Future Plan (NZ) Limited v McLean Financial Planning Limited
[2014] NZHC 515
•20 March 2014
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2012-404-4705 [2014] NZHC 515
BETWEEN FUTURE PLAN (NZ) LIMITED First Plaintiff
FUTURE WEALTH MANAGEMENT LIMITED
Second Plaintiff
PETER REGINALD DAYMOND Third Plaintiff
ANDMcLEAN FINANCIAL PLANNING LIMITED
First Defendant
JOHN GRAHAM McLEAN Second Defendant
Hearing: 10 February 2014
Counsel: A Hooker for defendants, in support
D P H Jones QC for plaintiffs, to oppose
Judgment: 20 March 2014
RESERVED JUDGMENT OF ASSOCIATE JUDGE SMITH
This judgment was delivered by me on 20 March 2014 at 11am pursuant to Rule 11.5 I direct the High Court Rules.
………………………………
Registrar/Deputy Registrar
Solicitors:
Andrew Hooker, Albany, Auckland for plaintiffs
Birdsey & Associates, Birkenhead, Auckland for defendants
Counsel:
David P H Jones QC, Auckland for plaintiffs
FUTURE PLAN (NZ) LTD v McLEAN FINANCIAL PLANNING LTD [2014] NZHC 515 [20 March 2014]
Contents
The Application ................................................................................................................................. [1] The Background to the Application ................................................................................................. [4] The Court Proceeding ..................................................................................................................... [13] The Defence and Counterclaim...................................................................................................... [19] The application for particular discovery ....................................................................................... [24] Plaintiffs’ Notice of Opposition ...................................................................................................... [26] Evidence on the Application ........................................................................................................... [27] Discussion......................................................................................................................................... [38] The Category 1 documents ................................................................................................................ [38] The Category 3 documents ................................................................................................................ [47] The Category 4 documents ................................................................................................................ [51] Confidentiality................................................................................................................................... [65] Summary of orders ......................................................................................................................... [69] Costs ................................................................................................................................................. [72]
The Application
[1] The defendants apply for an order for particular discovery. The application is made under r 8.19, which provides as follows:1
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.
1 High Court Rules, r 8.19.
[2] The starting point in considering an application under r 8.19 is whether the documents sought are relevant.2 In cases such as this where “standard” discovery has been ordered, relevance is to be assessed in accordance with r 8.7, which provides as follows:
Standard discovery
Standard discovery requires each party to disclose the documents that are or
have been in that party’s control and that are –
(a) documents on which the party relies; or
(b) documents that adversely affect that party’s own case; or
(d) documents that adversely affect another party’s case; or(d) documents that support another party’s case.
[3] However, relevance as assessed under r 8.7 is only the starting point. If the interests of justice so require, a greater or lesser degree of discovery may be ordered under r 8.19 than that required under r 8.7.3
The Background to the Application
[4] The first plaintiff (Future Plan) carries on business as an insurance and investment adviser. The shares in Future Plan are owned by the third plaintiff (Mr Daymond), 999 shares, and by Linda Daymond, one share.
[5] The first defendant (McLean Financial) was incorporated in June of 2003, and carries on business as a financial planner. The second defendant (Mr McLean) owns the majority of the shares in McLean Financial, and he is the sole director of McLean Financial.
[6] Future Plan and McLean Financial entered into an agreement in or about April 2004, called the “Adviser’s Agreement”, under which McLean Financial would provide investment and financial planning advice to Future Plan’s clients. A copy of a document which the plaintiffs say is the Adviser’s Agreement was attached to the plaintiffs’ first amended statement of claim dated 2 September 2013 (the Claim). The defendants admit that Future Plan and McLean Financial did enter into an
“adviser’s agreement”, but they deny that the document annexed to the Claim is the
2 Air National Corporate Ltd v Aiveo Holdings Ltd [2012] NZHC 2258 at [17].
3 Air National Corporate Ltd v Aiveo Holdings Ltd, above n 1, at [17].
agreement which was entered into. They nevertheless admit that the agreement which was entered into between Future Plan and McLean Financial contained various provisions which the plaintiffs plead at paragraph 11 of the claim. The admitted terms include the following:
(a) McLean Financial would conduct Future Plan’s business in a professional manner in accordance with Future Plan’s manuals and the Financial Planners and Insurance Advisers Association Code of Ethics and Professional Conduct with such consideration for clients as to enhance the name of Future Plan.4
(b)McLean Financial would do such things as would be conducive to and consistent with the maintenance and promotion of Future Plan’s good name and image in business circles and in the community generally.5
(c) McLean Financial would use its reasonable endeavours to further the business and custom of Future Plan and not do anything or permit the name of Future Plan or its business to be regarded unfavourably or cause any disagreement or friction between Future Plan and any other person.6
(d)McLean Financial would not make any warranties or representations in respect of Future Plan’s business, its products or services other than warranties or representations made in the ordinary course of McLean Financial’s activities which were consistent with, and did not go beyond, the processes, procedures, policies and rules required of McLean Financial by Future Plan from time to time.7
(e) Future Plan agreed, during the term of the Adviser’s Agreement, not
to appoint any other person to provide financial planning and/or
4 Adviser’s Agreement, clause 2.1.
5 Clause 2.2.
6 Clause 2.3.
7 Clause 2.7.
financial advisory services to Future Plan’s clients without agreement
with McLean Financial.8
(f) Future Plan and McLean Financial were to remain separate entities, and the goodwill and intellectual property of each were to remain the property of those respective companies.9
(g)All clients introduced to Future Plan under the Adviser’s Agreement were to be and remain the property of Future Plan, McLean Financial merely having servicing rights to those clients, which rights it could sell to a third party, subject to certain criteria being satisfied, including
the approval of Future Plan.10
[7] The form of Adviser’s Agreement annexed to the claim also contained the
following clause:
10 SALE OF COMPANY’S INTEREST
10.1.1 At any time after the date of the Adviser’s appointment that should the Company look to sell the Financial Planning division of FPL, then the Company must look to offer the Adviser the “first right of refusal” to purchase the said business. This clause is inserted for the sole benefit of the Adviser to ensure continuity of the business and not to disrupt the orderly Planning process or expectation of clients.
10.1.2 That the Company must give notification to the Adviser under clause
10 in writing with no less than 90 days advance notice of this intention.
[8] From early 2004 until March 2011, Future Plan and McLean Financial and both operated their businesses from a building at Albany owned by Mr Daymond.
[9] The second plaintiff (Future Wealth) was incorporated on 1 July 2009. The
900 shares in Future Wealth are held in equal shares by Mr Daymond and the second defendant (Mr McLean). Mr Daymond and Mr McLean were the original directors
of Future Wealth.
8 Clause 5.1.
9 Clause 6.1.
10 Clause 9.1.
[10] Mr McLean ceased to be a director of Future Wealth in late 2010 or early
2011. There is a dispute between the parties as to when Mr McLean resigned as a director of Future Wealth.11 The sole director of Future Wealth is now Mr Daymond.
[11] Future Wealth was established by Mr Daymond and Mr McLean as a vehicle for the purchase of the business and client base of a financial services company called Wealthy and Wise Limited (Wealthy and Wise). Mr Daymond and Mr McLean each contributed an initial cash payment of $60,000.00, and the acquisition of Wealthy and Wise was completed with funding from the ASB bank.
[12] Following the purchase of the Wealthy and Wise business, Future Wealth owned all assets purchased, including the Wealthy and Wise client base. Those clients were serviced on financial planning advice issues by a former director of Wealthy and Wise who was contracted to Future Wealth, and by Mr McLean.
The Court Proceeding
[13] The relationship between the parties appears to have deteriorated fairly soon after the establishment of Future Wealth and the acquisition of Wealthy and Wise. The present proceeding was issued in August 2012. In material part, the Claim alleges that, from and including November 2010, McLean Financial and/or Mr McLean induced or encouraged clients of Future Plan and Future Wealth to transfer their business to McLean Financial. Those actions were said to have been taken without the knowledge or authorisation of any of the plaintiffs, and Mr McLean and/or McLean Financial are alleged to have used confidential information belonging to Future Plan in effecting the transfer of the business to McLean Financial.
[14] In Schedule B to the Claim, the plaintiffs annex a list of approximately
70 clients who are said to have transferred their business (away from Future Plan and/or Future Wealth) to McLean Financial.
11 Mr McLean says that it was on 1 December 2010; the plaintiffs contend that he did not resign until 3 March 2011, being the date his resignation as a director was registered on the companies register.
[15] The plaintiffs plead a total of six causes of action against the defendants in the Claim, including alleged breach of the Adviser’s Agreement by McLean Financial Planning, inducement of those breaches by Mr McLean, breaches of the Fair Trading Act by Mr McLean and/or McLean Financial, breach by Mr McLean of his duties as a director of Future Wealth, breach of confidence by Mr McLean and by McLean Financial, and breach by either or both of the defendants of fiduciary duties allegedly owed by them to Future Plan, Future Wealth and Mr Daymond. On each of their causes of action, the plaintiffs seek relief including the following:
... Damages for loss of income as claimed or such other amount as this
Honourable Court considers appropriate.
(6) Damages for loss of capital value as claimed or such other amount as this Honourable Court considers appropriate.
[16] The plaintiffs claim that the defendants’ actions have resulted in loss to both
Future Plan and Future Wealth as follows:
(a) The loss of clients from both Future Plan and Future Wealth who transferred their business and portfolios to McLean Financial.
(b) A loss of goodwill, capital value and/or assets of both companies.
(c) Loss of income including investment brokerage, consultation, fees, monthly percentages and insurance commissions.12
[17] The plaintiffs also allege that Mr Daymond has suffered, or will suffer, loss, including as a result of the defendants’ activities allegedly reducing the value of his shareholding in Future Plan and Future Wealth.
[18] Future Plan’s estimated losses arising from the defendants’ alleged breaches
are pleaded in the Claim as follows:
12 Claim, paragraph 43.
Future Plan
Income
Loss to 31 March 2012 [50 per cent of $43,264] $21,632
Loss to 31 Mach 2013 [50 per cent of $50,784] 25,392
Further loss for anticipated duration of business
Until 31 March 2020 [7 years # $25,392 per annum] 177,744 $224,768
Capital Loss
Lost value of investment/business portfolio – share
Value of portfolio per annum (income) at $50,784
Using multiplier of 2 $101,56813
The Defence and Counterclaim
[19] In their statement of defence and counterclaim, the defendants deny all allegations of breach of duty, and plead a number of affirmative defences. First, they say that McLean Financial was induced to enter into the Adviser’s Agreement by misrepresentations made by Future Plan and Mr Daymond and that the effect of the alleged misrepresentations is that, if there was a contract in force as at May 2009, McLean Financial “is entitled to and does cancel the contract ab initio”.
[20] The same alleged misrepresentations form the basis of an affirmative defence under the Fair Trading Act, and the first and second defendants seek an order under s 43(2) of that Act that the contract is void ab initio.
[21] The defendants plead affirmatively that it was a term of the Adviser’s Agreement that Future Plan would pay McLean Financial 70 per cent of the commission received on all business written, and that Future Plan acted arbitrarily in reducing the commission to 50 per cent in May of 2009. That action is said to have constituted a repudiation of the Adviser’s Agreement. The defendants plead that McLean Financial accepted the repudiation and that, from that date, the Adviser’s Agreement was at an end. Alternatively, the defendants plead that if there was no repudiation, the parties by their conduct agreed to terminate the Adviser’s Agreement
as at May 2009.
13 Claim, paragraph 46.
[22] The defendants plead a number of counterclaims against plaintiffs. It is not necessary for the purposes of this judgment to refer to all of them. However, McLean Financial’s fourth counterclaim, against the second and third plaintiffs, alleges that:
10.2Whilst a director of Future Wealth, Mr Daymond transferred business from Future Wealth to companies or entities under his control.
10.3McLean Financial was entitled to receive the benefit of servicing the clients of Future Wealth and as a result of Mr Daymond’s acts pleaded in 9.3, McLean Financial was unable to service such clients and therefore unable to receive commission for such business.
10.4As a result of the breach McLean Financial suffered loss being the commission it would have received on the business transferred by Mr Daymond.
[23] On this counterclaim, the defendants seek:
damages in an amount equal to the net profit of Future Plan’s business from the date Future Plan sold it to a third party, to the date of judgment. ...
The application for particular discovery
[24] Orders for particular discovery are sought in respect of the following categories of documents:
(a) Financial statements for Future Plan for the years ended 31 March
2010, 31 March 2011, 31 March 2012 and 31 March 2013 (the
Category 1 documents);
(b) Financial statements for Future Wealth for the year ending 31 March
2013 (the Category 2 documents);
(c) Documents relating to and/or identifying the clients of Future Plan as at:
(i) August 2009 (the date of acquisition by Future Wealth of
Wealthy and Wise); and
(ii) April 2013
(the Category 3 documents);
(d)Documents relating to the sale of assets and/or clients and/or the transfer of clients from Future Plan to FPNZ (2010) Ltd and/or FPNZ Investments Ltd (the “Category 4 documents”).
[25] In the course of the hearing on 10 February, counsel agreed that the Category 2 documents would be supplied to Mr McLean in his capacity as a shareholder in Future Wealth, by 14 February 2014. No order is necessary in respect of the Category 2 documents.
Plaintiffs’ Notice of Opposition
[26] In their notice of opposition, the plaintiffs oppose the making of the orders sought on the grounds that:
(a) The documents sought are not discoverable. They are not relevant to matters at issue.
(b) The material sought is confidential and commercially sensitive.
Evidence on the Application
[27] There was one affidavit filed in support of the defendants’ application, being that of Mr McLean. With regard to the application for discovery of the Category 1 documents, Mr McLean simply noted that, in their pleadings, the plaintiffs claim losses of income for Future Plan.
[28] In respect of the Category 3 documents, Mr McLean referred to the defendants’ counterclaim allegation that Mr Daymond transferred clients of Future Wealth to other entities, including Future Plan.14 He stated that Future Wealth sourced most of its clients from the acquisition of Wealthy and Wise, and that it was
many of these clients who were transferred to other entities such as Future Plan.
14 Defendants’ counterclaim, paragraph 10.2.
Mr McLean said that Mr Daymond, being the sole director of both Future Plan and
Future Wealth, has control over these documents.
[29] In respect of the Category 4 documents, Mr McLean deposed to his belief that FPNZ (2010) Ltd and FPNZ Investments Ltd are companies which purchased assets of Future Plan. He stated:
Some of these assets may have belonged to [Future Wealth]. For this reason these documents are relevant to the issues between the parties in this proceeding.
[30] There was one affidavit in opposition to the application, being Mr Daymond’s
affidavit sworn on 14 June 2013.
[31] In his affidavit, Mr Daymond stated that Future Plan Investments Ltd (FPIL) was incorporated on 9 July 2008. Although FPIL did not exist as a company when the Adviser’s Agreement was signed in 2004, Future Plan’s financial planning division was then known as “Future Plan Investments”. The financial planning division operated a separate bank account from Future Plan, and that bank account continued to be utilised when FPIL was formed in 2008 and took over the conduct of the group’s financial planning business.
[32] Mr Daymond’s evidence was that neither Mr McLean personally nor McLean Financial had any involvement in the management, ownership or income stream of the insurance side of Future Plan’s business. He objected to the request for discovery of the Category 1 documents on the basis that, following its establishment in 2008, it was FPIL who ran the group’s financial planning business, not Future Plan. Mr Daymond stated that:
… FPIL is the only company that defendants had any involvement with, or in relation to which there is any relevance to the matters before the court.
[33] Mr Daymond also objected to the discovery of the Category 1 documents on the basis that Future Plan’s claims for loss of income are calculated on the reduction in income which it previously had, details of which have already been disclosed on discovery. He contended that the overall financial position of Future Plan is not relevant to the quantification of the reduction in income.
[34] Thirdly, in respect of the Category 1 documents Mr Daymond stated that he was loathe to provide more information about Future Plan, as he did not trust Mr McLean not to use the information improperly.
[35] In respect of the Category 3 documents, Mr Daymond’s evidence was that the defendants already have a full list of clients purchased from Wealthy and Wise by Future Wealth, and that they will also have a record of clients transferred to McLean Financial from both FPIL and Future Wealth. He stated that transfer forms are completed when a client is transferred from one agency to another, although he was not personally involved in that process, and did not have any transfer forms in his possession (other than completed copies of transfer forms from Future Wealth/FPIL to McLean Financial). He stated that the list of clients of FPIL that Mr McLean was managing has already been provided.
[36] In respect of the Category 4 documents, Mr Daymond asserted that the sale of part of the Future Plan insurance client base has nothing to do with the defendants. He referred to the provisions of paragraph 9.1 of the Adviser’s Agreement relating to client “ownership”, and pointed out that the cl 10 provisions of the Adviser’s Agreement, which gave McLean Financial a right of first refusal in the event of Future Plan looking to sell, related only to the prospective sale of Future Plan’s financial planning division.
[37] Finally, Mr Daymond stated that documents relating to the sale of clients to FPNZ (2010) Ltd are also confidential, and that discovery is resisted on that basis also.
Discussion
The Category 1 documents
[38] The defendants seek discovery of Future Plan’s financial statements for each of the financial years ended 31 March 2010 to 2013. These documents are said to be relevant to the plaintiffs’ claims for loss of income and loss of capital value, as pleaded at paragraph 46 of the Claim.
[39] There is obviously no question that these documents exist, nor any question that they are in the possession or power of Future Plan. The only issues are whether these documents are relevant, and if so, whether any (and if so, what) provisions need to be made in respect of the plaintiffs’ claim to confidentiality.15
[40] As a preliminary matter, I note that the relevant losses pleaded in the Claim are said to be losses suffered by Future Plan. They are not losses said to have been suffered by FPIL, the entity which Mr Daymond says took over the conduct of Future Plan’s financial planning and investment division in 2008. Accordingly, it can be no answer to the request for the Category 1 documents that the relevant income and capital losses have been suffered by FPIL and not Future Plan – that is not what the Claim says, and the question of relevance has to be assessed on the pleadings.
[41] The principal argument advanced by Mr Jones in his oral submissions, was that Future Plan’s claim for losses of income is calculated by reference to the reduction in income brought about by the defendants’ actions in taking clients from it. Details of the reduction in income have already been discovered. Mr Jones submitted that the overall financial position of Future Plan is irrelevant to the quantification of the alleged income loss.
[42] At the hearing of the application I put it to Mr Jones that a proper calculation of Future Plan’s income losses would need to take into account Future Plan’s overheads, including any savings which may have been made in variable costs as a result of the reduced revenue streams. In response, Mr Jones reiterated the plaintiffs’ position that the claim for lost income is not concerned with “the whole”, but with “what has been taken away”. Specifically on the question of the relevance of Future Plan’s overheads, including variable costs, Mr Jones acknowledged that the financial statements may become relevant, but only at the stage when expert evidence is being exchanged (he advised that the plaintiffs have retained an expert chartered
accountant).
15 Port Nelson Ltd v Commerce Commission (1994) 7 PRNZ 334.
[43] I am not satisfied that any such deferment of the production of the financial statements provides an adequate answer to the defendants’ application in respect of the Category 1 documents. The discovery ordered in this case was standard discovery under r 8.7, and in those circumstances the plaintiffs were obliged to include in their discovery all documents on which the plaintiffs rely, as well as
documents that adversely affect the plaintiffs’ case.16
[44] It seems to me that the plaintiffs will not be able to prove the quantum of the claimed losses of income by simply showing a reduction in revenue received. They will need to go further and show that any lost revenue has not been mitigated by savings in variable or other costs. If that is right, the financial statements are documents on which the plaintiffs themselves must rely and they are relevant now – it is not a sufficient answer to leave over the production of the financial statements until the stage where expert evidence is being exchanged. In my view, the defendants are entitled, subject to the issue of confidentiality, to which I return later in this judgment, to have access to at least some of the financial statements.
[45] That said, I am not satisfied that the defendants have provided sufficient
evidence to show that Future Plan’s financial statements for the year ended March
2010 are relevant and should have been disclosed. Certainly there is no evidence to show that the plaintiffs will need to rely on Future Plan’s financial statements for that year; they allege that the defendants activities which are the subject of the Claim commenced only in the year ended 31 March 2011, and their claims for losses of income relate only to the March 2012 and March 2013 years. The defendants have not provided any expert evidence explaining why the financial statements for the March 2010 year are relevant to the plaintiffs’ claims.
[46] Having regard to those considerations, there will be orders for particular
discovery in respect of Future Plan’s financial statements for the years ended
31 March 2011, 31 March 2012 and 31March 2013, but not for the year ended
31 March 2010.
16 Rule 8.7(a).
The Category 3 documents
[47] The defendants seek particular discovery of Future Plan’s client lists as at
August 2009 (the date of acquisition of Wealthy & Wise), and as at April 2013.
[48] Mr Hooker submitted that these documents are relevant to the defendants’ counterclaim. In the course of the hearing, Mr Hooker explained that the Category 3 documents are sought in aid of the defendants’ claim that Mr Daymond, in his capacity as a director of Future Wealth, wrongly moved clients and assets from Future Wealth to Future Plan. Those allegations are pleaded in the defendants’ fourth counterclaim, which is set out at paragraph 22 of this decision.
[49] It seems to me that all that is relevant to the allegation at paragraph [10.2] of the fourth counterclaim is whether clients were transferred as alleged from Future Wealth to Future Plan. Assuming Future Plan and Future Wealth to be separate “agencies”, Mr Daymond’s evidence is that a transfer form would have been completed when a client was transferred from Future Wealth to Future Plan. That evidence was not contradicted by any reply affidavit from Mr McLean. Any transfer form or other document showing the transfer of a client (within the period stipulated in respect of the Category 3 documents) from Future Wealth to Future Plan should have been discovered, but I see no basis for ordering discovery of Future Plan’s entire client list as at the two dates.
[50] Accordingly, if there are documents evidencing any transfers of clients from Future Wealth to Future Plan between August 2009 and April 2013 which have not already been disclosed, they should be disclosed. Beyond that, the defendants have failed to demonstrate that the interests of justice require the making of an order framed as broadly as their request for the Category 3 documents. I decline to make any order for discovery of all clients of Future Plan as at either of the two dates stipulated in the application.
The Category 4 documents
[51] The defendants allege that Mr Daymond sold parts of the business of Future
Plan to FPNZ (2010) Limited and FPNZ Invest Limited. Discovery is sought of the
documents evidencing these transactions, including the transfers of any clients from
Future Plan to either of those two companies.
[52] Mr Hooker’s submissions on this part of the application were very brief. He submitted simply that the documents sought are relevant to the defendants’ second and third counterclaims. In the defendants’ second counterclaim, they allege that Future Plan and Mr McLean entered into a contract in which Future Plan provided Mr McLean and/or McLean Financial with a right of first refusal of the purchase of Future Plan’s business when Future Plan decided to sell its business. The defendants say that in breach of that alleged term, Future Plan sold all or part of its business to other parties. In their third counterclaim, the defendants allege that Mr Daymond, personally and on behalf of Future Plan, stated to Mr McLean in April 2009 that in consideration of McLean Financial entering into the agreement with Future Plan, Mr McLean and/or McLean Financial would have the first opportunity to acquire Future Plan’s business when the (sic) [first defendant] resolved to sell it. The defendants allege that Future Plan had no intention of giving the defendants the first opportunity to acquire its business, and that Future Plan and Mr Daymond engaged in misleading and deceptive conduct in breach of the Fair Trading Act when they made that representation.
[53] In his oral submissions, Mr Hooker also referred to the defendants’ first counterclaim, in which the allegation that Future Plan sold all or part of its business to another party was pleaded as a breach of the Adviser’s Agreement under which the defendants say that McLean Financial was to be Future Plan’s exclusive agent to service Future Plan’s clients.
[54] Mr Hooker accepted that there was no actual evidence before the Court of any transfers of assets of either Future Plan or Future Wealth.
[55] Mr Jones submitted that the Category 4 documents are not relevant to any matters at issue. He also submitted that they are confidential.
[56] Mr Jones referred to clause 10.1.1 of the Adviser Agreement, which provided that McLean Financial would be entitled to a first right of refusal if Future Plan sold
its financial planning division. He noted there was no apparent restriction on Future Plan’s entitlement to sell its insurance client base without first offering it to McLean Financial.
[57] Mr Daymond dealt with the Category 4 documents at paragraphs [14] and [15] of his affidavit. Having stated at paragraph [14] that “the sale of part of the Future Plan insurance client base has nothing to do with the defendants ...”, Mr Daymond went on to state at paragraph [15] that “documents relating to the sale of clients to FPNZ (2010) Limited are also confidential and discovery is resisted on this basis also”.
[58] It appears to be implicit in paragraphs [14] and 15] of Mr Daymond’s affidavit that at some point there was a sale of Future Plan’s insurance client base. Whether that sale was to FPNZ (2010) Ltd and/or FPNZ is not clear. It also seems implicit that there was a sale of some Future Plan clients to FPNZ (2010) Ltd. It is not clear whether they were insurance clients or financial planning clients or both, and it is not clear when that sale occurred.
[59] Mr McLean did not reply to Mr Daymond’s affidavit. In particular, there was no reply to Mr Daymond’s statement in his affidavit that Future Plan’s insurance client base has nothing to do with the defendants. Furthermore, Mr Daymond’s evidence on this point seems consistent with cl 10.1.1 of the Adviser Agreement annexed to the Claim, in which the first right of refusal given to McLean Financial related only to the financial planning division of Future Plan, and not to its insurance business.
[60] In those circumstances, I am not satisfied that any sale by Future Plan of its insurance client base is relevant to the defendants’ defence or counterclaim.
[61] Financial planning or advisory service clients are a different matter. If, and to the extent that there was a sale or transfer by Future Plan of assets and/or clients comprising the financial planning/investment advice part of its business, then any such sale or transfer would, in my view, be relevant to the allegations at paragraphs
7.2(b) and 8.2 of the defendants’ statement of defence and counterclaim.
[62] However, I do not think that any such sale or transfer which may have occurred after May 2009 can be relevant on the defendants’ current pleadings. On the defendants’ case, the Adviser’s Agreement came to an end in May of 2009, and s 8(3)(a) of the Contractual Remedies Act 1979 provides that:
From the date of cancellation of a contract, neither party to the contract is obliged or entitled to perform the contract any longer.
[63] On the face of it then, there would have been nothing to prevent Future Plan from selling any assets, or transferring any of its clients, after the May 2009 date on which the defendants say the Adviser’s Agreement was cancelled. The defendants have not pointed to any other basis (i.e. outside of the terms of the Adviser’s Agreement) which would or might have prevented Future Plan from selling or transferring assets and/or clients after the Adviser’s Agreement had come to an end.
[64] The defendants have not established that any sales or transfers of relevant assets and/or clients were made by Future Plan before May 2009, and in those circumstances I am not satisfied that the defendants have shown that there are grounds for believing that the plaintiffs have not discovered relevant Category 4 documents which should have been discovered. Accordingly, the application will be refused insofar as it relates to the Category 4 documents.
Confidentiality
[65] In Port Nelson Ltd v Commerce Commission, the Court of Appeal stated that there are two ways in which a proper foundation for a claim to confidentiality may be laid.17 Either it must be apparent from the document in question itself that disclosure would be likely to prejudice the party in some significant way, or the claimed prejudice must be shown by other evidence. A possibility of prejudice may be sufficient, but that will depend on the seriousness of the possible prejudice and on the significance of the document to the issues in the proceeding, and the extent to which limited disclosure may enable the concerns of both parties to be
accommodated. The documents must be approached on a one-by-one basis.
17 Port Nelson Ltd v Commerce Commission, above n 15, at 348.
[66] In this case, the orders for particular discovery made by the Court relate to the Future Plan financial statements for the years ended 31 March 2011, 31 March
2012 and 31 March 2013.
[67] In the circumstances of this case, where the defendants appear to be a direct competitors of Future Plan and/or Future Wealth, I am satisfied that directing disclosure of the financial statements to the defendants without restriction is likely, from the face of the documents themselves, to result in prejudice to the plaintiffs in a significant way. Disclosure of Future Plan’s financial statements will provide the defendants with detailed knowledge of Future Plan’s profit margins, overheads, and other material of a clearly sensitive nature which it would not be easy for Mr McLean to disregard in the course of his own business activities.
[68] In those circumstances, I direct that, pending further order of the Court, the Future Plan financial statements for the years ended 31 March 2011, 31 March 2012 and 31 March 2013 are to be disclosed initially only to the defendants’ counsel, Mr Hooker, and to one chartered accountant to be retained for the defendants, on Mr Hooker and that chartered accountant first providing written undertakings that they will not divulge the contents of the financial statements to any person (other than to each other), without leave of the Court. Leave is reserved to the parties to apply for any variation of that order, or for further directions relating to the inspection of the financial statements, if that should become necessary.
Summary of orders
[69] The plaintiffs are to file and serve an affidavit in terms of r 8.19 of the High Court Rules, providing particular discovery of Future Plan’s financial statements for the years ended 31 March 2011, 31 March 2012, and 31 March 2013.
[70] Pending further order of the Court, the Future Plan financial statements for the years ended 31 March 2011, 31 March 2012 and 31 March 2013 are to be disclosed initially only to the defendants’ counsel, Mr Hooker, and to one chartered accountant to be retained for the defendants, on Mr Hooker and that chartered accountant first providing written undertakings that they will not divulge the contents of the financial statements to any person (other than to each other), without
leave of the Court. Leave is reserved to the parties to apply for any variation of that order, or for further directions relating to the inspection of the financial statements, if that should become necessary.
[71] Subject to [69] and [70] above, the application is dismissed.
Costs
[72] The application has been partly successful and partly unsuccessful, and I am not presently inclined to make any order for costs. However, if either party wishes to apply for costs, they may do so by memorandum filed within seven days, with a further seven days thereafter allowed for filing any memorandum in response.
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W A Smith
Associate Judge
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