Gillespie v Guest
[2013] NZHC 668
•4 April 2013
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2011-404-1629 [2013] NZHC 668
BETWEEN BRUCE JAMES GILLESPIE, PRUDENCE JULIET GILLESPIE, CHRISTOPHER JAMES GILLESPIE, NICHOLAS JOHN GILLESPIE AND JONATHAN PAUL GILLESPIE Plaintiffs
ANDANDREW JOHN DEXTER GUEST First Defendant
ANDVIRANDA PROPERTY NETWORK LIMITED
Second Defendant
ANDRSM PRINCE & PARTNERS First Third Party
AND MORRISON CREED
Second Third Party (DISCONTINUED)
ANDGRAEME HAMILTON SINCLAIR Third Third Party
Hearing: 10 May 2012
Counsel: A Barker for Plaintiffs
A J D Guest, First Defendant, in person
Judgment: 4 April 2013
JUDGMENT (No.1) of ASSOCIATE JUDGE R M BELL On Discovery Application
This judgment was delivered by me on 4 April 2013 at 1:00pm
pursuant to Rule 11.5 of the High Court Rules.
...................................
Registrar/Deputy Registrar
GILLESPIE V GUEST HC AK CIV-2011-404-1629 [4 April 2013]
[1] This decision comes long after the hearing, far too long. I appreciate that the parties have been kept waiting and that the delay must have caused inconvenience. I apologise for the time taken.
[2] The plaintiffs, the trustees of the Gillespie Family Trust, apply for particular discovery and for inspection of computers. They seek these orders:
1. That the first and second defendant provide further and better discovery by way of an affidavit of documents in relation to the following documents or categories of documents:
a.all documents relating to the involvement of the first defendant in the business of the second defendant after 2005, including but without limitation the Management Agreement under which he was employed by that company.
b.all documents relating to the relationship between the defendants and Titan 1 Finance Ltd, related parties of Titan 1 Finance, and persons associated with Titan 1 Finance (referred to generally as “Titan 1 Finance”), including but without limitation:
i. all documents relating to the nature of the investment by
Titan 1 Finance in the defendants;
ii. all documents relating to the nature of the business or working relationship between the defendants and Titan 1
Finance;
iii. all documents relating to any investments made by the defendants in or through Titan 1 Finance, or by Titan 1
Finance in, through or in association with the defendants;
iv. all documents relating to any loans or advances made by the defendants to Titan 1 Finance including details of their repayment;
v. all documents relating to the default by Titan 1 Finance in repayment of the advance by the plaintiffs, including all correspondence relating to attempts by the defendants and representatives of Titan 1 Finance to negotiate a repayment of that advance.
c. all correspondence between the period of 31 January 2007 through to 31 July 2007;
d. all documents relating to the loan by Roy Toms to Titan 1
Finance;
e. all documents relating to the plaintiffs’ investment in the commercial property at Ti Rakau Drive, including all documents relating to the purchase of that property by previous clients of the defendants;
f. copies of the financial accounts for the second defendant for the period 2005 to the present time.
2. That the first defendant provide an affidavit verifying:
a. Which email addresses (including all work and personal email addresses); and
b. Which computer systems (including all work and personal or home computer systems);
have been used by the first and second defendants from 1 January 2005 onwards;
3. That an order for inspection of property be made allowing the plaintiffs to inspect any email addresses and/or computer systems verified by the first defendant as having been used by the defendants from 1 January
2005 onwards (the “property”).
[3] The general grounds of the application are that the documents sought to be discovered may be relevant, and have not been disclosed and there is reason to believe that the documents exist and are in the control of the defendants and have not been disclosed.
[4] The notice of opposition of Mr Guest, the first defendant, says that discovery has already been provided and, to the extent that it has not been provided, the documents are either not in existence or not under the defendants’ control. He has also objected that the orders sought in paragraphs 2(b) and (3) of the application are unreasonable and oppressive, and are not relevant or related to the issues in this proceeding.
The substantive proceeding
[5] The plaintiffs are the trustees of the Gillespie Family Trust. Mr Bruce Gillespie and his wife presently live in Singapore. They say that Mr Andrew Guest is a financial advisor, qualified lawyer, land agent and property consultant living in Auckland. The second defendant, Viranda Property Network Ltd, carried on
business as a property consultant and advisor, but has now gone into liquidation. The following paragraphs outline the allegations in the statement of claim.
[6] Mr Guest had been the primary financial advisor for the Gillespie Family Trust and the Gillespie family since 1987. From 1987 to 2008 he provided a range of services including advising and carrying out due diligence on the purchase of commercial property for investment purposes, advising and carrying out due diligence on the purchase of residential property for investment, managing property investments, advising and assisting in resolution of property disputes, in particular litigation arising out of the Trust’s involvement in a residential property in Kinloch (the Kinloch Golf Resort development), and advising and assisting on family matters involving purchase of property in Queensland.
[7] In October 2006 Mr Guest recommended to the Gillespie Family Trust a potential investment in a property development company, Titan 1 Finance Ltd. Mr Guest advised that he could carry out due diligence for the investment, and the investment was fully secured. He said that the investment was guaranteed by Titan 1
Finance Ltd and its directors, the directors themselves were of substantial worth, the investment was low risk, and he recommended the investment.
[8] The trustees say that they accepted the advice and recommendation and agreed to a one year advance to Titan 1 Finance Ltd for $1.83 million at an interest rate of 14 per cent per annum. Mr Guest agreed with the trust that he would negotiate the final form of the loan agreement and the securities that would be taken in support of the advance. The statement of claim says that Mr Guest failed to advise the trustees that:
(a) Titan 1 Finance Ltd was a newly incorporated company that was unlikely to have any significant assets;
(b)Titan 1 Finance Ltd was a holding company whose assets consisted primarily of loans to related entities;
(c) All of the net wealth of the guarantors was in family trusts and would not be available to satisfy any outstanding balance if Titan 1 Finance Ltd were to default on the advance;
(d) The guarantors were shareholders in Viranda Property Network Ltd;
(e) The advance was to be used by Titan 1 Finance Ltd to invest in the residential property development that bordered the Kinloch Golf Course development, a development in which the Gillespie Family Trust had, to Mr Guest’s knowledge, previously made an investment which resulted in significant losses owing to the failure to sell the properties within the development;
(f) Titan 1 Finance Ltd would lend the advance to a related party, Kinloch Views Ltd, and this company would in turn take a minority equity investment in a property development company, Locheagles Ltd;
(g)The only security offered by Titan 1 Finance Ltd to support the advance was security over the shares held by Kinloch Views Ltd in Locheagles Ltd; and
(h)The shareholding of Kinloch Views Ltd in Locheagles was a minority shareholding that was insufficient to provide adequate security for the advance by the trust and was unlikely to be able to crystallise in the event of default by Titan 1 Finance Ltd.
(i)It was unlikely that Titan 1 Finance Ltd would be in a position to repay the advance at the end of the one year term.
[9] On 15 November 2006 Mr Guest signed the loan agreement with Titan 1
Finance Ltd on behalf of the trustees. Among other things the agreement provided these securities for the advance: guarantees from three directors of Titan 1 Finance Ltd, a guarantee limited to the value of Titan 1 Finance Ltd’s shareholding in
Kinloch Views, and a specific security over the shares of Kinloch Views in
Locheagles.
[10] The sum of $1.83 million was advanced in November 2006. The trustees understand that Mr Guest was paid a commission on the advance of approximately
$30,000.
[11] While the loan was repayable in November 2007, Mr Guest approached the trustees on behalf of Titan 1 Finance Ltd to request an extension for a further year. In recommending the extension, Mr Guest is said to have advised the trustees that:
(a) Titan 1 Finance was a significant property development company with over 20 diversified projects currently on foot;
(b)The particular investment in Locheagles had been purchased at wholesale rates, and Titan 1 Finance Ltd was the dominant party in that investment, not a minority party;
(c) The investment was fully secured by way of the personal guarantees that had been provided by the directors;
(d)The individuals providing the guarantees were of significant net worth and were able to support the guarantees;
(e) The investment could not be compared with ordinary finance company funding; and
(f) There was no significant risk associated with the transaction to the trustees nor, for any reason, for the trustees to be concerned about their investment.
[12] In August 2007, Mr Guest signed on behalf of the trustees formal loan documentation for a re-advance for a further year.
[13] In October 2008, Mr Guest advised the trustees that Titan 1 Finance would be unable to repay the principal due for repayment in November 2008.
[14] In August 2009, Titan 1 Finance Ltd was placed in liquidation. The trustees have received no payment from the liquidators of Titan 1 Finance Ltd for the unpaid principal and interest. The trustees made demand on the guarantors. Proceedings were taken which resulted in some payments which are likely to yield $1,150,000. Payments are to be made over a further two years. At the date of hearing recoveries amounted to $450,000.
[15] The trustees sue Mr Guest for their losses. They claim damages of
$1,455,487.50 plus interest from 18 November 2008 at 10.5 per cent compounding annually. The statement of claim has four causes of action:
(a) Against Mr Guest alone for breach of fiduciary duty;
(b) Against Mr Guest and Viranda for breach of contract of retainer; (c) Against Mr Guest and Viranda for negligence; and
(d) Against Mr Guest and Viranda for breach of the Fair Trading Act
1986.
[16] Viranda Property Network Ltd is a company through which Mr Guest carried on a property management business. He was one of the directors of the company. At relevant times he says that interests associated with him had only a minority shareholding in the company. The other directors of the company were a Mr Pendergast and a Mr Chisholm. Those two were also directors of Titan 1 Finance Ltd.
[17] Mr Guest has filed a lengthy statement of defence. In addition to denying liability, he says that he provided all relevant information to the plaintiffs, the plaintiffs also made their own inquiries before deciding to invest, at the time he gave advice he understood that the loan was a sound investment and the guarantors were financially strong, he was not in a contractual relationship with the plaintiffs, the
plaintiffs knowingly took the risk of loss, the loss arose from a major unforeseen economic downturn, for which he was not responsible. He also says that he was one of the trustees entitled to the benefit of provisions in the trust deed limiting the liability of trustees and giving them rights of indemnity from trust assets.
[18] Viranda’s statement of defence is shorter. It adopts Mr Guest’s statement of defence and also generally denies liability under all the causes of action alleged against it. It says that it was not involved in the loan investment transactions, the subject of the proceeding.
[19] Viranda Property Network Ltd changed its name to Viranda Pre 2011 Ltd. It has been put into liquidation by shareholders’ resolution. Mr Guest says that funds will be provided to cover the liquidators’ costs, but it appears that there will be no funds available to meet the trustees’ claim, if it is admitted or proved. Following the hearing, Mr Barker filed a memorandum exhibiting a letter from the liquidators, in which they advised that they neither admitted nor rejected the plaintiffs’ claim. They consented to the proceeding continuing, but made it clear that as they held no funds, they could not instruct lawyers and did not intend to take steps in the proceeding or incur costs on behalf of the company or themselves. The liquidators also said that they do not have any relevant documents.
The approach to deciding the application for particular discovery
[20] The trustees’ application for particular discovery was made after the High Court Amendment Rules (No 2) 2011 came into force. They replaced the former discovery rules with new rules with effect from 1 February 2012. There is no transitional provision that continues to apply the old rules. The current rule for particular discovery is r 8.19, which is in the same terms as r 8.24 of the former discovery rules. Under the rule a judge must be satisfied from evidence or from the nature or circumstances of the case or from any document filed that there are grounds for believing that a party has not discovered documents that should have been.
[21] Even though the particular discovery rules under the former and the current discovery regimes are in the same terms, some adjustment of approach is required to take account of other changes to the discovery rules.
[22] Discovery in this case was ordered before the new rules came into force. The defendants were required to follow the discovery régime in force before 1 February
2012. Under that regime the Peruvian Guano test of relevance applied.1
[23] The current discovery régime has different relevance tests. The new rules provide for two kinds of discovery: standard discovery and tailored discovery.2
Under standard discovery, a party discloses the documents on which the party relies, documents that adversely affect that party’s own case, documents that adversely affect another party’s case, and documents that support another party’s case.3 That is less extensive than the discovery required under the Peruvian Guano test of relevance.
[24] Under r 8.8 tailored discovery is ordered when the interests of justice require an order involving more or less discovery than standard discovery would involve. Rule 8.10 says:
8.10 Obligation of party ordered to make tailored discovery
Tailored discovery requires a party against whom it is ordered to disclose the documents that are or have been in that party's control either in categories as indicated in clause 3(2) of Part 1 of Schedule 9 or under some other method of classification that facilitates the identification of particular documents.
[25] Under the current discovery rules, in a case management conference a judge may make a discovery order, which is normally a standard discovery order unless a judge is satisfied to the contrary under r 8.9. A tailored discovery order may require a party to make discovery more extensive than the party would be required under standard discovery. Under r 8.17 a party may apply for a variation of a discovery
order on specified grounds.
1 Compagnie Financiere et Commerciale du Pacifique v Peruvian Guano Co (1882) 11 QBD 55 (CA) at 63 per Brett LJ. The test required a party to disclose not only documents that could be evidence on an issue, but also any document with information which may lead a party to a train of inquiry to advance his own case or to damage his adversary’s.
2 High Court Rules, r 8.6.
3 High Court Rules, r 8.7.
[26] These matters bear on applications for particular discovery. As Mr Guest was required to make discovery under the old régime, not the current rules, he was required to discover documents that were relevant under the Peruvian Guano test. If he did not include documents that were relevant under that test, then under r 8.19 he did not discover documents that should have been discovered. To that extent the Peruvian Guano test has some afterlife. However, that does not mean that the court must necessarily apply the Peruvian Guano test when considering what orders it should make on an application under r 8.19. The court has a discretion: it may order particular discovery. That discretion is to be exercised according to the principles for discovery under the current rules, not under the former régime. Even if there has been a failure to discover according to the old rules, the court should consider whether standard or tailored discovery is required now and should mould its orders accordingly.
Discovery by Mr Guest
[27] Mr Guest’s affidavit of documents is lengthy. It has many pages, although they are not numbered: 1,862 documents are listed. The trustees complain that there has not been any apparent attempt to sift out documents that are truly relevant from those that have no bearing on the issues in this case at all. Mr Guest says that the documents were obtained from Viranda’s computer system. He has not disclosed any paper records.
The trustees’ groundwork
[28] As preparation for their argument that there are grounds to believe under r 8.19, the trustees set out certain facts and documents to support their case that Mr Guest has been less than forthcoming in his discovery.
Relationship between Titan 1 Finance Ltd and Mr Guest/Viranda
[29] Mr Guest has it that there was an arm’s length relationship between himself
and Viranda on the one hand and Titan 1 Finance Ltd on the other. It is the
Gillespies’ case that the relationship was closer than that. They identify these
matters:
(a) Before 2005, the Viranda business had belonged to Mr Guest and related entities. The present Viranda company was established in
2005. Annual returns for following years show Messrs Guest, Chisholm and Pendergast as the directors, with companies and trusts associated with them as the shareholders. Messrs Chisholm and Pendergast were also directors behind Titan 1 Finance Ltd.
(b)Viranda paid Titan 1 Finance Ltd $627,750 in May 2006 for alleged management fees. The payment was five months before the Gillespie Trust’s investment.
(c) An email from Justin Donnelly of Titan 1 Finance Ltd to Mr Guest dated 6 October 2006 put a proposal for a loan for Kinloch Views Ltd. Amongst other things the email said:
“... One of the main motivations to complete a lending deal is that it gets the ball rolling with Titan 1 Finance and Viranda (albeit not strictly as per my original model but that will come in due course) and provides you with (1) and idea about how we could process the deals and (2) confidence that we can keep producing credible deals as lending opportunities to Viranda Mezz and/or directly to investors. ... business aside, I am happy to come up next week and begin fleshing out the finer mechanics of the brand Mezzanine and Titan 1 Finance Ltd relationship/policies etc.”
[30] The Gillespies point to evidence of other investments in Titan 1 Finance Ltd arranged by Viranda, such as an advance by a Mr Roy Toms and an investment in Glenorchy.
[31] The trustees refer to a deed of settlement made in June 2011 between South Canterbury Finance Ltd, Viranda, Richard Chisholm, John Pendergast and Mr Guest. One provision in the deed refers to an indemnity given by Mr Guest to Mr Chisholm and Mr Pendergast, for which Mr Guest was to make a payment under the settlement agreement.
[32] Viranda made an advance to Titan 1 Finance on 4 August 2006. As at 1 April
2008 the amount owing under the loan was $212,191.53. That loan was repaid. The trustees make the point that at the same time the position with the Gillespies’ loan deteriorated.
[33] The Gillespies say that these matters are all relevant to the question whether Mr Guest breached a fiduciary duty to them, and also whether he was able to offer independent advice and recommendations on their investment.
Mr Guest acted in the interests of Titan and Viranda
[34] The Gillespies go on to suggest that there is evidence that Mr Guest was in fact acting as much in the interest of Titan 1 Finance Ltd or Viranda as in their interests.
[35] An email of 5 June 2008, sent on behalf of John Pendergast of Titan 1
Finance Ltd, includes this:
With the Gillespie loan, he is also a trustee [Mr Guest] in this position but I believe he instructed us on how to do the deal in order that Gillespie would not know it was being lent against Loch Eagles. ...
If Andrew can do a good sell that the guarantees are not that safe in the case of Gillespie and it’s more good will or whatever technique Andrew wants to use that would be helpful ...
[36] Emails by Mr Guest of 1 August 2007 and 26 August 2007 suggest that Mr Guest was intent on persuading the Gillespies to roll over the investment in August 2007, even though he was aware of the risks and they may not have been. The email of 1 August 2007 includes this:
Have spoken to them [the Gillespies] – I think I can swing it but he does have some other uses for the money. ... He is a little volatile on these sorts of things so would want to play it fairly full on with him to get it closed esp with interest rates and wonderful Bridgecorp type news etc. ...
[37] While Mr Guest appears to have been aware of the difficulties that Titan 1
Finance was facing, his email of 28 July 2008 to the Gillespies said:
I have no reason to think that Titan and the directors will default and they are in somewhat of a different category in that they are private and not reliant on public funds and deposits and they therefore have greater flexibility. ...
[38] The Gillespies say they found out that the loan would not be repaid on time when the accountant of Titan 1 Finance advised on 30 September 2008. They note that Mr Guest was closely involved in drafting that letter.
[39] Based on these matters, the Gillespies submit that there are justified concerns over the role of Mr Guest and Viranda in the trust’s transactions with Titan 1 Finance Ltd. Documents relating to the relationship are relevant.
The classes of documents sought by the plaintiffs
(a) All documents relating to the involvement of the first defendant in the business of the second defendant after 2005 included, but without limitation, the management agreement under which he was employed by that company.
[40] The Gillespies say that Mr Guest and the Viranda business had been their financial advisers since 1994. Viranda had originally been Mr Guest’s business but it turns out that at the time of the advance it was not solely his company, but another company of which the majority was owned by the intended borrower’s principals. The Gillespies say they were not aware of this at the time they made the advance.
[41] The Gillespies go on to say that because Viranda was a related party of the borrower, material relating to Mr Guest’s relationship with Viranda must be relevant to the matters in issue in the proceeding, in particular as to matters of disclosure and independence.
[42] The Gillespies’ case is that as Viranda was a related party of Titan 1 Finance Ltd, the borrower, then Mr Guest’s relationship with Viranda must therefore be relevant to the matters in issue - in particular disclosure and independence issues. Mr Guest has not disclosed any documents relevant to that aspect.
[43] However, the trustees obtained a copy of a management agreement between
Viranda and Mr Guest. The accountants for Titan 1 Finance Ltd, Morrison Creed,
disclosed it.4 The management agreement is relevant to Mr Guest’s involvement in the business of Viranda. Mr Guest must have been aware of its existence. I would expect him to have a copy of the management agreement. Even if he did not have a copy of the agreement or control of it, he should still have referred to it in his affidavit of documents as a document that he knew to exist.
[44] Mr Guest does not contest the relevance of the management agreement as going to the nature of the relationship between him and Viranda. While he does not now accept that he was in default in not disclosing that document, Mr Guest accepts that the document has come to light. Nevertheless he denies that there are any other documents. I accept the trustees’ submission that that is not plausible. There is correspondence within Viranda which suggests that the management agreement was brought to an end. Payments will have been made under the agreement. There could also be documents relating to the negotiation of the agreement.
[45] The management agreement is relevant under the Peruvian Guano test as bearing on Mr Guest’s relationship with Viranda, a related party of the borrower. Other documents concerning the management agreement are similarly relevant. The trustees have shown grounds for believing that such documents do or did exist and would be known to Mr Guest. Mr Guest has not appreciated the significance of his relationship with Viranda and Viranda’s connection with Titan 1 Finance Ltd as being material to the trustees’ claims against him. Because he has not turned his mind to those aspects, it would not be safe to accept that his affidavit is conclusive on this part of the case. These circumstances suggest that there may be further documents relevant to his relationship with Viranda that he has not discovered.
(b)(i)-(iv) All documents relating to the relationship between the defendants and Titan 1 Finance Ltd, related parties of Titan 1 Finance Ltd, and persons associated with Titan 1 Finance Ltd
[46] I follow the trustees’ submission and deal with sub-groups (i) – (iv) together.
The plaintiffs’ groundwork submissions show that there are some documents in
existence within this category. It is also apparent from those submissions that the
4 Morrison Creed were earlier joined as a third party, but the claim against them has been discontinued.
relationship between Titan 1 Finance Ltd and the defendants is relevant as bearing on the issues of breach of fiduciary duty and independence of advice.
[47] For these documents, Mr Guest has said:
There were/are no such documents to the best of my knowledge and my diligent searches have not uncovered any. There was no “working relationship” between the defendants and Titan 1 Finance which had only been formed in mid-2006. There were no loans or advances to Titan 1
Finance or to any Titan 1 entity, shareholder or director for that matter.
[48] It is hard to accept that contention by Mr Guest, given the documents which the trustees have obtained independently of Mr Guest. These are the documents in paragraphs [30]-[33] above. They go to show that the people behind Titan 1 Finance Ltd were keen to establish a relationship with Viranda. The trustees have shown grounds to believe that the documents exist and would be known to Mr Guest. His denials are not enough to displace that belief.
(b)(v) Documents relating to attempts to negotiate repayment of the advance
[49] The relevance of documents relating to attempts to negotiate repayment of the advance lies in whether Mr Guest was acting in the best interests of the trustees or may instead have been looking to his own interests and those of Viranda.
[50] The trustees have put in evidence correspondence which suggests that Mr Guest had worked with Titan 1 Finance to persuade the plaintiffs to renew their advance. Documents which go to show when Mr Guest became aware that Titan 1
Finance Ltd would not be able to meet its commitments and the actions he took as a result bear on the issues in this case. Mr Guest denies having any such documents. However, in his affidavit of documents he was required to disclose not only documents in his control but also documents that are no longer in his control and documents known to him that would be discoverable if they were in his control. The trustees have shown grounds for believing that Mr Guest has not made due discovery of this class of documents.
(c) Correspondence between 31 January 2007 and 26 August 2007
[51] There is a gap in Mr Guest’s discovery for the period 31 January 2007–
26 August 2007. The trustees submit that this is an important period because in August 2007 Mr Guest persuaded them to extend the facility for a further year. Mr Guest’s explanation is that there were no such documents during this period. That explanation is implausible. Given the large volume of other documents, it is remarkable that there is a gap of more than six months where no documents at all are alleged to have come into existence. From other sources, the trustees have Mr Guest’s email to Titan 1 Finance Ltd about his proposed discussions with the
trustees.5 Mr Guest did not discover that email. However, it clearly did exist. The
fact that the email exists, and had been sent by Mr Guest but that Mr Guest himself had not disclosed it, also gives reason to believe that there may be other emails or other documents within that period which Mr Guest should have discovered.
(d) and (e) Documents relating to Roy Toms’ loan and to Ti Rakau Drive
[52] The parties have agreed that Mr Guest will provide copies of materials under these heads.
(f) Financial accounts for Viranda
[53] The trustees say that Mr Guest has provided copies of accounts for
2005-2008. They also require accounts for the following years, as they may go to disclose information as to the relationship between Viranda, Titan 1 Finance and related persons. In support, they submit that accounts that have been provided disclose the loan from Viranda to Titan 1 Finance, a matter which had been denied by Mr Guest. I accept that the documents are relevant.
Exercise of discretion under r 8.19
[54] I have not had to consider the relevance of documents under (d) and (e)
because the parties have agreed that they should be discovered. For all the other
5 See [36]-[37] above.
force before 1 February 2011. The next step is the exercise of the discretion under r 8.19. Should a standard or a tailored approach be required?
[55] This is not a case where discovery that is less extensive than standard discovery should be ordered to save costs (r 8.9(a)). The resolution of factual questions in this case will require resort to documents. At the outset the trustees had their own documents and correspondence with the defendants. They need to obtain further documents from other parties, including the defendants. They require at least standard discovery for their case. It is not in the interests of justice to require less.
[56] However, the interests of justice require a targeted approach that entails more extensive discovery than would be required under standard discovery. There are three reasons for this:
(a) Some of the allegations against Mr Guest come close to saying that he was dishonest. Under r 8.9(c), there is a presumption in favour of tailored discovery where fraud or dishonesty is alleged. So far the trustees have not expressly pleaded that Mr Guest was dishonest, but in the striking out hearing, the trustees signalled that they might plead dishonesty to address a defence Mr Guest has raised under clause 24 of the trust deed. But even as the case now stands, the trustees appear to have evidence that Mr Guest was in breach of a fiduciary duty in circumstances that suggest that he must have been aware of his obligations to the trustees. That is close enough to dishonesty to require a like approach to discovery.
(b)The allegations of breach of fiduciary duty in this case need to be met with a response of candour. The trustees have a case for alleging that Mr Guest owed them a fiduciary duty. Fuller discovery is appropriate.
(c) Mr Guest is acting for himself. In litigation discovery can be difficult to get right. It is best carried out by lawyers, not by the parties
a lawyer, but in acting for himself there is the risk that he may not be able to bring the objectivity to the job that an independent lawyer would. He has not appreciated the relevance of certain classes of documents. A targeted approach gives better assurance of proper disclosure of documents.
Mr Guest’s objections
[57] Mr Guest objected that the trustees were fishing. I have found that the classes of documents sought are relevant to the issues in the proceeding and that there are grounds to believe that Mr Guest should have discovered them. Fishing begins when relevance ends. Although it is a decision on interrogatories, that point made in Re Securitibank (No 31)7 is equally applicable in discovery applications. The trustees are not fishing.
[58] Mr Guest also maintained that he did not have any other documents. His affidavit had set out every document he had. That is a submission that his affidavit of documents should be accepted as conclusive. That is only the starting presumption. It is open to another party to show grounds to believe that a party has not discovered documents that ought to have been discovered under r 8.19. The trustees have done just that.
[59] Mr Guest also complained that the trustees had been tardy in making discovery on their side. It was hypocritical for the trustees to pursue him for further discovery when they were also at fault. However, discovery is an independent obligation – each side is required to make discovery as required by the rules and any directions given by the Court, even if the other side is remiss in the way it makes discovery. In any event, I note that Mr Guest has obtained the documents he
requisitioned the trustees for.
6 See Megarry J in Rockwell Machine Tool Co Ltd v E P Barrus (Concessionaires) Ltd [1968]
2 All ER 98 (Ch) at 99.
7 Re Securitibank (No.31) (1984) 1 PRNZ 514 (HC) at 519–520.
A fresh discovery affidavit by Mr Guest
[60] The trustees complain that Mr Guest simply printed out all the emails on his computer system, without making any effort to sift out the relevant from the irrelevant. Under the discovery rules in force before February 2012, r 8.29 provided:
If a judge considers that a party has impeded the process of discovery and inspection by including documents in an affidavit that are not required to be included, the judge may order the party to pay costs to a party or parties specified in the order.
That rule has not been reproduced in the new discovery rules under the High Court Amendment Rules (No 2) 2011. However, that does not mean that the court is powerless to deal with affidavits that include extraneous documents. In this case, that issue can be addressed by requiring Mr Guest to make a fresh affidavit of documents, addressing the specific discovery issues arising out of the plaintiff’s application, but also deleting all documents which are not properly relevant to the issues in this case.
Access to the defendants’ computer systems
[61] The trustees seek an order that Mr Guest provide an affidavit verifying his email addresses (both work and personal) and setting out all the computer systems he has used (including work, personal and home), used by him and Viranda from
1 January 2005 onwards. They also seek an order for inspection of property, allowing the plaintiffs to inspect email addresses and computer systems verified by Mr Guest as having been used by the defendants from January 2005 onwards. The trustees have provided the name and details of a specialist in computer and mobile phone forensic investigations. The trustees propose that this expert be given access to Mr Guest’s computer systems to inspect them for deleted files and to recover the files, to search all files by reference to certain terms, including in the period
31 January 2007 to 26 August 2007, to take copies of emails and documents found on the inspection and provide copies to the parties, and associated directions.
[62] Mr Guest opposes, saying that some or all of his computer systems are no longer available to him and he can no longer have access. He also objects that such access may divulge details of privileged communications with his legal clients.
[63] The application for inspection of Mr Guest’s computer systems is made under
r 9.34:
9.34 Order for inspection, etc
(1) The court may, for the purpose of enabling the proper determination of any matter in question in a proceeding, make orders, on terms, for—
(a) the inspection of any property:
(b) the taking of samples of any property: (c) the observation of any property:
(d) the measuring, weighing, or photographing of any property: (e) the conduct of an experiment on or with any property:
(f) the observation of a process.
(2) An order may authorise a person to enter any land or do anything else for the purpose of getting access to the property.
(3) In this rule, property includes any land and any document or other chattel, whether in the control of a party or not.
[64] Traditionally orders have been made under this rule to allow one party to inspect property where the state or quality of that property is in some way in issue in the proceeding. So where the value of a property is relevant, orders may be made to allow a valuer to enter the property to inspect it for valuation. In leaky building litigation, defendants may wish to inspect the building for the defects alleged by the owners. Orders for inspection of documents have been made where the authenticity of the documents and signatures is in issue. On such applications, the courts have generally ordered inspection, once satisfied that it is properly required for the determination of a matter in issue.
[65] More recently the courts have made orders under this rule to allow the inspection of computer systems to search for documents.
Examples are Tyco Flow Pacific Pty Ltd v Grant,8 PAE (New Zealand) Ltd v Brosnahan9 and Transpacific All Brite Ltd v MPC Traders Ltd.10 These orders go beyond inspection of the computer systems to ascertain their inherent states or properties, to enable the party seeking inspection to obtain discovery of documents.
They are really extended discovery orders. As discovery of documents ought to be achieved by the rules under Part 8 of the High Court Rules, the party seeking inspection of another party’s computer systems to obtain documents needs to satisfy the court that there is good reason for this additional form of discovery. In each of the three cases above the court did inquire and was satisfied that there was good reason. Generally the party seeking the inspection order persuaded the court that the other side’s discovery was arguably inadequate and there was reason to believe that
further documents would be found on a computer system.11 Accordingly for this
application inspection should only be required if there is good reason to believe that other discovery by Mr Guest has been inadequate and that documents may be found on his computer systems.
[66] The trustees point to the gap in emails between 1 January 2007 and
26 August 2007. I accept their submission that it is implausible that there were no emails during this period. I apply again the reasons in [51] above. For the same reasons I reject Mr Guest’s contention that his computer systems are unavailable to him. After all, he was able to access his systems to prepare his affidavit of documents. I find that there is good reason to order inspection of Mr Guest’s computer systems.
[67] Mr Guest’s objection that records of privileged communications with his
clients are at risk of disclosure should not be insurmountable. It should be possible to fashion orders that address that question.
8 Tyco Flow Pacific Pty Ltd v Grant HC Auckland CIV 2003-404-4121, 18 March 2005.
9 PAE (New Zealand) Ltd v Brosnahan HC Wellington CIV-2005-485-843, 3 September 2007.
10 Transpacific All Brite Ltd v MPC Traders Ltd HC Napier CIV-2011-441-169, 24 November
2011.
11 See Tyco Flow Pacific at [49]-[59], PAE at [26]-[30] and Transpacific All Brite at [59]-[66].
Outcome
[68] The trustees have succeeded in their application for particular discovery under r 8.19. They propose that Mr Guest file and serve a fresh affidavit of documents within a week of this decision. That is too short. Mr Guest ought to have longer. In particular he may be assisted if he were to take independent legal advice to help him comply. Moreover he will be required to make discovery afresh, filtering out irrelevant documents from his current affidavit of documents.
[69] The trustees have also succeeded in their application for inspection of Mr Guest’s computer systems under r 9.34. I have not set out the orders for inspection in full, as some details need to be worked out. In particular, the parties need to address how the confidentiality of records of Mr Guest’s clients can be best protected. I invite the parties to confer. If they cannot agree, either side may ask for a conference at short notice.
[70] I make these orders:
(a) Within 15 working days of this order, Mr Guest is to file and serve an affidavit addressing these matters:
(i)Making fresh discovery of his documents, omitting all those that are not relevant to the issues in this case;
(ii)Discovering any further documents within categories 1 (a) – (f) in [2] above, including: whether the documents are or have been in his control; if they have been but are no longer in his control, his best knowledge and belief as to when they ceased to be in his control and who now has them; and if they have never been in his control, his best knowledge and belief as to who now has them. Documents that were accessible to him as director of Viranda will be treated as within his control at the time he had access to them;
(iii)Explaining the sources for all discovered documents, both hard copy and electronic;
(iv)Describing the email addresses (including all work and personal email addresses) and the computer systems (including all work and personal home computer systems) used by the first and second defendants from 1 January 2005 onwards.
(b)The plaintiffs’ computer specialist, Brent Whale, may inspect the computer systems of the first and second defendants for documents relevant to this proceeding and shall disclose those documents to the plaintiffs and first defendant. The first defendant is directed to co- operate fully with Mr Whale in the inspection. The full terms of the order are still to be fixed. The parties are to confer as to terms. If they cannot agree, either may ask for a conference at short notice. Without limiting what the parties may address, the orders may provide:
(i) A protocol for protecting the confidentiality and privilege of
records of Mr Guest’s clients;
(ii)For Mr Whale to ascertain whether files have been deleted and if so may try to recover them;
(iii) For search of computer systems by reference to given terms;
(iv) For search for documents created or received between
1 January 2007 and 26 August 2007; and
(v) That the plaintiffs pay the costs of inspection.
(c) Mr Guest shall pay the costs of this application on a Category 2 basis.
If the parties cannot agree, memoranda may be filed. Any memorandum by Mr Guest as to costs is to be filed and served within five working days of the plaintiffs’ memorandum.
(d)Leave is reserved to apply for further directions, including to finalise the order for inspection and to amend, vary and extend these orders.
...........................................
Associate Judge R M Bell
Solicitors
Wynyard Wood (P Jones) PO Box 2217 Auckland for PlaintiffsEmail: [email protected]
Copy for:
Andrew Barker, P O Box 4338 Auckland 1140 for PlaintiffsEmail: [email protected]
Andrew J D Guest, 3 Byron Avenue, Takapuna, Auckland, Defendant
Email: [email protected]
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