
(c)damages “on a waiver of tort basis” being revenue obtained by the use of chattels estimated at $2,000,000 (or such sum as the Court considers just).
[13] The defendants accept that they do not own the chattels but dispute ownership by the plaintiff and plead that the lease includes a right to use the chattels. Furthermore, from the first statement of defence filed, the defendants have pleaded that the chattels were of poor quality and had subsequently been replaced by new chattels.
[14] Prior to the Trust taking over the motel, Newmarket International Motor Inn Limited (in liq) operated the motel. The plaintiff alleges that ownership of the chattels in the motel was assigned to the plaintiff by Newmarket International on 26 November 2015.
[15] The defendants have joined Newmarket International as a third party to the proceeding1 seeking a declaration as to ownership of the chattels in its third party claim. Newmarket International denies that it assigned the chattels to the plaintiff for the reasons set out in its statement of defence to that claim.2
[16] For completeness I record that the Bank of New Zealand originally held a general security agreement in respect of the chattels and was initially sought to be joined as the second third party. BNZ, however, released its security agreement on the basis that the cost of uplift and sale of the chattels outweighed the likely market value that would be received.
Discovery orders
[17] A tailored discovery order was made on 30 July 2019 on the basis of the pleadings as described above and following the filing of a joint memorandum proposing agreed categories. The tailored discovery categories ordered were:
3(d) …
(i)all documents in relation to ownership and value of the chattels;
(ii)documents related to the replacement or repair of any chattels;
(iii)documents related to work performed by any party;
(iv)any document a party intends to rely upon.3
[18] Mr Gupta swore an affidavit of documents in October 2019 on behalf of the then defendants, Mr Gupta and Sumitra NZ, by which the defendants say they complied with the discovery orders made.
1 A liquidator was appointed to Newmarket International on 17 October 2019 but the liquidator has consented to it continuing to participate as a third party in the litigation.
2 The defendants’ evidence and submissions were not consistent with this but that is not relevant to the determination of this application.
3 Minute of Associate Judge Sargisson dated 30 July 2019.
[19] The defendants’ original affidavit of documents only included one invoice in relation to replacement of the chattels in issue.
[20] Further discovery continued informally and in August 2020 the defendants discovered redacted financial statements for the Trust. The plaintiffs questioned the involvement of the Trust as it was not referred to in the defendants’ pleadings. The defendants said in response that Sumitra NZ operates the motel as bare trustee for the Trust. The trustees of the Trust have now been joined to the proceeding as the first to third defendants without opposition.
[21] In October 2020 the plaintiff then filed an application for further discovery. On 10 November 2020 Mr Gupta swore a supplementary affidavit of documents for the defendants. In Part 4, Mr Gupta set out the documents no longer in the defendants’ possession and control including:
Documents that demonstrate the purchase and replacement of items previously held in a folder at Sumitra NZ Limited’s premises, and on a computer system, the folder last having been seen by me approximately two years ago, although it was used prior to its loss/misplacement up until the start of 2020, the documents on the computer system being lost as a result of a computer virus in July 2020.
[22] By this first supplementary affidavit of documents, the defendants also claimed that the individual entries on bank statements for Sumitra NZ were confidential.
[23] In December 2020 the plaintiff filed another application seeking further discovery and challenging the confidentiality claims made.
[24] The defendants then withdrew their claims to confidentiality before the first call of the plaintiff’s application and a second supplementary affidavit of documents was filed on 23 March 2021 on this basis.
[25] An amended application for further and better discovery was filed on 26 March 2021. As noted above at [4], this seeks copies of invoices, statements of account, complete journal entries for the general ledger reports, and the accounting records for Sumitra NZ. The grounds on which the orders are sought are that:
·The defendants have failed to preserve evidence pursuant to HCR 8.3.
·The original defendant has admitted the file of accounting records was in its control until 2020.
·The accounting records discovered provide limited information to enable the plaintiffs to identify the party to whom invoices were paid.
·The defendants have pleaded they replaced most of the chattels.
·The invoices for such chattels will exist in the records of the suppliers.
·The initial discovery did not disclose documents that identified the true parties to the proceeding.
·It is just and equitable that the defendants be required to locate invoices supporting their claim that they purchased new equipment and to justify the expenses incurred on maintenance.
[26]The defendants oppose on the basis that:
(i)The Defendants have not failed to preserve evidence;
(ii) The Defendants have discovered all documents relevant to the proceedings;
(iii) To the extent that documents have not been provided, they are not in their power or control, and the obtaining of those records are disproportionate to the issues involved in the proceedings.
What legal principles apply?
[27] Rule 8.19 of the High Court Rules 2016 allows the Court to make an order for particular discovery after the proceeding has commenced where:
… 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
1 or more documents or a group of documents that should have been discovered …
[28] In Assa Abloy New Zealand Limited v Allegion (New Zealand) Limited this Court set out a four-stage process for determining an application for further discovery under r 8.19:4
(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 discovery proportionate, assessing proportionality in accordance with Part 1 of the discovery checklist in the High Court Rules?
(d)Weighing and balancing these matters, and the Court’s discretion applying r 8.19, is an order appropriate?
[29] I consider each of these questions below as they relate to obtaining copies of invoices to determine whether an order for further discovery should be made.
Should an order be made requiring discovery of the invoices?
Are the documents sought relevant, and if so, how important will they be?
[30] The parties accept that the invoices are relevant. The defendants have pleaded that since they began managing the motel in December 2015 the majority of the chattels have been replaced. Invoices evidencing their replacement are, therefore, relevant to the defendants’ defence including for the calculation of quantum.
[31] The plaintiff further submits that the invoices will be relevant to quantum as the plaintiff is seeking damages on a waiver of tort basis. This requires evidence of expenses. As the defendants operate more than one motel, the plaintiff is seeking copies of the invoices to ensure that any expenses claimed are in respect of the motel on Great South Road.
[32] Although it is the plaintiff’s application, the documents appear to be more important for the defendants so they are able to establish that the chattels have been replaced. If the plaintiff is correct in relation to the issues arising with the documents provided so far on discovery, it is difficult to see how the defendants will establish that
4 Assa Abloy New Zealand Limited v Allegion (New Zealand) Limited [2015] NZHC 2760 at [14].
they replaced the chattels (or spent money repairing or maintaining them) without copies of the invoices sought.
Are there grounds for belief that the documents sought exist?
[33] Mr Gupta has deposed that the invoices that the defendants originally held have been misplaced and that access to any electronic copies is now being prevented by a computer virus. A copy of an invoice from Website & Beyond Limited is annexed to his affidavit, the company the defendants say inspected the hard drive and attempted to restore it.
[34] The plaintiff challenges the evidence in relation to the computer virus. A clone of the hard drive the defendants say was used by them to store documents was provided to the plaintiff following the application for an inspection order referred to above. There is only evidence, however, from Mr Sword, the sole director for the plaintiff, and not from a computer expert, on the contents of and issues with the hard drive. In the absence of evidence from a computer expert, I am not prepared to take this point further at this stage.
[35] If there are no electronic copies, the only source of the invoices now appears to be to go to the suppliers and seek copies of them. Whether the suppliers will still have copies available is difficult to predict as the documents date back to December 2015.
[36] One final point that is relevant to the question of whether copies of the invoices exist is that Mr Gupta has deposed on behalf of the defendants that he purchased the replacement chattels from second-hand and no-frills suppliers. This is likely to reduce the likelihood of being able to obtain copies of the invoices.
Is discovery proportionate?
[37] In Southland Building Society v Barlow Justice Limited, the Court held that “proportionality involves a balancing of the time and costs of making discovery
against the potential value of discovery”.5 Counsel for the defendants submitted that there is no evidence in Mr Sword’s affidavit of what D & E Buses might hope to prove with the documents sought and how the discovery would assist it in succeeding at trial. In the defendants’ submission, this means that the Court cannot be satisfied that there is any probative value in the documents that D & E Buses seeks.
[38] In my view the documents appear to be of more benefit to the defendants than to the plaintiff given that it is the defendants that have pleaded that the chattels have been replaced. If they cannot prove that they have been replaced, then any damages awarded for loss suffered by the plaintiff will not be reduced as a result of replacement.
[39] Counsel for the defendants submitted that copies of the invoices held by the suppliers are not in the defendants’ possession or control as is required for a discovery order. The defendants’ evidence is, however, that they held a folder of invoices until at least early 2020 which has now been misplaced.
[40] The reason the invoices in the misplaced folder were not included in the original affidavit of documents is apparently because at that stage the only defendants were Mr Gupta and Sumitra NZ. In the first statement of defence filed, Mr Gupta and Sumitra NZ admitted that Sumitra NZ managed the motel. As set out above, it has emerged that Sumitra NZ did so as a bare trustee of the Trust.
[41] Even if Sumitra NZ was the bare trustee for the Trust in managing the motel, the invoices contained in the folder relating to the replacement of the chattels should have been included in the defendants’ original affidavit of documents.
[42] Furthermore, r 8.3 requires parties to preserve documents once a proceeding is reasonably contemplated.
[43] The defendants’ opposition further relies on the plaintiff’s delay in bringing its application for further and better discovery. But it was only in the defendants’ first supplementary affidavit of documents filed on 10 November 2020 that the defendants
5 Southland Building Society v Barlow Justice Limited [2013] NZHC 1125 at [17], citing Karam v Fairfax New Zealand Ltd [2012] NZHC 887 at [137-142].
first referred to the folder of invoices that had been misplaced and the computer virus affecting electronic records.
[44] After the supplementary affidavit of documents was filed, the plaintiff filed an application for better discovery, an inspection order and a review of confidentiality claims on 15 December 2020.
[45] Following that application, the clone of the computer hard drive was provided for inspection and copies of ledgers were supplied. Mr Sword deposes for the plaintiff that the ledgers are in an unusual form in that there are few references to who was paid:
In many cases all we have is a cheque number and the assertion that it was payment for motel equipment. As the defendants have lost the invoices there is no way to ascertain what item was purchased and what was not purchased and whether it was used in the motel or not.
[46] As a result of electronic documents not being available and issues with the ledgers, the plaintiffs filed a third application for further and better discovery on 26 March 2021 seeking copies of the invoices themselves.
[47] Given the chronology set out above, in my view the plaintiff cannot be criticised for more than minor delay in relation to the timing of the current application.
[48] Counsel for the defendants made much of the time and cost that would be incurred to obtain copies of invoices from the suppliers, submitting that it would be unfair for the defendants to have to bear that cost when the plaintiff could carry out the same exercise. Mr Gupta says in his evidence:
I believe that going back through our business records (accounts) to locate suppliers who have supplied products or materials or services to us over the last five years or so would be an unnecessary and onerous task, disproportionate to the issues in these proceedings. Some of the individual suppliers and contractors will be unable to be identified, and others, while identifiable, will be identified as to total sums in a particular year, and not as to individual invoices. Such is not proportionate to the issues in these proceedings, and, if ordered, would likely be incomplete, and would jeopardise the current fixture, as it would take time to locate, if available at all.
[49] The plaintiff submits that it is not able to obtain copies of the invoices as the bank statements and other accounting documents provided do not provide them with sufficient information to identify the suppliers.
[50] Even if there were sufficient information discovered so far, if the plaintiff did approach the suppliers directly, the suppliers are unlikely to provide copies of the invoices in the absence of non-party discovery orders. Requiring the plaintiff to obtain such orders at this stage would not be appropriate both from a cost and timing perspective. It is the defendants’ default that has resulted in the invoices not being available at this stage by not including copies of the invoices in its original discovery.
[51] The stage in the proceeding at which this application is being determined is also important to the question of proportionality. An order requiring discovery of the invoices would be very likely to jeopardize the trial date. The proceedings were first filed in 2016 and the trial has already been adjourned once since the proceeding has been transferred to the High Court. It is critical that the trial not be delayed any further.
Weighing these matters, is an order appropriate?
[52] Weighing the above matters, I am not prepared to make an order for further discovery requiring the defendants to obtain the invoices from suppliers.
[53] Had the application come before the Court at an earlier stage, I would have made the order sought. As I have said above, these invoices should have been included in the original discovery. The plaintiff was not aware until the end of last year that the defendants had misplaced a folder of invoices and only recently became aware that there was no other way to obtain the necessary evidence. In my view, the delay in the plaintiff’s application is as a result of failures by the defendants, rather than by the plaintiff.
[54] Despite the fact that the application is brought by the plaintiff and is resisted by the defendants, it appears to be the defendants who will be most likely to suffer prejudice from the failure to discover the invoices.
[55] Unfortunately, however, if an order were made now it would jeopardize the hearing date and, unless there were exceptional circumstances, that cannot be allowed to occur when the proceeding was first brought in 2016.
[56] The final factor in my decision not to make an order is that it is far from clear that the suppliers concerned will still have copies of the invoices sought as they date back to December 2015.
Should the defendants be able to rely on their defence that the chattels were replaced?
[57] Counsel for the plaintiff submitted that if no order is made the failure to discover relevant documents should lead to an order preventing the defendants from relying on claims that they purchased new chattels.
[58] I am not in a position to make such an order as the evidence in support of the defendants’ claim that the chattels were replaced was not fully explored before me, the evidence only being discussed in the context of the discovery application. Whether sufficient evidence can be adduced to support the defendants’ position is a matter for trial. No such orders are therefore included below.
Result
[59]I order:
(a)the plaintiff’s amended application for further and better discovery dated 26 March 2021 is dismissed;
(b)if not already discovered, the signed annual accounts of the Anuj and Pallavi Family Trust are to be provided to the plaintiff within 3 working days of delivery of this judgment.
Costs
[60] Despite the plaintiff not succeeding in its application, my initial view is that it should be awarded costs on a 2B basis because of the defendants’ failures to comply with their discovery obligations in the first place. I ask the parties to attempt to agree costs between themselves. If the parties are unable to agree, memoranda of no more than five pages may be filed by the plaintiff within 10 working days of this judgment and the defendants within a further five working days. Costs will then be determined on the papers.
Associate Judge Sussock
Solicitors:
Hunwick Law Ltd, Hamilton A Kashyap, Auckland
D Hayes, Barrister, Hamilton A Gilchrist, Auckland
SRJ Hamilton, Auckland
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