Du Val Group NZ Limited v Servsync Limited
[2024] NZHC 1728
•27 June 2024
IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY
I TE KŌTI MATUA O AOTEAROA KIRIKIRIROA ROHE
CIV-2022-419-000232 CIV 2022-419-000296
[2024] NZHC 1728
IN THE MATTER of Parts 19 and 32 of the High Court Rules 2016 and Senior Courts Act 2016 AND IN THE MATTER
of a without notice originating application for freezing orders and ancillary orders under rr 32.2 and 32.3 of the High Court Rules 2016
BETWEEN
DU VAL GROUP NZ LIMITED and DU VAL MANAGEMENT LIMITED
Plaintiffs
AND
SERVSYNC LIMITED
First Defendant
STUART GOODFELLOW
Second DefendantRED CELL CYBER LIMITED
Third Defendant
Hearing: 24 June 2024 (heard at Rotorua via VMR) Appearances:
K A Lomas & LHH Hunt for the Plaintiffs (via VMR) E J Grove for the Defendants (via VMR)
Judgment:
27 June 2024
JUDGMENT OF TAHANA J
Solicitors / Counsel:
This judgment was delivered by me on 27 June 2024 at 11.00am.
Pursuant to Rule 11.5 of the High Court Rules.
…………………………
Registrar/Deputy Registrar
Braun Bond & Lomas Ltd, Hamilton Lateral Lawyers Ltd, Auckland
Chris Patterson Barrister Ltd, Auckland
DU VAL GROUP NZ LTD v SERVSYNC LTD [2024] NZHC 1728 [27 June 2024]
Introduction
[1] On 29 May 2023 the parties agreed tailored discovery for specified categories of documents, and I made orders accordingly.1
[2] The plaintiffs subsequently discovered documents within those categories using keywords that they had proposed to the defendants. The plaintiffs did not use the further keywords proposed by the defendants nor did the discovery include documents from software platforms that the defendants had identified to the plaintiffs.
[3] The defendants now apply for further discovery from the plaintiffs. The application seeks 13 types of records. After further engagement between the parties, the defendants now only seek orders in relation to four types of records. This judgment is therefore limited to whether discovery is required of those further records as follows (adopting the defendants’ numbering):2
1.1.1A full copy of Mr Goodfellow’s Outlook emails and calendar appointments during the period of his engagement by the plaintiffs.
1.1.5A copy of all electronic records from the plaintiffs’ Microsoft Azure platform relating to the plaintiffs’ development, during the plaintiffs’ engagement of Mr Goodfellow, of the PropTech Platform (the Platform) and, in particular, all such documentation recording the progressive coding and testing activities conducted during the development of the Platform.
1.1.10Electronic copies of all signed Docusign contracts executed during the plaintiffs’ engagement of Mr Goodfellow and relating to the development of the Platform.
1 Du Val v Servsync Ltd HC Hamilton CIV-2022-419-000232, CIV-2022-419-000296, 30 May 2023
(Minute of Tahana J) at [3].
2 In relation to category 1.1.2, at the hearing, Mr Grove confirmed that this category is captured by category 1.1.1 so is no longer necessary.
1.1.12All documentation relating to the sourcing of sales and rental data for use by the Platform.
[4] The plaintiffs are willing to conduct appropriate further keyword searches but say that the further discovery of the documents as requested would result in disproportionate expense and/or delay.
[5] Before considering the application, I set out the nature of the claim and counterclaim as this is relevant to the scope of discovery required.
Claim by plaintiffs
[6] The plaintiffs claim $76,691.60 against the first defendant (Servsync Ltd (Servsync)) alleging three causes of action for monies had and received, knowing receipt of funds and deceit. They claim that Mr Goodfellow incorporated Servsync in the British Virgin Islands and then arranged for Servsync to invoice the first plaintiff (Duval Group New Zealand Ltd (DGL)) for services that were not provided.
[7] The plaintiffs claim $76,691.60 against Mr Goodfellow alleging three causes of action for breach of fiduciary duty, deceit and being a dishonest accessory.
[8] The plaintiffs claim $76,691.60 alleging one cause of action against the third defendant, Red Cell Cyber Ltd (Red Cell) for breach of contract by reason of Mr Goodfellow: representing that Servsync was an external resource; failing to comply with DGL’s policies; and causing DGL to pay Servsync’s invoices.
Counterclaim by defendants
[9] The defendants deny the plaintiffs’ claims and counterclaim against the plaintiffs.
[10] Servsync claims that the plaintiffs owe it for unpaid invoices of USD 12,800 and USD 15,520. It also claims that the second plaintiff, Du Val Management Ltd (DML), owes it for unpaid invoices of $18,653 and $7,360.
[11] Mr Goodfellow seeks a declaration or specific performance and says he is contractually entitled to 10 per cent equity in the Platform.
[12] The further categories of documents sought primarily relate to the Platform and its development. Before considering whether the plaintiffs should be required to discover all the records proposed by the defendants, I set out the relevant law.
Relevant law
[13] Under r 8.2(1) of the High Court Rules 2016 (HCR), parties must co-operate to ensure discovery and inspection are proportionate and facilitated by agreement of practical arrangements.3 The parties must, when appropriate, consider options to reduce the scope and burden of discovery.4
[14] There is a presumption that the interests of justice require tailored discovery where the costs of standard discovery would be disproportionately high in comparison with the matters at issue in the proceeding.5 Here, the parties have agreed categories for tailored discovery.
[15] Schedule 9 of the HCR sets out the “Discovery checklist and the listing and exchange protocol”.Clause 3 of sch 9 requires that for tailored discovery the parties must endeavour to agree a proposal on categories; agree methods and strategies for locating documents and must discuss whether a staged approach may be appropriate.
[16] Relevance to an issue in the proceeding is the starting point for the scope of tailored discovery. Discovery for each category is limited to what is reasonable and proportionate. To this end, the principles to be applied in cases where the scope of tailored discovery is in issue are as follows:6
(a)The concept of proportionality is central to tailored discovery. It is relevant in determining whether tailored discovery is appropriate and deciding, if there is tailored discovery, whether the categories of
3 High Court Rules 2016, r 8.2(1).
4 Rule 8.2(2).
5 Rules 8.9(a).
6 Tau v Attorney-General [2022] NZHC 2604 at [21] citing Commerce Commission v Cathay Pacific Airways Ltd [2012] NZHC 726 and Minister of Education v James Hardie New Zealand [2019] NZHC 245 at [50].
tailored discovery are reasonable and proportionate. It is also a key concept in determining what is a reasonable search of documents within the scope of a discovery order.
(b)The starting-point for tailored discovery is an assessment of the issues for determination. Discovery categories will reflect the issues and will only be ordered for discovery of documents that are relevant to those issues. Except in exceptional circumstances, these issues will be discernible from a review of the pleadings.
(c)An assessment of proportionality will need to take into account the chances of finding relevant documents and “their degree of relevance”, which must then be balanced against the costs of carrying out the discovery process.
(d)Broader considerations such as the amount in issue, the parties’ respective resources, and delay to the proceeding may be relevant, but in very large-scale proceedings these factors are unlikely to be determinative.
(e)Where there is no specific evidence of the potential cost or other practical implications involved in giving the discovery sought, Judges may take into account their own experience and understanding of what is practical without detailed affidavit evidence.
(f)In any complex tailored discovery exercise, there must always be a measure of “give and take” between the parties.
(g)The Court should consider whether the disputed issues can be proved more simply, cheaply, and expeditiously by other means
[17] Applying the above principles, I consider below whether the plaintiffs should be required to disclose the records sought by the defendants.
Discussion
[18] It is helpful to set out the conduct of the parties to date as this is relevant to whether they have conducted themselves in accordance with the relevant legal principles as set out above.
Background to application
[19] In support of the plaintiffs’ opposition to the application, the plaintiffs filed an affidavit from Fabiano Rodrigues, a systems engineer at DGL. That affidavit includes a letter dated 27 July 2023 from the plaintiffs’ counsel to the defendants’ counsel indicating that they had been provided copies of every mailbox for all staff of DGL comprising approximately 75,000 documents. The plaintiffs then proposed a list of
key words and indicated that they would exclude from their review any documents that did not fall within those key words. The plaintiffs invited the defendants to provide further search terms.
[20] On 15 August 2023, the defendants’ counsel responded suggesting six further keyword searches. The defendants also asked whether the plaintiffs intended discovering documentation that came within seven further types of documents including other software platforms, policies, training records and information regarding the Platform and Mr Goodfellow’s lease.
[21] On 16 August 2023, the plaintiffs’ counsel requested an explanation as to the usefulness of the additional key words asserting that it was likely thousands of documents would be returned. In relation to the proposed categories of documents, the plaintiffs requested an explanation as to the relevance of each category. They also indicated that any “open” documents that fall within the agreed tailored discovery categories will be discovered.
[22] On 17 August 2023, the defendants’ counsel indicated that the contents of affidavit evidence to be filed in relation to the freezing orders would clarify much of the relevance. Counsel indicated that he would prepare and send an explanation of relevance once the affidavits were served. That explanation was not provided.
[23] Discovery was provided in September 2023 and the defendants filed this application in December 2023.
Adequacy of discovery to date
[24] Mr Grove for the defendants argued that the plaintiffs have failed to meet their discovery obligations as they have not discovered documents that fall within each of the agreed categories. Further, he submitted that the plaintiffs did not disclose documents contained within different software platforms that the defendants had identified prior to the plaintiffs discovering their documents.
[25] The plaintiffs agree that further discovery is required. They do not dispute that there are likely to be further relevant documents. The disagreement arises because the
defendants have proposed that electronic records be provided in full with the defendants undertaking a review for relevance. The plaintiffs have proposed a list of key individuals and suggestions for progressing further searches of their records.
[26] Mr Grove also argued that the plaintiffs have raised an affirmative defence by reason of evidence contained in an affidavit filed in relation to the freezing order application. Mr Grove submitted that the affirmative defence calls into question all of Mr Goodfellow’s conduct in relation to the Platform and all documents relevant to the launch of the Platform. For this reason, further discovery is required. Given it is the plaintiffs’ affirmative defence, Mr Grove submitted that they are obliged to review the documents and identify those that are relevant.
[27] The current statement of reply and defence to counterclaim does not contain an affirmative defence. It contains a blanket denial of the agreement regarding the Platform as alleged by Mr Goodfellow. The evidence filed in relation to the freezing order application, however, indicates that the plaintiffs may accept that there was an agreement but not on the terms alleged by the defendants. It is therefore unclear as to whether the plaintiffs wish to rely on an affirmative defence. Certainly, the statement of reply and defence to counterclaim has not been amended despite the evidence that has been filed in the freezing order application.
[28] It is critical that the issues in dispute are identified so that the scope of discovery can be determined. If the plaintiffs intend to rely on an affirmative defence, they must seek leave to amend their reply to the counterclaim. If the defendants are unsure of the scope of the plaintiffs’ defence to the counterclaim, they should request further particulars. The scope of the dispute is directly relevant to discovery. I will therefore make directions requiring the parties to progress this issue.
Discovery obligations under HCR
[29] All parties have obligations under sch 9 of the HCR to co-operate to assist in identifying relevant documents. The parties are required to identify the likely volume and cost of discovery (including the approximate number of records, the cost of
discovery and whether specialist expertise is required).7 That is a matter for the plaintiffs who are the holders of the documents requested by the defendants. The plaintiffs say that there are potentially 65,000 to 75,000 relevant documents and 6,500 of those comprise Mr Goodfellow’s Outlook mailbox.
[30] The parties must also endeavour to agree a proposal for discovery with respect to:8
(a)categories by specifying for example: subject matter, date range, types of documents, key individuals; and
(b)methods and strategies for locating documents: this includes seeking agreement on methods including appropriate keyword searches and other automated searches and techniques.
[31] I agree with the plaintiffs that the application is premature in circumstances where the plaintiffs have indicated that they are willing to provide further discovery, have proposed methods and strategies for locating documents but Mr Goodfellow has been unwilling to respond to those requests. Rather, the defendants seek either the full electronic records (to review for relevance) or require that the plaintiffs undertake a review of the documents that fall within each category.
[32] Mr Goodfellow is obliged to co-operate as required by sch 9. That includes seeking to reach agreement on keyword searches and responding to the plaintiffs’ proposal regarding key individuals. Requesting all electronic records such as his Outlook mailbox is not a reasonable response to the plaintiffs’ proposal. That would involve disclosure of irrelevant material and the plaintiff has no obligation to disclose irrelevant records.
[33] In addition to the general obligations on each party as set out above, I now consider each category (or type) of documents the defendants have requested.
7 High Court Rules, sch 9 cl 1(c).
8 Schedule 9 cl 3(2).
Outlook — category 1.1.1
[34] Mr Rodrigues, DGL’s IT Manager, has deposed that Mr Goodfellow’s Outlook mailbox contains at least 6,500 emails and it is impossible to confirm the number of calendar appointments.
[35] The defendants seek orders that the plaintiffs hand over the whole of Mr Goodfellow’s Outlook mailbox. This appears to be an attempt to offer a compromise so that the plaintiffs are not required to review all 6,500 emails. The flaw with this approach is that a party is not required to discover documents that are not relevant to the issues in the proceeding and therefore the Court cannot make such an order. There is no right to general access to electronic records for the purpose of reviewing them for relevance. Further, the plaintiffs’ claim includes allegations of dishonesty so it is not unreasonable for the plaintiff to be reluctant to hand over the whole mailbox.
[36] Counsel for the defendants argued that “keyword searches have proven to be ineffective” because they believe a large amount of relevant material remains undiscovered. The more likely explanation is that the keywords used to date are insufficient to capture all the relevant material. Mr Goodfellow must engage with a view to agreeing methods to locate the relevant material.
[37] Simply asserting that there were a “sheer number of people” that Mr Goodfellow was communicating with in relation to the Platform is not a reason to not co-operate by providing a list of those people. That information is within Mr Goodfellow’s knowledge and this does not preclude further discovery if Mr Goodfellow subsequently remembers other relevant names. The plaintiffs are also required to provide a list of key individuals, which they have done.
[38] In relation to the keyword searches proposed by the defendants (Trademe, Realestate, sales, rentals, rents and apartment), I accept that they are very broad but if those searches are limited to identified individuals, that may reduce the potential for irrelevant material. That requires Mr Goodfellow to identify individuals who may be relevant. This information is relevant to his counterclaim and he should therefore have knowledge as to their names.
[39] I will therefore make appropriate orders requiring Mr Goodfellow to provide names of key individuals and search terms.
Documents from Azure platform — category 1.1.5
[40]The defendants seek discovery of the following:
1.1.5 A copy of all electronic records from plaintiffs’ Microsoft Azure platform relating to plaintiffs’ development, during the plaintiffs’ engagement of Mr Goodfellow, of the PropTech Platform and, in particular, all such documentation recording the progressive coding and testing activities conducted during the development of the Platform.
[41] Again, the defendants have not sought to identify methodologies for locating relevant documents. The plaintiffs have identified 2925 tasks and requested that Mr Goodfellow identify the relevant tasks from the list. At the hearing, Mr Lomas indicated that the documents have now been provided to the defendants for all of the tasks so I understand that this category has been resolved.
Docusign contracts — category 1.1.10
[42]The defendants seek discovery of the following documents:
Electronic copies of all signed Docusign contracts executed during the plaintiffs’ engagement of Mr Goodfellow and relating to the development of the PropTech Platform.
[43] The above category is limited to Docusign contracts relevant to the development of the Platform. The plaintiffs argued that a search of all Docusign contracts is likely to return irrelevant contracts. The plaintiffs have not provided any evidence as to the current volume of Docusign contracts and/or why they are unable to identify relevant contracting parties given the contracts are presumably with one of the plaintiff companies.
[44] It is unclear what is required to identify potentially relevant documents and why this might be oppressive. There is no information as to how the plaintiffs retain Docusign contracts and/or the likely volume of such documents.
[45] Against this, I agree with the plaintiffs that Mr Goodfellow should also be able to identify parameters for limiting any search, including the names of contracting parties. Further, the plaintiffs should themselves know who they have contracted with in relation to the Platform.
[46] I will therefore make appropriate directions requiring both parties to provide further information to narrow the scope of the searches and to assist in identifying whether a review of all Docusign contracts would be oppressive.
Sales and rental data — category 1.1.12
[47]The defendants seek discovery of:
All documentation relating to the sourcing of sales and rental data for use by the PropTech Platform.
[48] Once again, both parties are required to co-operate. Mr Goodfellow is required to provide names of likely suppliers and/or individuals so appropriate searches can be undertaken. Again, this category of documents is relevant to Mr Goodfellow’s defence of the claims against him so he should be able to particularise the scope of documents that are likely to be relevant including by reference to names of suppliers and potential date ranges. The plaintiffs should also be able to identify names of relevant suppliers of data and sales to the Platform. I will therefore make directions requiring the parties to exchange further information so further searches can be undertaken.
Conclusion
[49] The parties must do more to meet the requirements of sch 9. I agree with the plaintiffs that the application is premature. This Court cannot simply order discovery of all electronic records without a lawful basis for doing so and in circumstances where that will clearly result in an order to discover irrelevant documents. Further, all parties should have knowledge as to the location of information that is relevant to the issues in the proceedings and are obliged to provide that information for the purpose of identifying efficient methods for locating relevant documents.
[50] If the plaintiffs intend to rely on an affirmative defence and/or the defendants require further particulars of the reply to the counterclaim then they are expected to advance those positions so that the issues relevant to discovery can be locked down.
Result
[51]The application is dismissed. I direct the parties as follows:
(a)In relation to category 1.1.1:
(i)by 5 July 2024, Mr Goodfellow must: (a) respond to the plaintiffs’ proposed list of key individuals by indicating whether he considers there are any further key individuals; and (b) provide keywords to the plaintiffs with an explanation as to their relevance; and
(ii)within 5 working days thereafter, the plaintiffs must confirm to the defendants that they will undertake further keyword searches based on the individuals and keywords proposed by both parties and/or clearly identify why such a task would be oppressive.
(b)In relation to category 1.1.10:
(i)by 5 July 2024, the plaintiffs must provide to the defendants: the approximate volume of Docusign contracts; and the manner in which those Docusign contracts are stored;
(ii)by 5 July 2024, the plaintiffs and defendants must exchange a list of parties who may have entered into a Docusign contract with either of the plaintiffs in relation to the Platform;
(iii)within 5 working days thereafter, the plaintiffs must confirm to the defendants that they will undertake further keyword
searches based on the names proposed by both parties and/or clearly identify why such a task would be oppressive.
(c)In relation to category 1.1.12:
(i)by 5 July 2024, both parties must exchange names of potential suppliers of data and/or sales to the Platform so that key word searches may be undertaken; and
(ii)within 5 working days thereafter, the plaintiffs must confirm to the defendants that they will undertake further keyword searches based on the names proposed and/or clearly identify why such a task would be oppressive.
(d)By 12 July 2024, the parties are to confer and file a joint memorandum indicating whether further directions are required for leave to file any amended pleadings.
(e)Leave is granted for either party to apply to the Court for resolution of any dispute in relation to the above directions.
Costs
[52] I reserve the issue of costs until completion of further discovery arising from the above directions.
Tahana J
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