FLOORWISE NZ LIMITED / Counterclaim AND COLTHURST FLOORING LIMITED / Counterclaim SAM FRANCIS JOHN COLTHURST TERESA ELIZABETH COLTHURST JAMES LYNCH Counterclaim
[2024] NZHC 2708
•19 September 2024
IN THE HIGH COURT OF NEW ZEALAND WHANGAREI REGISTRY
I TE KŌTI MATUA O AOTEAROA WHANGĀREI-TERENGA-PARĀOA ROHE
CIV-2022-488-00037
[2024] NZHC 2708
BETWEEN FLOORWISE NZ LIMITED
Plaintiff / First Counterclaim Defendant
AND
COLTHURST FLOORING LIMITED
First Defendant / Counterclaim Plaintiff
SAM FRANCIS JOHN COLTHURST
Second DefendantTERESA ELIZABETH COLTHURST
Third DefendantJAMES LYNCH
Second Counterclaim Defendant
Hearing: 4 September 2024 Appearances:
C Orton for the Plaintiff
K T Glover / A J Peat for the Defendants
Judgment:
19 September 2024
JUDGMENT OF ASSOCIATE JUDGE GARDINER
This judgment was delivered by me on 19 September 2024 at 3.00 p.m. pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date.......................................
Solicitors:
Gilding Baker Law, Whangarei K T Glover, Auckland
A J Peat, Auckland
FLOORWISE NZ LTD v COLTHURST FLOORING LTD [2024] NZHC 2708 [6 September 2024]
Introduction
[1] The plaintiff, Floorwise NZ Ltd (Floorwise) and the first defendant, Colthurst Flooring Ltd (Colthurst Flooring) entered into a franchise agreement in July 2019. The second and third defendants are directors of Colthurst Flooring who guaranteed Colthurst Flooring’s obligations under the franchise agreement.
[2] The franchise agreement gave Colthurst Flooring the right to use the Floorwise flooring system within a defined “Territory” (exclusive territory). Floorwise agreed, whenever possible, to refer to Colthurst Flooring any customer enquiries in the exclusive territory.
[3] Colthurst Flooring subsequently purported to cancel the franchise agreement because Floorwise failed to refer customer enquiries to Colthurst Flooring, undertook work in the exclusive territory and failed to provide information about the work undertaken in the exclusive territory when asked.
[4] At the heart of the dispute between Floorwise and Colthurst Flooring is a disagreement about the boundaries of the agreed exclusive territory. Colthurst Flooring maintains that the exclusive territory covers the area of Wellsford (including the area to the east and west of Wellsford) to Whangārei, and all of Northland. Floorwise maintains that the exclusive territory is the Whangārei region and does not include Wellsford or Northland.
[5] Floorwise disputes that Colthurst Flooring’s cancellation of the franchise agreement was valid. Floorwise purported to affirm the agreement, and claims for unpaid service fees allegedly owing under the agreement, along with further damages to be quantified at trial, interest and costs.
[6] Colthurst Flooring and the first and second defendant directors (the Colthurst Flooring parties) counterclaim for breach of contract against Floorwise and its director, James Lynch (the Floorwise parties). They also counterclaim against the Floorwise parties under the Fair Trading Act, for representations Mr Lynch made before Colthurst Flooring entered into the franchise agreement.
[7] This judgment determines interlocutory applications for further and better discovery made by each of the Floorwise parties and the Colthurst Flooring parties.
[8] The claim and counterclaim are set down to be heard over four days on 14 July 2025.
Legal principles
[9] Under r 8.19 of the High Court Rules 2016, a Court may make an order for particular discovery after the proceeding has commenced, where:
…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…
[10] The Court usually follows a four-stage approach in considering applications under r 8.19.1 First, are the documents sought relevant to issues before the Court, and if so, how important will they be? Secondly, are there grounds for belief that the documents exist? This will often be a matter of inference. How strong is that evidence? Thirdly, would the time and cost of discovery be proportionate to its potential value? Fourthly, weighing and balancing these matters, and in the Court’s discretion, is an order appropriate?
[11] The starting point is that a document or class of documents will only be discoverable if relevant to the matters which will be at issue before the Court. Only then can it be said that, in terms of the rule, they “should have been discovered”.2
[12] This Court has previously observed that relevance is to be assessed according to the pleadings.3 In determining relevance, it is the case of the party seeking discovery that must be assumed to be true, not the party from whom discovery is sought.4 Further, there must be prima facie evidence that the documents sought exist,
1 Assa Abloy New Zealand Ltd v Allegion (New Zealand) Ltd [2015] NZHC 2760, [2018] NZAR 600 at [14]; and Jessica Gorman and others McGechan on Procedure (online ed, Thomson Reuters) at [HR8.19.03].
2 Robert v Foxton Equities Ltd [2014] NZHC 726, [2015] NZAR 1351 at [8(a)].
3 Robert v Foxton Equities Ltd, above n 2, at [8(b)].
4 Kawarau Village Holdings Ltd v Yuen [2015] NZHC 1379 at [38].
and are in the control of the party from whom they are sought (although the party seeking discovery does not have to prove that the documents actually exist).5
[13] The threshold embodied in “grounds for belief that the documents exist” is not high; all that is necessary is to show that there is some credible evidence which, assessed objectively, indicates that the documents that are sought exist.6
[14] A party must make a reasonable search for documents within the scope of the discovery order.7 What amounts to a reasonable search depends on the circumstances, including:8
(a)the nature and complexity of the proceeding;
(b)the number of documents involved;
(c)the ease and cost of retrieving the documents;
(d)the significance of any document likely to be found; and
(e)the need for discovery to be proportionate to the subject matter of the proceeding.
[15] A party must give particulars of the steps taken to fulfil their obligations in their affidavit of documents.9
Colthurst Flooring parties’ discovery application
Category 2 (including Category 5 and Part-category 4)
[16] A primary issue in the proceeding is whether Floorwise and three other Floorwise companies owned and controlled by Mr Lynch (the Floorwise entities) carried out work, from July 2019 onwards, in the agreed exclusive territory. Colthurst
5 Robert v Foxton Equities Ltd, above n 2, at [8(c)].
6 Assa Abloy New Zealand Ltd v Allegion (New Zealand) Ltd, above n 1, at [12].
7 High Court Rules 2016, r 8.14(1).
8 Rule 8.14(2).
9 High Court Rules, r 8.15(2)(c).
Flooring maintains that if they did, it was entitled to cancel the franchise agreement and is entitled to an account of profits or damages for loss of profits and loss of opportunity, as well as a refund of the franchise fee and franchise service fees it paid to Floorwise.
[17] The Colthurst Flooring parties discovered 43 documents relating to work carried out by Floorwise entities in the claimed exclusive territory. Most of these documents do not appear in the Floorwise discovery.
[18] In an affidavit filed in support of the Colthurst Flooring parties’ application, Sam Colthurst states that the Floorwise parties have discovered only very limited documents showing work carried out by Floorwise entities in Mangawhai and Whangārei.
[19] The Colthurst Flooring parties say that there is also an absence of documents relating to work Floorwise entities carried out in the exclusive territory for builders or suppliers, including Carpet Court.
[20] The parties exchanged discovery simultaneously. The Colthurst Flooring parties submit that the asymmetry of discovery relating to work undertaken by the Floorwise entities in the exclusive territory and absence of discovery of documents relating to jobs undertaken for builders/suppliers leads to the unavoidable conclusion that there are further responsive documents that the Floorwise parties have not disclosed.
[21] The Floorwise parties contend that the key documents that will show whether work was undertaken in the disputed areas of the exclusive territory are the invoices for the work. The Floorwise parties say that they have discovered invoices for jobs Floorwise entities undertook in the disputed areas.
[22] Mr Lynch addresses this category at para 8 of his affidavit in support of the Floorwise parties’ opposition to the Colthurst Flooring parties’ application. He deposes that he discovered, in the original Floorwise list of documents, all invoices for work undertaken directly or indirectly by any of the Floorwise entities or himself
in or around Wellsford or north of Wellsford from July 2019 onwards. These invoices are listed as documents FL.00801 to FL.00841 in the Floorwise parties’ list of documents dated 8 August 2023. By my count, the number of invoices listed is 41.
[23] Mr Orton for the Floorwise parties explains the “asymmetry” between the documents discovered by the Colthurst Flooring parties and those discovered by the Floorwise parties as arising because the Colthurst Flooring parties’ discovery was not confined to invoices and included other ancillary documents relating to invoices.
[24] Having said that, in response to the Colthurst Flooring parties’ application, Mr Lynch has, with Mr Orton’s assistance, conducted further searches for documents in this category. As a result, the Floorwise parties have identified additional invoices for work undertaken in the claimed exclusive territory and documentation relating to jobs completed for builders and suppliers, including Carpet Court.
[25] Floorwise resists providing discovery of job sheets or house plans relating to these jobs. It says that the invoices establish that the work was undertaken and the location of the work, and further documentation is unnecessary.
[26] From this, I understand the Floorwise parties to suggest that this category should be confined to “invoices”, rather than “documents” (as sought by the Colthurst Flooring parties), relating to any work undertaken by any of the Floorwise entities or Mr Lynch in or around Wellsford (and above) from July 2019 onwards.
[27] I do not agree that discovery should be confined in this way because it presupposes that invoices will be found for all the jobs the Floorwise entities completed in the disputed area over this period. If an invoice is not identified, there might be other documents such as job sheets or plans that provide evidence of work undertaken.
[28] Furthermore, the Colthurst Flooring parties’ claim includes an allegation that Floorwise did not refer customer enquiries from within the exclusive territory to Colthurst Flooring as it was obliged to do. Therefore quotes, emails, text messages or
other documents relating to potential jobs (even if they did not eventuate) will be relevant. These documents are sought by the Colthurst parties as part of Category 5.
Category 1 (and Part-category 4)
[29] The Colthurst parties say that the Floorwise parties have not provided any discovery showing what positive steps Mr Lynch put in place to ensure all jobs or potential jobs in Colthurst Flooring’s exclusive territory were referred to Colthurst Flooring; or showing arrangements/processes put in place to ensure work was not done by others in Colthurst Flooring’s exclusive territory and how that was managed.
[30] Furthermore, the Colthurst Flooring parties claim that Mr Lynch’s response in his affidavit in opposition is coy and deserving of scrutiny.
[31]In his affidavit Mr Lynch states:
This category refers to entities controlled by me. Given they are all controlled by me there were/are no arrangement/processes/protocols between them regarding work around the Wellsford area referred to. Accordingly, I and the Floorwise entities have discovered all documents in our control in this category.
(emphasis added)
[32] Mr Orton explains that Mr Lynch was not being coy by using the italicised words and that he intended to say that there were no written arrangements/processes/protocols regarding work in the entire exclusive territory (because all jobs were arranged and managed through Mr Lynch himself).
[33] An order follows for Mr Lynch to clarify in his further affidavit that there are no documents in the Floorwise parties’ control in this category relating to work undertaken in and around Wellsford and the area north of Wellsford including Northland.
Category 3
[34] The Colthurst Flooring parties have claimed for loss of profits and loss of opportunity, given the work allegedly undertaken by the Floorwise entities in Colthurst
Flooring’s exclusive territory, and further work not referred. One of the remedies sought is an account of the profits made by the Floorwise entities.
[35] The Colthurst Flooring parties say that financial information ought to have been provided by the Floorwise parties in discovery but has not been. Specifically, Mr Colthurst says that he would have expected discovery of bank account statements, accounting records and annual accounts from Mr Lynch and the Floorwise entities. The Colthurst Flooring parties say that this information is relevant to their claim for lost profit or lost opportunity to earn profits, as it will show the profit made by the Floorwise entities in the exclusive territory in breach of the franchise agreement.
[36] The Floorwise parties’ position is that the financial statements and bank statements of the Floorwise entities will not show the profit made by the Floorwise entities from each job undertaken in the disputed exclusive territory. Rather, these documents will show the overall profit made by each of the Floorwise entities.
[37] Mr Lynch, in his affidavit in opposition, states that the profit the Floorwise entities aim to make for each job is generally calculated as a certain percentage of the gross amount billed. He asserts that the exercise of determining the actual profit made for each job would be onerous and disproportionate to the sums involved. He proposes that an agreement be reached for the alleged loss for any job to be calculated as being an agreed fixed percentage of the gross revenue for that job (the gross revenue being the gross amount of the invoice).
[38] Under Categories 2 and 5 the Floorwise parties will discover all documents relating to potential jobs, or jobs undertaken, in the exclusive territory from July 2019 onwards (including quotes, invoices, and receipts). The issue is whether financial documents such as bank statements, accounting records or annual accounts will provide additional information relevant to the exercise of determining the profit the Floorwise entities made for jobs undertaken within the exclusive territory which is not apparent from the Category 2 and 5 documents.
[39] The impression I have is that there is some uncertainty about whether all relevant invoices have been, or even can be, identified by the Floorwise parties, given
the passage of time. In my view, Floorwise’s financial statements/annual accounts will provide contextual information (i.e. the overall profit made for each period) that may prove to be relevant to the eventual accounting exercise performed to determine profit made within the disputed area. An order for Floorwise to discover its financial statements for the periods from and including July 2019 follows.
Categories 4 and 5
[40]These categories are subsumed within categories 1 and 2.
Category 6
[41] A key meeting between Mr Lynch and Mr Colthurst, where Mr Lynch is alleged to have made misleading representations now being pursued, occurred in person on or about 9 July 2019. On 10 July 2019, Mr Colthurst emailed Mr Lynch requesting, “Can you email me a scan of the pages we made amendments to?”
[42] The Colthurst Flooring parties have requested any documents relating to the July 2019 meeting. Mr Lynch’s response in his affidavit was to say that neither he nor any of the Floorwise entities are in control of any documents relating to the meeting.
[43] At the hearing Mr Orton clarified that the only document the Floorwise parties have in their control relating to the July 2019 meeting is the document referred to by Mr Colthurst in the email described, which Mr Lynch attached to an email to his solicitor, Mr Allen of Corban Revell, on 9 July 2019. This document was discovered by the Floorwise parties in their original discovery at FL.00784.
[44] The Colthurst Flooring parties have not presented any evidence to suggest that there are further documents relating to this meeting which should have been discovered.
Category 7
[45] The Colthurst Flooring parties allege that at the July 2019 meeting Mr Lynch represented that he would ensure that his other entities did not compete with Colthurst Flooring in the exclusive territory. As I understand it, the Colthurst Flooring parties
consider that documents relating to the reason for Mr Lynch having Floorwise contract with Colthurst Flooring (rather than another Floorwise entity) are potentially relevant to the reasonableness of that representation.
[46] The Floorwise parties dispute the relevance of this category of documents, observing that the allegations are against all the Floorwise entities.
[47] I am not persuaded that an order for discovery of this category is warranted. The category is vague and there is no reason to consider that such documents exist that have not been discovered.
Category 8
[48] A central issue at trial will be the terms of the franchise agreement, particularly the definition of “Territory”/“territory” in cl 4 of sch 1 and sch 4. The Colthurst Flooring parties say that correspondence between Mr Lynch and his solicitor on the drafting of the franchise agreement is relevant, as it may either help inform interpretation of the franchise agreement or corroborate accounts of the meeting on (or about) 9 July 2019.
[49] The Floorwise parties included three email chains containing correspondence between Mr Lynch and his solicitor, Mr Allen, concerning the preparation of the franchise agreement in their initial discovery. The Colthurst Flooring parties say that it is evident that there is more correspondence between Mr Lynch and his solicitor about the agreement from Mr Lynch’s response to the application that these are only “some” of the documents. The Colthurst Flooring parties suggest that the Floorwise parties have waived legal advice privilege in these emails by disclosing them, and rely on the principle of collateral waiver to say that this waiver extends beyond the emails provided to the full record of correspondence with the Floorwise parties’ solicitor on the drafting of the agreement.
[50] The Floorwise parties do not accept that they have waived privilege over other correspondence between Mr Lynch and Mr Allen beyond the three emails already disclosed.
[51] It is necessary to set out the three email chains between Mr Lynch, his solicitor, and Mr Colthurst which Floorwise has disclosed.
[52] The first email chain begins on 9 July 2019 at 1.21 pm.10 Mr Lynch emailed his solicitor, attaching a document, and stated: “Just a couple [of] amendments highlighted in pink. other than that it looks good to go. Please make changes and send back to me”. On 10 July 2019 at 10.37 am, Mr Colthurst sent an email to Mr Lynch asking, “Can you email me a scan of the pages we made amendments to?” Mr Colthurst informed Mr Lynch that he had obtained approval from the bank, and that he had a meeting with his lawyer the following day to go over everything. In response, on 10 July 2019 at 10.59 am, Mr Lynch forwarded the email he had sent to his solicitor the previous day to Mr Colthurst.
[53] The second email was sent on 10 July 2019 at 11.02 am.11 Mr Lynch forwarded the email from Mr Colthurst to his solicitor with the subject, “Changes to contract”, stating “I now have approval that Sam has the finance. Can you proceed with sale and purchase of this business under a franchise agreement”.
[54] Mr Orton submits that there is nothing in this email that constitutes privileged legal advice (which was why it was included in open discovery), so there is no question of collateral waiver.
[55] The third email was sent on 10 July 2019 at 3.19 pm.12 Mr Allen sent an email to Mr Lynch attaching a draft franchise agreement for his consideration, asking for the details to be completed at sch 1, and seeking confirmation of the services and products Floorwise would be providing to Colthurst Flooring. In response, at 5.21 pm, Mr Lynch asked Mr Allen to use the Floorwise logo on the cover page, and to “design like the [Carpet Court] front page”.
[56] Mr Orton explains that this latter email was not listed in the Floorwise parties’ affidavit of documents but appears to have been given a discovery number and sent by
10 Affidavit of Sam Francis John Colthurst in Support of Defendants’/Counterclaim Plaintiff’s Application for Further and Better Discovery, dated 26 September 2023, at SC-80.
11 Affidavit of Sam Francis John Colthurst, above n 10, at SC-82.
12 Affidavit of Sam Francis John Colthurst, above n 10, at SC-81.
the Floorwise parties to the Colthurst Flooring parties with their discovery in error. Therefore, he submits that s 65(4) of the Evidence Act 2006 applies.
[57] I do not consider that by including these emails in its discovery, the Floorwise parties have waived privilege in all other correspondence with their solicitor about the drafting of the franchise agreement. The principle of collateral waiver is intended to prevent unfairness or injustice where a party relies on privileged material to advance their case while maintaining privilege in other documents relevant to the same issue.13 That is, the principle operates to prevent the selective disclosure of legal advice that leaves the other party (and potentially the Court) with an incomplete and misleading impression of the full extent of advice that was received on the topic.14
[58] That principle does not apply here. First, it is doubtful that the second email is protected by legal advice privilege — it is a simple request by Mr Lynch to his solicitor to proceed with the transaction. Second, the Floorwise parties disclosed the third email inadvertently, so according to s 65(4) of the Evidence Act they did not waive privilege in the email. Third, and most importantly, the Floorwise parties do not seek to rely on the contents of these emails to advance their case such that it would be unfair or unjust not to require the Floorwise parties to disclose all other correspondence with their solicitor.
Category 9
[59] The Colthurst Flooring parties claim that the service fee payable under the franchise agreement changed during the lifetime of the arrangement. The Floorwise parties deny that occurred.
[60] The Floorwise and Colthurst Flooring parties have both discovered the same three or four emails between them on this topic over 1 and 30 June 2021. Mr Colthurst deposes that he would have expected there to be notes and internal emails, including
13 Business Control (Schweiz) AG v Shibalova [2023] NZHC 3278 at [38]; and Everest Serviced Apartments Ltd v Body Corporate 511909 [2022] NZHC 1925 at [50]–[51].
14 Westgate Town Centre Ltd v Auckland Council [2021] NZHC 858 at [49]; and NZX Ltd v Ralec Commodities Pty Ltd [2015] NZHC 241 at [104].
workings or calculations where Mr Lynch considered the service fee (including his comparison with other franchises).
[61] Mr Lynch deposes that he and the Floorwise entities have discovered all documents in their control relating to the change in level of the service fee.
[62] I decline to make an order in relation to this category because the Colthurst Flooring parties have not provided adequate evidence that the documents sought are likely to exist.
Floorwise parties’ application
Financial statements
[63] The Floorwise parties seek two categories of documents. The first category relates to its first cause of action for breach of the franchise agreement obligation to pay service fees.
[64] The franchise agreement had an initial term from 1 August 2019 to 31 October 2023, with two renewal periods of five years. The service fee payable by Colthurst Flooring to Floorwise was 7.5 per cent of the gross revenue for the first two years, and thereafter 5 per cent, to be paid monthly, exclusive of GST.
[65] The Colthurst Flooring parties purported to cancel the franchise agreement on 22 December 2021. They have not paid a service fee from that date. The Floorwise parties claim for the monthly service fees they say were owing at 22 December 2021 and from that date.
[66] The Floorwise parties seek discovery of the financial statements for Colthurst Flooring for the years ended 31 March 2022 and 31 March 2023, together with the financial statements which contain the gross revenue from 1 April 2023 to 31 October 2023 (shortly before they filed their application for discovery). This is on the basis that the service fee is calculated based on the gross sales/revenue of Colthurst Flooring and the gross sales/revenue will appear in the financial statements, in particular the Profit and Loss statement.
[67] The Colthurst Flooring parties discovered a single document recording Colthurst Flooring’s sales income from 22 December 2021 to 31 March 2023 (discovery document Colt.086). Mr Colthurst says this is the type of information Colthurst Flooring previously provided to Floorwise to enable the service fee under the franchise agreement to be calculated. The document is headed “Profit and Loss, Colthurst Flooring Ltd, For the period 22 December 2021 to 31 March 2023”, and contains a single entry under the heading “Trading Income”, recording sales of
$3,578,454.84.
[68] The Colthurst parties’ discovery did not include any complete financial statements.
[69] In February 2024, the Colthurst Flooring parties provided an updated statement of Colthurst Flooring’s sales income, in the same form as the abovementioned document, recording a single entry for sales from 22 December 2021 to 31 October 2023 of $5,058,803.75. The Colthurst Flooring parties say they always intended to provide updated information when this became available, consistent with their ongoing discovery obligations.
[70] The Floorwise parties say that these documents are inadequate, and that the Colthurst Flooring parties should provide formal financial statements, signed by an accountant, which will provide some form of independent verification and allow analysis to be undertaken to check the veracity of the sales figures.
[71] Alternatively, the Floorwise parties say that Colthurst Flooring should be required to provide its income tax returns or GST returns.
[72] The Colthurst Flooring parties say that they complied with their discovery obligations by providing the record of Colthurst Flooring’s sales income from 22 December 2021 to 31 March 2023 in their initial discovery on 17 May 2023. They say self-evidently the Colthurst Flooring parties could not provide discovery of sales information beyond that date at that stage.
[73] The Colthurst Flooring parties submit that the Floorwise parties’ discovery application was unnecessary. In a letter to Mr Orton dated 9 February 2024, the Colthurst Flooring parties’ lawyer pointed out that in the six months following their discovery provided on 17 May 2023, no suggestion was made that the Floorwise parties had any concerns over their discovery. The application was made, to the Colthurst Flooring parties’ surprise, without attempting to resolve matters by correspondence. The Colthurst Flooring parties say that upon receiving the Floorwise parties’ application for discovery in November 2023 (after the deadline directed by the Court), they provided the updated sales information (by letter dated 9 February 2023) which they say they had always intended to provide when it became available.
[74] The Colthurst Flooring parties maintain that the sales information they have provided is adequate as it is the sales income that is relevant to the claim by the Floorwise parties for unpaid service fees. They say that financial statements are not relevant, since the relevant information (sales figures) is apparent in the document that has been disclosed.
[75] Without prejudice to that position, the Colthurst Flooring parties are prepared to provide discovery of redacted GST returns to provide a form of verification of the sales figures already provided.
[76] I pause to note that the disagreement about this category of discovery has been on the table since before the Court made the order for standard discovery in April 2023. A memorandum of counsel for the Floorwise parties dated 22 February 2023 for a case management conference records that the Floorwise parties stated that they considered that the Colthurst Flooring parties’ standard discovery should include bank statements, GST returns, financial statements, income tax returns, and financial information relating to the calculation of service fees under the franchise agreement. A memorandum of counsel for the Colthurst Flooring parties dated 7 March 2023 records that the Colthurst Flooring parties accepted that matters relevant to the calculation of the service fees were relevant, but they did not accept that bank statements, GST returns, financial statements and income tax returns for unspecified date ranges needed to be provided in discovery. In a minute dated 4 April 2023 I observed that it was unclear to me how those documents were relevant to an issue in
the proceeding or the relief claimed by Colthurst Flooring, asked counsel for Floorwise to clarify this with Colthurst Flooring, and made a standard discovery order.
[77] In my view, Colthurst Flooring’s financial statements do hold potentially relevant information — the annual sales figures. The document the Colthurst Flooring parties have discovered, containing a single sales figure for the 22 December 2021 to
31 October 2023 period, appears to have been created by extracting the sales information from Colthurst Flooring’s financial statements/monthly accounts. I do not consider that to be an adequate response — the actual annual financial statements and any monthly accounts (for periods for which financial statements do not exist) should be discovered.
Invoices
[78] The Floorwise parties seek further and better discovery of invoices for work the Colthurst Flooring parties undertook outside the exclusive territory (including any work undertaken in the disputed area of Wellsford).
[79] The documents sought are said to be relevant to the Floorwise parties’ second cause of action, added in its amended statement of claim filed on 26 August 2024. In this cause of action Floorwise alleges that Colthurst Flooring breached cl 37.2 of the franchise agreement which states:
The Franchisee agrees that it will not, during the Term (or any period in renewal or extension of it), except with the prior written approval of the Franchisor, be directly or indirectly concerned or interested in any capacity in any business conducted in competition with the Business of the Franchisor (or its other franchisees) outside of the Territory.
[80] The Floorwise parties claim that from 1 August 2019 the Colthurst Flooring parties carried out flooring installation services outside the exclusive territory, including in the disputed area of Wellsford and in Auckland. They claim the equivalent of the Colthurst Flooring parties’ claim for damages for loss of profit and loss of opportunity to earn profit for the work allegedly undertaken by the Colthurst Flooring parties outside the agreed exclusive territory.
[81] The Floorwise parties seek discovery of the invoices for this work, which they say are prima facie evidence of whether the work has been undertaken or not. They do not seek other documentation relating to the work allegedly undertaken (as the Colthurst Flooring parties do in their application) but say that if the Court orders this documentation to be discovered by the Floorwise parties, equally this information should be discovered by the Colthurst Flooring parties.
[82] The Colthurst parties dispute the relevance of the invoices (saying that the relevant information is the sales information, already disclosed), but submit that in any case the Floorwise parties’ discovery application is premature. They say that there is no extant discovery obligation until they file their defence to the amended statement of claim. Only then will an issue be defined for the purposes of discovery.
[83] I am not prepared to make an order on this part of the Floorwise parties’ application. Under r 8.19 of the High Court Rules, the Court has jurisdiction to make an order for particular discovery after a proceeding has commenced where it appears to the Court that there are grounds for believing that a party has not discovered one or more documents or a group of documents that should have been discovered. The Colthurst Flooring parties completed their discovery based on the matters in issue as defined by the Floorwise parties’ statement of claim dated 10 June 2022, and the statement of defence and counterclaim the Colthurst Flooring parties filed in response.
[84] Until the Floorwise parties amended their statement of claim to include an allegation that the Colthurst Flooring parties breached the franchise agreement by undertaking flooring work in Wellsford and in other areas outside the agreed exclusive territory, whether the Colthurst Flooring parties had undertaken work in these areas, and the location and value of this work, were not issues in dispute. Therefore, it cannot be said that the Colthurst Flooring parties’ discovery has been inadequate.
[85] It is unfortunate that the Floorwise parties did not make their amended statement of claim sooner. Mr Lynch foreshadowed this amendment in November 2023 in his affidavit in opposition to the Colthurst Flooring parties’ interlocutory application for discovery. I note that on 9 February 2024 the Colthurst Flooring parties’ solicitor wrote to Mr Orton asking that the amended claim be filed and served
without further delay. The Floorwise parties did not take any steps until late June/July 2024 when leave was sought and granted to file the claim after the close of pleadings date. I acknowledge that Mr Lynch has been seriously unwell, but it would have been a simple matter to file the amended claim on the basis already defined by Mr Lynch in November 2023.
[86] The Floorwise parties’ claim is essentially the mirror image of the Colthurst Flooring parties’ claim — for lost profit or the opportunity to make profit for work undertaken by the Colthurst Flooring parties in areas outside the exclusive territory, allegedly in breach of cl 37.2. As I understand it, that involves the disputed areas (namely Wellsford and the area to the east and west of Wellsford, and Northland); and the area south of Wellsford, such as in Auckland. As such, I expect its discovery to include the kinds of documents sought from the Floorwise parties in categories 2 and 5.
Result
[87] I order the Floorwise parties to provide further discovery in relation to the following categories of documents listed in sch 1 to the Colthurst Flooring parties’ interlocutory application within 20 working days:
(a)Categories 2 and 5
(b)Part of Category 3 — financial statements for the years ended 31 March 2020; 31 March 2021; 31 March 2022; 31 March 2023; and 31 March 2024; and monthly accounts (if they exist) to 31 August 2024.15
[88] The Floorwise parties are to file an affidavit complying with the relevant High Court Rules in relation to the discovery provided on 8 August 2023, including giving particulars of the steps taken to fulfil their discovery obligations and properly identifying the nature of any privilege claimed and describing the privileged documents.
15 Or six-monthly accounts to 30 September 2024 if the parties agree.
[89] The affidavit should clarify that there are no documents in the Floorwise parties’ control in categories 1 or 4.
[90] I order the Colthurst Flooring parties to provide further discovery in relation to the following category of documents within 20 working days:
(a)Colthurst Flooring’s financial statements for the years ended 31 March 2022; 31 March 2023; 31 March 2024; and monthly accounts (if they exist) to 31 August 2024.
Costs
[91] The Colthurst Flooring parties seek increased costs in relation to both applications. I heard brief submissions from them on this issue at the hearing. I invite both parties to file submissions on costs of not more than five pages within 20 working days.
Associate Judge Gardiner
Schedule 1: Colthurst Flooring categories
Category 1: Documents relating to the arrangements/processes/protocols between the various entities that operated under or had the name ‘Floorwise’ (including but not limited to Floorwise NZ Ltd) and were owned and controlled by Mr Lynch (together ‘the Floorwise entities’) regarding work in or around the Wellsford area and above from July 2019 onwards.
Category 2: Documents relating to any work undertaken directly or indirectly by any of the Floorwise entities or Mr Lynch in or around Wellsford (and above) from July 2019 onwards.
Category 3: Financial information for the period from July 2019 onwards relating to any of the Floorwise entities or Mr Lynch in respect of the work referred to above, including bank statements, accounting records and annual accounts.
Category 4: Documents relating to any arrangements/processes/protocols put in place directly or indirectly by Mr Lynch or any of the Floorwise entities which:
(a)led to work in the Wellsford area and above being undertaken by parties other than the first defendant; and
(b)conversely, were positive steps put in place to ensure all jobs or potential jobs in or around Wellsford (and above) from July 2019 onwards were referred to the first defendant.
Category 5: Documents relating to any jobs or potential jobs, within the knowledge of Mr Lynch or any of the Floorwise entities, in or around Wellsford (and above) from July 2019 onwards that were not referred to the first defendant.
Category 6: Documents relating to the meeting on or around 9 July 2019.
Category 7: Documents relating to the reasons for Mr Lynch establishing Floorwise NZ Ltd and having that party contract with Colthurst Flooring Ltd.
Category 8: Documents relating to the preparation and drafting of the written franchise agreement between Floorwise NZ Ltd and Colthurst Flooring Ltd.
Category 9: Documents relating to the change in level of the service fee.
Schedule 2: Floorwise categories
[1]The financial statements for Colthurst Flooring Ltd for the years ended:
(a)31 March 2022;
(b)31 March 2023;
together with the financial statements which contain the gross revenue from 1 April 2023 to 31 October 2023 for Colthurst Flooring Ltd.
[2] Invoices for any work undertaken by the Defendants outside the First Defendant’s Territory pursuant to the Franchise Agreement (including any work undertaken in Wellsford).
7
0