Fuji Xerox New Zealand Ltd v Whittaker
[2021] NZHC 1469
•21 June 2021
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2017-404-2073
[2021] NZHC 1469
BETWEEN FUJI XEROX NEW ZEALAND LIMITED
First plaintiff
FUJI XEROX FINANCE LIMITED
Second plaintiffFUJI XEROX ASIA PACIFIC PTE LIMITED
Third plaintiff
AND
NEIL WHITTAKER
First defendant
MARK DONALD ALLRIGHT
Second defendantGAVIN POLLARD
Third defendantERNST & YOUNG
Fourth defendant
Hearing: 14-15 June 2021 Appearances:
M T Davies, W R Potter and W N Fotherby for plaintiffs J A Craig and A C Poole for first defendant
D P Hoskin and P J Muir for second defendant
S M Hunter QC, M J McGoldrick and M A Bowen for third defendant
R M Stewart and A J Wakeman for fourth defendantDate of judgment:
21 June 2021
JUDGMENT OF JAGOSE J
This judgment was delivered by me on 21 June 2021 at 4.30pm.
Pursuant to Rule 11.5 of the High Court Rules.
………………………… Registrar/Deputy Registrar
FUJI XEROX NEW ZEALAND LTD v WHITTAKER [2021] NZHC 1469 [21 June 2021]
[1] Without intending overly to simplify, the plaintiffs (“Fuji Xerox”) provide photocopiers to business customers on finance or operating leases. Revenues attributable to the former are identifiable for capitalisation at the outset of the lease, while those attributable to the latter are subject to their likely lesser reality.
[2] In this proceeding, Fuji Xerox contends the three individual defendants, each former senior executives employed by it, were responsible for its inappropriate accounting categorisation of particular revenue streams as being from finance rather than operating leases. On discovery and ‘correction’ of the categorisation, Fuji Xerox’s financial accounts for the period at issue were restated at substantially lower values. The fourth defendant, Ernst & Young, was Fuji Xerox’s auditor for the period at issue.
[3] Fuji Xerox relevantly claims to recover $3.664 million in commission and bonus payments made to the individual defendants on the basis of overstated revenues. The overstatement is alleged to have been done in breach of Mr Whittaker’s and Mr Pollard’s duties of care to Fuji Xerox, in respect of which negligence Fuji Xerox claims to have suffered “service losses” amounting to $86.300 million. (Other claims seek damages in the amount of contended unrecoverable intercompany advances in the amount of $174.500 million made in alleged reliance on the overstated revenues: in deceit against Mr Allright; in negligence against Ernst & Young.)
[4] For determination was a raft of interlocutory applications brought by the individual defendants for discovery and interrogatories, and to strike out the second and fourth causes of action as relating to their employment by Fuji Xerox. In the event the bulk of the former was addressed by agreement between counsel, as has been the pattern of case management thus far in this case, for which I am grateful.
[5] I turn first to address the latter strike out applications; then to mop up what remains of the former discovery and interrogatories applications.
Strike out applications
—the law
[6]Rule 15.1 of the High Court Rules 2016 provides:
15.1 Dismissing or staying all or part of proceeding
(1) The court may strike out all or part of a pleading if it—
(a)discloses no reasonably arguable cause of action, defence, or case appropriate to the nature of the pleading; or
(b)is likely to cause prejudice or delay; or
(c)is frivolous or vexatious; or
(d)is otherwise an abuse of the process of the court.
(2) If the court strikes out a statement of claim or a counterclaim under subclause (1), it may by the same or a subsequent order dismiss the proceeding or the counterclaim.
(3) Instead of striking out all or part of a pleading under subclause (1), the court may stay all or part of the proceeding on such conditions as are considered just.
(4) This rule does not affect the court’s inherent jurisdiction.
The principles are well-understood: pleaded facts are presumed true; the target pleading must have no prospect of success; and the jurisdiction is exercised only in clear cases.1
[7] Section 161 of the Employment Relations Act 2000 (the “Act”) relevantly provides:
161 Jurisdiction
(1)The [Employment Relations] Authority has exclusive jurisdiction to make determinations about employment relationship problems generally, including—
(a) disputes about the interpretation, application, or operation of an employment agreement:
(b) matters related to a breach of an employment agreement:
…
(r) any other action (being an action that is not directly within the jurisdiction of the court) arising from or related to the employment relationship or related to the interpretation of this Act (other than an action founded on tort):
…
1 See Gartside v Sheffield, Young & Ellis [1983] NZLR 37 (CA) at 45; Attorney-General v Prince [1998] 1 NZLR 262 (CA) at 267; and North Shore City Council v Attorney-General [2012] NZSC 49, [2012] 3 NZLR 341 at [146], all endorsed by the Supreme Court in Sandman v McKay [2019] NZSC 41, [2019] 1 NZLR 519 at [113].
(3) Except as provided in this Act, no court has jurisdiction in relation to any matter that, under subsection (1), is within the exclusive jurisdiction of the Authority.
[8]The Act defines ‘employment relationship problem’ as including:2
… a personal grievance, a dispute, and any other problem relating to or arising out of an employment relationship, but does not include any problem with the fixing of new terms and conditions of employment.
An ‘employment relationship’ includes one between “an employer and an employee employed by the employer”.3
[9] Noting the Act’s purpose in creating specialist bodies to deal with employment- related problems,4 the Court of Appeal endorsed this Court’s approaches to such jurisdictional questions as being:5
… whether the determination which is required is indeed about an employment relationship problem. In the words of the definition of that concept is the underlying problem one relating to, or arising out of, an employment relationship. I think it is important to distinguish between a claim which may have its origins in an employment relationship on the one hand, and a claim the essence of which is related to or arises from the employment relationship of the parties on the other. Is the issue in a particular claim an employment relationship one, or is the subject-matter of the claim some right or interest which is not directly employment related at all?
…
“[R]elating to” in the definition of “employment relationship problem” must be read in a limited way to mean any cause of action, the essential character of which is to be found entirely within the employment relationship itself. This would not encompass claims arising from tortious conduct even if arising between an employer and employee, since the relationship merely provides the factual setting for the cause of action; the duty arises independently.
[10]More recently the Court of Appeal reaffirmed:6
[T]he foundation of jurisdiction [is] whether the matter to be determined is an employment relationship problem. In JP Morgan Chase Bank NA v Lewis, this
2 Employment Relations Act 2000, s 5 definition of “employment relationship problem”.
3 Section 5 definition of “employment relationship”, referring to s 4(2).
4 JP Morgan Chase Bank NA v Lewis [2015] NZCA 255, [2015] 3 NZLR 618 at [99]–[100].
5 At [96]–[98], endorsing Pain Management Systems (NZ) Ltd v McCallum HC Christchurch CP 72/01, 14 August 2001, at [22]; and BDM Grange Ltd v Parker [2006] 1 NZLR 353 (HC) at [66].
6 FMV v TZB [2019] NZCA 282, [2019] NZAR 1385 at [19], citing JP Morgan Chase Bank NA v Lewis, above n 4, at [95]–[97] (FMV granted leave to appeal: FMV v TZB [2019] NZSC 108; decision reserved, 17 March 2020).
Court held that an employment relationship problem is one that “directly and essentially concerns the employment relationship” and that the essence of the claim must be employment related. On the other hand, the claim should not be regarded as within the Authority’s jurisdiction if the employment relationship is not a necessary component of the claim.
—the pleading
[11] Mr Whittaker was Fuji Xerox’s managing director and later senior managing director, with “overall control and responsibility for all aspects of the management and business of the [New Zealand] Companies”. Mr Allright was its chief financial officer, “responsible for the [New Zealand] Companies’ management and financial accounts, and for ensuring these complied with applicable laws, accounting standards, and FX Group policies and procedures”. Mr Pollard initially was Fuji Xerox’s New Zealand general sales manager, “responsible for ensuring compliance by his direct reports with FX Group policies and procedures”, and succeeded Mr Whittaker as managing director from 1 April 2015. (The ‘FX Group’ is the international conglomerate headquartered in Japan, of which the New Zealand companies are a part.)
[12]The individual defendants’ remuneration included entitlement to bonuses and
— for Mr Whittaker and Mr Pollard, who bore responsibility for sales — commission calculated by reference to Fuji Xerox policy. Bonuses and commission were paid in significant part on revenues recorded by Fuji Xerox. On the bases Fuji Xerox’s financial statements “materially overstated” its revenues for the 2012–2015 financial years; Fuji Xerox mistakenly relied on those statements to determine and pay the individual defendants’ bonuses and commission; and it is unjust to permit their retention, Fuji Xerox claims to recover them in restitution. This is the second cause of action.
[13] The fourth cause of action alleges Mr Whittaker and Mr Pollard “each owed the Companies a duty of care to perform their duties with reasonable care, diligence and skill”. Such duty included its exercise to ensure Fuji Xerox’s compliance with applicable accounting and financial policy, which was breached by its consequent non- compliance. Those duties expressly are said to derive from their positions held with Fuji Xerox: that they “owed a duty of care … as” (emphasis added) Fuji Xerox’s senior
executives or managing directors. (Their alleged breach of duties owed as directors under the Companies Act 1993 is separately pleaded as a fifth cause of action, not under challenge here.)
—discussion
[14] There is no dispute the individual defendants held their positions in employment by Fuji Xerox. Mr Whittaker was employed by each Fuji Xerox New Zealand Ltd and Fuji Xerox Finance Ltd, together referred to in the singular as “the Company”. Mr Allright and Mr Pollard each were employed by Fuji Xerox New Zealand Ltd alone (although it is unclear if Mr Pollard’s succession to Mr Whittaker included employment also by Fuji Xerox Finance Ltd). Their employment agreements with Fuji Xerox included their entitlement to remuneration, including bonuses and commission.
[15] The issue thus is if the second and fourth causes of action arise “independently” of the individual defendants’ employment relationship with Fuji Xerox. They will not if the ‘essence’ of the claim is employment-related; if the employment relationship is a necessary component of the claim.7
[16] There is nothing in the laws of restitution or negligence as either renders such a claim employment-related or requires an employment relationship as a necessary component. But their pleading here is of mistake in application of employment-related bonus and commission policy; of duties of care arising exclusively from the individual defendants’ employment by Fuji Xerox.
[17] For Fuji Xerox, Mark Davies argues tortious and equitable causes of action generally are excluded from the employment institutions’ jurisdiction, pointing to this Court’s Full Court reasoning of s 161’s ambit:8
… Parliament’s purpose cannot be to shift to the Authority and the Employment Court the responsibility to deal with claims in tort (outside those covered by s 99) or claims in equity (outside those covered by s 100) when it has refrained from providing tools equivalent to those furnished by s 162 for contract cases. The only way to reconcile the language of subcl (r) with the
7 See [9]–[10] above.
8 BDM Grange Ltd v Parker, above n 5, at [74].
policies of the ERA is to treat it, as its penultimate position in the list of jurisdictions suggests, as something ancillary to the core business of the Authority and the Employment Court. The exclusion of tort jurisdiction, implicit in that as a whole, is there made explicit, no doubt out of caution.
[18] That is too broad a reading of the Full Court’s judgment, which carefully considers the “concurrent [in time and] complementary [in effect] jurisdictions of this Court and the Authority”,9 illustrated by an employer’s assault on an employee potentially constituting elements of both the employment institutions’ personal grievance and this Court’s exemplary damages jurisdictions.10 Similarly, deceit.11 Or breach of confidence.12 Recognising the mere fact of the relationship is insufficient,13 the question remains if the claim is founded ‘independently’ of it.14 Thus in relation to a claim of breach of confidence, if the claim is:15
… brought essentially to achieve performance or to seek relief for breach of the employment contract, it is properly to be construed as arising from the employment relationship and thus within the exclusive jurisdiction of the Authority and the Employment Court. However, a claim for relief which in essence arises not out of the employment relationship, but is to be characterised as substantially, say, a claim in equity (or, if the cause of action is … for breach of confidence simpliciter) is properly within the jurisdiction of the High Court.
[19] The distinction usefully is illustrated by the second and fourth causes of action as pleaded here. On the former, Fuji Xerox’s operative mistake is pleaded to be as to its assessment of its revenues, albeit here for the particular purpose of meeting the individual defendants’ employment entitlements. On the latter, the breached duty is pleaded to be one arising from the first and third defendants’ employment. The former plainly is independent of the employment relationship and falls within this Court’s general jurisdiction; the latter as clearly arises only to obtain relief from breach of employment obligations and thus falls within the Authority’s exclusive jurisdiction.
[20] Mr Davies’ response the Authority lacks any tortious jurisdiction misses the point. The Authority has exclusive jurisdiction to make determinations about
9 At [67] and [88].
10 At [68].
11 At [68].
12 At [88].
13 At [65].
14 At [66].
15 At [88].
employment relationship problems, including as to breach of an employment agreement, and extending to “any … action … arising from or related to the employment relationship. … (other than an action founded on tort)”.16 It is not open to Fuji Xerox to avoid that exclusive jurisdiction (and all the policy reasons for its long-term establishment)17 by casting its claim in tortious terms.
[21] Rather the issue is if, irrespective of the claim’s pleaded characterisation, it is one in essence arising from the employment relationship (and therefore susceptible to the Authority’s exclusive jurisdiction), or otherwise founded on some independent duty (and therefore not). Except as Fuji Xerox’s senior executives, the first and third defendants have no duty of care to it. Absent such employment, there is no sufficient proximity between the men and Fuji Xerox.18 Only by their employment may the men have assumed any responsibility to Fuji Xerox.19 Where, as here, the claim entirely depends on the employment relationship, Fuji Xerox’s remedies were limited to those available from the employment institutions. It did not “need” to seek tortious relief.20
[22] Thus it also is of no consequence now if Fuji Xerox’s claim may be time- barred,21 or its challenge comes late in the proceeding’s four-year progress to trial next year. As a matter of my jurisdiction to entertain Fuji Xerox’s claim, discretionary considerations are irrelevant. The same result would arise at trial.
[23] So far as Fuji Xerox’s restitutionary claim on its second cause of action is concerned, for Mr Pollard (but supported by the other individual defendants), Stephen Hunter QC argued claims to recover mistakenly overpaid remuneration, however characterised, were among “the core business of the Authority”.22 Its ‘core business’ in that respect is in reimbursement of employees’ lost remuneration or recovery of arrears owing to employees.23 Doubtless employers may recover overpaid
16 Employment Relations Act, s 161(1).
17 BDM Grange Ltd v Parker, above n 5, at [19] and [64].
18 North Shore City Council v Attorney-General, above n 1, at [158].
19 See Henderson v Merrett Syndicates Ltd [1995] 2 AC 145 (HL) at 181; Burgess v Lejonvarn [2017] EWCA Civ 254 at [85]–[88]. Compare Pangood Ltd v Barclay Brown & Co Ltd [1999] Lloyd’s Rep PN 237 (CA) at [239].
20 BDM Grange Ltd v Parker, above n 5, at [88].
21 Employment Relations Act, s 142.
22 Citing New Zealand Fire Service Commission v Warner [2010] NZEmpC 90 at [37].
23 Employment Relations Act, ss 128, 131, and 161(1)(e) and (g).
remuneration in the Authority under s 161(1)(r) if recovery is contingent on the employment relationship, but that only can be something “ancillary” to its core business.24
[24] An action for money had and received is a restitutionary remedy, which generally is “to correct normatively defective transfers of value, usually by restoring the parties to their pre-transfer positions”.25 The ‘defect’ on an action for money had and received is that “the money would not have been paid, but for a mistake of fact which [the payer] made”.26 Payment in excess of contractual entitlements does not mean the claim for its recovery necessarily also is contractual; the action only is ‘quasi-contractual’.27 The law on recovery of mistaken payments relies on correction of the mistake’s consequences,28 rather than the relationship between the parties. In very large part, the law of restitution exists exactly to stand apart from the parties’ relationship, to restore its ‘norm’.
[25] Fuji Xerox is seeking to recover not money paid under its employment obligations, but money paid in excess of those obligations. There is no dispute about the obligations as may have brought the matter within the employment institutions’ jurisdiction; only if Fuji Xerox was mistaken as to its assessment of qualifying revenues, for which this Court’s jurisdiction is not excluded.
[26]I will strike out the fourth, but not the second, cause of action.
Particular discovery/interrogatories
—the law
[27]The High Court Rules 2016 provide:
24 BDM Grange Ltd v Parker, above n 5, at [74].
25 Investment Trust Companies v Revenue and Customs Commissioners [2017] UKSC 29, [2018] AC 275 at [42].
26 Thomas v Houston Corbett & Co [1969] NZLR 151 (CA) at 167, approved in Napier v Torbay Holdings Limited [2016] NZCA 608, [2017] NZAR 108 at [19].
27 Napier v Torbay Holdings Limited, above n 26, at [19]; compare HI Build Ltd (formerly Home Builders Bop Ltd) v Forman (as trustees of the NK Forman Family Trust) [2018] NZHC 1320 at [31].
28 Marlborough District Council v Altimarloch Joint Venture Ltd [2012] NZSC 11, [2012] 2 NZLR 726 at [140].
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.
[28] It generally is accepted such requires determination of the sought documents’ relevance and importance or materiality, and existence, and of the proportionality of their discovery in the proceeding, for exercise of the Court’s discretion.29 Such especially has resonance when particular discovery is sought following tailored discovery, which may be thought to have addressed what “should have been discovered”.30
—discussion
[29] Tailored discovery — of 46 categories of documents, relating to 19 matters in issue — was ordered by consent here, on terms reserving the defendants’ entitlement to revert to the Court.
… contractual and related documents
[30] In relation to the disputed accounting treatment, the categories included at H25 “[d]ocuments from [Fuji Xerox’s] contracts data base relating to the MSA and GCSA contracts which the plaintiffs allege should not have been treated as finance leases”
29 Assa Abloy New Zealand Ltd v Allegion (New Zealand) Ltd [2015] NZHC 2760 at [14].
30 Lighter Quay Residents’ Society Inc v Waterfront Properties (2009) Ltd [2017] NZHC 818 at [16(c)], citing Air National Corporate Ltd v Aiveo Holdings Ltd [2012] NZHC 2258 at [16] and Domenico Trustee Ltd v Tower Insurance Ltd [2014] NZHC 2657 at [67]–[68].
for the period from 1 April 2011 to 14 September 2015. As ordered by consent, the determination of ‘what should have been discovered’ has not been subjected to judicial scrutiny.
[31] I understand the subject contracts — at least so far as they are said to have incurred service losses — amount to 1899 contracts, with fewer customers. There is a question about if originally they were classified as finance leases, Fuji Xerox’s restatement possibly reclassifying them otherwise in its data base. Fuji Xerox has furnished the defendants with a spreadsheet reporting on individual accounts held by various customers (which appears to identify 1900 accounts incurring service losses of $1000 or more). The customer profits tab of that spreadsheet nets off each account’s revenue against cost (including of finance) of service. It may contain mysteries, including how accounts attracting no finance charges may originally have been classified as finance leases. Nonetheless, at issue is if any of those contracts properly were categorised as finance or operating leases.31 Also possibly at issue is if losses should be aggregated with profits made on other accounts with the same customer.
[32] Fuji Xerox was advised classification of contracts as either finance or operating leases was a contract-by-contract assessment, and in particular of their terms as to target volumes, options to “right-size” or for sole-supply, and termination. If the original contract and related documents remain in Fuji Xerox’s possession, they are likely to be held in various off-site archives, directed access to which appears not to be straightforward. At least to that extent they are both relevant and material, and exist. The parties appear instead to have contemplated Fuji Xerox’s “contract data base” would be an adequate substitute for access to the original documents. I view that as implicit acceptance the contractual and related documentation otherwise should have been discovered. I therefore do not consider discovery should be sought by variation.32
[33] Fuji Xerox relies on a number of electronic applications which draw from a database known as the Data Warehouse. Although those applications — Co-web, Falcon and Trace — also are described as “databases”, to the extent they store original
31 Fuji Xerox’s own review of 10 contracts selected from a pool of 529 prospectively the subject of the inappropriate characterisation established one incorrectly was identified as a finance lease, when it was an operating lease.
32 High Court Rules 2016, r 8.17.
contractual, rather than subsequent operational, information — they appear to be duplicative of information held in the Data Warehouse. It is unclear to me if a further database of scanned “hard-copy contractual documentation”, known as Alchemy, also is derivative of information held in the Data Warehouse. But Alchemy — only disclosed in late April 2021, is significantly incomplete, notably lacking original contracts or subsequent deal sheets or invoices for some substantial customers.
[34] There is a rebuttable presumption about the regularity to be afforded company records.33 It is unclear if that uncritically is to be afforded to all company records: for example, those collated for operational convenience rather than formal record- keeping. All the same, the presumption is rebuttable, and the defendants are entitled to information by which to test the presumption’s reliability in the present circumstances. Such testing explicitly is the foundation for the individual defendants’ request now for the original contractual and related documents. For Mr Whittaker, James Craig explained the individual defendants’ expert forensic accountant, Andrew McKay, required those documents to “test” Fuji Xerox’s assertions. For Mr Allright, Philip Muir sought similarly in reliance on his client’s assertion, without them, he “cannot properly prepare [his] defence”.
[35] The proposed access to the entirety of the contractual and related documents is not to ‘test’ the assertions, but comprehensively to audit them. Given Fuji Xerox’s electronic records, that may not be proportionate. Instead I propose the parties’ experts conference to seek to agree a proportionate means by which, first, the reliability of Fuji Xerox’s “contracts data base” can be tested; or failing that, second, a representative sample of Fuji Xerox’s contractual and related documents can be identified for discovery. By “representative”, I mean for results from those documents to be extrapolated to the whole, albeit likely with some allowance for individual
33 For example, Morris v Kanssen [1946] AC 459 (HL) at 475; and Tamaki v Māori Women’s Welfare League Inc HC Wellington CIV-2011-485-1319 at [72]. Similarly, the business records exception to the hearsay rule (Evidence Act 2006, s 19) is founded on the expectation “[b]usiness records as a class of documents are accepted as reliable”: Evidence Bill (256-2) (select committee report) at
3. See also Elisabeth McDonald and Scott Optican (eds) Mahoney on Evidence: Act & Analysis (4th ed, Thomson Reuters, Wellington, 2018) at [EV19.01]; and Mathew Downs (ed) Cross on Evidence (online ed, Thomson Reuters) at [EVA19.1]. Further, see the Court of Appeal’s remark “the [Evidence Act] presumes a basic level of reliability from the nature of the business records
… The rationale is that if information supplied by someone having personal knowledge of the matter is recorded in order to comply with a duty or in the course of a business then the information is likely to be reliable”: Asgedom v R [2016] NZCA 334 at [78].
uncertainty. I acknowledge uncertainty is endemic in sampling, but the potentially objective nature of the contracts may offer some more efficient approach than wholesale discovery.34
[36] For that reason, I leave the applications for discovery of Fuji Xerox’s contractual and related documents presently undetermined. As will be clear from the above, however, absent some basis for satisfaction as to Fuji Xerox’s contract data base’s reliability, an alternative is required.35 I therefore also leave Mr Whittaker’s alternative application for interrogatories for possible future determination. But I will give directions for their dispatch.
[37] Mr Allright’s discovery application was substantially wider than only for Fuji Xerox’s contractual and related documents. Mr Allright is singular among the defendants in that he is alleged to be liable in deceit to the Singaporean Fuji Xerox Asia Pacific (as funder of the intercompany advances to its New Zealand subsidiaries) for the advances’ full amount of $174.500 million (although that sum also is sought of Ernst & Young on grounds of its alleged negligence).
—date range extensions
[38] Mr Allright additionally seeks extensions of the date ranges for documents to be discovered under categories I28 (revenue accrual reversals), M33(b) (D[ocument
]S[ervicing ]G[roup] adjustment internal reviews), N34(f) (records of write-offs related to significant default risk customers) and R41–44 (claimed losses). The tailored discovery agreed between the parties stipulates “relevant periods” for discovery under each category.
[39] In respect of category I28, the extension is sought to capture documents relating to Fuji Xerox’s reversal of revenue accruals. Its amended statement of claim, on which tailored discovery under this category was ordered for a period ending 14 September 2015, is explicit at paragraph 60(d) reversal occurred in the financial
34 Minister of Education v James Hardie New Zealand [2019] NZHC 245 at [56]–[67]. Although not precisely on point, see similarly Houghton v Saunders [2019] NZHC 142 at [18]–[19].
35 In that respect, see Commerce Commission v Telecom Corporation of New Zealand Ltd (2006) 18 PRNZ 251 (CA) at [43]–[48].
year ending 31 March 2017. Mr Allright, who denies the whole of paragraph 60, wants to know the reasons for the reversal.
[40] I have some difficulty in understanding the 14 September 2015 limitation, when category I28(d) is for discovery of “documents relating to the reversal of revenue accruals in the financial years ended 31 March 2016 and 31 March 2017”, and the pleading asserts a net $7.500 million of revenue and cost accruals then were written off “because the Inappropriate Revenue Accruals recorded revenue for contracts that never proceeded”.
[41] Similarly, Mr Allright seeks the same extension of date in relation to the practice of DSG adjustments he is alleged to have established. Noting the adjustments had not been written off during the specified period for discovery, he wants to know how Fuji Xerox may alternatively have addressed the adjustments’ corrective purpose. His defence directly contends significant default risk customers continued to trade into 2019, but proposes only to extend that date range to encompass his successor’s first financial year report’s finalisation on 31 October 2017. Last, he seeks to extend categories R41 and 43–44 to 31 March 2020, to capture restated management accounts for the 2016 and 2017 financial years.
[42] I am hesitant to intervene in the parties’ agreed tailored discovery, notwithstanding the defendants’ reservation. Given the obviousness of the later reversals, the earlier limitation may be in error. But, if discovery is limited to 14 September 2015, any subsequent reasons revenue accruals actually were reversed will not be known. Thus Fuji Xerox will be constrained to such reasons for reversals resulting in loss as can be established either on documents within the discovery date range, or objectively by reference to appropriate accounting standards. Neither may Fuji Xerox be able to establish revenue accruals or DSG adjustments later were recognised in its financial accounts. Last, it may be misleading if, in calculation of its contended losses, Fuji Xerox sought to rely at trial on financial records that were otherwise than final.
[43] It may be the parties wish to reconsider. I also leave Mr Allright’s application in this respect presently undetermined. I also will give directions for its dispatch.
… delayed finalisation of 2016 financial accounts
[44] Mr Allright has identified from provided discovery Fuji Xerox’s management representation letter to Ernst & Young, relating to finalisation of its 2016 financial accounts, was delayed from 4 to 30 August 2016, a period spanning its annual general meeting on 15 August 2016. He seeks associated correspondence, to understand the extent of the Singaporean parent company’s knowledge while his settlement agreement with Fuji Xerox was being negotiated.
[45] The tailored discovery already requires at F20 provision of “[d]ocuments relating to any audit performed by or accounting and financial reporting advice provided by” Ernst & Young to the plaintiffs for the period from 1 April 2011 to September 2017. Fuji Xerox affirms the conclusiveness of its discovery in this respect. But its additional search for relevant emails referring to “management accounts” ends at 31 March 2017.
[46] On the other hand, Mr Allright gives no basis for his contentions there “will” be further documents. Certainly, if they exist, I cannot see how they could fall outside F20. Otherwise, the request smacks of ‘fishing’: looking for, rather than at, evidence of prospectively relevant facts.36 In any event, Mr Allright’s settlement agreement was signed on 18 December 2015, meaning August 2016 correspondence seems unlikely to cast any light on Fuji Xerox’s motivating considerations. I decline this aspect of the discovery sought.
… short-term lease
[47]Fuji Xerox alleges Mr Allright and Mr Whittaker inappropriately structured
$5 million as an inducement to surrender existing premises on Auckland’s College Hill, rather than an inducement to lease intended premises in Newmarket. Mr Allright points out there was a supervening short-term lease of the College Hill premises, only disclosed in discovery from Ernst & Young, on which he seeks all related documentation from Fuji Xerox.
36 Re Securitibank (No 31) (1984) 1 PRNZ 514 (HC) at 519–520.
[48] Discovery category K30 non-specifically addresses documents relating to “termination of one lease and the entry into a different lease”. Certainly, given the pleading, that may be thought to refer to the original and ultimate leases. Nonetheless, as worded, K30 also catches references to the short-term lease. For Fuji Xerox, William Fotherby took me to the category’s search algorithm, which provides no indication any reference to the intermediate lease should be excluded, and every indication such references would be caught. I conclude — if inadvertently excluded, as I comprehend Fuji Xerox to accept — such is the unintended consequence of the electronic search criteria. I suggest Fuji Xerox may have to re-examine its search criteria for K30, but grant Mr Allright’s application in this respect in any event.
… expert loss analysis
[49] Mr Muir recites a number of heads of further discovery sought by Mr McKay. These all fall within the expert’s requirements to “test” Fuji Xerox’s assertions,37 and by consent are “parked” similarly.38
… email custodians
[50] Last, Mr Allright seeks to enlarge the list of email custodians to redress what he perceives to be a sales/finance imbalance, the latter being relevant to him. He proposes targeted searches of the email folders of an additional six Fuji Xerox employees. Fuji Xerox explains over 37,000 discovered documents already are sent by those employees. Its experienced litigation support advisor explains the diminishing return likely represented by any unique relevant document not already caught in email folders of the current custodians (including Mr Allright). That is to say, such only can be documents responsive to the search terms but not found on any of the current custodians’ email folders.
[51] I may have been prepared to give this head of discovery more favourable consideration if Mr Allright had been able to identify any prospective correspondence omitted by virtue of their custodian not being a target custodian, whether from the discovery of documents sent by the six employees or otherwise. Without that
37 See [34]–[35] above.
38 See [36] above.
indication of likely relevant and material documents, this head of particular discovery too fails for ‘fishing’, and I dismiss it accordingly. To avoid doubt, that is not to exclude such custodians from inclusion in the experts’ “proportionate means”, if they consider such should be included.39 But neither is it to require the experts to include them.
Result
[52]I:
(a)dismiss the first to third defendants’ application to strike out Fuji Xerox’s second cause of action;
(b)strike out Fuji Xerox’s fourth cause of action;
(c)adjourn the individual defendants’ applications for discovery and interrogatories, for determination after consideration of the result of an experts’ conference yet to be held;
(d)adjourn the second defendant’s application for discovery of (i) Fuji Xerox’s contractual and related documents; (ii) documents within extended date ranges; and (iii) documents sought for expert loss analysis, also for that subsequent determination (and, in relation to the date ranges, after the parties’ reconsideration (if any) of them);
(e)dismiss the second defendant’s application for discovery of documents
(i) in relation to the delayed finalisation of Fuji Xerox’s 2016 accounts; and (ii) from additional email custodians; and
(f)order Fuji Xerox to discover, under tailored discovery category K30, documents relating to the short-term lease of the College Hill premises.
Next steps
[53] I direct counsel to confer on a timetable and agenda for an experts’ conference (including to seek to agree “proportionate means” as set out at [35] above, and
39 See [35] above.
otherwise to prepare for their roles as expert witnesses at trial), and on any reconsideration of date ranges as set out at [43] above, for filing of (desirably joint) memoranda by Friday, 9 July 2021 (but any response or reply within five working day intervals after service).
[54] In that connection, I record my preliminary expectation expert witnesses will be convened for trial to:
(a)confer on the common subject matter of their evidence, in the absence (or observation without participation) of the parties’ legal advisers;
(b)try to reach agreement on that subject matter;
(c)without assistance from the parties’ legal advisers, prepare and sign a joint witness statement stating the matters on which the expert witnesses agree and the matters on which they do not agree, including the reasons for their disagreement; and
(d)give oral evidence at trial concurrently, in a ‘hot tub’ format, with cross- examining counsel able to elicit witnesses’ comment on each other’s evidence.40
I acknowledge exclusion of the parties’ legal advisers requires the parties’ agreement.41
[55] As I indicated at the hearing, I favour appointing an independent expert to convene and conduct any conference of expert witnesses.42 That also requires the parties’ agreement.43 Apprehending the independent expert should have the same expertise as the expert witnesses, I also favour appointing that person a court expert, to answer any questions not agreed by the expert witnesses as may be put for his or her expert opinion,44 for cross-examination at trial.45 Given the duality of
40 The ‘hot tub’ methodology is explained in Commerce Commission v Cards NZ Ltd (No 2) (2009) 19 PRNZ 748 (HC) at [5].
41 High Court Rules 2016, r 9.44(2).
42 See, for example, Kidd v van Heeren [2021] NZHC 1414 at [18].
43 High Court Rules 2016, r 9.44(4).
44 Rule 9.36(1) and (5).
45 Rule 9.40.
role, that again requires the parties’ agreement.46 Finally, the court expert, if not agreed between the parties, is to be appointed from their nominees.47
[56] While preparation for trial is on my mind, once pleadings are complete, I would appreciate a ‘merged’ or ‘blended’ pleading document: ordinarily produced in columnar landscape format, corresponding paragraphs of the claim and defence presented in rows. Given the number of parties here, it may be there should either be a merged paper document for each defendant; or a merged electronic spreadsheet of all, with the first claim column ‘frozen’ to permit its comparison with each reciprocal defence column.
Costs
[57] In my preliminary view, the parties’ mixed successes on the determined applications mean costs should lie where they fell, to be borne by the party incurring them. If that is not accepted by the parties, or they cannot otherwise agree, I reserve costs for determination on short memoranda of no more than five pages — annexing a single-page table setting out any contended allowable steps, time allocation, and daily recovery rate — to be filed and served by any claiming party within ten working days of the date of this judgment, with any response or reply to be filed within five working day intervals after service.
—Jagose J
Counsel/Solicitors:
S M Hunter QC, Auckland Meredith Connell, Auckland Simpson Grierson, Auckland
Steindle Williams Legal, Auckland SBM Legal, Auckland
Fee Langstone, Auckland A Leopold SC, Australia
46 Rules 9.36(4) and 9.44(7).
47 Rule 9.36(3).
3
16
1