H Construction North Island Limited (in receivership and in liquidation) v McConnell
[2023] NZHC 26
•25 January 2023
ORDER PROHIBITING PUBLICATION OF ANY PART OF THE
PROCEEDINGS THAT REFERS TO THE ALLEGATIONS MADE IN THE STATEMENT OF CLAIM REFERRING TO VECTOR, IN THE NEWS MEDIA, OR ON THE INTERNET, OR ANY OTHER PUBLICLY AVAILABLE DATABASE, UNTIL FURTHER ORDER OF THE COURT.
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2019-404-001472
[2023] NZHC 26
IN THE MATTER OF the liquidation of H Construction
North Island Limited (in receivership and in liquidation)
BETWEEN
H CONSTRUCTION NORTH ISLAND
LIMITED (in receivership and in liquidation)
First Plaintiffs
AND
JOHN ARNOT WILLIAMSON McCONNELL
First Defendant
parties continued over
Hearing: 6 December 2022 Appearances:
M T Davies and S E Cann for Applicants
J E M Lethbridge and M G P Martin for First and Second Defendants
M J Tingey for Third Defendant
K M Hursthouse for Fourth Defendant [Appearance Excused]Judgment:
25 January 2023
JUDGMENT OF EDWARDS J
This judgment was delivered by me on 25 January 2023 at 2.00 pm pursuant to r 11.5 of the High Court Rules.
Registrar/Deputy Registrar
H CONSTRUCTION NORTH ISLAND LTD (in rec and in liq) v McCONNELL [2023] NZHC 26 [25 January 2023]
BETWEENTIMOTHY WILSON DOWNES and STEPHANIE BETH JEFFREYS
Second Plaintiffs
ANDDAVID ARNOT WILLIAMSON McCONNELL
Second Defendant
McCONNELL LIMITED
Third DefendantTHE SHOOTING BOX LIMITED
Fourth Defendant
[1] The plaintiffs seek orders for further and better discovery and/or variation to discovery orders in an amended application dated 6 December 2022.
[2] I made orders in relation to part of the application on 7 December 2022.1 My decision on the balance of the application was reserved.
[3] This judgment sets out the reasons for the orders made and my decision on the reserved aspects of the application.
Discovery orders
[4]There have been four discovery orders made in this proceeding, all by consent.
[5] The first tailored discovery order was made on 11 December 2020.2 It included an order in the following terms:3
The first to third defendants are to provide tailored discovery of all the documents currently in their physical possession (i.e. at the date of this memorandum) that are relevant in terms of HCR 8.7, excluding any documents already discovered by the plaintiffs by 23 December 2020.
[6] That order provided for the parties to file a joint memorandum setting out the terms of a tailored discovery order in respect of other documents held by them or within their power to obtain and/or held by external parties.
[7] The terms of the further tailored discovery order were not agreed, and there were other issues with provision of discovery. A hearing was convened on 7 May 2021 to address these issues. Further orders were agreed during the course of the hearing and made by consent. These orders included provision for a tailored discovery application to be made in relation to documents held on the McConnell Group Server.4
1 H Construction North Island Ltd (in rec and in liq) v McConnell HC Auckland CIV-2019-404- 1472, 7 December 2022 (Minute (No 18) of Edwards J) at [10].
2 H Construction North Island Ltd (in rec and in liq) v McConnell HC Auckland CIV-2019-404- 1472, 11 December 2020 (Telephone Conference Minute (No 9) of Edwards J).
3 H Construction North Island Ltd (in rec and in liq) v McConnell HC Auckland CIV-2019-404- 1472, 11 December 2020 (Telephone Conference Minute (No 9) of Edwards J) at [2] (refers to 17 November 2020 Joint Memorandum at [6(b)]).
4 H Construction North Island Ltd (in rec and in liq) v McConnell HC Auckland CIV-2019-404- 1472, 7 May 2021 (Minute (No 12) of Edwards J).
[8] A further tailored discovery order was made on 5 August 2021.5 That order required the first to third defendants to discover documents falling within agreed categories sourced from the McConnell server and Chapman Tripp. Leave was required to amend the orders if it appeared that relevant documents had been omitted from discovery.
[9] Another tailored discovery order was made on 2 February 2022.6 That order amended the agreed categories sourced from the McConnell server.
[10] A further tailored discovery order was made on 10 August 2022.7 This followed correspondence between the parties regarding alleged deficiencies in the defendants’ discovery. This discovery order required the first to third defendants to carry out targeted searches for HSBC bank reports and board documents by 7 September 2022.
[11] The plaintiffs’ application for further and better discovery and/or variation to discovery orders was filed on 21 September 2022.
The amended application
[12] The scope of the plaintiffs’ application narrowed during the hearing. At my request, the plaintiffs filed an amended application.
[13]There are three substantive aspects to the amended application:
(a)Those orders relating to categories of documents other than the McConnell Group documents (Undisputed Orders).
(b)The McConnell Group documents for the period January 2011 to March 2018 including minutes, reports, and audit committee meeting minutes for the McConnell Group (McConnell Group Documents).
5 H Construction North Island Ltd (in rec and in liq) v McConnell HC Auckland CIV-2019-404- 1472, 5 August 2021 (Email Minute of Edwards J).
6 H Construction North Island Ltd (in rec and in liq) v McConnell HC Auckland CIV-2019-404- 1472, 2 February 2022 (Telephone Conference Minute (No 14) of Edwards J).
7 H Construction North Island Ltd (in rec and in liq) v McConnell HC Auckland CIV-2019-404- 1472, 10 August 2022 (Minute (No 15) of Edwards J).
(c)Challenges to claims of privilege and confidentiality (Privilege and Confidentiality).
[14]Each aspect of the application is considered below.
Undisputed Orders
[15] I made orders in relation to the Undisputed Orders in a minute dated 7 December 2022.8
[16] Once it was clarified that the plaintiffs were not requiring the defendants to search for documents outside the specified sources and categories of documents the subject of existing tailored discovery orders, there was little opposition to the orders sought.
[17] Counsel for the first to third defendants had already undertaken searches of the relevant categories and had informed plaintiffs’ counsel that they were unable to find any additional documents. The plaintiffs sought to have this confirmed in an affidavit which met the requirements set out in r 8.16 of the High Court Rules 2016. That rule includes a requirement that a person must identify documents that have been, but are no longer, in the control of the party giving discovery, and must state when the documents ceased to be in that control, as well as the person who now has control of them.9
[18] As the searches had already been undertaken, and no additional documents found, the burden imposed on the defendants in complying with this order was relatively light.
[19] Ms Lethbridge submitted a version of the amended application with proposed amendments to the orders sought in relation to this aspect of the application. There was no opposition to these proposed changes. Accordingly, I made the orders sought with those proposed amendments in relation to the Undisputed Orders.
8 H Construction North Island Ltd (in rec and in liq) v McConnell HC Auckland CIV-2019-404- 1472, 7 December 2022 (Minute (No 18) of Edwards J).
9 High Court Rules 2016, r 8.16(1)(d).
McConnell Group Documents
[20] The amended application seeks orders of further and better discovery of McConnell Group Board and management documents for the period January 2011 to March 2018. Audit Committee Meeting Minutes for the McConnell Group are sought for the same period.
[21] Rule 8.19 of the High Court Rules provides that the Court may make an order for particular discovery where it appears:10
… 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
…
[22] The Court follows a four-stage approach when considering applications under r 8.19:11
(a)Are the documents sought relevant, and if so, how important will they be?
(b)Are there grounds to believe that the documents sought exist?
(c)Is discovery proportionate?
(d)Weighing and balancing these matters, is an order appropriate?
[23] The first discovery order is set out at [5] of this Judgment. The categories to be discovered pursuant to that order included the following:12
2Documents concerning conduct of HCNIL’s board functions and general operations and/or the board functions and general operations of the Hawkins Group (including the individual companies in it) and/or McConnell Limited including in particular:
(a)Board agendas, reports, minutes, and resolutions:
10 High Court Rules 2016.
11 Assa Abloy New Zealand Ltd v Allegion (New Zealand) Ltd [2015] NZHC 2760 at [14].
12 H Construction North Island Ltd (in rec and in liq) v McConnell HC Auckland CIV-2019-404- 1472, 17 November 2020 (Joint Memorandum of Parties dated 17 November 2020).
(i)For or by the TSBL Board that relate in any way to HCNIL and/or the Hawkins Group;
(ii)For or by the Board of HCNIL and/or any part of the Hawkins Group, that are within TSBL’s power and control;
(b)Communications by TSBL Board.
(c)Directions, requests or transactions relating to (i) HCNIL,
(ii) McConnell Limited, or (iii) Orange H and subsidiaries (whether or not in relation to the pleaded transactions).
[24] A complete set of Board documents for April 2013 and partial extracts from other Board documents have been discovered. The extracts were the only parts of the Board papers considered relevant. The plaintiffs now seek full copies of those Board papers.
[25] The issue is whether full copies of all Board documents are relevant and should therefore be discovered. Questions of relevance are to be determined by reference to the pleadings.13 Relevance in this context is determined by reference to the “adverse documents” test in r 8.7 of the High Court Rules. That rule requires parties to disclose documents if they are documents on which the party relies, adversely affect that party or another party’s case, or support another party’s case.
[26] The plaintiffs’ claim is set out in the further amended statement of claim dated 30 April 2021. In broad terms, the plaintiffs allege that the third defendant, McConnell Ltd, was acting as a shadow or de facto director of the first plaintiff, H Construction North Island Ltd (HCNIL), at the relevant times and breached its directors’ duties owed to that company. Paragraph [318] of the further amended statement of claim is a key part of the pleading. It provides:
318 At all relevant times after 1 December 2011:
(a)all the Hawkins Group companies were governed as if they were different facets of the same entity;
(b)H Construction North Island did not have any functioning governance at company level;
13 Assa Abloy New Zealand Ltd v Allegion (New Zealand) Ltd [2015] NZHC 2760 at [9].
(c)H Construction North Island did not hold independent board meetings;
(d)the board of McConnell Limited included (but was not limited to) the two appointed directors of H Construction North Island
– i.e. David McConnell and John McConnell;
(e)decisions on behalf of H Construction North Island were made by the board of McConnell Limited;
(f)instructions on behalf of H Construction North Island were given by McConnell Limited;
(g)the board of McConnell Limited willingly exercised (or controlled the exercise of) the powers which fell to be exercised by the board of H Construction North Island; and
(h)David McConnell, John McConnell, H Construction Group, Orange H and McConnell Limited all acted in their own best interests, rather than, and to the detriment of, the interests of H Construction North Island and its creditors.
Particulars
(i)Instructions were given by David McConnell, John McConnell, Arthur Young and/or Geoff Hunt (President of McConnell Limited).
(ii)The Board of McConnell Limited willingly exercised all of the powers that would normally be exercised by a company’s board in respect of H Construction North Island.
(iii)“All acted in their own best interests” means that each of the persons and entities listed acted in their individual best interests, and to a large extent those interests coincided.
(iv)The personal interest of each director was their financial interest.
(v)“To the detriment of the interests of H Construction North Island” means in a way that caused detriment to H Construction North Island’s ultimate financial position.
(vi)“Creditors” refers to all H Construction North Island’s unsecured creditors, including those who have submitted creditors claims in H Construction North Island’s liquidation.
[27] McConnell Ltd denies it was acting as a shadow or de facto director or that it breached its directors’ duties.
[28] Counsel for McConnell Ltd, Mr Tingey, submits the Board papers that have not been discovered are irrelevant. He referred me to the April 2013 Board papers which describe a group restructure that took place at that time. As a result of that restructure, Mr Tingey submits that Hawkins Group, not McConnell Ltd, became responsible for HCNIL. Accordingly, he says that it makes sense that McConnell Ltd would not have any relevant material in its Board papers after this date, and to the extent that it does have relevant material, it has already been discovered.
[29] The plaintiffs say that full copies of the McConnell Board papers are directly relevant to the issues in dispute, and the allegation that McConnell Ltd was acting as HCNIL’s shadow director. Mr Davies, for the plaintiffs, submits that the absence of references to HCNIL or its business in the balance of the Board papers does not mean the papers are irrelevant. Rather, the lack of any references in the Board papers may support the plaintiffs’ case that McConnell Ltd was not discharging its duties as a shadow director.
[30] Whether McConnell Ltd was acting as HCNIL’s shadow director, and if so, whether it discharged its directors’ duties are issues to be determined at trial. For the purposes of discovery, however, the competing arguments underscore the relevance of full copies of the Board documents. Those documents may either support McConnell Ltd’s claim that it was not acting as shadow director, or it may support the plaintiffs’ claim that it was acting as shadow director but did not discharge its duties to HCNIL. Conversely, the full Board papers may be adverse to the parties’ respective claims. Either argument makes the full Board reports relevant to the dispute within the meaning of r 8.7 of the High Court Rules 2016.
[31] Furthermore, a full copy of the Board papers will allow any extracts to be considered in their proper context. A complete set of Board papers for the relevant period will paint a more accurate picture of the considerations taken into account by the directors at that time. Experts engaged by the parties are likely to be assisted by complete sets of documents also.
[32] For these reasons, I consider full copies of the Board papers are relevant to the issues in dispute.
[33] As to the second stage of the four-stage approach to r 8.19, there is no issue about whether the documents exist. They do exist and have already been reviewed by counsel for the first to third defendants.
[34] The third stage of the approach concerns proportionality. Mr Tingey said that there were full Board papers every month (except January) during the relevant period (seven years) and each Board paper would be approximately 150 pages. He submits that the documents would need to be reviewed to ensure privileged and confidential material is not disclosed and estimates it might take a month to complete that process.
[35] Even if this estimate is accurate (there being no evidence to confirm it), then I consider the additional time and cost in reviewing the documents is proportionate in the circumstances. Providing the additional discovery will not delay the progress to trial. Timetable orders require the exchange of briefs from factual witnesses in May and July 2023, with expert evidence several months later. The trial is not due to commence until 2024. Given the importance of the documents to the allegations, I consider the burden of providing the further discovery sought is justified.
[36] The arguments before me centred on the Board papers and did not concern the other McConnell Group documents, such as the audit committee minutes and reports. In the absence of any argument to the contrary, the considerations applying to the Board papers apply equally to these documents also. That is, the documents are relevant within the meaning of r 8.7 and discovery of them is not disproportionate in the circumstances.
[37] For completeness, I record Mr Tingey’s submission that full copies of the Board papers were not requested at any stage of the discovery process until the application was filed. While I accept that it may have been preferable for the application to be filed at an earlier date, the first to third defendants are not prejudiced by any delay. This is not a factor that swings the balance against provision of the further discovery sought.
[38] Weighing and balancing all these matters, I am satisfied that making an order to discover the McConnell Ltd Group documents is appropriate. An order in those terms is set out at the end of this judgment.
Privilege and Confidentiality
[39] The plaintiffs seek orders to address alleged deficiencies in the way privilege and confidentiality have been claimed in two of the defendants’ affidavits of documents, both affirmed on 6 April 2022.
[40] Part 2 of the schedule annexed to those affidavits lists the documents in the defendants’ control for which privilege is claimed. These documents have been listed as a group. Both groups are defined to include documents from January 2009 onwards. The first group is said to attract solicitor client and litigation privilege. The second group is said to attract litigation privilege. During the hearing it became clear that some key details of the documents (such as the date, to/from, and description of document) included in this group have not been recorded.
[41] The documents in part 3 over which confidentiality are claimed are described in the list of documents as “part privileged”, and have “part redactions”. That list provides no other detail of the grounds for claiming confidentiality. The redacted parts of the document do not provide any grounds for redaction or confidentiality either.
Privilege
[42] Under r 8.16(2) of the High Court Rules, documents which are privileged and of the same nature may be described as a group or groups. However, this is subject to the requirements in Part 2 of Schedule 9. That Part sets out the listing protocols for lists of documents and requires parties to provide sufficient detail for each document.
[43] Rule 8.16(3) also provides that the description of documents for which privilege is claimed must be sufficient to inform the other parties of the basis on which each document is included in a group. The reasons for that requirement were set out in Attorney-General v Wang New Zealand Ltd:14
… The overriding consideration is the ability of the opposite party or the Court to specify the document in any application for inspection or production. If the nature of the group of documents is such that identification for those purposes is possible by doing no more than describing the group, then the group rather than its constituents only needs to be described. Such might occur, for example, in a case involving the production of a number of identical documents where it would be sufficient to describe them in the list of documents and include the number held without enumerating every one. Another example might be the production of a receipt book numbered sequentially where it would be a sufficient description to describe it as a receipt book containing receipt numbers sequentially [a–b] and issued between certain dates. But where the nature of the documents is such that identification for the purposes mentioned is not possible globally, then the proper course is for the documents to be enumerated separately.
[44] I do not consider the listing of privileged documents by group complies with r 8.16(3) in this case. The group categories are far too broad for a meaningful challenge to the claim of privilege to be made. By way of example, the plaintiffs are concerned about a broad claim to litigation privilege which dates back to January 2009. The plaintiffs say this was well before any litigation was contemplated. Similarly, they are concerned that some of the assertions of privilege may be made on the basis of a privilege owned by HCNIL. Such an assertion will be subject to challenge given HCNIL is the plaintiff in this proceeding. The group listing of privileged documents does not allow these concerns to be tested.
[45] It follows that the privileged documents should be listed in such a way that the grounds for privilege can be identified. However, Ms Lethbridge raises a concern about the disproportionate time required to review and list each of the 14,000 documents over which privilege is claimed. She proposes addressing the problem by providing further information about the groups of documents falling within each broad category.
14 Attorney-General v Wang New Zealand Ltd (1990) 2 PRNZ 245 (HC) at 251; see also Roskill Nominees Ltd v Cunningham [2021] NZHC 303.
[46] I consider that to be an appropriate first step in these circumstances, with further review and listing to be considered thereafter. Providing the initial additional detail may allow the plaintiffs to identify those groups of documents they wish to challenge, or at least narrow the groups of documents which require further detail to be provided. There was no time estimate provided by which this could be completed but I have allowed until Friday, 10 March 2023. Orders in these terms are set out at the end of this judgment.
Confidentiality
[47] As the authors of McGechan on Procedure record, confidentiality is not a ground for opposing discovery, but it may justify restrictions on the inspection and use of documents.15 A proper foundation should be laid for a claim of confidentiality in respect of each document alleged to be confidential.16
[48] The defendants’ affidavits do not comply with these rules. Documents have been listed and redacted as if confidentiality justifies blanket non-disclosure. The grounds for claiming confidentiality are not apparent and inspection of these documents has been precluded without any suggested limits proposed.
[49] It will not be especially burdensome to require the defendants to file a rule- compliant affidavit. There are 35 documents that have been listed and part-redacted for confidentiality reasons. Setting out an evidential foundation for the claim of confidentiality in relation to each of these documents is unlikely to be onerous. Similarly, proposing limits on the inspection (for example, counsel only) or use of these documents to protect their confidentiality should be relatively straightforward. Counsel for the parties are expected to cooperate in this regard.
Result
[50]The plaintiffs’ amended application is granted.
15 Robert Osborne (ed) McGechan on Procedure (online looseleaf ed, Thomson Reuters) at [8.25.17(1)].
16 Robert Osborne (ed) McGechan on Procedure (online looseleaf ed, Thomson Reuters) at [8.25.17(4)]; and Port Nelson Ltd v Commerce Commission [1994] 3 NZLR 435, (1994) 7 PRNZ 487 (CA).
[51] Orders in relation to the Undisputed Orders are set out in Minute (No 18) dated 7 December 2022.
[52] As to the balance of the application, I order that by Friday, 10 March 2023, the first to third defendants shall:
(a)File an affidavit of documents and make available for inspection the McConnell Group Board documents, namely:
(i)the McConnell Group Board documents for the period January 2011 to March 2018, including Board Meeting Minutes, McConnell Group Executive Leadership Meeting Minutes, Board Reports and Managing Director’s Reports, to the extent they have not yet been discovered as identified in Appendix C to Mr Gibson’s affidavit.
(ii)Audit Committee Meeting Minutes for the McConnell Group for the period January 2011 to March 2018 to the extent they have not yet been discovered as identified in Mr Gibson’s affidavit and are not otherwise included in the above.
(b)File an affidavit of documents which:
(i)Provides further detail of the groups of documents over which privilege has been claimed in the second and third affidavits of David McConnell dated 6 April 2022; and
(ii)Sets out the grounds upon which confidentiality is claimed, and any limits proposed on the inspection and use of the confidential documents listed in those affidavits.
(c)Leave is reserved to the plaintiffs to seek further orders in relation to the claim of privilege once the affidavit is received.
[53] The plaintiffs are the successful party in this application and are entitled to an award of costs. If quantum cannot be agreed, memoranda of no more than five pages in length may be filed by the plaintiffs 15 working days after delivery of this judgment, and by the defendants 10 working days thereafter.
Edwards J
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