Dixon v Kingsley
[2015] NZHC 2044
•27 August 2015
NOTE: CONFIDENTIALITY ORDER MADE AT [67]
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2015-404-1350 [2015] NZHC 2044
BETWEEN JAKE DIXON
Appellant
AND
CAROL KINGSLEY Respondent
Hearing: 3 August 2015 Counsel:
K A Muir for Appellant
D T Chambers QC for RespondentJudgment:
27 August 2015
JUDGMENT OF THE HON JUSTICE KÓS
[1] What principles govern documentary discovery in relationship property cases in the Family Court? How should those principles be applied? Those are the primary questions in this appeal.
[2] The parties were formerly husband and wife. They married in 1994, but separated in April 2012. The major item of relationship property in issue is shares held by Ms Kingsley in a company.1
[3] Ms Kingsley held 30 per cent of the company’s shares at the time of separation. She concedes those shares are relationship property. But on 30 July
2012 she acquired a further 10 per cent shareholding from three departing
shareholder/employees. The status of these shares is in issue.
1 See [6]–[11] below. The names of the parties have been anonymised, following the approach adopted in the Family Court
DIXON v KINGSLEY [2015] NZHC 2044 [27 August 2015]
[4] Relationship property proceedings were filed in the Family Court in 2013. In February 2015 Mr Dixon filed an application for particular discovery against Ms Kingsley and non-parties (including the company). In particular he sought discovery relating to employment issues in 2012 between the company and the three shareholder/employees, documents concerning changes to the current account balances of shareholders in the company since 1 January 2012, bank statements evidencing accounts into which dividends were paid or funds credited from Ms Kingsley’s current account or paid to Ms Kingsley or an associated company, and documents connected with a successful tender by the company awarded in June
2012.
[5] As will become apparent in reasons that follow, Judge D A Burns either declined to grant this discovery, or granted it on a more restrictive basis than Mr Dixon had sought.
Confidentiality
[6] At the commencement of the hearing before the Judge in April, counsel for Mr Dixon addressed the Court on anonymisation of parties’ names. This was to protect the parties’ two children and for other privacy reasons including commercial sensitivity. An earlier decision of the Court on interim maintenance had been anonymised using the names “Jake Dixon” and “Carol Kingsley”. The Judge indicated that his decision would be anonymised. He said he was likely to issue a draft and allow the parties to propose redactions.
[7] Judge Burns’ decision was issued in May. It was not anonymised. The omission was taken up by counsel for Mr Dixon. Judge Burns then issued a minute. It notes that a request had been made in Court to anonymise the judgment – and that it had been granted. The Judge invited counsel to submit a redacted version for approval. It is unclear whether that invitation was taken up.
[8] Counsel for Mr Dixon submitted his synopsis of appeal submissions in this Court using the same intituling, “Jake Dixon v Carol Kingsley”. In a letter to the Registrar he asked that the Family Court’s approach to anonymisation be followed. The case was listed accordingly. A copy of his letter to the Registrar was sent to
counsel for the respondent. There was no discussion between counsel about this matter before the hearing.
[9] In the High Court counsel for Ms Kingsley appeared, opposed anonymisation and the making of any confidentiality orders (other than as to the identity of the two children), and presented me with written submissions on the point (together with a copy of the decision of Stevens J in Sanders v Sanders).2
[10] Judge Burns had made a direction as to anonymity. No apparent issue was taken with that course in the Family Court. No appeal from that order was advanced before me. I am not bound to follow that order in this Court. But the parties might reasonably expect it to continue unless the issue were raised in advance of the hearing. It was not. I am left with the uncomfortable sense that a change of stance by the respondent was adopted for extra-curial, tactical purposes.
[11] I will not therefore differ from the approach taken by the Judge. This judgment is anonymised accordingly. A confidentiality order is made at [67].
Discovery in relationship property cases
[12] The discovery regime in the Family Court is now seriously outdated and capable of working injustice. Peruvian Guano holds court there still.3 In the High Court it was shovelled out the door in 2012.
[13] Family Court Rule 141(1) provides:
141 Order for discovery after proceedings commenced
(1) If a notice of defence or a notice of intention to appear has been filed, a party may apply to the Court for an order for discovery of documents—
(a) that are, or have been, in the possession of another party to the proceedings; and
(b) that relate to a matter in question in the proceedings.
2 Sanders v Sanders HC Auckland CIV-2009-404-7812, 30 April 2010.
3 Compagnie Financière et Commerciale du Pacifique v Peruvian Guano Co (1882) 11 QBD 55 (CA).
The power to make an order, in r 141(2)A is similarly broad: the Court may order a party to file an affidavit stating “whether certain documents or classes of documents are or have been in that party’s possession, custody or power”.
[14] This is nothing more than the Peruvian Guano “train of inquiry” rule in statutory form. That is, documents must be discovered which may directly or indirectly enable a party to advance his or her own case or to damage the case for his or her adversary.4 This rule was developed in the days before electronic communications and copying, and the digital transmission and retention of endless marginally relevant ephemera.
[15] Relationship property is an area notorious for efforts by a wealthier or better informed spouse to confine access to information by the poorer or more poorly informed spouse. Rigour is necessary. But so is realism. The relevant purpose of the Property (Relationships) Act 1976 is to provide for a just division of relationship
property.5 The relevant principle of the same Act is that “questions arising under this
Act about relationship property should be resolved as inexpensively, simply and speedily as is consistent with justice”.6 The untailored application of the Peruvian Guano discovery rule under r 141 is inconsistent with both purpose and principle.
[16] Wide-ranging discovery obligations, with associated opportunity for interlocutory wrangling, interlocutory applications and appeals, create a substantial risk of injustice by precluding or limiting access to civil justice. Peruvian Guano- type obligations may be entirely inappropriate where the assets available are limited.
[17] In the High Court, and reflecting those sorts of considerations, reforms were made in February 2012. Initial disclosure must be given alongside pleadings.7
Counsel must attempt to agree an appropriate discovery order prior to the first case management conference.8 Two forms of discovery order may be made: standard or tailored. The former is narrower than the previous Peruvian Guano test. It is based
on United Kingdom, Australian and Canadian reforms. The scope of disclosure is
4 M v DB FC North Shore FAM-2009-044-726, 30 April 2010 at [5].
5 Section 1M(c).
6 Section 1N(d).
7 High Court Rules, r 8.4.
8 High Court Rules, r 8.11.
confined to documents which (1) are relied on by the party, (2) adversely affect that party’s case, (3) adversely affect another party’s case (which are often covered by the first category), or (4) support another party’s case. It is an “adverse documents” rule, rather than a more wide-ranging relevance-based rule. Tailored discovery involves the making of bespoke orders for discovery. Such orders may be wider or narrower
than standard discovery.9 There is a presumption in favour of tailored discovery in
cases (1) involving allegations of fraud or dishonesty, (2) where the total value of assets or sums in issue exceeds $2,500,000 or (3) (conversely) where the cost of standard discovery would be disproportionately high in comparison to matters at issue in the proceeding.10
[18] So far these reforms have passed the Family Court by. But the very breadth of r 141(1) and the discretion imported by r 141(2A) – “the Court may order” – does permit closer inquiry by the Family Court (and by this Court on appeal) into the scope of discovery that should be ordered. By no means does it follow that broad relevance-based Peruvian Guano-type discovery should be ordered (or sustained on appeal). A tailored approach is both permissible and desirable.
[19] The leading decision of this Court on discovery under the Property (Relationships) Act 1976 and r 141 is J v P.11 Three qualifying principles for discovery in these cases were identified: relevance to the issues in the proceeding, reasonable necessity, and that discovery should not be unduly onerous.
[20] In my view the following are the essential principles governing discovery in relationship property litigation:
(a) A robust approach should be taken to discovery consistent with the purposes and principles of the Act: the need for just division, but also inexpensive and efficient access to justice.
(b) Such discovery must not be unduly onerous.
9 High Court Rules, r 8.8.
10 High Court Rules, r 8.9.
11 J v P [2013] NZHC 557, drawing on MAC v MAC FC Rotorua FAM-2007-063-652, 20 June
2011.
(c) Such discovery must be reasonably necessary at the time sought.
(d)The scope of discovery should therefore be tailored to the need of the Court to dispose, justly and efficiently, of relationship property issues under the Act.
(e) More substantial discovery may well be ordered by the Court where it has reason to believe that a party has concealed information or otherwise sought to mislead either the other party or the Court as to the scope of relationship property. But even here, the scope of discovery should be no more than is required for the Court to fairly and justly determine relationship property rights. It is just that in such a situation, more is likely to be required to meet that requirement.
Shareholder/employee exit documents
[21] The first category of documents for which discovery was sought concerns relations between the company and the three shareholder/employees who departed and transferred their 10 per cent shareholding in the company to Ms Kingsley.
What was sought
[22] Mr Dixon’s application sought:
All relevant files and documents relating to the employment claims brought by [the shareholder/employees], all email communications, memoranda and documents generated during the course of the dealings with the above- named during 2012, including details of any payments received in settlement of any claims they may have had against [the company].
What the Judge said
[23] The Judge refused this aspect of the application outright. He gave five reasons. First, it would infringe the privacy of the three individuals. Secondly, the transaction was some time ago and its relevance was marginal. Thirdly, Ms Kingsley had sworn that she had already provided all documents relating to the transaction and the Judge could not go behind that. Fourthly, the list of documents directed would ensure that no documents were produced at the hearing taking Mr Dixon by surprise.
Fifthly, the only marginal relevance of the material was to ensure that the valuation of the company was appropriate. But both parties had already provided valuation evidence to the Court.
Submissions
[24] Mr Dixon advances a claim to the additional 10 per cent shareholding under s 9(4) of the Act. He says there was a long running understanding or agreement with the majority shareholder of the company that Ms Kingsley could acquire a significantly increased shareholding. The information is not required merely to ensure valuation. Rather, the documents will detail the circumstances in which the extra 10 per cent shareholding was acquired, and whether the right to acquire it is “property” under s 2 of the Act.
[25] Counsel for Mr Dixon says that Ms Kingsley was not frank about the shareholding, and that gives cause for inquiry. The shares were acquired in July
2012 by a corporate entity, S Ltd, which she incorporated in June 2012. She was originally the sole shareholder of that company. But on 10 September 2012 she transferred her shares to the person with whom she was now in a relationship. Just before that, on 6 September 2012, Mr Dixon wrote an email that included this question:
My assumption is that you are saying that your beneficial interest in the shareholding of [the company] remains exactly it has been for the last 15 years or so down to the present time without change? Is that right and is it true?
In response, Ms Kingsley wrote, on 10 September 2012 – the same day as the transfer of shares to her new partner:
I have a 30 per cent shareholding [in the company].
Then in July 2013 Ms Kingsley’s partner transferred the shares in S Ltd back her.
[26] Why did Ms Kingsley do all this? In an affidavit she says:
I temporarily transferred these shares to my partner following repeated litigious emails from [Mr Dixon] regarding my shareholding.
[27] In addition to this, in an affidavit sworn on 1 April 2014 Ms Kingsley deposed:
In July 2012, some three months after [Mr Dixon] and I had separated, three senior employees, who had been with [the company] many years left suddenly. Two employees resigned and one was made redundant. These were not decisions that had been planned in advance in any way nor were they expected, and reflected the state of the Company at that time.
In another affidavit dated 31 October 2014 Ms Kingsley deposed that there were no written agreements in relation to the transfer of shares from the departing shareholders. She said “It was all done verbally except for the share transfer which has already been copied to [Mr Dixon].” Subsequently in a further affidavit dated 30
January 2015, Ms Kingsley produced settlement and termination agreements for each of the shareholder/employees. These were dated variously 10 and 21 May
2012. Not disclosing the settlement agreements was described by counsel for Mr
Dixon as a “remarkable omission”.
[28] Counsel for Ms Kingsley says that by affidavit dated 27 March 2015
Ms Kingsley has sworn she has no further documents relevant to this issue. She also submits that any other documents, even if they existed, “simply could not be relevant to any question at issue: the value of the 10 per cent minority shareholding at the time of acquisition by [S Ltd].”
[29] Subsequently however, and following production by Mr Dixon of an affidavit sworn by one of the departing shareholders, in which the shareholder says she did indeed depart in May, Ms Kingsley changed her tune. She now says that she does not oppose the disclosure of all documents of which she has possession or control which are relevant to the termination of the three shareholder/employees from the company immediately after the parties’ separation. That rather presupposes that there is more to be discovered after all.
Analysis
[30] I accept that the circumstances of the acquisition of the additional shareholding is a relevant inquiry in this case. It is not simply a question of valuation. The timing and expectation of transfer of the shares to Ms Kingsley is a
matter relevant to s 9(4) of the Act and Mr Dixon’s claim under that provision. Ms Kingsley’s share transfer on 10 September 2012, in combination with the email sent that day, lend some support to the potential relevance of this material on this broader basis.
[31] Ms Kingsley’s actions, including her late change of stance, also call in question whether due discovery has been given.
[32] The privacy interests of the three shareholder/employees is not a matter which justifies limiting discovery. If there are concerns about privacy or confidentiality, that is a matter calling for controlled production and inspection. It does not mean the documents are not relevant and should not be discovered.12
[33] But there must be limits. What is most relevant is when Ms Kingsley gained a right to, or real expectation of, transfer of those shares to her. It was the majority shareholder who had the entitlement to take the shares from the shareholder/employees upon their leaving the company. Not Ms Kingsley. That shareholder waived his rights in favour of Ms Kingsley. Communications between her and the majority shareholder have been discovered, and there is no appeal in relation to that aspect before me. The nature of the employment issues between the shareholder/employees and the company is very much a background consideration. The details of what went on is of little if any relevance.
[34] In the circumstances, tailored discovery should be given by the company of any documents by or between the company (and any representatives of the company), the majority shareholder, or Ms Kingsley, in relation to:
(a) the commencement of the employment dispute which ultimately gave rise to the settlement agreements entered in May 2012; and
(b)the status of the shareholder/employees’ shares and to whom they would or might be transferred.
[35] In addition, given Ms Kingsley’s recent concession, tailored discovery should be given by her of any and all documents in her possession or control which are relevant to the departure of the three shareholder/employees from the company.
[36] Production and inspection of these documents should occur on the following basis:
(a) They are to be listed and produced by Ms Kingsley (and the company), in affidavits sworn as to completeness, no later than
21 September 2015.
(b)No copies are to be taken of the documents produced except for the purpose of production to a Court in the relationship property proceedings.
(c) The only persons permitted to have access to the documents are Mr Dixon and his professional advisers in relation to these proceedings.
Company dividends/current account information
[37] The next item concerns documents relating to changes to the current account balances of shareholders in the company after January 2012.
What was sought
[38] Mr Dixon sought discovery of the following:
All changes to the current account balances of each shareholder of [the company] since 1 January 2012;13
Any advice to the Board of [the company], director’s resolutions, memoranda, email communications, spreadsheets or other records which record the proposal of the payment of dividends being made; cashflow forecasts on which the cash payment of $300,000 and other current account transactions were made.
What the Judge said
[39] The Judge held that Ms Kingsley’s current account position in relation to the company must be discovered, and the ledger held by the company (and possibly by Ms Kingsley personally) must be discovered. The Judge declined to order discovery of any other shareholder’s current accounts on the basis they were not relevant.
[40] Ms Kingsley had sworn in an affidavit that her current account balance had been reduced during 2013 by $99,661 and in 2014 by $318,610, but that she had not received these sums directly. Rather, she said:
They relate to payments of legal and accountant fees in regard to this litigation. One related to payment of tax.
[41] The Judge declined to order discovery of “the transaction relating to professional fees directed related to this litigation” on the basis that it is “privileged pursuant to s 54 of the Evidence Act”.
Submissions
[42] Counsel for Mr Dixon submitted that these documents should be discovered in order to ascertain how much of those payments were relationship property debts. Some of the tax, for instance may have been pre-separation. Also, there is an issue as to how much of the money that was paid from the current account should be available for division as relationship property. The quantum of the payments of professional fees is not privileged under s 54 of the Evidence Act 2006. Without disclosure of the quantum of the bills paid, and whom they were paid by and when, the otherwise comprehensive discovery ordered of the company’s current account would be ineffective.
Analysis
[43] I accept that fee notes issued by Ms Kingsley’s legal advisors will likely fall within s 54 of the Evidence Act 2006. They are confidential communications made in the course of and for the purpose of a legal advisor giving professional legal services to Ms Kingsley. That is despite the fact that fee notes do not contain
privileged advice. The statutory provision is wider-ranging than the common law position which, on this topic, was unsettled in New Zealand in any event.14
[44] Nor has the relevance of the specific application of these payments been demonstrated, even if the material were not privileged. And nor is this further discovery reasonably necessary, taking a robust view. How Ms Kingsley spends the money is beside the point. If some is to meet relationship debts, she may waive privilege and bring those into account. Accordingly I will not alter the decision below.
Bank account statements
[45] The next category concerns bank account information.
What was sought
[46] Bank statements were sought in the following three categories:
(a) bank statements for the company (and associated companies) which evidenced payments made to Ms Kingsley or S Limited;
(b)bank statements for accounts into which payments were made to Ms Kingsley and/or her partner for expenses, salary, bonus dividends and director’s fees, by an associated company; and
(c) bank statements for any and all accounts into which the company paid
dividends or other sums from Ms Kingsley’s current account.
What the Judge said
[47] The Judge directed that Ms Kingsley’s partner provide copies of bank
statements for a particular account from the date of separation to present day. In
14 Re Merit Finance & Investment Group Ltd (in liq) [1993] 1 NZLR 152 at 156–158. Cf Chant v Brown (1852) 9 Hare 790 (Ch); Turton v Barber (1874) LR 17 Eq 329 (Ch); Dickinson v Rushmer [2001] EWHC 9018 (costs); International Business Machines Corp v Phoenix International (Computers) Ltd [1995] 1 All ER 413 (Ch). See generally Thanki (ed) The Law of Privilege (2nd ed, Oxford University Press, Oxford, 2011) at 100–101.
relation to the company, he declined to make non-party discovery of its bank accounts. He said it would expose the company to significant cost and could amount to hundreds and hundreds of pages of documentation. It had only marginal relevance and would significantly infringe other persons’ privacy.
Submissions
[48] Counsel for Mr Dixon submits that Ms Kingsley’s income post-separation, whether by way of “dividend, salary or current account payment” is relevant for a number of reasons. First, because her means are relevant to the application for final spousal maintenance. Secondly, because she is bringing a claim under s 18B based on alleged post-separation contribution to an increase in value of the shares in the company. It is relevant to know what post-separation salary and dividend payments she has received in order to determine whether she has been properly remunerated for her position at the company, or whether she should receive additional compensation for post-separation work as a senior employee of that company. Thirdly, it would be relevant to the valuation of the company shares. Fourthly, it is relevant because dividends received by Ms Kingsley have been paid in order to assist her acquire the additional 10 per cent shareholding.
[49] Counsel referred to evidence sworn by Ms Kingsley. He says she has taken varying positions. That evidence refers to a dividend of $1 million declared but paid out only in part as to cash. Exactly how much was paid out (in December 2013) varies across her affidavit evidence.
Analysis
[50] I accept that it is appropriate that bank accounts under the direct control of Ms Kingsley and or or her partner (who is also employed by the company), and in respect of which either of them have a beneficial interest, should be the subject of discovery. These accounts will show payment of dividends, salary, bonuses, expenses and other fees.
[51] It is evident however that much if not all of this has already been disclosed. Ms Kingsley has disclosed the bank statements of S Limited and of her 00 account.
She has also provided almost 900 pages detailing movements in the current accounts in relation to herself and S Limited. She has provided copies of the trust and dividend statements for other company shareholders.
[52] But I am not prepared to direct discovery by the company itself. In my view this is a bridge too far, and it would be inconsistent with the principles that I have expressed at [20] above. Significant inconvenience would be caused to an entity not directly involved in the proceedings. Nor should it have its private financial records trawled through by Mr Dixon when the real relevance of the exercise is essentially elusive. I agree with the Judge that it is of only marginal relevance. The scope of discovery sought is far too wide, and Mr Dixon’s purpose remains obscure.
[53] I consider that Mr Dixon has adequate information in front of him already on which to challenge Ms Kingsley’s account of what is and what is not relationship property. If there is point to the exercise, he can subpoena the majority shareholder to give evidence. That will suffice.
Tender documents
[54] Shortly after separation, the company won a significant tender for the supply of services to a third party. I will call it A Co. There is evidence that this tender substantially increased the value of the company’s shares. Ms Kingsley is advancing a s 18B claim for post-separation contribution compensation. The successful tender is said to be relevant to that claim. Her s 18B claim has not yet been particularised.
What was sought
[55] Mr Dixon’s application sought:
All relevant documents connected with the [A Co] tender, including communications with [A Co] before and during the tender process, the draft presentation prepared by [Ms Kingsley] and any documents relating to the feedback received from [A Co], or communications with [A Co] regarding [Ms Kingsley’s] trip to Christchurch to pick up a provider’s “fallen over” post-tender.
What the Judge said
[56] The Judge declined to order further documentation in relation to the A Co tender. He noted that the onus in establishing the s 18B claim lay on Ms Kingsley. She had given some discovery in relation to this issue previously. She will not be allowed to rely on any other documentary material in support of her claim beyond documents listed formally. The Judge was satisfied that there was sufficient documentation provided to enable the issue to be tested at the hearing. Again, the Judge also referred to the privacy interests of third parties as reason not to grant this discovery.
Submissions
[57] Counsel for Mr Dixon submitted that disclosure of all documents relevant to the A Co tender would enable Mr Dixon and the experts retained by him to objectively determine how much work or effort was or was likely to have been expended by Ms Kingsley post-separation.
Analysis
[58] I am not prepared to order further discovery. This is essentially a non-party discovery application. The additional information will more likely be in possession of the company than of Ms Kingsley. She has given an affidavit saying she has no further documents within the scope of Mr Dixon’s application. Ms Kingsley has disclosed to Mr Dixon A Co’s invitation to tender, the successful tender document submitted by the company, the company’s subcontractor agreement for the work and a slide show presentation given to A Co in June 2012. This should present an adequate foundation on which to test Ms Kingsley’s evidence in support of her s 18B application.
[59] However, as I indicated at the hearing, it is premature to finally dispose of this aspect of the appeal without that particularisation being undertaken. To the extent that claim is not yet particularised, I reserve leave to Mr Dixon to make application in the Family Court for tailored discovery of specific, narrow categories
of documents where he can show direct relevance to the claim pleaded against him by Ms Kingsley.
Discretionary procedural orders
[60] There has been substantial default by Ms Kingsley in providing particulars of her s 18B claim. This is acknowledged by her counsel. Undertakings to rectify that default were given. Particulars will have been given by the time this judgment is delivered.
[61] In any event, this is a matter for the Family Court and not for me. There is no appeal in relation to particularisation. Any issue of default is for the trial court.
Order of opening and case presentation
[62] There is a live appeal in relation to the Judge’s direction not to reverse the
order of submissions.
[63] Counsel for Mr Dixon submitted that the s 18B application was likely to occupy a very significant part of the hearing. In addition, Ms Kingsley has primary knowledge concerning the value of the shares of the company, which is the major asset in issue at trial.
[64] This submission was advanced to Judge Burns. He was not persuaded that the normal order (applicant followed by respondent) should not apply. Nor am I. The s 18B claim is a discrete counterclaim. While it will be a substantial part of the case, it by no means dominates it. I am not persuaded that the Judge erred in directing the usual order of events.
Result
[65] The appeal is allowed to the extent provided in [34] to [36] above. [66] Leave is reserved to the extent provided in [59] above.
[67] The identities of the parties shall remain confidential until further order of the
Court.
[68] Costs are reserved. Counsel may submit brief memoranda if agreement cannot be reached.
Stephen Kós J
Solicitors:
Morgan Coakle, Auckland for Appellant
Martelli McKegg, Auckland for Respondent
11