European Foods Limited v Canegallo
[2019] NZHC 503
•20 March 2019
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2017-404-2769
[2019] NZHC 503
BETWEEN EUROPEAN FOODS LIMITED
Plaintiff
AND
MARCO CANEGALLO
Defendant
Hearing: 29 October 2018 and 15 February 2019 Appearances:
K M McMullen for the Plaintiff
S L Cogan and J G Donkin for the Defendant
Judgment:
20 March 2019
JUDGMENT OF ASSOCIATE JUDGE SMITH
This judgment was delivered by me on 20 March 2019 at 3.00pm, pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Solicitors / Counsel:
Cavell Leitch, Christchurch Anderson Creagh Lai Ltd, Auckland
EUROPEAN FOODS LTD v CANEGALLO [2019] NZHC 503 [20 March 2019]
TABLE OF CONTENTS
Background [2]
EFL's statement of claim [9]
Mr Canegallo's statement of defence [12]
Defendant's amended defence and counterclaim [21]
EFL'S APPLICATION FOR PARTICULAR DISCOVERY [25]
Further documents sought [25]
Evidence in support [28]
Mr Canegallo's opposition [43]
Evidence in opposition [45]
Applications for particular discovery – legal principles [74]
Discussion and conclusions [76]
Request for documents in category 1 – communications between
Mr Canegallo and Prodotti [76]
Request for documents in category 2 – documents concerning orders and
deliveries involving Mr Canegallo and Prodotti [93]
Request for documents in category 3 – communications with Westpac in
connection with business proposals [98]
Request for documents in category 4 – communications with Bayleys (or its agents) relating to the sale of Prodotti (or ownership interests in Prodotti) [105]
Request for documents in category 6 – documents relating to paragraph 15(m)(ii) of Mr Canegallo's statement of defence, including correspondence
between 0+81 Ltd and Europomella and Salumificio [113]
EFL's request for order relating to the extent of Mr Canegallo's searches for discoverable documents [120]
Summary of orders made on EFL's application for particular discovery [122]
APPLICATION BY MR CANEGALLO FOR PARTICULAR
DISCOVERY [123]
The categories of documents sought [123]
Evidence in support of the application [130]
Affidavit of Mr Canegallo [130]
EFL's notice of opposition and affidavit in opposition [133]
Discussion and conclusions [139]
Document categories 1–3 — staff departures [139]
Document categories 4(h), 5(g) and 6 — mislabelling [166]
Documents in the introductory paragraph in category 7 — reduction or
cessation of supplies from suppliers [180]
Document category 9 — sales of mozzarella products [183]
Document category 11 — EFL's financial performance [192]
Document category 13 — alleged approaches by Mr Canegallo to EFL
suppliers, customers or employees [205]
Document category 14 — alleged unlawful access to EFL's computer system [208] Summary of orders on Mr Canegallo's particular discovery application [211] APPLICATION BY EFL FOR NON-PARTY DISCOVERY BY BAYLEYS [212]
Legal principles [213]
Disposition [215]
[1] There are three applications before the Court. First, there are applications by each party for orders for particular discovery under r 8.19 of the High Court Rules 2016. The third is an unopposed application by the plaintiff (EFL) for an order for non-party discovery from Bayleys Real Estate Ltd (Bayleys).
Background
[2] The background to the claim was set out in some detail in my judgment given on 11 July 2018, in an application by the defendant (Mr Canegallo) for further particulars of the EFL's statement of claim.1 The summary of the background, and EFL's statement of claim and Mr Canegallo's statement of defence, which is set out below is substantially taken from that judgment.
[3] EFL is an importer and wholesaler of Italian food. Mr Canegallo is a former director and shareholder of EFL.
[4] On or about 12 June 2015, Mr Canegallo entered into a shareholders' agreement (the shareholders' agreement) with the founding shareholders of EFL, being himself, Sandro Del Moro, Stefano La Cava, Michele Fantino, and Francesca Fantino (together, "the founding shareholders"). The shareholders' agreement included restraint of trade provisions, which provided that the founding shareholders would not, during the restraint period, and in the restraint area:
…
(1)be directly or indirectly engaged, concerned or interested in or otherwise associate with any business in competition with [EFL's] business including (for the avoidance of doubt) any developments in [EFL's] business or extensions to the product range after the commencement date (with the exception of fresh pizza dough) (clause 14.1(a));
(2)directly or indirectly induce or solicit or endeavour to induce or solicit any customer or client of [EFL] to cease doing business with [EFL] or reduce the amount of business which the customer or client would normally do with [EFL] (clause 14.1(b));
1 European Foods Ltd v Canegallo [2018] NZHC 1714.
(3)employ or otherwise engage the services of any person who was an employee of, or contractor to, [EFL] in the 12 months prior to the date of termination (clause 14.1(c));
…
[5] The restraint area was anywhere within New Zealand, and the restraint period was during the term of the shareholders' agreement and for a period of 24 months after the founding shareholders ceased to hold shares in EFL.
[6] On 19 December 2015, the founding shareholders sold a total of 65,898 EFL shares to an Italian company, Granarolo International Srl (Granarolo). On or about 4 or 5 October 2016, the founding shareholders sold their remaining shares to Granarolo. At that point, the 24 month restraint period in the shareholders' agreement commenced.
[7] The second sale agreement, under which the founding shareholders sold their remaining shares to Granarolo, included provision for the restraint of trade clauses in the shareholders' agreement to continue, provided that the restraint would only relate to the business of importing and distributing Italian or other European foods, and would not relate to any other business, including the production of frozen pizza dough or pizza flour. Subject to those provisions, the shareholders' agreement was terminated.
[8] There is a minor dispute between the parties over the precise date on which the 24 month restraint period commenced. EFL says the period commenced on 7 October 2016; Mr Canegallo says the period commenced on 4 October 2016.
EFL's statement of claim
[9] EFL alleges that Mr Canegallo is in breach of the restraint provisions of the shareholders' agreement in that he:
(a)Is engaged, concerned or interested in or otherwise associated with a business involved in importing and distributing Italian or other European foods in New Zealand.
(b)Has directly or indirectly induced or solicited or endeavoured to induce or solicit customers or clients of EFL to cease doing business with EFL or reduce the amount of business which the customers or clients would normally do with EFL.
(c)Has, in connection with his interest in a competing business, employed or otherwise engaged the services of any person who was an employee of, or contractor to, EFL in the 12 months prior to the date of termination of the shareholders' agreement.
[10]EFL pleads the following particulars of the alleged breaches:
Particulars
15.3.1. Prodotti D'Italia Limited (Prodotti) is a duly incorporated company, having its registered office at Level 1, 109 Carlton Gore Road, Newmarket, Auckland and was incorporated on 13 October 2016.
…
15.3.3.Prodotti is involved in importing and distributing Italian or other European foods in New Zealand;
…
15.3.6.The defendant is engaged, concerned or interested in or otherwise associated with Prodotti:
15.3.6.1 Prodotti's directors are Guiseppe Carrozzino, Ferruccio Piantini and Tomaso Piantini.
15.3.6.2.Guiseppe Carrozzino and the defendant are the directors of Pizza in a Box Limited ["Pizza In A Box"].
15.3.6.3.Ferruccio Piantini and the defendant are the directors of Round Pizza Limited ["Roundpizza"].
15.3.6.4.Roundpizza and Prodotti share the same registered office of GVW Accountants, 109 Carlton Gore Road, New Market, Auckland.
15.3.6.5.Roundpizza and Prodotti have a common shareholding of Cidi International SA ["CIDI"], a company registered in Switzerland.
15.3.6.6.Ferruccio Piantini is a director of CIDI.
15.3.6.7.Ferruccio Piantini was a director of EFL from 23 August 2016 to 30 September 2016.
15.3.7 The defendant is through Prodotti engaged and associated with businesses in competition with EFL.
15.3.8.The defendant has through Prodotti directly or indirectly induced or solicited or endeavoured to induce or solicit the following suppliers of EFL to cease doing business with EFL or reduce the amount of business which would normally be done with EFL:
15.3.8.1.Europomella S.p.A ["Europomella"];
15.3.8.2.Latteria Sociale Mantova S.c.a ["LSM"];
15.3.8.3.Cirillo Group S.r.l ["Cirillo"];
15.3.8.4.Salumificio Vitali S.p.a ["Salumificio"];
15.3.8.5.Pastificio Lucio Garofalo S.p.a ["Pastificio"].
15.3.9.The defendant has through Prodotti directly or indirectly solicited and employed the following employees who were employees of EFL in the 12 months prior to the date of termination of the shareholders' agreement:
15.3.9.1.Leonardo Fontana;
15.3.9.2.Rossana Guardamagna; and
15.3.9.3.Edgar Soro Martin.
15.3.10.Further the defendant has through Prodotti, directly or indirectly, solicited for employment:
15.3.10.1 Brendon Ruthledge;
15.3.10.2.Wi Hei Paora; and
15.3.10.3.Daria Garizio.
[11] EFL seeks a declaration that the restraint provisions are valid and enforceable, and it sought an injunction restraining Mr Canegallo from being engaged, concerned or interested in, or otherwise associated with, a business involved in importing and distributing Italian or other European foods in New Zealand, until 18 October 2018 or such other period as the Court may determine. EFL also asks for an enquiry as to damages, and judgment for costs and interest.
Mr Canegallo's statement of defence
[12] Mr Canegallo admits that Prodotti is involved in importing and distributing Italian and other European foods into New Zealand. He also admits that Prodotti is in
competition with EFL. However, he denies that he has ever been a director, shareholder (legal or beneficial), employee, or contractor of Prodotti, or an investor in Prodotti, or otherwise directly or indirectly engaged, concerned or interested in, or otherwise associated with or retained in any capacity by, or on behalf of, Prodotti.
[13] Mr Canegallo admits EFL's allegations relating to the identity of the directors of Prodotti, Pizza In A Box and Roundpizza, and he admits that Roundpizza and Prodotti have a common shareholding (CIDI) and that both have their registered office at the offices of GVW Accountants in Newmarket, Auckland. He also admits that Mr Piantini is a director of CIDI, and was between 23 August 2016 and 30 September 2016 a director of EFL.
[14] Mr Canegallo pleads that the businesses of Roundpizza and Pizza In A Box both fall outside the restraint provisions of the shareholders' agreement, and he generally denies that the various matters pleaded by EFL would be sufficient, if proved, to show that he has been engaged, concerned, interested in or otherwise associated with a business in breach of the restraint provisions.
[15] Mr Canegallo specifically denies that he has, through Prodotti or otherwise, and whether directly or indirectly, induced or solicited suppliers of EFL to cease doing business with EFL, or attempted to do so. He also denies that he has, through Prodotti or otherwise, solicited or employed the employees referred to in EFL's statement of claim.
[16] Mr Canegallo pleads affirmatively that three of the suppliers referred to in subparagraphs 15.3.8 of EFL's statement of claim (LSM, Cirillo, and Salumificio) have continued to supply EFL, with 2017 turnover levels either approximately the same as or greater than 2016 levels. He pleads that Pastificio terminated its distributorship with EFL independently and without any consultation with him, because of a lack of contact and orders from EFL for over a year. Europomella is said to have terminated its distributorship with EFL due to a loss of trust and confidence in EFL for a number of reasons, including a significant decrease in orders of some products by EFL, and EFL registering in New Zealand two trademarks owned by Europomella, without Europomella's knowledge or consent. Mr Canegallo says that
a further factor was that EFL's owner, Granarolo, is one of Europomella's main competitors globally, and that Europomella was uncomfortable having a Granarolo subsidiary as its New Zealand distributor.
[17] Mr Canegallo accepts that Europomella decided to commence supplying Prodotti, but he says that occurred independently of him and without consultation with him.
[18] Mr Canegallo pleads affirmatively that he has had no contact with Cirillo or LSM since he left EFL and before he was served with EFL's claim, and that the only contact he has had with the other suppliers has been either personal and not business related (Pastificio), or concerned with selling the suppliers' products outside New Zealand (Europomella).
[19] In respect of the former EFL employees referred to at subparagraph 15.3.9 of EFL's statement of claim, Mr Canegallo says that each of them terminated their employment with EFL independently of and without consultation with him. Mr Fontana had resigned from EFL before Mr Piantini offered him employment with Prodotti, and Mr Martin responded to an advertisement placed by Prodotti in December 2016.
[20] In respect of the EFL employees referred to in subparagraph 15.3.10, Mr Canegallo says that he has run into Mr Paora only once since he left EFL. He says that the same is true of Mr Garizio. He has run into Mr Ruthledge on three occasions, but says he did not discuss EFL's business with him, or Mr Ruthledge leaving EFL to work for Prodotti.
Defendant's amended defence and counterclaim
[21] Subsequent to the delivery of my judgment on Mr Canegallo's particulars application, Mr Canegallo filed an amended defence and counterclaim. In this pleading, Mr Canegallo added certain particulars of his defence, and added three counterclaims under the Fair Trading Act 1986 (the FTA), each alleging mislabelling of food products by EFL.
[22] In his amended defence, Mr Canegallo adds a pleading that approximately 30 employees, representing approximately 60 per cent of EFL's workforce, have terminated their employment with EFL after Mr Canegallo left EFL, for reasons entirely unrelated to Mr Canegallo. Mr Canegallo alleges they left because of dissatisfaction with EFL's performance as an employer, in certain stated respects. Mr Canegallo says that, with the exception of Messrs Ruthledge, Martin, Fontana and Pollara, and Ms Guardamagna, none of the employees who have left EFL since Mr Canegallo's resignation have been employed by Prodotti.
[23] I will refer to Mr Canegallo's counterclaims and EFL's defence to them, as necessary, later in this judgment.
Mr Canegallo becomes a Prodotti consultant
[24] By letter dated 26 October 2018, Mr Canegallo's solicitors advised EFL that Mr Canegallo had entered into a consultancy agreement with Prodotti, with effect from 16 October 2018. They noted that the restraint period affecting Mr Canegallo had expired earlier that month.
EFL'S APPLICATION FOR PARTICULAR DISCOVERY
Further documents sought
[25] In its application, EFL asked for an order that Mr Canegallo file an affidavit stating whether he has any of the following documents or classes of documents in his control:
(1)Any communications with [Prodotti] and/or Prodotti representatives/staff (including but not limited to Brendon Ruthledge by [Mr Canegallo], including any correspondence from [Mr Canegallo] in his personal capacity and his companies [Pizza In A Box] and/or [Roundpizza]; and
(2)Documents concerning orders and deliveries (including but not limited to DHL consignments) involving [Mr Canegallo] and Prodotti during October 2016 to present;
(3)Any communications with Westpac New Zealand Limited/Westpac Bank, or relating to Westpac in connection with business proposals;
(4)Any communications with Bayleys and/or any agent or contractor of Bayleys or associated persons regarding the sale of Prodotti or ownership interests during October 2016 to the present;
(5)All documents and communications with PTG Food and/or Visco Foods associated with [Mr Canegallo's] pleaded counterclaim;
(6)All documents concerning paragraph 15(m)(ii) of [Mr Canegallo's] [amended] statement of defence and counterclaim, including any correspondence between 0+81 Limited and EFL competitors including Europomella and Salumificio.
[26] In her submissions, Ms McMullen abandoned the application for particular discovery in respect of the category 5 documents referred to above.
[27] In addition, EFL asks for an order that Mr Canegallo confirm by affidavit whether the searches referred to in his affidavit of documents included a search of applications, including WhatsApp and social media accounts, for discoverable records. If such searches were not carried out, EFL asks for an order directing Mr Canegallo to carry out the searches and provide the results in a further affidavit.
Evidence in support
[28] EFL's application is supported by an affidavit sworn by a New Zealand-based director of EFL, Mr Barry O'Neill. Mr O'Neill had reviewed the 14 open documents provided by Mr Canegallo in his affidavit of documents, together with a further 11 documents supplied by Mr Canegallo on 6 June 2018.
[29] Mr O'Neill noted that the directors of Prodotti are Mr Carrozzino, Mr Tomaso Piantini, and Ferruccio Piantini, and that these directors have common directorships with Mr Canegallo as co-directors of Pizza In A Box and Roundpizza.
[30] Mr O'Neill said that after Mr Canegallo's departure from EFL, a number of emails were received into EFL's email system at the address [email protected]. In Mr O'Neill's view, some of these emails suggested links between Mr Canegallo and Prodotti.
[31] Mr O'Neill said that EFL tried to secure copies of the emails in Mr Canegallo's inbox, and in so doing became aware of an unauthorised intrusion into its secure
computer system on or about 22 February 2017 in the course of which the content of the inbox was deleted.
[32] The identity of the person or persons responsible for the intrusion into EFL's computer system has not been confirmed. EFL has retained a computer forensic firm, Computer Forensic Solutions (CFS), to investigate. Mr O'Neill produced with his affidavit two reports EFL has received relating to the unauthorised access to EFL's computer system. The CFS report dated 25 April 2017 referred to an email message dated 21 April 2017 from DHL, addressed to Emiliano Parini of EFL and copied to Mr Canegallo at his old EFL email address. The email message contained pre-shipment advice for consignments of cheese and general foodstuffs from two Italian companies, LSM and Salumificio. In each case the named consignee was Prodotti.
[33] Mr O'Neill also produced with his affidavit copies of a number of other messages sent to Mr Canegallo's old mailbox at EFL, apparently inadvertently. There were two emails from Mr Carrozzino, dated 11 January and 14 January 2017. The first of these emails, translated from the Italian by Mr O'Neill's Italian co-directors, enquired about a new business plan which had not been received. The second email from Mr Carrozzino, which was not supplied with any English translation, was said by Mr O'Neill to include an explanation that there had been an email error in sending the 11 January email to Mr Canegallo's EFL email inbox.
[34] On 25 March 2017, Mr Gerardo Cinque of Europomella, a former supplier to EFL, sent a message to Mr Canegallo forwarding him a letter that EFL's lawyers received on the same date, and an email sent to a New Zealand lawyer who had previously assisted Mr Canegallo in the October 2016 negotiations with EFL. This email and letter are said to show that Mr Canegallo had an on-going relationship with EFL's suppliers, in breach of the restraint of trade agreement.
[35] Referring to the consignment note relating to the consignment of cheese and other foodstuffs from LSM and Salumificio, Mr O'Neill said that it was concerning to EFL that Mr Canegallo appears to have been a contact for deliveries to Prodotti. EFL seeks full disclosure of records to understand this transaction and any others like it.
[36] On 15 February 2017, Mr Giuseppe D'Amore of Profumi e Sapori del Sud (Profumi), an Italian exporting company, sent a message to Mr Canegallo referring to a "phone call earlier to the office". Mr D'Amore introduced Profumi. Mr O'Neill said that EFL was concerned by this phone call, as it is not clear what products Mr D'Amore's company was hoping to supply to Mr Canegallo which may breach the restraint of trade.
[37] Mr O'Neill invited the Court to infer from the emails received into Mr Canegallo's EFL's email inbox concerning business planning, and from the various common ownership interests, that Mr Canegallo has been involved with Prodotti in contravention of the restraint of trade agreement.
[38] Mr O'Neill said that EFL believes that Mr Canegallo has communicated with a former EFL employee, Mr Edgar Martin, to encourage EFL employees to leave and work for Prodotti. He said he understood that there "may be further communications with these parties which have not been discovered" (specifically, communications between Mr Canegallo and Prodotti (or its representatives or staff), including correspondence from Mr Canegallo in his personal capacity and Pizza In A Box and/or Roundpizza). Mr O'Neill also considered that there should be documents concerning orders and deliveries (including, but not limited to, DHL consignment notes) involving Mr Canegallo and Prodotti, from October 2016 down to the present time. In Mr O'Neill's view, there should also be communications with Westpac Bank, or relating to Westpac, in connection with business proposals, and communications with Bayleys Real Estate (and/or its agents or contractors) relating to the sale of Prodotti, or ownership interests in Prodotti.
[39] Finally, Mr O'Neill referred to statements in Mr Canegallo's statement of defence, in which Mr Canegallo acknowledged that he had had contact with Europomella and Salumificio through 0+81 Ltd, a company of which Mr Canegallo is the sole director and shareholder, and which is trying to sell its products to customers in markets outside the restraint area (including Japan and the Philippines). Mr O'Neill referred to the absence of any correspondence between 0+81 Ltd and EFL's competitors, including Europomella and Salumificio.
[40] The second affidavit relied upon by EFL in support of its application was an affidavit of Michael Campbell, a licensed private investigator. Mr Campbell's affidavit was primarily concerned with Mr Canegallo's alleged involvement as a prospective purchaser, when Prodotti's business was being sold through Bayleys in 2016. Bayleys' website showed its selling agent as Mr Tony van Camp, and Mr Campbell said that he telephoned Mr van Camp to enquire about the listing and the sale. He asked Mr van Camp if he had met Mr Canegallo, and Mr van Camp confirmed that he had dealt with Mr Canegallo in the course of marketing the business for sale.
[41] Mr Campbell said that Bayleys prepared an information sheet for the sale, to assist prospective purchasers to carry out due diligence on the business. The information sheet was only given to a prospective purchaser after he or she signed a confidentiality agreement.
[42] Mr van Camp told Mr Campbell that he recalled approaching Mr Canegallo to see if he was interested in purchasing Prodotti. Mr Canegallo did undertake due diligence enquiries on the business, but he was not the ultimate purchaser. Mr van Camp said that he was not at liberty to disclose the precise identity of the new owners.
Mr Canegallo's opposition
[43] Mr Canegallo opposes the application. He says that, to the extent they have not already been listed, the documents sought by EFL are either not relevant or are not in his possession or control.
[44] Mr Canegallo says that all of his communications with Prodotti relating to business activities in New Zealand were in connection with Pizza In A Box, Roundpizza, and/or another of his companies, Zero Impact Ltd (Zero). None of those businesses are involved in importing and distributing Italian or other European foods within the defined restraint area. Roundpizza produces frozen pizza dough or pizza flour; Pizza In A Box was set up to run a pizza restaurant franchise system; and Zero carries on business importing and distributing cleaning products.
Evidence in opposition
[45] In his affidavit, Mr Canegallo said that he was a founding shareholder and director of EFL, and the managing director of EFL from February 2015 until October 2016. He described the acquisition of EFL's shares by Granarolo, and Granarolo's eventual acquisition of all the EFL shares. He said that the final stages in the process by which Granarolo acquired ownership of EFL were preceded by strains between the founding shareholders and Granarolo over matters such as strategy, products and pricing. There were also difficulties over conflicts or potential conflicts between Granarolo's position as a shareholder of EFL, and its position as a supplier to EFL.
[46] Mr Canegallo referred to a meeting at Granarolo's offices in Bologna in September 2016 which became quite heated. He said that he invited Granarolo to make an offer to buy out the other shareholders, and that offer led to the final share sale agreement in October 2016. Up until the meeting in Bologna, Mr Canegallo said that he had no intention of leaving EFL in the foreseeable future.
[47] After he left EFL, Mr Canegallo took approximately six months off from his businesses and focused on his family life. He remained a director of his various businesses, but essentially withdrew from their day-to-day management (even though they were excluded from the restraint of trade agreement). He said that he returned to work in about May 2017.
[48] Mr Canegallo said that he has no interest or involvement in Prodotti in any capacity. He described the six separate businesses in which he has an interest, including Roundpizza, Pizza In A Box, 0+81 Ltd, and Zero. Of the six businesses, only Roundpizza, 0+81 Ltd, and Zero are currently trading.
[49] Pizza In A Box has never traded. A business model was developed under which pizza shops would be set up in containers, but the company was never able to get council consent. Eventually, Pizza In A Box gave up on the idea.
[50] Mr Canegallo confirmed that 0+81 Ltd distributes European foods exclusively outside the restraint area, particularly in Asia, and that Zero imports and distributes cleaning products.
[51] Roundpizza, Zero, and 0+81 Ltd do have some commercial dealings with Prodotti, but all of them fall outside the restraint of trade provision. Roundpizza's business involves selling its flour and dough products through agents, and one of those agents is Prodotti.
[52] In the past, Roundpizza has from time to time also used Prodotti to import some ingredients that go into Roundpizza products (it was cheaper for Roundpizza to transport small quantities of ingredients using one of Prodotti's containers than it would have been to import those products via an alternative route). None of the ingredients transported were in competition with EFL.
[53] 0+81 Ltd has imported pizza ovens in one of Prodotti's containers, and Zero may also have imported some products in one of Prodotti's containers. None of those products would have fallen within the range of products covered by the restraint of trade.
[54] Mr Canegallo acknowledged the various common shareholdings and directorships between some of his companies and Prodotti, but said that that information was publicly available at the Companies Office, and was known to EFL and Granarolo not later than 12 June 2015 when the shareholders' agreement was entered into.
[55] Mr Canegallo confirmed that he has no legal or beneficial interest in CIDI, which is the investment vehicle of Mr Ferruccio Piantini, a professional investor. Mr Piantini has been a board member of Granarolo for five years, and he was also involved with Mr Canegallo in setting up Roundpizza in 2014. Granarolo and EFL were aware throughout of Mr Canegallo's other business associations with Ferruccio Piantini.
[56] Mr Canegallo specifically denied that he had approached any of EFL's suppliers or employees, in breach of the restraint of trade, saying he has no discoverable documents relevant to those allegations. That said, Mr Canegallo acknowledged that he has longstanding business and personal relationships with the directors of Prodotti, Mr Carrozzino, Ferruccio Piantini and Tomaso Piantini. He has
regular contact by email and telephone with each of these gentlemen in relation to their shared business and personal interests, which do not include Prodotti. He also has relationships with some employees of Prodotti, many of whom are part of the relatively small Italian community in Auckland. He sees them at food shows and similar events.
[57] Mr Canegallo also denied communicating with Mr Edgar Martin, the former EFL employee, to encourage EFL employees to work for Prodotti. Mr Canegallo observed that EFL's concern appears to have been based on an email chain between Mr Canegallo and Mr Martin, in which Mr Martin confirmed to Mr Canegallo that his decision to leave EFL and join Prodotti had nothing to do with Mr Canegallo. (Mr Canegallo had sought that confirmation because Mr Martin was one of the employees Mr Canegallo was alleged to have solicited.)
[58] With regard to the second category of documents sought by EFL (documents concerning orders and deliveries involving Mr Canegallo and Prodotti), Mr Canegallo said that, before reading Mr O'Neill's affidavit, he had never seen the DHL consignment note referred to in that affidavit. He repeated that he had had no involvement in Prodotti and was not the contact person for Prodotti in relation to any aspect of its business, saying that the email was sent to him in error. He suggested that the email may have been copied to him because a principal recipient, Ms Rossana Guardamagna, had previously worked as Mr Canegallo's assistant at EFL. After Mr Canegallo left EFL, Ms Guardamagna resigned and briefly went to work for Prodotti. The order in question appears to have been placed during the period Ms Guardamagna was employed by Prodotti.
[59] Also, the email in question was addressed to Emiliano Parini, the current managing director of EFL.
[60] Mr Canegallo did contact Georgia Vitali of Salumificio about the consignment note referred to in Mr O'Neill's affidavit. Mr Vitali confirmed that he had never received any instruction from Mr Canegallo regarding the New Zealand market since Mr Canegallo left EFL. Similarly, Mr Canegallo has obtained confirmation that LSM
has not spoken with Mr Canegallo about Prodotti: any orders supplied to Prodotti by LSM came from someone else and did not refer to Mr Canegallo.
[61] The third category of documents sought relates to communications between Mr Canegallo and Westpac in connection with business proposals. Mr Canegallo noted that the request appears to be based on the email dated 11 January 2017 from Mr Carrozzino, in which Mr Carrozzino was enquiring about a business plan for Westpac. Mr Carrozzino is a director of Pizza In A Box, and the reference to the business plan was a reference to a plan for Pizza In A Box (or a related project Mr Carrozzino and Mr Canegallo had been working on for a number of years). Mr Canegallo confirmed that he has no documents related to Prodotti's business planning or banking.
[62] The fourth category of documents requested related to communications with Bayleys, or their contractors or agents, relating to the proposed sale of Prodotti. Mr Canegallo acknowledged signing a non-disclosure agreement required by Bayleys. It is dated 26 August 2016, which was before Mr Canegallo's meeting in Italy with Granarolo that precipitated his decision to leave EFL. Mr Canegallo says that he signed the document in his capacity as a director of EFL, giving an EFL address.
[63] In response to Mr Campbell's evidence about his discussion with Mr van Camp of Bayleys, Mr Canegallo noted that Mr Campbell does not appear to have asked Mr van Camp in what capacity Mr Canegallo dealt with him, and whether Mr Canegallo had anything to do with the successful purchase of Prodotti.
[64] Mr Canegallo said that his interest in the sale of Prodotti's business was in his capacity as an EFL director. He said that he quickly concluded from his examination of the due diligence materials provided by Bayleys that Prodotti was not an opportunity worth pursuing for EFL. For that reason he never prepared any written report to EFL or Granarolo on the potential acquisition. He probably did discuss Prodotti informally with one or more of the New Zealand-based directors of EFL at the time, but only to note that it was not worth pursuing further.
[65] Mr Canegallo said that he did not meet with Mr van Camp. Also, Mr Campbell omitted from his affidavit any reference to an approach Mr Campbell made to Ms Liesje Kurghan, the daughter of the then-owner of Prodotti – Ms Kurghan has confirmed to Mr Canegallo, and would have advised Mr Campbell, that Mr Canegallo was not involved with the eventual purchase of Prodotti.
[66] The next category of documents relates to communications between 0+81 Ltd and EFL's competitors, including Europomella and Salumificio. Mr Canegallo said that any documents in this category could not be relevant as 0+81 does not trade within the restraint area. In addition, EFL's parent Granarolo is a competitor of 0+81 Ltd in the markets in which 0+81 Ltd does trade, namely Japan, Korea and the Philippines.
[67] Mr Canegallo confirmed that he is neither engaged, concerned, or otherwise associated with Europomella, Salumificio (both companies are suppliers to EFL), or any other competitor of EFL, within the restraint area.
[68] Mr Canegallo acknowledged that he has in his control a number of documents relating to communications between 0+81 Ltd and its suppliers, some of whom may be current or former suppliers to EFL in New Zealand. But such communications could not affect the issues over the alleged breach of the restraint clause.
[69] Mr Canegallo dealt separately with the emails sent to his inbox at EFL after he had left the company. The email from Mr Carrozzino dated 11 January 2017 would have related to the Pizza In A Box business, in which Mr Carrozzino and Mr Canegallo are directors. Mr Canegallo produced a reply he sent to Mr Carrozzino's email of 11 January 2017, on 13 January 2017. The reply (written in Italian, with a translation provided by Mr Canegallo) appears to relate generally to the Roundpizza business, but does refer to a project that would have involved Pizza In A Box.
[70] Turning to the email from Gerardo Cinque dated 25 March 2017, Mr Canegallo explained that Mr Cinque is a longstanding friend. EFL had issued legal proceedings against Europomella in Italy, and Mr Cinque contacted Mr Canegallo when he learned of that legal proceeding. In response to Mr O'Neill's belief that this correspondence shows that Mr Canegallo has an ongoing relationship with EFL's suppliers, allegedly
in breach of the restraint clause, Mr Canegallo pointed out that Europomella is not a customer of EFL: it sells its products to EFL in New Zealand, and EFL then on-sells the products to New Zealand customers such as restaurants. But even if the restraint did apply to suppliers (which Mr Canegallo did not accept), Mr Canegallo considered that he would not be precluded from having any contact whatsoever. Some of the employees of EFL's suppliers have become good friends over the years, and Mr Canegallo has remained in touch with them either socially or in connection with his businesses, outside the restraint.
[71] Mr Canegallo next referred to the email from Giusepe D'Amore of Profumi. He said that he has nothing to do with Profumi, and it was not clear to him why the email has been referred to by EFL. Profumi is not identified as a supplier to EFL in EFL's statement of claim, and the statement of claim does not include any allegations against Mr Canegallo relating to Profumi.
[72] The next communication concerned an order relating to Salumificio. Mr Canegallo said that he had not had any dealings with Salumificio since leaving EFL. He produced an email from Mr Vitali of Salumificio confirming that statement.
[73] Mr Canegallo emphatically denied the apparent suggestion by EFL that he (or someone on his behalf) hacked into EFL's computer system. He specifically denied accessing EFL's server after he left EFL.
Applications for particular discovery – legal principles
[74]Rule 8.19 of the High Court Rules provides:
8.19 Order for particular discovery against party after proceeding commenced
If at any stage of the proceeding it appears to a Judge, from evidence or from the nature or circumstances of the case or from any document filed in the proceeding, that there are grounds for believing that a party has not discovered
1 or more documents or a group of documents that should have been discovered, the Judge may order that party—
(a)to file an affidavit stating—
(i)whether the documents are or have been in the party's control; and
(ii)if they have been but are no longer in the party's control, the party's best knowledge and belief as to when the documents ceased to be in the party's control and who now has control of them; and
(b)to serve the affidavit on the other party or parties; and
(c)if the documents are in the person's control, to make those documents available for inspection, in accordance with rule 8.27, to the other party or parties.
[75] The principles applied by the Courts under r 8.19 were summarised by Asher J in Assa Abloy New Zealand Ltd v Allegion (New Zealand) Ltd.2 In that case, the Judge followed a four-stage approach, as follows:3
(i)Are the documents sought relevant, and if so how important will they be?
(ii)Are there grounds for belief that the documents sought exist? This will often be a matter of inference. How strong is that evidence?
(iii)Is the discovery sought proportionate?
(iv)Weighing and balancing those matters, in the Court's discretion applying r 8.19, is an order appropriate?
Discussion and conclusions
Request for documents in category 1 – communications between Mr Canegallo and Prodotti
[76] Ms McMullen noted that Mr Canegallo does not deny that he has had a business association with Prodotti, and that he has documents in his possession relating to his business with Prodotti. Mr Canegallo contends that his business relationship with Prodotti is irrelevant, because it falls outside the terms of the restraint of trade, but Ms McMullen submitted the effect of that stance was to invite the Court and EFL to take Mr Canegallo's word for the fact that all of his communications with
2 Assa Abloy New Zealand Ltd v Allegion (New Zealand) Ltd [2015] NZHC 2760.
3 At [14].
EFL's competitor (Prodotti) in no way breached the restraint of trade, and on that basis are irrelevant. She referred to Kawerau Village Holdings Ltd v Yuen in support of the proposition that the Court will assume the case of the party seeking discovery is true, and not that of the party from whom discovery is sought.4 Ms McMullen also submitted that the hearing of this application is not the time to try the case to decide the ultimate relevance alleged by the party seeking discovery.5 There is no requirement on an applicant to absolutely prove each and every element of its claim simply to obtain discovery orders.
[77] Ms McMullen then referred to advice received from Mr Canegallo's solicitors on 26 October 2018 that Mr Canegallo has now entered into a consultancy agreement with Prodotti, effective from 16 October 2018.
[78] Generally, Ms McMullen submitted that it is only when the documents have been discovered and inspected that Mr Canegallo's claims as to their relevance can be tested. She submitted that there are clear grounds for EFL to believe that the documents exist, having regard to Mr Canegallo's admitted contacts with Prodotti during the restraint period, and that some of his businesses have had commercial dealings with Prodotti. She referred in particular to the DHL pre-advice email sent to Mr Emiliano Parini and copied to Mr Canegallo on or about 21 April 2017: the consignee was Prodotti, and the consignment (for cheese and other foodstuffs) was clearly caught by the restraint. On the face of it, the email appears to suggest that Mr Canegallo has been associated with Prodotti in breach of the restraint clause.
[79] Ms McMullen did acknowledge at the hearing that there was nothing in the restraint that would have precluded Mr Canegallo from dealing with the directors of Prodotti for the purposes of the Roundpizza business (or the Pizza In A Box business), as long as the dealings did not relate to European food items beyond those necessary for the making of the pizza dough and pizza flour. That led to some discussion over the wide nature of the request for the category 1 documents, and I stood the case down for a short period to enable counsel to confer on possible refinements to the request.
4 Kawerau Village Holdings Ltd v Yuen [2015] NZHC 1379 at [38].
5 Rapid Metal Developments NZ Ltd v Access One Scaffolding Ltd [2017] NZHC 204 at [5] and [14].
When the case was recalled, Ms McMullen advised that the request under this heading could be amended to read:
Communications/documents between Prodotti/directors and [Mr Canegallo] in respect of any European food types not associated with pizza dough or pizza flour, including but not limited to cheese and cured meats and Europomella products during the restraint of trade period.
Communications/documents between Prodotti/directors and [Mr Canegallo] in respect of any strategic matters, business proposals, dealings, consulting not associated with Pizza In A Box and Roundpizza during the restraint of trade period.
[80] Mr Cogan submitted that the request in this category, even in its refined form, is a fishing expedition by EFL. It is the pleadings that determine relevance, and it is then for the parties to depose whether they have, or have had, documents which are relevant to the pleadings.
[81] He submitted that the documents sought could only be relevant to the extent they engage the restraint of trade. The revised form of request would still capture activities which were not in competition with EFL's business. The request has been contracted, but not enough. The second paragraph of the revised request in particular would capture any activities. The touchstone for relevance has to be competition with EFL.
[82] In response to Ms McMullen's submission based on the Kawerau Village Holdings case, Mr Cogan submitted that the case does not really advance matters beyond the proposition that it is the pleadings that define questions of relevance, and accordingly define the scope of discovery. He submitted that Mr Canegallo has sufficiently explained in his affidavit why there exist no further relevant documents in this category.
[83] In my view EFL's request in this category is, in effect, a fishing expedition. It was for EFL to demonstrate that there is reason to believe that Mr Canegallo has (or has had) relevant documents that have not been disclosed, and it has not done that.
[84] First, Ms McMullen acknowledged that there was nothing in the restraint that would have precluded Mr Canegallo from dealing with the directors of Prodotti for
the purposes of the Roundpizza business. That would have included seeking Prodotti's assistance to import ingredients for the pizza dough or pizza flour, and it would have included the distribution of Roundpizza's products using Prodotti as one of its agents.
[85] I do not consider any of the documents produced by Mr O'Neill in support of the application assist the request for documents in this category. Westpac's request for a business plan appears to have been directed to the affairs of Roundpizza or Pizza In A Box, and on its face does not provide evidence of any activity caught by the restraint provision. Nor does the communication from Profumi rise to the level of providing reasonable grounds to believe that further relevant documents might exist. The Profumi letter did no more than introduce Profumi to Mr Canegallo, and in the face of his denials there is nothing to suggest that he, whether alone or in conjunction with Prodotti or any other party, breached the restraint by importing Italian or other European foods into New Zealand in competition with EFL. And the communication from Mr Cinque of Europomella does nothing to suggest that any business relationship existed between that company and Mr Canegallo which might have breached the restraint.
[86] The closest EFL came to providing sufficient proof on this part of its application was the DHL email of 21 April 2017. It was clearly concerned with the importation by Prodotti of European foodstuffs that were covered by the restraint, it was during the restraint period, and the email was copied to Mr Canegallo. However, Mr Canegallo denies ever seeing the email, and denies ever placing any orders for the cheese and other foodstuffs referred to in it. He speculates that the order may have been placed by a secretary who formerly worked with him at EFL but subsequently went to Prodotti.
[87] The main difficulty for EFL with this document is that the primary addressee was Mr Parini, who is the managing director of EFL. If Mr Canegallo had been involved in assisting Prodotti to import European foods in breach of his restraint obligations, it seems improbable that the DHL email would have been addressed to Mr Parini. The more probable explanation is that put forward by Mr Canegallo, namely that the email was sent to EFL in error on the assumption that the former EFL secretary (now at Prodotti) was still at EFL.
[88] I accept Mr Cogan's submission that communications between Mr Canegallo and Prodotti or its directors could only be relevant if and to the extent they were concerned with activities that would or might breach Mr Canegallo's restraint obligations. Anything else could neither assist nor damage either side's case. It is for the party providing discovery, assisted by his or her solicitor, to properly apply the legal test for relevance, and disclose all documents considered to be relevant on the basis of the pleadings. The party's decision on what documents are relevant and must be disclosed is final, unless the other party can point to reasonable grounds for believing that further relevant documents exist. It is not enough for a party applying for particular discovery to complain that the party making discovery has determined which documents are relevant and which are not — that is what always happens with discovery. I do not consider that the Kawerau Village Holdings case affects that position.
[89]Considering the first paragraph of Ms McMullen's revised form of request at
[86] above, the first point is that the request would pick up any communications there may have been with regard to business activities carried on by Mr Canegallo or his companies exclusively in markets outside New Zealand. Such documents could not advance EFL's case or damage Mr Canegallo's case, and would therefore not be relevant. But more fundamentally, there is insufficient evidence of grounds to believe that documents of the kind described in the first paragraph of the revised request exist. The passage from Kawerau Village Holdings to which Ms McMullen referred was not directed to that question — all it essentially said was that if one party contends for a particular fact scenario, any documents tending to support that scenario, as well as those adverse to it, will be relevant, regardless of the merits of the contention. Subject to the point about communications for the purpose of supplies by Mr Canegallo or his company exclusively outside New Zealand, which is concerned with the issue of relevance, the issue on this request is over the existence of grounds to believe that Mr Canegallo has not discovered some relevant document.
[90] The request for the documents described in the second paragraph of Ms McMullen's revised form of request is again insufficiently supported by evidence showing that there are grounds for believing that Mr Canegallo has not discovered documents falling within the paragraph that have not been discovered. Mr Canegallo
has provided an affidavit stating that he had never seen the DHL email of 21 April 2017, and the business plan referred to in the Westpac email correspondence appears to relate to Roundpizza and/or Pizza In a Box. The restraint applied only in respect of importing and distributing Italian and other European foods, and I do not think it reasonably arguable that documents recording any communications there may have been between Mr Canegallo and Prodotti's directors in respect of any strategic matters, business proposals, dealings or consulting that were not connected with the importation and distribution of European foods in New Zealand would be documents that "should have been discovered" (noting that the terms of the final sale agreement provided that the restraint would only relate to the business of importing and distributing Italian or other European foods: it would not relate to other businesses).
[91] I accept Mr Cogan's submissions on the consultancy agreement entered into between Prodotti and Mr Canegallo on 16 October 2018. That agreement, entered into after the expiry of the restraint period, does not (whether considered alone or together with the other evidence) provide grounds for believing that there exist relevant documents relating to Mr Canegallo's activities during the restraint period that have not been discovered.
[92] Having regard to all of the considerations discussed, I am not satisfied that EFL has met the threshold test for particular discovery under this head. The request for discovery of the category 1 documents is accordingly refused.
Request for documents in category 2 – documents concerning orders and deliveries involving Mr Canegallo and Prodotti
[93] Ms McMullen relied primarily on the April 2017 email from DHL, copied to Mr Canegallo at his old EFL email address. She submitted that the document (and any others like it) provides evidence of Mr Canegallo "being otherwise associated with any business in competition with EFL". She noted that Mr Canegallo has acknowledged that he has used Prodotti to import ingredients for his businesses (on the basis that doing so would not breach his obligations under the restraint clause).
[94] Ms McMullen again referred to Kawerau Village Holdings Ltd, submitting that Mr Canegallo is "purporting to impose [his] own determination of relevance before the evidence can be inspected and tested".
[95] Ms McMullen submitted in her written submissions that Mr Canegallo did not state in his notice of opposition that he has never had documents in this category in his possession.
[96] In response, Mr Cogan referred to Mr Canegallo's affidavit, in which he provided his "best guess" as to how the April 2017 DHL email may have been copied to him. He said Mr Canegallo was long gone from EFL when that email was sent, and he had no dealings with Prodotti — the email appears to have resulted from a mistake by DHL.
[97] I am not satisfied that EFL has provided sufficient evidence to justify an order for particular discovery of documents in this category, substantially for the same reasons EFL was unable to persuade me that particular discovery should be ordered for the category 1 documents. Mr Canegallo has stated on oath that he was not involved with the consignment which was the subject of the April 2017 DHL email, and he has suggested an explanation for that email that seems plausible. In all the circumstances, there is insufficient evidence that Mr Canegallo has not discovered documents in this category that should have been discovered. The application for particular discovery of the category 2 documents is accordingly refused.
Request for documents in category 3 – communications with Westpac in connection with business proposals
[98] At the hearing, Ms McMullen amended this discovery request to read "Communications with Westpac bank in connection with business proposals between [Mr Canegallo] and the Prodotti directors" (emphasis added).
[99] Ms McMullen referred to EFL's belief that "business plans were in motion between Mr Canegallo and Prodotti's director [Mr] Carrozzino during the restraint of trade period". She relied primarily on the email dated 11 January 2017 from Mr Carrozzino to Mr Canegallo, in which Mr Carrozzino advised that "Mike" from
Westpac had called "to receive news on business plans … do you know where we are so I report?"
[100] Mr O'Neill produced further emails which appear to follow on from the email referring to "Mike from Westpac", being emails from Sandro Del Moro of EFL to Mr Carrozzino (13 January 2017), from Mr Carrozzino to Mr Parini of EFL (14 January 2017), and from Mr Parini to Mr Carrozzino (15 January 2017). Unfortunately these emails are written in Italian, and I have not been provided with translations. Doing the best I can with them, however, it appears that on 13 January 2017 Sandro Del Moro advised Mr Carrozzino that EFL had received the "Mike from Westpac" email the day before. He invited Mr Carrozzino to contact EFL's managing director, Mr Parini, to discuss (or possibly explain) the email.
[101] Mr Carrozzino emailed Mr Parini on 14 January. I cannot make much of this email without an English translation, but I do note that Mr Carrozzino referred, apparently with reference to EFL's receipt of the "Mike from Westpac" email, to "un errore tecnico", and that he referred (in a postscript) to the Pizza In A Box "progetto", and to "Marco" (which I take to be a reference to Mr Canegallo).
[102] Mr Canegallo produced a copy of an email to Mr Carrozzino that appears to be a response to Mr Carrozzino's "Mike from Westpac" email. The email included the statement: "Anyway, I had a call from Mike about Roundpizza and he asked me the same thing". The email went on to refer to a business proposal between Mr Canegallo and Mr Carrozzino relating to the sale of pizzas from containers — ie the proposed Pizza In A Box business.
[103] Mr Cogan submitted that there is nothing to suggest that the "Mike from Westpac" email had anything to do with Prodotti, and no basis for believing that relevant documents exist in this category that have not been discovered.
[104] I accept Mr Cogan's submissions on this category. The "business plan" referred to in the "Mike from Westpac" email appears to have been a business plan sought in respect of either Roundpizza or Pizza In A Box, and it appears not to have involved Prodotti. In my view, the email correspondence relied on by EFL does not provide
sufficient grounds for believing that Mr Canegallo has failed to discover documents in this category that should have been discovered. The application for particular discovery of the category 3 documents will be refused accordingly.
Request for documents in category 4 – communications with Bayleys (or its agents) relating to the sale of Prodotti (or ownership interests in Prodotti)
[105] The basis for the discovery sought is that EFL discovered that Mr Canegallo was registered with Bayleys listing agent as an "interested party" when Prodotti was on the market for sale in 2016. Prodotti was ultimately purchased by a company in which Mr Carrozzino and Mr Ferrucio Piantini were interested.
[106] Mr Canegallo's explanation is that he was considering the potential acquisition of Prodotti by EFL. He says that, at the time, he had no intention of leaving EFL, and remained committed to its strategy, which included looking for businesses to acquire. Bayleys provided Mr Canegallo with a preliminary information memorandum on Prodotti, but Mr Canegallo says that, on reviewing the document, he concluded that Prodotti had no value for EFL. He says that he then withdrew from discussions relating to a possible purchase of Prodotti.
[107] Mr Canegallo produced a copy of an email from Mr van Camp confirming that he had never met Mr Canegallo in person.
[108] Mr Cogan submitted that EFL has not pleaded anywhere in its statement of claim that Mr Canegallo was personally involved in the acquisition of Prodotti. The first reference to his alleged involvement in doing due diligence on Prodotti came with EFL's application for particular discovery. All that has happened is that Mr Canegallo has located the documents relating to the Prodotti due diligence, and made them available.
[109] In my view there is no basis for further discovery of documents under this heading. Mr Canegallo's evidence is clear that he did not acquire Prodotti's business or any part of it, and that evidence has not been contradicted by any evidence from EFL. In particular, there was no reply evidence from EFL denying Mr Canegallo's evidence that he was acting on behalf of EFL when he dealt with Bayleys.
[110] Mr Campbell's affidavit confirms that Mr Canegallo was not the ultimate purchaser of Prodotti, and I understand that is not in dispute. Further, when Mr Canegallo conducted the due diligence on Prodotti, he signed the Bayleys confidentiality deed on behalf of EFL as a director of EFL, adding his EFL email address to the document. So as far as the evidence shows, then, Mr Canegallo made an approach with a view to the possibility of EFL acquiring Prodotti, but the matter went no further.
[111] Quite apart from the absence of any express pleading relating to Mr Canegallo's alleged attempt to acquire Prodotti, EFL has not clearly stated how, if Mr Canegallo was acting in his personal capacity when the approach occurred, his approach could be said to reach the level of Mr Canegallo being "engaged, concerned, or interested in, or otherwise associated with", a business in competition with EFL.
[112] In all those circumstances, there is insufficient evidence to demonstrate reasonable grounds for believing that further documents exist in this category that would either assist one of the party's cases, or be adverse to that party's case. The request for particular discovery of documents in this category is accordingly refused.
Request for documents in category 6 – documents relating to paragraph 15(m)(ii) of Mr Canegallo's statement of defence, including correspondence between 0+81 Ltd and Europomella and Salumificio
[113] Paragraph 15 of the statement of claim alleged numerous respects in which Mr Canegallo is said to have breached the shareholders' agreement. Paragraph 15 of Mr Canegallo's statement of defence and counterclaim contains at subparagraph (m)(ii) particulars of a broad denial by Mr Canegallo that he has, through Prodotti or otherwise, directly or indirectly endeavoured to induce or solicit certain of EFL's suppliers to cease doing business with EFL (or to reduce the amount of business they would normally do with EFL). The suppliers in question include Europomella and Salumificio. At paragraph 15(m)(ii), Mr Canegallo pleads that he has had contact with Europomella and Salumificio through 0+81 Ltd, which has been trying to sell its products to customers in markets outside the restraint area as defined in the shareholders' agreement, including Japan and the Philippines.
[114] Ms McMullen again submitted that the Court should not simply accept Mr Canegallo's explanation that such business as he may have been conducting or endeavouring to conduct with Europomella and Salumificio was permissible under the restraint of trade. She submitted that that cannot be properly tested until discovery has been provided. She again relied on Kawerau Village Holdings Ltd in support of her submission, contending that documents showing that Mr Canegallo has been in business with Europomella and Salumificio will be relevant to the question of whether the restraint of trade has been breached. Further, Mr Canegallo has confirmed that such documents do exist.
[115] Mr Cogan submitted that this request provides another example of how the discovery sought by EFL is "creeping" outside the pleadings. He submitted that documents relating to Mr Canegallo's or 0+81 Ltd's activities outside of New Zealand (and therefore outside the restraint zone) cannot be relevant. He submitted that there is no proper factual basis showing that relevant documents exist in this category.
[116] More generally, Mr Cogan submitted that EFL is on a fishing expedition with this and other discovery requests it has made. EFL's case as it appears from the pleadings is limited to alleging:
(i)"association" with a competitor of EFL (Prodotti), alleged to be sufficiently established by the common shareholdings and directorates between Prodotti and/or its owners and Mr Canegallo and some of his companies;
(ii)alleged solicitation of EFL's suppliers; and
(iii)alleged solicitation of EFL's employees.
[117]Mr Cogan submitted that EFL is seeking to make a case beyond this pleading.
[118] Again, I accept Mr Cogan's submissions on this issue. In my view there was nothing to prevent 0+81 Ltd from communicating with Europomella and/or Salumificio with a view to securing supplies for its business in the Japanese and
Philippines markets. Communications of that sort could not advance either party's case on the issue of whether Mr Canegallo was directly or indirectly engaged, concerned, or interested in or otherwise associated with, a business in competition with EFL's business of importing Italian or other European foods into New Zealand and distributing them in this country. Nor are there sufficient grounds for believing that documents are or have been held by Mr Canegallo which are relevant to the issue of whether (directly or indirectly) he has been soliciting Europomella or Salumificio to stop doing business with EFL (or reduce the amount of business they would normally have done with EFL).
[119] In those circumstances, there is no sufficient basis for particular discovery in respect of the category 6 documents. The application in respect of category 6 documents is refused accordingly.
EFL's request for order relating to the extent of Mr Canegallo's searches for discoverable documents
[120] I do not think there is a sufficient evidential basis for an order under this head. Mr Canegallo's discovery obligations relating to the extent of the search he was required to make for relevant documents is clear,6 and no doubt his solicitors have explained those obligations to him in the particular context of this case (including the fact that his discovery obligations are ongoing – if further relevant documents come to light, they must be promptly discovered).
[121] In this case, some WhatsApp messages have been discovered by Mr Canegallo, so it is clear that that particular mode of communication has not been overlooked by him. There is no specific evidence that he has failed to look for further WhatsApp messages (or relevant communications on other messaging services), and absent evidence of that sort I do not see a need for the proposed order. The request for this order is also refused.
6 Under r 8.14 of the High Court Rules 2016, a party must make "a reasonable search for documents within the scope of the discovery order". In his or her affidavit of documents, a party must give particulars of the steps taken to fulfil the discovery obligation, and state any categories or classes of documents that have not been searched (and the reasons for not searching them) – r 8.15(2)(c) and (d).
Summary of orders made on EFL's application for particular discovery
[122] EFL's application for particular discovery is dismissed. I make an order for costs in favour of Mr Canegallo on a 2B basis, with disbursements to be fixed by the Registrar.
APPLICATION BY MR CANEGALLO FOR PARTICULAR DISCOVERY
The categories of documents sought
[123] Mr Canegallo denies EFL's allegations that its employees have been solicited by Prodotti, and that Mr Canegallo was responsible for the solicitation. He seeks documents relevant to the real reason EFL's employees have been leaving, and the causes and quantum of EFL's losses (if any). He contends that EFL's employees have been leaving in large numbers for reasons that are unconnected with him but internal to EFL.
[124] Mr Canegallo also seeks discovery relating to alleged breaches by him of the alleged duty that he should not solicit EFL's suppliers to either stop supplying EFL or reduce the business they would otherwise have done with EFL.
[125] Mr Canegallo alleges in his amended statement of defence and counterclaim various breaches of the FTA by EFL, arising from mislabelling practices said to have been adopted by it. He asks in his discovery application (under the heading "Mislabelling") for documents relating to the sale by EFL of products that had passed their "use by", or "best before", dates (or otherwise been rejected as unfit for sale), and for documents relating to sales by EFL of products that did not correspond to the description of the product as ordered by a customer (and the alleged mislabelling of such products to falsely show that they were the products ordered).
[126] Certain documents are sought concerning EFL's current management and financial performance. Documents were also sought relating to the allegation that Mr Canegallo allegedly obtained unlawful access to EFL's computer system.
[127] In his application Mr Canegallo asked for an order for particular discovery of 14 categories of documents. However, in a schedule presented at the hearing,
Ms McMullen filed amended grounds of opposition, which indicated that discovery of some of the documents sought would no longer be opposed.
[128] The following categories are now no longer opposed: category 1(a), all of category 4 with the exception of 4(h), all of category 5 with the exception of 5(g), 7(a)-(d), 8, 10, and 12.
[129] In many of those cases Ms McMullen advised that she considered there would need to be restrictions on inspection, having regard to the commercially sensitive nature of the documents (particularly as Mr Canegallo is now working as a consultant for Prodotti). In most cases I think it is likely to be fairly obvious whether a particular discoverable document is commercially sensitive or otherwise confidential, so that, for example, access to the sensitive or confidential document should be restricted to, say, counsel and one expert witness for Mr Canegallo, pending further order of the Court. In those cases where particular discovery is ordered against EFL in the orders made below, I invite counsel to confer and, if they cannot agree, let me have a joint memorandum within 20 working days after EFL has served its supplementary discovery list, setting out their respective proposals for inspection of the sensitive or confidential documents (including the number and identities of the individuals who should be allowed to view the documents, and the nature of any undertakings those individuals should be required to provide before the documents are made available for inspection). I will then deal with the issue on the papers, or if necessary convene a conference at which directions will be given.
Evidence in support of the application
Affidavit of Mr Canegallo
[130] Mr Canegallo provided no fewer than six affidavits in support, one by himself and the others by a number of former employees of or consultants to, EFL. Ms McMullen objected to some of this evidence, much of which appears to have been directed to proving substantive allegations made by Mr Canegallo in his amended statement of defence or counterclaim.
[131] In my view there is no need to refer to evidence of that kind. On the basis of the Kawerau Village Holdings Ltd case, I am required to assume for the purposes of EFL's discharge of its discovery obligations that the various matters alleged by Mr Canegallo may be proved at trial. If EFL documents would clearly be relevant to disputed allegations in the pleadings, the only necessary evidence would be evidence directed to the issues of whether there is reason to believe EFL has (or has had) such documents in its power that it has not discovered, and the proportionality of the discovery sought.
[132] In those circumstances I do not propose to refer to the evidence filed in support, except to such extent as may be necessary for those purposes.
EFL's notice of opposition and affidavit in opposition
[133] In its original notice of opposition, EFL opposed all of Mr Canegallo's particular discovery application, principally on the basis that the documents were said to be irrelevant. EFL also contended in respect of some of the documents sought that the discovery would be disproportionate (particularly over the time period covered by some of the document requests). Also, in a number of cases, EFL said that the documents sought were commercially sensitive.
[134] There was one affidavit filed in opposition to Mr Canegallo's discovery application. It was sworn by Mr O'Neill.
[135] Mr O'Neill said that the range of allegations in the affidavits filed for Mr Canegallo were generally denied. He limited his evidence to responding to the request for the particular document categories, electing not to engage with the specific evidence of mislabelling, use of expired product, and so on.
[136] Mr O'Neill said that EFL notified Mr Canegallo's solicitors on 31 August 2018 that it does not hold any documents relating to Mr Canegallo's discovery requests 1(b), 6, 7(a), 7(b) and 13 that have not already been discovered. On the other discovery categories requested, he said that EFL does not consider that it should have to disclose the documents sought because the documents are either irrelevant or constitute confidential business records.
[137] Mr O'Neill acknowledged that there are further confidential documents that exist that were not listed in EFL's original affidavit of documents. At that time these documents were considered not to be relevant, as Mr Canegallo's amended statement of defence and counterclaim had not been filed.
[138] Mr O'Neill said that EFL has two further sales spreadsheets which are significant in size. It has agreed to provide these to Mr Canegallo for the purposes of this litigation, with confidential customer names redacted.
Discussion and conclusions
Document categories 1–3 — staff departures
[139]Mr Canegallo applied for particular discovery of the following documents:
1.Documents relating to the number of employees that have left EFL since the defendant's resignation and their reasons for doing so, including, but not limited to:
(a)Notices of resignation;
(b)Any written record of their reasons for resignation, including, but not limited to, notes of any exit interview; and
(c)Internal EFL communications regarding the rate and reasons for employee departures, including, but not limited to, reports to the board of EFL, minutes of board meetings, and written communications (or written records of communications) between EFL management regarding the actual or speculated reasons for employees leaving EFL.
2.Documents relating to EFL's decision on whether or not to recruit replacement personnel for the positions vacated.
3.Documents relating to EFL discussing, investigating or considering the reasons for the alleged loss of (as applicable) suppliers, customers and/or employees.
[140] Mr Cogan submitted that the documents in these categories are relevant to breach, causation, and quantum of any loss.
[141] He noted that it is not in dispute that the pleaded employees have left EFL, but Mr Canegallo alleges they left for reasons unconnected with him. He also contends that the departure of the employees referred to in the statement of claim is merely the
tip of the iceberg, and that the departure is systematic of a general exodus of dissatisfied employees.
[142] Mr Cogan submitted that, if employees left EFL for reasons unconnected with Mr Canegallo, there will be no breach of the restraint insofar as it related to soliciting EFL employees, and EFL's claim in that regard will fail.
[143] Mr Cogan also identified a causation issue. Did any alleged solicitation by Mr Canegallo in fact induce the named employees to leave? If so, what loss (if any) flowed from it? There will also be issues over what steps (if any) EFL has taken to mitigate the alleged loss. Were steps taken to recruit new employees immediately? What steps were taken to identify and address the underlying reasons for the employees' departure?
[144] In his oral submissions, Mr Cogan emphasised that EFL will need to prove at trial that the employees who have left the company have been induced by Mr Canegallo to leave. While EFL's statement of claim refers only to six named EFL employees, Mr Cogan submitted that it is artificial for EFL to say that discovery of the reasons for employee departures should be limited to those named employees.
[145] In respect of request number 2, the question of what steps EFL has taken to replace personnel who have left is said to be relevant to the likely reasons for staff departures, including staff allegedly being overworked and having to do the work of others who have left. Mr Cogan submitted that the staff departures from EFL were so significant that it beggars belief that the issue would not have been discussed at board or management level.
[146] Mr Cogan also noted that EFL has still not provided particulars of the alleged inducements by Mr Canegallo. That is another reason why it should now provide discovery of documents suggesting that there may have been other reasons for employees leaving.
[147] In response to these requests, EFL has now agreed to produce the resignation letters (subcategory 1(a)).
[148] In response to request 1(b), relating to written records of employees' reasons for resignation (including notes of any exit interviews), EFL says that no documents are held.
[149] In response to request 1(c), EFL opposes the discovery sought on the basis that the documents are not relevant. It says that documents concerning "internal speculation" about why an employee may have left does not prove the matter in issue, which is whether Mr Canegallo's alleged breaches of the restraint caused employee departures.
[150] In response to request 2, being documents relating to EFL's decision on whether or not to recruit replacement personnel for positions vacated, EFL again says that any such documents would not be relevant.
[151] In response to request 3 (documents relating to EFL discussing, investigating or considering the reasons for the alleged loss of suppliers, customers and/or employees), EFL again says that the documents sought are not relevant.
[152] On the request for discovery of the category 1(c), 2 and 3 documents, Ms McMullen noted that the question is whether Mr Canegallo caused the departures. She submitted that there are two possible answers:
(1)Mr Canegallo did have something to do with the departures, in which case the employees' reasons would be irrelevant; or
(2)Mr Canegallo did not have anything to do with the employees leaving, in which case there would be nothing further to consider as no case would have been made out.
[153] She submitted that speculative reasons EFL might have assumed for employees' departures will not determine the true reason a given employee left.
[154] EFL having agreed to provide discovery of the category 1(a) documents, I direct that (if it has not already made this supplementary discovery) it is to file and
serve a sworn supplementary discovery list disclosing the category 1(a) documents, in accordance with the rules, within 20 working days.
[155] Mr O'Neill has provided sworn evidence that no documents in category 1(b) exist. In my view there is insufficient evidence for the Court to reject that evidence. For example, not every employer conducts exit interviews, and there is no evidence that EFL had a practice of doing so. The request for the category 1(b) documents will be refused.
[156] In respect of the request for the category 1(c) documents, Mr Canegallo has pleaded affirmatively that approximately 30 employees, representing approximately 60 per cent of EFL's employees, have left EFL for reasons having nothing to do with Mr Canegallo. He has expressly pleaded that these former employees (including the six identified in EFL's statement of claim) have left because they were dissatisfied with EFL as an employer, in various pleaded respects. EFL does not appear to have filed a reply denying these affirmative allegations, but I will assume that it either does wish to deny them or that it considers them irrelevant to its pleaded claim that Mr Canegallo (through Prodotti) directly or indirectly, solicited and/or employed only the six named EFL employees.
[157] Relevance is to be judged by the pleadings, but it seems to me that the various alleged reasons for departure of the 30 EFL employees are advanced primarily as evidence in support of Mr Canegallo's denial of the allegation that he solicited or attempted to solicit the six named EFL employees for employment at Prodotti. In those circumstances I am not satisfied that some wide-ranging enquiry as to why the other 24 EFL employees who are said to have resigned from EFL did so, would be either necessary or proportionate. What is ultimately relevant on the pleadings is whether or not the six EFL employees were in fact solicited for employment by Mr Canegallo, acting through Prodotti.
[158] Of the six employees, only three are alleged to have been successfully solicited for employment by Mr Canegallo, in the sense that the alleged solicitation resulted in actual employment.
[159] It is difficult to see how any unsuccessful solicitation by Mr Canegallo could have caused EFL any loss. As for the three EFL employees who are alleged to have been employed by Mr Canegallo and Prodotti (Mr Fontana, Ms Guardamagna and Mr Martin), I accept that the category 1(c) documents, limited to the reasons for their individual departures, would be relevant and that an order for their discovery would be proportionate. But the reasons for the departures of individual employees, including Messrs Fontana and Martin and Ms Guardamagna, has already been addressed in Mr O'Neill's response to the category 1(b) request: EFL does not hold any such documents. I am not satisfied that wide-ranging discovery of documents showing EFL employee departure trends, or reasons for departure in the cases of employees other than the six identified by EFL in its statement of claim, will advance or detract from either party's case — the critical issue will be the reasons for the departure of the EFL employees whose departure is said to have involved solicitation by Mr Canegallo, and Mr O'Neill says there are no such documents. In those circumstances I am not satisfied there is a basis for further discovery of documents in category 1(c).
[160] Category 2 comprises documents relating to EFL's decisions whether or not to recruit replacement personnel for the positions vacated. Clearly discovery on this issue could not be relevant to Mr Canegallo's alleged liability for soliciting or attempting to solicit the six employees, so if the documents are relevant they would have to be relevant on the issues of causation or damages. I think they are relevant, but only in respect of those three individuals who are alleged to have been solicited by Mr Canegallo and who did go to work for Prodotti (Mr Fontana, Ms Guardamagna and Mr Martin). It is loss flowing from the alleged solicitation of those individuals that would be relevant. I order that EFL is to include in its supplementary affidavit to be filed and served within 20 working days, any documents in its control relating to EFL's decisions on whether or not to replace Mr Fontana, Ms Guardamagna and Mr Martin when they left EFL.
[161] Category 3 relates to EFL's internal discussions or investigations relating to the reasons for the alleged losses of suppliers, customers, or employees. Ms McMullen submits that the documents sought in this category are not relevant.
[162] I do not think an order for particular discovery relating to the reasons for the alleged loss of EFL employees is appropriate, for the reasons set out above. Nor do I consider any particular discovery order is appropriate in the case of alleged losses of "customers". At this stage, the statement of claim does not identify a loss of any "customer" (being a person purchasing goods or services from EFL) — the pleading appears to be limited to allegations of wrongful soliciting or inducements directed to suppliers and employees.
[163] However, I think internal investigations or discussions relating to reasons for the alleged loss of the suppliers pleaded at paragraph 15.3.8 of the statement of claim is in a different category. EFL's pleading is that it lost the five identified suppliers (or they reduced their business with EFL) because of wrongful solicitation or inducement by Mr Canegallo. If and to the extent investigations may have identified other possible reasons for the claimed loss of those suppliers or their business, I think documents recording such discussions or investigations must be relevant and discoverable, whether they record facts, conclusions or "speculation" on the part of EFL's management or staff. Ms McMullen did not suggest that such documents do not exist, and the fact that the allegations relating to the loss of suppliers have been pursued presupposes that there must have been some discussions, investigations, and consideration on the issue within EFL.7
[164] I accordingly order that EFL is to discover in its supplementary affidavit to be filed and served within 20 working days, documents in its control (or which have been in its control) recording internal EFL discussions, consideration or investigations relating to the reasons for the alleged losses of the suppliers Europomella, LSM, Cirillo, Salumificio and Pastificio (or the reduction of the volume of business those companies would normally have done with EFL). Otherwise, the request for discovery of the category 3 documents is refused.
[165] Where particular discovery of documents in categories 1–3 has been ordered, the documents are to be made available for inspection within 20 working days, unless
7 Whether documents recording any such discussions, consideration or investigations would be privileged is not something with which I am presently concerned. Relevant documents which are privileged must still be referred to in the discovery list, with an appropriate statement that the documents will not be made available for inspection because of the (identified) privilege.
any issues of commercial sensitivity or confidentiality of the documents has been raised. Any such issues are to be addressed in the manner set out at paragraph [129] of this judgment, and production of the subject documents will be deferred pending further order of the Court.
Document categories 4(h), 5(g) and 6 — mislabelling
[166]The following documents are sought in category 4(h):
4.Documents relating to the sale by EFL of products that have passed their "use by" and/or "best before" date, or otherwise been rejected as being unfit for sale, including, but not limited to:
…
(h) Sales data for the relevant products and/or customers for the period from two years prior to the defendant's resignation up to the present; and
…
[167] Mr Cogan submitted that the sales data is relevant to the loss claimed by EFL. He noted that in his affidavit Mr O'Neill referred to further spreadsheets showing sales data which EFL was prepared to provide by the end of September 2018 — if EFL was prepared to provide that information, why not provide the sales data referred to at request 4(h)?
[168] In response to the category 4(h) request, Ms McMullen acknowledged that EFL has further spreadsheets to be discovered, but said that they would have substantial redactions to protect commercially sensitive or private information.
[169] Ms McMullen also advised that she was instructed to file an application for split trials as between liability and quantum. If an order is made for separate trials, any discovery of category 4(h) documents could be left to the second phase of the proceeding, once EFL had established liability.
[170] Mr Cogan submitted in reply that it is now too late to resist discovery of plainly relevant documents on the basis of a prospective application for split trials which has not even been filed.
[171] I am not prepared to deal with the application for category 4(h) documents on the basis that EFL might apply for split trials on liability and quantum, and that that application might be successful. I accept Mr Cogan's submission on that point.
[172] I order that EFL is to include within its supplementary verified list to be filed within 20 working days, discovery of the category 4(h) documents, including any spreadsheets applying to this category. Subject to any issues of commercial sensitivity or confidentiality of the documents in category 4(h), which are to be addressed in the manner set out in paragraph [129] of this judgment, the documents are to be provided for inspection within 20 working days. If commercial sensitivity or confidentiality issues are raised, production of the subject documents will be deferred pending further order of the Court.
[173]The documents sought in category 5(g) are as follows:
5.Documents relating to the sale by EFL of products that do not correspond to the description of the product ordered by a given customer and the mislabelling of the product supplied as the product in fact ordered, including, but not limited to:
…
(g) Sales data for the relevant products and/or customers for the period from two years prior to the defendant's resignation up to the present; and
…
[174] Ms McMullen submitted that EFL has previously provided sales data which included redactions of commercially sensitive information. She submitted that it is unclear whether redacted information is now sought by Mr Canegallo. EFL sees no reason why the redacted information should now be disclosed.
[175] Mr Cogan noted that the point made for EFL seems to be the same as the point made in respect of the category 4(h) documents, where EFL acknowledges that it has spreadsheets which contain substantial redactions.
[176] There appears to be no substantial dispute over this category. If EFL accepts that the redacted information is relevant, as I apprehend is the case, the redacted
portions will be discoverable. Any issues of commercially sensitive or confidentiality are to be addressed in the manner set out in paragraph [129] of this judgment. If no such issues are raised, the documents in category 5(g) are to be produced for inspection within 20 working days.
[177] To the extent there is an issue over what documents are to be considered as within the expression "sales data" (and in particular, whether spreadsheets summarising the sales will suffice, or whether all underlying delivery orders, invoices etc are to be discovered), I invite counsel to confer further. The particular discovery sought might well be disproportionate if every underlying document has to be produced, and counsel may consider that spreadsheets summarising the required information, supplemented by (say) copies of invoices for one or two customers nominated by Mr Canegallo's counsel, would provide sufficient by way of "audit" of the spreadsheet that discovery of any further underlying documents would not be necessary. I leave counsel to confer on that, with leave reserved to them to apply by memorandum for further directions if necessary, within 20 working days after EFL's supplementary discovery list is served.
[178]Mr Canegallo seeks the following documents in category 6:
6.Documents relating to customer satisfaction levels, including survey results and complaints received.
[179] Mr O'Neill's affidavit sworn on 14 September 2018 states that EFL does not hold any documents in category 6. In the absence of evidence to the contrary I think Mr O'Neill's affidavit on this issue should be treated as final. Accordingly, I refuse to make any order for particular discovery in respect of the category 6 documents.
Documents in the introductory paragraph in category 7 — reduction or cessation of supplies from suppliers
[180]Mr Canegallo requested the following documents in category 7:
7.Documents relating to the actual, threatened or apprehended reduction or cessation of supply by any of EFL's suppliers, including, but not limited to, those suppliers pleaded in the statement of claim, including:(a) Any agreements or other applicable terms and conditions between EFL and those suppliers;
(b)Written communications, or records of communications, between EFL and any of its suppliers (including, but not limited to, those pleaded) in relation to actual, threatened or apprehended reduction or cessation of supply and the reasons for it;
(c)Data (including invoices and receipts) relating to orders placed by EFL (including orders placed but not fulfilled) with any of the pleaded suppliers for the period from two years prior to the defendant's resignation until the present; and
(d)Written communications, or records of communications, between EFL and suppliers regarding the reasons for any orders not fulfilled by suppliers.
[181] Ms McMullen submitted that EFL has previously provided such documents as it has coming within the introductory part of category 7. It does not now oppose discovery of the documents in subcategories 7(a) to (d), although protections will be necessary in respect of commercially sensitive customer orders.
[182] I order that EFL is to include within its supplementary discovery list to be filed and served within 20 working days, the documents within its control in subcategories 7(a) to (d). If any issues of commercial sensitivity or confidentiality are raised, such issues are to be addressed in the manner set out in paragraph [129] of this judgment. If no such issues are raised, the documents in category 7(a)–(d) are to be produced for inspection within 20 working days.
Document category 9 — sales of mozzarella products
[183]Mr Canegallo seeks discovery of the following documents in this category:
9. Documents relating to the introduction of EFL's Ghiotti brand of mozzarella products, including documents relating to the development, marketing (including strategy and budget), and pricing of Ghiotti mozzarella products relative to any other mozzarella products distributed by EFL.
[184] The request is said to be directed to para 39(g) of Mr Canegallo's counterclaim, which provides:
39.The deliberate mislabelling of food products by the Plaintiff included, but is not limited to:
…
(g)Marketing Ghiotti-branded mozzarella as "fresh" when:
(i)The mozzarella had in fact been refrigerated for an unknown period between leaving Italy and arriving in New Zealand, and for a period of approximately four days after arrival in New Zealand, before being frozen;
(ii)The frozen mozzarella was later defrosted to fulfil customer orders when its residual shelf life was insufficient for the product to be accepted by buyers (Progressive and Foodstuffs); and
(iii)EFL had in fact amended the packaging to include a new, later expiry date without having undertaken any, or any adequate, investigation of the accuracy of the new expiry date, in terms of food safety and/or quality assurance;
…
[185] Ms McMullen submitted that these documents are not relevant, and would in any event be commercially sensitive.
[186] Beyond the prices at which EFL sold its Ghiotti-branded mozzarella products in New Zealand after 1 November 2017, I am not persuaded that the documents in category 9 are relevant to any allegations in the statement of claim or Mr Canegallo's amended statement of defence and counterclaim.
[187] The issue identified at paragraph 39(g) of the amended statement of defence and counterclaim forms part of the second cause of action pleaded in Mr Canegallo's counterclaim, alleging breach of the FTA by deliberately mislabelling food products. The relief sought on this counterclaim is a declaration that the pleaded conduct was in contravention of s 9 of the FTA, and orders under s 43(e) and/or 43(f) of the FTA requiring EFL to pay to all purchasers of mislabelled products sold by EFL in breach of the FTA:
(i)a refund of the purchase price paid;
(ii)an amount equivalent to any loss or damage suffered by the purchaser as a result of having purchased the products.
[188] Against that background, I cannot see that documents relating to the introduction of EFL's Ghiotti brand of mozzarella products, including documents relating to the development and marketing (including strategy and budget) of the product, could be relevant.
[189] I doubt that any document in EFL's possession could be expected to show any amount equivalent to loss or damage suffered by the purchasers of mozzarella products allegedly sold as fresh when they were not. However, I accept that any documents showing the prices at which the Ghiotti-branded mozzarella products were sold by EFL from and after 1 November 2017 will be relevant to the para 39(g) allegations and the claim for relief on the second cause of action in Mr Canegallo's counterclaim.
[190] Accordingly, I make an order that EFL include in its supplementary affidavit of documents to be filed within 20 working days, documents showing the pricing of Ghiotti mozzarella products sold by EFL in New Zealand from and after 1 November 2017. If any issues of commercial sensitivity or confidentiality are raised, such issues are to be addressed in the manner set out in paragraph [129] of this judgment. If no such issues are raised, Ghiotti mozzarella pricing documents are to be produced for inspection within 20 working days.
[191] Beyond that, I decline to make any order for particular discovery in respect of the category 9 documents.
Document category 11 — EFL's financial performance
[192]The following documents were sought in this category:
11.Documents relating to EFL's financial performance for the current financial year and preceding five financial years, including:
(a)Financial statements;
(b)Draft financial statements for the current year;
(c)Sales data for all products broken down by supplier;
(d)Forecast and actual sales figures;
(e)Written communications, or records of communications, relating to the potential reasons identified by EFL for any
decrease in its financial performance and any steps being taken by EFL to mitigate, including (but not limited to) internal EFL communications and communications between EFL and third parties, such as accountants, bankers, and consultants;
(f)The amount and value of stock written off by EFL in 2017 and 2018;
(g)Product being sold by EFL below cost or at a margin less than 40 per cent;
(h)Customer complaints and EFL's response (if any);
(i)The data underlying the EFL sales spreadsheets that have been discovered to date; and
(j)The volume of products ordered relative to actual sales of those products.
[193] At the hearing, Ms McMullen advised that EFL now accepts that the documents in categories 11(a)-(j) are relevant, although it says it has no documents in subcategory 11(h) (customer complaints and EFL's responses).
[194] However, Ms McMullen submitted that there are proportionality issues arising with a number of the category 11 documents. For example, EFL should be allowed to produce the spreadsheets referred to in subcategory 11(c) without the need to produce the underlying documents. Nor does EFL have sales data broken down by supplier. Similar considerations apply to the documents requested in subcategories 11(i) and (j)
— EFL should not be required to disclose underlying invoices evidencing individual sales.
[195] Ms McMullen accepted that there needs to be discovery for some period leading up to the end of the restraint period, but she submitted that the five year period nominated by Mr Canegallo is too long. She proposed a period of four years, comprising the two year restraint period and the two year period immediately preceding it (that submission encompassed each of subcategories 11(d), (e), (f) and (g), in addition to subcategory 11(c)).
[196] In respect of subcategory 11(b) (draft financial statements for the current year), Ms McMullen noted that the financial statements for the current year (to 31 August 2018) had not yet been finished.
[197] On the issue of inspection, EFL says that the category 11 documents it holds are commercially sensitive. Agreement or orders will be needed defining and limiting the people permitted to inspect the documents once disclosed.
[198] In respect of subcategory 11(a), I accept Ms McMullen's submissions: the period for which EFL's financial statements are to be discovered is to be the financial years that included the two year period of the restraint and the period of two years immediately prior to the restraint period.
[199] As for subcategory 11(b) (draft financial statements for the current year), they are to be included in EFL's supplementary discovery if they are now available. If they are not now available they are to be disclosed by EFL when they become available.
[200] In respect of subcategories 11(c), (i) and (j), EFL may disclose available spreadsheets only in the first instance. I am not persuaded that EFL should be required to discover "sales data for all products broken down by supplier" (subcategory (c)) if it does not have that information in readily retrievable form. It would appear to be disproportionate to require EFL to spend what might be a significant period of time creating a report of this nature if reports in this format do not already exist. I decline to order particular discovery of the subcategory 11(c) documents. Nor am I presently persuaded that requiring EFL to produce all underlying documents (invoices, delivery orders, purchase orders etc) where spreadsheets or other "summary" documents are available would be proportionate. I invite counsel to confer on the issue of whether spreadsheets or similar "summary" documents, supplemented by one or two "samples" of underlying documents selected by Mr Canegallo's counsel (sufficient to provide him with the equivalent of an "audit" of the spreadsheet or summary document), will meet the circumstances of the case. Leave is reserved to apply by memorandum for any further directions that might be required in that respect, within 20 working days after EFL provides its verified supplementary discovery list.
[201] In respect of subcategories 11(d), (e) and (g), the relevant period to be covered by the discovery will be the period covered by EFL's financial statements which include the two year restraint period and the two year period immediately prior to it.
[202] Subject to those directions, EFL is ordered to include in the supplementary affidavit of documents it is to file and serve within 20 working days, the documents listed in subcategories 11(a)–(b), 11(d)–(g), and 11(i)–(j).
[203] Where issues of commercial sensitivity or confidentiality are raised in respect of the documents in subcategories 11(a)–(b), 11(d)–(g), and 11(i)–(j), those issues are to be addressed in accordance with paragraph [129] of this judgment. If no such issues are raised, the documents are to be produced for inspection within 20 working days.
[204] It is not established that there are grounds for believing EFL has in its power documents in subcategory 11(h). The request in respect of that subparagraph is accordingly refused.
Document category 13 — alleged approaches by Mr Canegallo to EFL suppliers, customers or employees
[205]Mr Canegallo sought the following documents in category 13:
13. Documents relating to EFL's allegation that the defendant has approached and induced, or attempted to induce, the pleaded suppliers, customers and/or employees.
[206] EFL opposes discovery of these documents, on the basis that it has already discovered such documents as it has in this category. Mr O'Neill confirmed in his affidavit that that is the case.
[207] Mr Canegallo has not pointed to any grounds for believing that further documents exist in this category that have not been discovered (or dealt with elsewhere in his discovery application). Accordingly, there is no basis for a particular discovery order in respect of the category 13 documents. The application in respect of them is refused.
Document category 14 — alleged unlawful access to EFL's computer system
[208] At the hearing Ms McMullen noted that nothing has been pleaded by EFL about the alleged hacking of its computer system. EFL does not intend to pursue this
issue against Mr Canegallo, and it will not be questioning him on it in cross-examination at trial.
[209] Mr Cogan noted that EFL has disclosed a police report in respect of the incident (in respect of which it has claimed privilege), and Mr Canegallo wishes to challenge the privilege claim. The document was mentioned by Mr O'Neill in one of his affidavits. Mr Cogan submitted that if the police report was considered relevant by EFL for discovery purposes, so must be the documents in Mr Canegallo's requests 24(d) and (e).
[210] In view of Ms McMullen's advice at the hearing, and the fact that the alleged hacking has not been referred to in the pleadings, I am satisfied that there is no basis for an order for particular discovery in respect of the category 14 documents. The documents are not relevant to issues disclosed by the pleadings, and the fact that EFL might have considered the police report relevant at an earlier stage in the proceeding does not make it (or documents relating to it) relevant in circumstances where it is now acknowledged that no allegations will be pursued against Mr Canegallo in respect of the alleged hacking. The police report (and any related documents) can neither be helpful nor adverse to either party's case. On that basis, they are not documents that should have been disclosed by EFL. The application for particular discovery of the category 14 documents is therefore refused.
Summary of orders on Mr Canegallo's particular discovery application
[211]I make the following orders:
(1)The application for particular discovery in respect of the following categories of documents is refused: 1(b), 1(c), 2 (except as set out in paragraph [160] of this judgment), 3 (except as set out in paragraph [164] of this judgment), 6, the introductory paragraph of category 7, 9 (except as set out in paragraph [190] of this judgment), 11(c), 11(h), 13 and 14.
(2)EFL is ordered to file and serve, within 20 working days of the date of this judgment, an affidavit stating whether it has (or has had) in its
control documents in the following categories: 1(a), 2 (limited to the documents described at paragraph [160] of this judgment), 3 (limited to the documents described at paragraph [164] of this judgment), 4, 5, 7 (subcategories 7(a)–(d)), 8, 9 (limited to the documents described at paragraph [190] of this judgment, 10, 11 (subcategories 11(a)–(b), 11(d)–(g), and 11(i)–(j)), and 12.
If those documents, or any of them, have been but are no longer in EFL's control, EFL's affidavit is to state its best knowledge and belief as to when the documents ceased to be in its control and who now has control of them.
(3)If and to the extent EFL claims that any documents it has been ordered to discover are commercially sensitive or otherwise confidential, counsel are directed to confer to see if agreement can be reached on how the commercially sensitive or confidential documents are to be made available for inspection (including the number and names of individuals permitted to inspect the documents, and the nature of any undertakings those individuals should be required to provide before the documents are made available for inspection). To the extent the parties may be unable to agree on those matters, counsel are to file a joint memorandum, within 20 working days after EFL has served its supplementary affidavit, setting out their respective proposals for the inspection of the commercially sensitive or confidential documents. The Court will then deal with the issues in the memorandum on the papers, or if necessary convene a conference for the purpose of giving further directions.
(4)If and to the extent EFL does not make any claim for commercial sensitivity or confidentiality for the documents it has been ordered to discover, the documents are to be produced for inspection within 20 working days of the date of this judgment.
(5)Leave is reserved to the parties to apply by memorandum for such further orders or directions as may be necessary in respect of the discovery of source documents underlying spreadsheets or other summary documents, where the spreadsheet or other summary document comes within a category or subcategory of documents EFL has been ordered to discover. Any such memorandum is to be filed within 20 working days after EFL has served the affidavit referred to in paragraph (2) of these orders.
(6)Other orders or directions made in the body of this judgment (for example, as to the period to be covered by the discovery of documents in subcategory 11(a)), are to have effect as stated.
(7)Mr Canegallo has been substantially successful with this application. Costs are awarded to him on a 2B basis, reduced by 25 per cent to reflect those parts of the application where he has not been successful. In addition, he is to have disbursements as fixed by the Registrar.
APPLICATION BY EFL FOR NON-PARTY DISCOVERY BY BAYLEYS
[212]EFL seeks the following documents:
1.1.1Any documents and/or communications with [Mr Canegallo] in his personal capacity and/or through his companies Pizza In A Box Limited and/or Roundpizza Limited regarding:
1.1.1.1Enquiries and due diligence in respect of the Bayleys' advertised sale of the business of [Prodotti];
1.1.1.2Direct or indirect engagement, or association with, or interest in, [Prodotti].
Legal principles
[213]Rule 8.21 of the High Court Rules provides:
8.21 Order for particular discovery against non-party after proceeding commenced
(1)This rule applies if it appears to a Judge that a person who is not a party to a proceeding may be or may have been in the control of 1 or
more documents or a group of documents that the person would have had to discover if the person were a party to the proceeding.
(2)The Judge may, on application, order the person—
(a)to file an affidavit stating—
(i)whether the documents are or have been in the person’s control; and
(ii)if the documents have been but are no longer in the person’s control, the person’s best knowledge and belief as to when the documents ceased to be in the person’s control and who now has control of them; and
(b)to serve the affidavit on a party or parties specified in the order; and
(c)if the documents are in the control of the person, to make those documents available for inspection, in accordance with rule 8.27, to the party or parties specified in the order.
(3)An application for an order under subclause (2) must be made on notice to the person and to every other party who has filed an address for service.
[214] In Vector Gas Contracts Ltd v Contact Energy Ltd, Koś J considered that the documents sought on a non-party discovery application must be relevant.8 His Honour also considered that a discovery order sought under the rule must be necessary.9 The making of an order under the rule is discretionary.10
Disposition
[215] The application was properly served on both Mr Canegallo and Bayleys, and neither has taken any step to oppose it. Nevertheless, the Court needs to be satisfied that the non-party discovery is necessary for the just and expeditious resolution of this proceeding, and I am not so satisfied.
[216] Substantially for the same reasons that I refused EFL's application for particular discovery against Mr Canegallo in respect of the Bayleys/Mr Canegallo interaction, and the Prodotti sale/due diligence, I am not satisfied that it has been
8 Vector Gas Contracts Ltd v Contact Energy [2014] NZHC 3171, [2015] 2 NZLR 670, at [29] and [61].
9 At [30].
10 At [28].
sufficiently shown that Bayleys does or might hold relevant documents. The application appears to be no more than a fishing expedition, designed to endeavour to establish that Mr Canegallo has some ownership interest in Prodotti when that has not been alleged. The application for non-party discovery from Bayleys is refused accordingly. In view of the fact that the application was unopposed, I make no order for costs on it.
Associate Judge Smith
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