Equity Trust International Limited v Buschuev
[2016] NZHC 1799
•8 August 2016
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2016-404-706 [2016] NZHC 1799
BETWEEN EQUITY TRUST INTERNATIONAL
LIMITED First Plaintiff
SOUTH PACIFIC CORPORATION LIMITED
Second Plaintiff
AND
ALEXANDER BUSCHUEV First Defendant
OLEG KHMELEV Second Defendant
NZ CORPORATE SERVICE LIMITED Third Defendant
Hearing: 3 August 2016 Counsel:
G Bogiatto for Plaintiffs
N Tabb for DefendantsJudgment:
8 August 2016
JUDGMENT OF WHATA J
This judgment was delivered by me on 8 August 2016 at 2.00 pm, pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date: ………………………….
Solicitors/Counsel: G Bogiatto, Auckland
N Tabb, Auckland
EQUITY TRUST INTERNATIONAL LIMITED v ALEXANDER BUSCHUEV [2016] NZHC 1799 [8 August
2016]
[1] This judgment addresses an application for interlocutory orders: (a) By the plaintiffs, for:
(i)Unless orders for non-compliance by the defendants with search and discovery orders made by Faire J on 19 April 2015; and
(ii) For further and better particulars of defence;
(b)By the defendants, seeking the reversal of Faire J’s orders and the removal of the independent solicitor, appointed pursuant to those orders.
[2] At the hearing of this matter, I made the orders at [28]. My reasons follow.
Background
[3] The plaintiffs, Equity Trust International Limited (ETIL) and South Pacific Corporation Limited (SPCL), claim that the defendants have, among other things, used confidential information for their benefit in breach of contractual and fiduciary duties. More specifically, it is claimed that the defendants had full access to confidential and commercially sensitive information belonging to ETIL and SPCL and then, in breach of contract and of fiduciary duty, have established a business to compete with the plaintiffs by stealing the plaintiffs’ client and agent database and by taking existing clients and agents.
Procedural history
[4] On 19 April 2016, Faire J granted the plaintiffs’ without notice application for
search orders and discovery orders. Search and discovery orders were then sealed on
21 April 2016. Those orders included the following:
7.The persons named or described above paragraph 4 may take the following further steps:
(a) That in support of or ancillary to the above search orders the Respondents are ordered, without notice, to provide the Applicant immediately or within 24 hours of being served with the discovery order the following documents and the persons named above paragraph 4 are permitted to accompany the Respondents whilst they are providing the said discovery:
i. All emails sent or received via the email [email protected] or related emails sent via the nzservice.com.
ii. The admin password and contact details to the hosting service for the web site and email of NZ Service.
iii. A list of all clients and agents of the Respondents to which the Respondents or the said business known as NZ Service have provided corporate services or are in the process of providing such service.
iv. A list of the corporations which the Respondents have registered or assisted in registering under any business other than the Applicants.
v. Print outs of the bank accounts controlled by the Respondents (or corporations which they control) which have received funds from the offshore business.
vi. Electronic and hard copies of all brochures, marketing material, and contracts.
vii. A list of all entities (including unregistered business names, corporations, partnerships) through which and in conjunction with which the defendants provide corporate services, including trusts, limited partnerships, look through and financial service companies, including but not limited to third parties assisting the Respondents i.e. lawyers and accountants.
8.The following independent solicitor is appointed to supervise the carrying out of this order and to report to the court:
Gurbrinder Aulakh of Level 1, 3 Albert St, Auckland
The independent solicitor is also authorised to do the following things:
To assist the persons named above paragraph 4 with the implementation of the Search Order.
[5] The material subject to the orders was seized on 28 April 2016, but the matter came back to the Court on 2 May 2016 and the parties agreed interim orders granted by Wylie J, namely:
[4] ….
(a) the first and second defendants are to comply with order 7(a) in the search and discovery order on or before 20 May 2016, by providing verified lists of documents with copies all of the documents disclosed;
(b) the pin number and a digital print are to be provided by the first defendant to the independent solicitor appointed to supervise the carrying out the of the search and discovery orders, Mr Grubrinder Aulakh, in respect of the first defendant’s mobile phone by 1pm on
2 May 2016;
(c) the defendants are to provide Mr Aulakh with all passwords to enable him to access the computers seized pursuant to the search order by 1pm on 2 May 2016;
(d) Mr Aulakh is authorised to assist Mr G Aylett, Mr D J Torsen and Mr M Gilliam, in inspecting and copying relevant materials from the documents and electronic equipment seized, on or before Friday 6
May 2016;
(e) The materials and electronic equipment seized, once relevant material is copied, are to be returned to level 1, 60 Highbrook Drive, being the offices of Wynyard Wood;
(f) The matter is to be placed for call in the duty Judge list at 10am on
23 May 2016 unless a notice of discontinuance has been filed.
[6] Ms Tabb, for all of the defendants, then claimed that the appointed independent solicitor lacked the requisite independence. On 23 May Courtney J directed the following:
(a) If the defendants wish to apply for an order substituting the independent solicitor they file such application by 5 pm, Thursday,
26 May 2016;
(b) If Mr Aulakh and/or Mr Bogiatto wish to oppose that application notices of opposition should be filed by 5 pm 27 May 2016.
[7] Those applications were filed, together with a notice of opposition by Mr Bogiatto, and placed before a Duty Judge. Timetabling orders were made by Muir J for the production of affidavits in relation to those applications together with a half-day fixture date to be allocated as soon as possible. The minute of Muir J
records also that Mr Latton sought, without opposition from Mr Bogiatto, an enlargement of the date of compliance referred to in Wylie J’s orders of 2 May 2016 and, in particular, the requirement for the defendants to comply with the order appearing at 7(a) of the order by 20 May 2016. The Judge notes and accepts that a new date for compliance, if appropriate, should logically be considered in the context of the orders made on the defendants’ application. Notice of opposition by the first plaintiff to the defendants’ application was filed on 27 May 2016, with an amended notice of opposition then filed on 22 June 2016. Supporting affidavits were also filed at about that time.
[8] There is then a further application by the plaintiffs dated 21 June 2016, seeking the following orders:
a.That all material obtained on the 28th April 2016 pursuant to the search and discovery order dated 19th April 2016 be delivered by Thompson & Toresen Private Investigators to the office of George Bogiatto at 17 Falcon St, Parnell, Auckland.
b.That unless the Defendants comply with the discovery orders made by the Court on 19th April and subsequently again by consent on 2nd May 2016 within five working days, each Defendant shall be debarred from defending the proceedings and the Statement of Defence dated 26th May 2016 shall be struck out.
c.That the Defendants be required to supply the further particulars of defence requested by the Plaintiffs following service of a notice pursuant to Rule 5.21 of the High Court Rules.
d.That the costs of the Plaintiffs in obtaining and executing the search and discovery orders on 28th April 2016 be fixed and become payable by the Defendants.
The passing of the second defendant
[9] Late last week the second defendant passed away. The Court was advised that this presented difficulties for Ms Tabb who was then acting for the defendants, as she could not obtain final instructions. Ms Tabb sought leave to be excused. A telephone conference was convened, at which I advised Ms Tabb that she must continue to try and seek instructions and to report to the Court on the allocated date for hearing the applications, namely today, 3 August 2016.
Developments
[10] At the hearing Ms Tabb submitted that the matter could not be advanced in respect of the second defendant and that the plaintiff would need to take steps to join the second defendant’s representative.1 Mr Bogiatto accepted that this is correct but nevertheless still sought orders in respect of the first and second defendants.
[11] Ms Tabb also advised that she was no longer instructed by Mr Buschuev, who appeared on his own behalf. He explained that he did not have the funds to retain Ms Tabb, but that this may be remedied once probate had been resolved. He also sought an eight week adjournment on all the applications, given the second defendant’s passing.
Format of the judgment
[12] I propose to address the applications in the order that they were filed, namely:
(a) The defendants’ applications to have Faire J’s orders set aside and the
removal of the independent solicitor;
(b) The plaintiffs’ further application for discovery and unless orders.
The defendants’ application
[13] The central ground upon which the defendants’ orders are sought is that Mr Bogiatto and Mr Aulakh are conflicted. It is claimed (supported by an affidavit of Mr Mathew Bloomfield):
(a) Mr Bogiatto did not declare that he is a shareholder of a company interested in the litigation;
(b) Mr Aulakh (the independent solicitor appointed by Faire J) and
Mr Bogiatto share an office and a number contact details;
(c) Mr Aulakh admitted to Mr Blomfield that he had worked with
Mr Bogiatto as his employee until August 2015;
1 Citing Low v Xue HC Auckland CIV-2006-404-1863, 29 November 2006.
(d) Mr Blomfield was then advised by Mr Aulakh in writing that
Mr Bogiatto and Mr Aulakh run independent legal practices;
(e) Mr Bogiatto had not explained the closeness of their relationship or responded to concerns about it;
(f) Mr Blomfield noted that Mr Aulakh only recently graduated from law school and was not an experienced solicitor.
[14] The plaintiffs respond that:
(a) The matters raised are of no relevance to the underlying claim;
(b) The defendants consented to the making of the orders on 12 May
2016, as set out in the minute of Wylie J;
(c) The documents seized are relevant to the plaintiffs’ claim and would,
in the ordinary course, be discoverable by the defendants;
(d) The defendants have no tenable defence to the plaintiffs’ claim;
(e) The defendants have purposely and knowingly breached the orders made on 29 April 2016;
(f) It was not necessary for Mr Bogiatto to declare the fact that he acts as a director of a company which is a corporate trustee, holding the plaintiffs’ shares in trust and he was, in any event, bound to take steps to protect the assets of the trust;
(g)There is no basis for removing Mr Aulakh, as a Court appointed solicitor.
Assessment
[15] The High Court Rules (HCR) invoking ex parte search powers must be strictly complied with. In this regard, r 33.7(1) states:
33.7 Independent solicitors
(1) If the court makes a search order, the court must appoint 1 or more solicitors, each of whom is independent of the applicant's solicitors (the independent solicitors), to supervise the execution of the order, and to do whatever things in relation to the order the court considers appropriate.
[16] There is longstanding authority for the proposition that the execution of the order should be supervised by an “experienced solicitor” from a firm other than the plaintiffs’ solicitor.2 The requirement for independence is a corollary of the need to take care against abuse of the ex parte search procedure, particularly given that execution takes place before the defendant has an opportunity to be heard. As noted by McGechan, there is clearly scope for injustice.3 Ordinarily, the failure to provide an independent solicitor would, in my view, justify the setting aside of a search order.
[17] In this case, Mr Aulakh has only recently set up on his own account and was previously employed by Mr Bogiatto. To my mind this raises a prima facie issue as to lack of independence and a reason for caution. With the benefit of hindsight, the prior connection should have been made known to Faire J. But I am not satisfied that the orders should be set aside on this basis. Mr Aulakh has provided a memorandum to the Court as to his independence and experience. He notes that he has been acting as a barrister and solicitor independently of any other firm since August 2015. He says he shared premises with Mr Bogiatto but otherwise there is no link or connection between them. He also notes that he has been a lawyer with a continuous practising certificate in India since 1998. He attaches a copy of his certificate from the Bar Association of India. He says he re-qualified in New
Zealand and was admitted to the High Court at Auckland in March 2012.
2 See Universal Thermosensors Ltd v Hibbin [1992] 1 WLR 840.
3 Andrew Beck (ed) McGechan on Procedure (Thomson Reuters, online looseleaf ed) at [33.6.02].
[18] In those circumstances, I am satisfied that Mr Aulakh, having been practising as a solicitor in India and then in this country for 18 years is amply experienced to bring the requisite independent judgment to the execution process notwithstanding his previously connection to Mr Bogiatto while in his employ.
[19] The defendants’ application in respect of the independent solicitor is therefore
dismissed.
[20] The position in relation to Mr Bogiatto’s apparent interests in the plaintiff is more complex. He is the sole shareholder of Symonds Street Assets Limited. That company is the sole shareholder of World Solutions Limited, which in turn is the sole shareholder of the first plaintiff. I signalled to Mr Bogiatto some disquiet about this, given that he had invoked the Court’s search powers without declaring his apparent interest in the fortunes of the first plaintiff. He explained that he held the shares as a bare trustee only and so was sufficiently removed from the proceeding to provide the usual declarations for the purposes of the ex parte orders. I was not satisfied with this response and wanted a more detailed explanation. I reserved my position on this aspect of the defendants’ application and afforded Mr Bogiatto one month to provide that full explanation.
The plaintiffs’ applications
[21] Dealing first with the search orders, given the failure to disclose the connection between Mr Aulakh and Mr Bogiatto, and between Mr Bogiatto and the first plaintiff identified above, the plaintiffs’ position is not watertight. Notably, Mr Buschuev complains that the search and discovery exercise is simply an attempt by the first plaintiff, a trade competitor, to obtain commercially sensitive material. I also note that an enlargement of time to comply was granted by Muir J, so it is not clear that there has been a default.
[22] Complicating matters further, all documents and other seized materials have been returned to Mr Buschuev, including materials belonging to the second and third defendants.
[23] In any event, I could see no reason to defer compliance with the discovery requirements of the first and third defendants. I directed that discovery in terms of the HCR and in relation to the information subject to the search orders be completed by them within a month. I reserved the position in relation to the application by the plaintiffs for production of the documents. Instead, the plaintiffs are to make an application for orders for production following the exchange of the list of documents to the extent it is necessary to do so.
[24] As to the application for further and better particulars, the plaintiffs seek the following:
1.In respect of paragraph 17 of the Statement of Defence, the First Defendant is required to provide the particulars on which he is relying to plead that “this document is not a legally effective agreement”.
What are the particulars relied on by the First Defendant to support this defence.
2.In respect of paragraph 18, the First Defendant is required to provide particulars on which he is relying on to plead that “this document is not a legally effective agreement.”.
What are the particulars relied on by the First Defendant to support this defence.
3.In respect of paragraph 20, the Second Defendant is required to plead the allegations contained in paragraph 21 of the Statement of Claim in an affirmative manner by stating whether or not he signed documents identical in content signed by the First Defendant referred to at paragraph 18 of the Statement of Claim.
[25] No opposition has been filed to this, though Ms Tabb submitted that it was for the plaintiff to establish that there was an enforceable agreement. In any event, I agree with the plaintiffs that these are matters upon which they are entitled to particulars for pleading purposes – that is, the defendants must identify the proper factual basis for the claim that there was no effective agreement. There shall be an order accordingly in respect of the first and third defendant.
The second defendant
[26] I reserve the position in relation to the second defendant on all matters pending the appointment of a representative. But as Ms Tabb is still instructed to act for the third defendant, the director of which is the second defendant’s wife, I direct that Ms Tabb is to liaise with Mr Bogiatto in relation to the second defendant’s estate so that the plaintiffs can make the necessary decisions in relation to joining his representative. She is also to report to the Court as to the position in relation to the second defendant’s estate in one month’s time and I also reserve leave to the parties to seek the further assistance of the Court in the event that progress cannot be made in terms of the above orders because of ongoing difficulties in resolving the second defendant’s interests.
Costs
[27] Issues of costs are reserved, as is the application for delivery of documents as that may be resolved via the usual inspection process.
Outcome
[28] The parties are to comply with the following orders by 1 September 2016: (a) The first and third defendant must complete discovery;
(b)The first and third defendants must provide further and better particulars described at [24]; and
(c) Ms Tabb is to report to the Court as to developments in relation to the
second defendant’s representation.
[29] The defendants’ application in relation to the independent solicitor is dismissed.
[30] The defendants’ application in relation to Mr Bogiatto’s apparent conflict of interest is reserved, and Mr Bogiatto is granted leave to provide a detailed explanation as to his interests in the first plaintiff by 1 September 2016.
[31] The plaintiffs’ application for production of documents and costs is reserved.
[32] This matter will be placed for a Judge on the first available date after
1 September 2016. Counsel are to file memoranda on outstanding issues three days in advance of that call.
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