Fujifilm Business Innovation New Zealand Limited v Whittaker
[2022] NZHC 1760
•21 July 2022
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2017-404-2073
[2022] NZHC 1760
BETWEEN FUJIFILM BUSINESS INNOVATION NEW ZEALAND LIMITED
First plaintiff
FUJIFILM LEASING NEW ZEALAND LIMITED
Second plaintiffFUJIFILM BUSINESS INNOVATION ASIA PACIFIC PTE LIMITED
Third plaintiff
AND
NEIL WHITTAKER
First defendant
MARK DONALD ALLRIGHT
Second defendantContinued overleaf
Hearing: On the papers Counsel:
M D O’Brien QC, M T Davies and W N Fotherby for plaintiffs A Leopold SC, R M Stewart and A J Wakeman for fourth
defendant
Date of judgment:
21 July 2022
JUDGMENT OF JAGOSE J
[Fourth defendant’s amended counterclaim and discovery]
This judgment was delivered by me on 21 July 2022 at 4.00pm.
Pursuant to Rule 11.5 of the High Court Rules.
…………………………
Registrar/Deputy Registrar
FUJIFILM BUSINESS INNOVATION NEW ZEALAND LTD v WHITTAKER [2022] NZHC 1760 [21 July 2022]
GAVIN POLLARD
Third defendant
ERNST & YOUNG
Fourth defendant
[1] As previously said,1 without intending overly to simplify, the plaintiffs (“Fuji”) 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, initially issued on 8 September 2017, Fuji 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 identification and ‘correction’ of the categorisation, Fuji’s financial accounts for the period at issue were restated at substantially lower values.
[3] On 3 July 2019, Fuji amended its claim to include claims of negligence and breach of contract against a fourth defendant, Ernst & Young, Fuji’s auditor for the period at issue. With Fuji’s consent to leave being granted, on 21 August 2020, Ernst & Young belatedly filed a counterclaim against the Singaporean plaintiff, broadly contending to be entitled to its indemnification for any damages Ernst & Young may be liable to pay Fuji, on grounds of particularised representations allegedly made by Fuji to Ernst & Young and the individual defendants’ contended negligence.
Applications for decision
[4] Ernst & Young filed an amended counterclaim on 17 December 2021. It says without more specificity its amendments refer to or rely upon documents discovered by Fuji. For that reason, Ernst & Young now seeks leave to rely on such documents. Fuji in turn contends the amended counterclaim “is materially different from the original counterclaim for which leave was granted” and therefore should be denied
1 Fuji Xerox New Zealand Ltd v Whittaker [2021] NZHC 1469.
leave for its filing or struck out. It also seeks full discovery from Ernst & Young of documents relevant to matters in issue on its counterclaim (or amended counterclaim).
[5] Given the shortness of time to — and unavailability of hearing time before — trial commencing on 1 August 2022, my decision is sought on the papers, for which the parties agreed a timetable for written submissions, completed on 18 July 2022. For the same reason, this judgment necessarily is summary and conclusory in nature.
—Ernst & Young’s application
[6] As I previously explained in relation to Ernst & Young’s application, “absent special circumstances, I generally am not enthusiastic about such applications [if] reliant on involuntary discovery to open up new lines for attack”.2 ‘Special circumstances’ are “wide, comprehensive and flexible words indicating something abnormal, uncommon or out of the ordinary but something less than extraordinary or unique”.3
[7] The reason for my hesitancy is the prohibition against use of discovery for collateral purpose,4 such as issuing a counterclaim:5
It balances the competing interests of a party’s right to privacy in relation to its own documents with the public interest in ensuring that all relevant information is before the Court when it adjudicates on a claim. Recognising that discovery involves an invasion of privacy and is provided under compulsion, by order of the Court, for the purpose of enabling a fair trial of the proceeding in which the discovery is given, any recipient of a discovered document may use it only for the purposes of that proceeding. Any person receiving the document is subject to an implied undertaking to the Court not to use it for any other purpose without leave of the Court.
This protection against collateral use of discovered documents is critical to maintaining confidence in the integrity of the discovery process and helps ensure that parties comply with their discovery obligations. Therefore, when considering an application for a relaxation of the fundamental rule prohibiting
2 Fujifilm Ltd v Whittaker HC Auckland CIV-2017-404-2073, 16 June 2022 at [7], citing Telstra New Zealand Ltd v Telecom New Zealand Ltd (2000) 14 PRNZ 541 (HC) at [57]. See also Telstra New Zealand Ltd v Telecom New Zealand Ltd (1999) 14 PRNZ 108 at 113, citing Alterskye v Scott [1948] 1 All ER 469 (Ch) and Riddick v Thames Board Mills Ltd [1977] 3 All ER 677 (CA).
3 Kidd v van Heeren CA36/97, 22 May 1997 at 3–4, citing Cortez Investments Ltd v Olphert & Collins [1984] 2 NZLR 434 (CA); Lyon v Wilcox [1994] 3 NZLR 422 (CA); and Peninsula Watchdog Group (Inc) v Minister of Energy [1996] 2 NZLR 529 (CA).
4 High Court Rules 2016, r 8.30(4).
5 Dotcom v Attorney-General [2016] NZHC 2251 at [8]–[9]. See similarly Wilson v White [2005] 3 NZLR 619 (CA) at [20].
collateral use of discovered documents in a particular case, the Court must be vigilant to ensure that the confidence that litigants are entitled to have in this important safeguard is not eroded. That would be contrary to the public interest.
[8] Fuji has provided a version of Ernst & Young’s amended counterclaim, marked up to show the amendment’s elaborations on the original. It is unclear which elaborations are merely updating, and which rely on Fuji’s discovery. However — assuming every substantive amendment has discovery as its source, which assumption is necessary on Ernest & Young’s failure to be more specific — the great bulk of elaborations appear better to particularise original allegations. Little objection could be taken to that, unless the particularisation was materially to change the allegation’s meaning on its face.
[9] The exceptions appear to be in relation to the negligence claim originally brought against the Singaporean parent third plaintiff, now sought to be brought also against the New Zealand subsidiary first and second plaintiffs as a consequence of:
(a)their contended knowledge of a so-called “Whistleblower Email”; and
(b)their vicarious liability for torts allegedly committed by particular of their employees (including the second and third defendants).
Assuming these allegations to spring from discovery, that is precisely the sort of collateral use against which the prohibition sets its face. It does not matter the first and second plaintiffs’ knowledge of the ‘whistleblower email’ already was in issue between the parties on Ernst & Young’s defence to Fuji’s claims, or the plaintiffs necessarily relied on their employees for such knowledge; what matters is Ernst & Young lacked a sufficient foundation to allege that knowledge and conduct rendered the first and second plaintiffs liable to it, except from Fuji’s discovery to it.
[10] Leave accordingly is required for Ernst & Young’s amended counterclaim in those respects. Given Ernst & Young’s failure to specify which amendments rely on discovery, leave is required for the whole of the amended counterclaim. I see no special circumstance justifying its grant. Notwithstanding reference to “a strong factual connection between the existing proceeding and the other proceeding … as
a particular situation which may lean in favour of the granting of leave”,6 that only is as “a relevant mechanism for testing whether or not the controlling principle which governs the use of discoverable documents should be applied in its full rigour or whether a departure is justified”.7
[11] In Mau Whenua Inc v Mulligan,8 relied on by Ernst & Young, the prospective ‘special circumstance’ was transfer of information from counsel in a discontinued proceeding to new counsel for fresh legal advice on claims in the discontinued proceeding, as to which a strong factual connection between it and any new proceeding may establish unprejudicial identity between the two (particularly given High Court Rules 2016 r 15.24’s conditional permission for renewed proceeding on “facts that are the same or substantially the same”). But the existence of such a factual connection also can be precisely the reason to refuse prejudicial applications reliant on involuntary discovery to open up new lines for attack, about which I remain unenthusiastic.
[12] Given my uncertainty as to what counterclaim amendments objectionably rely on Fuji’s discovery, I will refuse leave generally for such reliance. Nonetheless, I expect any unobjectionable reliance may aid in finalising comprehensive pleadings (and desirably a merged pleading) for trial. If counsel are unable to agree on such amendments to the original counterclaim, it is to remain in its filed state. Nothing prevents proof of the original counterclaim’s allegations by witnesses’ reference to discovered documents.
—Fuji’s application
[13] Fuji additionally says Ernst & Young’s negligence claim has expanded “to encompass two earlier audit years” not pleaded in the original counterclaim, and therefore is to be regarded as a fresh cause of action, requiring leave for its commencement (if it is not out of time).
[14] I do not understand Fuji’s foundation point. The original counterclaim expressly referred at paragraph 45 to Ernst & Young’s audits of the New Zealand
6 Hally Labels Ltd v Powell [2013] NZHC 900 at [44].
7 Hunter Grain Ltd v Price HC Tauranga CIV-2008-470-000192, 23 April 2010 at [39].
8 Mau Whenua Inc v Mulligan [2021] NZHC 558 at [24].
plaintiffs’ 2013–2015 financial statements as establishing the necessary proximity between it and the Singaporean plaintiff, and for exercise of the latter’s alleged duty of care; at paragraph 47 to the duty’s breach for those years with impact on Ernst & Young’s associated audit reports; and at paragraph 48 to Ernst & Young’s consequent loss or damage. No question of leave arises. If time-barred remains a question for trial.
[15] In light of Ernst & Young’s assertion of litigation privilege from 18 July 2017 on its professional body’s contact about the Fuji audits, but contention its awareness of prospective claims sprang from its receipt of Fuji’s 21 December 2018 notice, there is an issue about the discoverability of its causes of action. I acknowledge Ernst & Young’s nil return of documents relevant to the issue of its “actual knowledge of the loss or damage or the likelihood of loss or damage of the kind which ultimately gave rise to [Ernst & Young] filing its Statement of Counterclaim against the plaintiffs dated 21 August 2020”. But, for the reason following, it cannot be considered “conclusive”.
[16] Neither qualification meets Ernst & Young’s obligation for discovery: rather, the issue is when it was:9
… aware not only of the facts or circumstances constituting the wrong, but also of the fact that some more than minimal loss or harm has resulted from the commission of the wrong.
Thus Ernst & Young’s obligation in this regard is to disclose documents in its control that relate to its awareness of ‘some more than minimal loss or damage likely to have resulted’ from its audits of Fuji’s 2013–2015 financial statements conducted in reliance on Fuji’s representations. It is to be taken to have waived privilege in such documents by its later contention.10
Result
[17]I therefore:
9 Commerce Commission v Carter Holt Harvey Ltd [2009] NZSC 120, [2010] 1 NZLR 379 at [33].
10 Evidence Act 2006, s 65(3).
(a)refuse Ernst & Young leave to rely on discovered documents for its amended counterclaim;
(b)direct trial be conducted on Fuji’s amended claim and Ernst & Young’s original counterclaim; and
(c)order Ernst & Young disclose documents in its control that relate to its awareness of some more than minimal loss or damage likely to have resulted from its audits of Fuji’s 2013–2015 financial statements conducted in reliance on Fuji’s representations.
Costs
[18] In my preliminary view, from what I presently know — as the unsuccessful party in this averagely complex proceeding requiring counsel of average skill and experience, and in which a normal amount of time is considered reasonable for each step on the applications — Ernst & Young should pay 2B costs to Fuji on each step in their respective applications. If my view is not accepted by the parties, or they cannot otherwise agree, I reserve costs for determination in connection with trial.
—Jagose J
Counsel/Solicitors:
M D O’Brien QC, Auckland S M Hunter QC, Auckland R S Reed QC, Auckland Meredith Connell, Auckland Simpson Grierson, Auckland
Steindle Williams Legal Limited, Auckland SBM Legal, Auckland
Fee Langstone, Auckland A Leopold SC, Australia
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