Hally Labels Ltd v Powell
[2013] NZHC 900
•29 April 2013
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
CIV-2011-409-000867 [2013] NZHC 900
BETWEEN HALLY LABELS LIMITED Plaintiff
ANDKEVIN POWELL First Defendant
ANDGEON GROUP LIMITED Second Defendant
ANDKIWI LABELS LIMITED Third Defendant
Hearing: Determined on the papers
(Heard at Christchurch) Counsel: C T Patterson for Plaintiff Judgment: 29 April 2013
RULING OF ASSOCIATE JUDGE OSBORNE
[on request for permission to use discovered documents in another proceeding]
Introduction
[1] The second and third defendants gave discovery in this proceeding (which has been discontinued). The plaintiff now wishes to use those documents in a separate proceeding against the first defendant in the Employment Court. By memorandum it seeks leave to do so.
[2] To dispose of the request requires me to identify:
1) the nature of the prohibition on the collateral use of discovered documents;
HALLY LABELS LIMITED V KEVIN POWELL HC CHCH CIV-2011-409-000867 [29 April 2013]
2) the circumstances in which discovered documents may be used collaterally; and
3) the acceptable procedure for any application for leave.
The prohibition of the collateral use of discovered documents
[3] The plaintiff’s request for leave arises because of the prohibition of collateral use of discovered documents outside the proceeding in which they were discovered.
[4] The prohibition is contained in r 8.30(4) High Court Rules (previously r 312(4) and before that r 309(4)) which provides:
8.30 Use of documents
…
(4) A party who obtains a document by way of inspection or who makes a copy of a document under this rule—
(a) may use that document or copy only for the purposes of the proceeding; and
(b) except for the purposes of the proceeding, must not make it available to any other person (unless it has been read out in open court).
[5] The common law had recognised an implied obligation on a party obtaining discovery not to use documents discovered for collateral or ulterior purposes.1
[6] The courts’ approach to discovery and to the collateral use prohibition can be traced to a balancing of two competing public interests. First, the public interest in full disclosure so that the Court can get at the truth of a dispute. Secondly, the public interest in preserving and protecting confidential information. As Lord Denning MR explained in Riddick v Thames Board Mills Ltd:2
Compulsion is an invasion of a private right to keep one’s documents to
oneself. The public interest in privacy and confidence demands that this
1 Alterskye v Scott [1948] 1 All ER 469 (Ch) at 470 per Jenkins J; Crest Homes PLC v Marks
[1987] 1 AC 829 (HL); Soft-Tech International Pty Ltd v Ball (1990) 2 PRNZ 254 (HC) At 261 per Chilwell J.
2 Riddick v Thames Board Mills Ltd [1977] 1 QB 881 (CA) at 896 per Lord Denning.
compulsion should not be pressed further than the course of justice requires. The courts should, therefore, not allow the other party – or anyone else – to use the documents for any ulterior or alien purpose. Otherwise the courts themselves would be doing injustice. ... In order to encourage openness and fairness, the public interest requires that documents disclosed on discovery are not to be made use of except for the purpose of the action in which they are disclosed.
[7] The requirement of an undertaking as to non-disclosure was recognised as appropriate by high authority, Bray J, in his classic text in 1885.3 In 1948, in Alterskye v Scott observed that since that time (1885) such an undertaking was always implied.4 For that reason, the Courts went so far as to refuse any request for an express undertaking, such refusal being precisely because the implied undertaking already existed.5
The circumstances in which discovered documents may be used collaterally
[8] As an exception to the common law rule of non-disclosure, the Court could release or modify the implied undertaking. In delivering the leading judgment of the House of Lords in Crest Homes PLC v Marks, Lord Oliver said:6
… the Court will not release or modify the implied undertaking given on discovery save in special circumstances and where the release or modification will not occasion injustice to the person giving discovery.
[9] Lord Oliver cited with apparent approval the observation of Nourse LJ in the
Court of Appeal that each case must turn on its individual facts.7
[10] In New Zealand, as indicated by Williams J in Telstra New Zealand Ltd v Telecom New Zealand Ltd,8 the current Rule 8.30(4) (and its immediate predecessors) is an intended codification of the common law rule. But whereas the
rule expressly prohibits collateral disclosure, it expressly identifies only one
3 Bray J, Bray on Discovery (1st ed, 1885) at 238 cited in Riddick v Thames Board Mills Limited, above n 2, at 896F.
4 Alterskye v Scott, above n 1, at 471 per Jenkins J; see also Riddick v Thames Board Mills
Limited, above n 2, at 896H
per Lord Denning MR.
5 Alterskye v Scott, above n 1, at 471; Riddick v Thames Board Mills Limited above n 2, per Waller LJ at 911B.
6 Crest Homes PLC v Marks, above n 1, at 860B.
7 At 860C, citing judgment of Court of Appeal at 840G.
8 Telstra New Zealand Ltd v Telecom New Zealand Ltd (1999) 14 PRNZ 108 at 113 per Williams J.
exception to the prohibition. That is, under r 8.30(4)(b), when the document “has
been read out in open court”.
[11] This position may be contrasted with the post-Civil Procedure Rules9 (CPR) position in England. Under CPR 31.22 there is a collateral use prohibition in terms similar to that in the High Court Rules. But CPR 31.22.1 proceeds to prohibit disclosure:
… except where –
(a) the document has been read to or by the court or referred to, at a hearing which has been held in public;
(b) the court gives permission; or
(c) the party who disclosed the document and the person to whom the document belongs agree.
[12] Adrian Zuckerman in his text on Civil Procedure observes:10
CPR 31.22 abandons the redundant fiction that the limitation on the use of disclosed documents arises from an implied undertaking given to the court but otherwise it reflects the common law position and the pre-CPR authorities continue to be of relevance.
[13] The White Book similarly identifies in CPR 31.22 a move away from the
common law’s implied undertaking:11
This rule now specifies clear exceptions to the general rule that a document disclosed in the proceedings may only be used for the purpose of the proceedings in which it is disclosed. It avoids concepts of implied or express undertakings. The rule is the statutory enactment so far as civil court proceedings are concerned of the common-law implied undertaking not to use documents disclosed in the course of civil court proceedings save for the purpose of the proceedings in which disclosed without court permission or the consent of the document owner. The rule is concise and avoids the intricacies of the concepts of implied and express undertakings.
[14] The requirement of special circumstances, not occasioning injustice to the person giving discovery, was adopted in other common law jurisdictions. In New
9 Civil Procedure Rules 1996 (UK).
10 Adrian Zuckerman, Zuckerman on Civil Procedure: Principles of Practice
(2nd ed, Sweet & Maxwell, London, 2006) at 585.
11 Civil Procedure 2013: The White Book Service Volume one (Sweet & Maxwell, London, 2013)
at 945.
Zealand, in Nicholls v Nicholls, Neazor J adopted Lord Oliver’s formulation.12
Burchett J also adopted this formulation in the Federal Court of Australia in Holpitt
Pty Limited v Varimu Pty Limited.13
[15] In Holpitt, Burchett J noted, adopting the observation of Lord Oliver in Crest Homes that earlier decisions are “no more than examples”14. Each case must turn on its own individual facts.
[16] Burchett J in Holpitt helpfully went on to consider what is conveyed by Lord Oliver’s test of “special circumstances” or “special reasons”. Referring to earlier Federal Court authority, his Honour considered helpful the description of the expression “special reasons” as being:15
… an expression describing a flexible discretionary power, a one requiring a case to be made upon grounds sufficient to justify departure, in the particular circumstances, from the ordinary rule … [in that case, the period within which an appeal must be filed and served].
The Federal Court had gone on to observe:16
Such a ground is a special reason because it takes the case out of the ordinary. We do not think the use of the expression “for special reasons” implies something narrower than this.
[17] Burchett J observed that the Court’s duty, in an application of this kind, is to
consider:
(a) whether the applicant has shown some circumstance which takes the matter out of the ordinary course, according to which production of documents pursuant to an obligation to make discovery involves the
implied undertaking to the Court; and, if so,
12 Nicholls v Nicholls HC Napier AP 20/96, 7 May 1998 at 6-7.
13 Holpitt Pty Limited v Varimu Pty Limited (1991) 103 ALR 684 (FCA) at 686.
14 Crest Homes PLC v Marks, above n 1, at 860B, cited in Holpitt Pty Limited v Varimu Pty
Limited, above n 13, at 686.
15 Jess v Scott (1986) 12 FCR 187 (FCAFC) at 195, cited in Holpitt Pty Limited v Varimu Pty
Limited, above n 13, at 686.
16 Jess v Scott (1986) 12 FCR 187 (FCAFC) at 195, cited in Holpitt Pty Limited v Varimu Pty Limited, above n 13, at 687; a test adopted in New Zealand in Telstra New Zealand Ltd v Telecom New Zealand Ltd (2000) 14 PRNZ 541 (HC) at [57] per Rodney Hansen J.
(b) whether an exercise of the Court’s discretion in favour of the
application would be in the interests of justice.
The codification in r 8.30
[18] I adopt the conclusion of Williams J in Telstra that r 8.30(4) was clearly intended to serve as a codification of the common law as to a prohibition on collateral use. As such, it replaced the implied undertaking to the Court as constructed by the courts. It replaced that implied undertaking with a rule which the producing party was clearly entitled to enforce of its own right.
[19] Against this background, it may be considered surprising that r 8.30(4) does not include within the prohibition an exception base on the Court granting leave.17
This may be contrasted with the position under the CPR where there is an express exception (CPR 31.22(1)(b)) when “the court gives permission”.
[20] It may also be considered surprising that r 8.30(4) does not include an exception along the CPR lines:18
... unless the party who disclosed the document and the person to whom the document belongs agree.
[21] The single express exception in r 8.30(4) is that in r 8.30(4)(b):
... (unless it has been read out in open court).
[22] The Rules Committee may wish to give consideration to a reframing of r
8.30(4) in such a way as would (similarly to CPR 31.22) expressly identify the three (or more) exceptions to the collateral use prohibition as the Rules Committee considers should exist. At present only the “read in court” exception is express.
[23] As it stands, there is New Zealand authority for the continuing application of
the “court permission” exception.
17 For instance r 8.31 permits a document omitted from a party’s affidavit of documents to be produced in evidence “only with the consent of the other party or parties or the leave of the court”.
18 CPR.31.22(1)(c)(UK).
[24] The Court of Appeal in a judgment delivered by William Young J in Wilson v White [Undertaking]19 indicates that the “court permission” and “read in court” remained in force under the first (slightly different) version of r 8.30(4) were enacted.
[25] Wilson v White was decided at a time when the collateral use of the prohibition was first contained in r 309 High Court Rules. At that time r 309 (dealing with the right to make copies of discovered documents) provided as r 309(4):
(4) A party who obtains a copy under this rule –
(a) Shall make use of that copy only for the purposes of the proceeding; and
(b) Except for the purposes of the proceeding, shall not make it available to any other person.
Rule 309(4) did not expressly refer to either the “by permission of the Court” or the
“read in court” exceptions.
[26] The Court of Appeal continued to analyse the prohibition in terms of “an undertaking as to limitation on use”.20 The Court of Appeal was dealing with, amongst other arguments, an issue as to whether the limited use undertaking lapses once documents are read in open court. Upon an extensive review of the modern position in England and other jurisdictions, the Court of Appeal concluded:21
Our preference is to:
(a) Adopt as part of our law the post-Harman English position that the limited use undertaking ceases to apply (but subject to judicial direction to the contrary) once a document is read to or by the Court, or is referred to and this occurs in open Court.
(b) Treat all other circumstances which might be thought to warrant a discharge of the undertaking as not leading to an automatic discharge but rather as grounds for an application to the Court for an order releasing the affected [a] [sic] party from the undertaking.
19 Wilson v White [Undertaking] (2005) 17 PRNZ 537 (CA) at [47]..
20 See, for instance, Wilson v White, above n 19, Heading to [23].
21 At [47] per William Young J.
[27] Thereby, the Court of Appeal recognised two exceptions to the collateral use prohibition. The second (paragraph (b) immediately above) recognises the “Court permission” exception. The second (paragraph (a) above) recognises the “read in open Court” exception. Neither exception was expressed at the time within r 309. This led the Court to observe that “this looks like judicial legislation”.22 Although the Court of Appeal had also identified the “Court permission” exception, the Rules Committee did not move to expressly incorporate that exception. Yet it seems likely that the specific amendment came about because the principal focus in the judgment
in Wilson v White was upon the “read in Court” exception. I therefore do not take the express mention of the “read in Court” exception in the current High Court Rules as leading to the interpretation that the exclusion of other (previously recognised) exceptions is intended.23
[28] Thus, the judgment of the Court of Appeal in Wilson v White is binding authority for the proposition that notwithstanding the omission from r 8.30(4) of an express exception of Court permission, the New Zealand position is parallel to that contained in England under the first two exceptions to CPR 31.22.
[29] The third exception in CPR 31.22 to the collateral use prohibition is when the party which disclosed the document and the person to whom the document belongs agree (to collateral use). That exception has no express counterpart in r 8.30(4) and was not listed by the Court of Appeal in its formulation in Wilson v White.24 At the risk of venturing into what may look like the territory of judicial legislation (as the Court of Appeal recognised might be perceived in its approach in Wilson v White), I
regard it as implicit within the modern r 8.30(4) that the parties themselves may agree upon disclosure without having to resort to the Court. There has clearly been a move by the Rules Committee away from the judicial construct of an implied
undertaking to the Court.25 The disclosing party’s privacy and confidentiality
22 At [48].
23 In other words, the expressio unius – full version expressio unius est exclusion alterious – the approach to interpretation is not applicable to r 8.30(4).
24 Wilson v White, above n 19.
25 I do not overlook the numerous references to the implied undertaking by the Court of Appeal in Wilson v White notwithstanding that by the time of that case, an express collateral use prohibition had been introduced in r 309(4). But the rule and the implied undertaking were in that case not themselves the issue – the issue related to the exceptions and in particular whether there was a “read in court” exception as had been expressly included in equivalent English and
interests are now protected by a rule of Court rather than an implied undertaking to the Court.26 Without the Court (by something in the nature of a fiction) being the direct recipient of an undertaking, I regard it as implicit within r 8.30 that the party whose privacy is to be protected by the rule may waive the benefit of the rule.
[30] A “party agreement” exception, as a third exception to the collateral use prohibition, also lends itself to the just, speedy and inexpensive determination of the departure from the prohibition. Given the consent of the affected parties, an additional requirement of a Court application would add a layer of delay and expense that is demanded neither by the interests of the parties in relation to their privacy or the interests of the Court in relation to the protection of the Court’s processes.
The procedure for obtaining permission or leave
[31] The plaintiff’s request for leave to use the identified documents has been
made by counsel’s memorandum.
[32] Rule 8.30 does not expressly identify an exception to the collateral use prohibition based on obtaining the leave of the Court. It is therefore unsurprising that the High Court Rules do not identify any procedure to be adopted when seeking leave.
[33] The Court of Appeal in Wilson v White refers to the concept of seeking the leave of the Court.27 It also refers to the proper course as being to put the issue to the Court in the context of an application for release from the undertaking. The
Court of Appeal noted with approval to the judgment of Blackburne J in Watkins v
Australian Federal Court rules.
26 In an article “The implied undertaking restricting the use of material obtained during legal
proceedings” (2003) 23 Aust Bar Rev 314 Matthew Groves concluded that, because the collateral use prohibition arose from an implied undertaking to the court, it could not be waived by the producing party or released by agreement between the parties. (He nonetheless cited, at fn 81-82 conflicting Australian authority on the point). The article does not discuss the import of codification of the collateral use prohibition in rules of court.
27 Wilson v White, above n 19, at [64].
Wright.28 In considering a case of breach of the implied undertaking in that case, his
Lordship observed that there would have been for the litigant in question:29
… ample time within which to apply to the court to be relieved from the implied undertaking to enable disclosure to be made (assuming the respondents were not willing to consent to it).
The case occurred before the current Civil Procedure Rules (including CPR 31.22)
came into being.
[34] Although the New Zealand judgments in this area of law do not always identify precisely the manner of application, there appears to be a pattern of formal application being made. In the 1998 judgment of Neazor J in Nicholls v Nicholls, his Honour refers to an application for leave to which a “notice of objection” was filed.30
In Hunter Grain, Associate Judge Doogue granted leave for collateral use31 which
was upheld on review by Rodney Hansen J.32 It seems that there was formal application and opposition.33 There were hearings at which submissions were heard for and against the applications. Although it is not clear, in Telstra New Zealand Ltd v Telecom New Zealand Ltd34 there appears to have been a formal application for leave to use the discovered documents in question (as well as a separate application for leave to file a counterclaim).
[35] In Australia, in Holpitt Pty Limited v Varimu Pty Limited the application for leave was made by notice of motion to which opposition was filed.35 Burchett J further observed that the correct procedure is that any notice of motion (or similar) should be filed in the proceeding in which the implied undertaking arose (rather than in the other proceeding in which the applicant intends to use the document if leave is granted), as had actually occurred in the Holpitt case.
[36] Mr Patterson has chosen in this case to seek leave by filing a memorandum. It may be appropriate in the interests of securing the “just, speedy, and inexpensive
28 Watkins v Wright [1996] 3 All ER 31 (Ch) cited in Wilson v White, above n 19, at [63].
29 Watkins v Wright, above n 28, at 39f.
30 Nicholls v Nicholls above n 12, at 5.
31 Hunter Grain Ltd v Price HC Tauranga CIV-2008-470-000192, 23 April 2010.
32 Hunter Grain Ltd v Price HC Tauranga CIV-2008-470-000192, 3 August 2010.
33 Hunter Grain Ltd v Price, above n 31, at [1] per Associate Judge Doogue.
34 Telstra New Zealand Ltd v Telecom New Zealand Ltd, above n 16.
35 Holpitt Pty Limited v Varimu Pty Limited, above n 13, at 1 per Burchett J.
determination” of the issue, to allow requests for some types of leave to be initiated by memorandum.36 But in relation to matters of obvious importance to parties engaged in litigation, such as the ownership and privacy of their documents which are produced under some compulsion, the Court should generally expect that leave be sought by interlocutory application. Such an approach lends itself to the courts being fully informed and interested parties being fully heard, in relation to the relief
sought, the grounds justifying the relief, and any particular rules or principles of law which are applicable. Such information is required for any interlocutory application by r 7.19(1) High Court Rules.
[37] Proceeding by application will also serve to ensure that the focus in relation to leave moves from the historical construct of an implied undertaking given to the Court to the regime under r 8.30. Rule 8.30 can properly be regarded as providing protection of the disclosing parties’ right to its property and privacy. If for any reason the party applying for leave considers that the application should be without notice, the requirement of a formal application carries with it the obligations that attach to applications without notice under r 7.23. If, on the other hand, the formal procedure of an application on notice is followed, then the procedure in turn ensures that any opposition proceeds on proper notice with grounds of opposition and relevant rules and principles identified.
[38] Neazor J, in Nicholls v Nicholls evidently adopted this approach. His Honour’s judgment indicates that upon receipt of the plaintiff’s application in that case a direction was made that the application, which had already been served on and opposed by the first defendant, be also served on the second and third defendants whose documents were involved.
The grounds of the request for collateral use in this case
[39] For the plaintiff, Mr Patterson has in his memorandum summarised the relevant background.
36 High Court Rules, r 1.2.
[40] The plaintiff has discontinued this proceeding against all defendants. It nevertheless has continuing litigation against the first defendant in the Employment Court. The first defendant is a former employee of the plaintiff. The second and third defendants were the first defendant’s new employers. Following the first defendant’s resignation from his employment, the plaintiff initiated proceedings in the Employment Relations Authority. Those proceedings now lie in the Employment Court. The Employment Court proceeding was stayed until this (High Court) proceeding was resolved. That resolution occurred when the discontinuances were filed in this Court.
[41] Mr Patterson states that the information contained in some of the documentation provided by the second and third defendants in this proceeding is relevant to whether the first defendant breached the implied undertaking he gave to the Employment Court not to compete with the plaintiff. The documentation specifically sought is email correspondence between the first defendant and others within the second and third defendants’ employ.
[42] Mr Patterson notes that it would have been open to the plaintiff to pursue third party discovery against the second and third defendants in the Employment Court for orders as to the same documents. He submits that such a course should reasonably be regarded as unnecessary given that complications may arise and time be consumed in a discovery exercise as the second defendant is now in receivership and the third defendant has recently been acquired by another corporate.
Substantive considerations applicable in this case
[43] Mr Patterson, in his memorandum, relies upon the substantial connection between the factual background to the High Court proceeding and to the Employment Court proceeding.
[44] While the Court’s overarching approach to any leave application is that articulated by Burchett J in Holpitt, as adopted by Rodney Hansen J in Telstra NZ v Telecom NZ, a strong factual connection between the existing proceeding and the other proceeding has been recognised as a particular situation which may lean in
favour of the granting of leave. As Associate Judge Doogue observed in Hunter
Grain Ltd v Price:37
… it would seem that some assessment is to be made of the closeness of connection between the two sets of proceedings. Such an approach would constitute a relevant mechanism for testing whether or not the controlling principle which governs the use of discoverable documents should be applied in its full rigour or whether a departure is justified. While it might not be permissible in transactions resulting in cases that have a remote connection between each other to decline leave, it seems fair and reasonable that a different approach be taken where there is a close factual connection between the two matters. There is such a connection here.
[45] In upholding the Associate Judge’s ruling on review, Rodney Hansen J
similarly observed:38
A consideration of the circumstances necessarily begins with the close connection between the two proceedings.
[46] On this basis, the applicant in this proceeding appears to have a strong case for the granting of leave but those whose documents were produced in this proceeding are entitled to be heard on that very issue and on the leave application generally.
Appropriate course in this case
[47] Mr Patterson has explained that the second defendant in this proceeding is currently in receivership and the third defendant has recently been acquired by another corporate. That background is put forward as indicating that a third party discovery application in the Employment Court would take undue time.
[48] It does not follow from Mr Patterson’s observations as to the second and third defendants that their consent to use of the documents would not be available. Given that the documents are already in the possession of the plaintiff, those who now administer the second and third defendants (the receiver and the new owner
respectively) might well give consent to use of the documents in the Employment
37 Hunter Grain v Price, above n 31, at [39].
38 Hunter Grain v Price, above n 32, at [52].
Court. As an alternative to being subjected to a non-party discovery process, they may prefer to simply consent to the use of the documents in the Employment Court.
[49] In any event, the base documents are those of the second and third defendants. When one party wishes to use such documents discovered by other parties, it is appropriate that the request is first put to those other parties. If they consent, the legal position, as I have found it,39 that leave from the Court is not required in addition to such consent.
[50] The plaintiff should therefore seek first to obtain the consent of the second and third defendants, which if given would be the only prerequisite to use of the documents in the Employment Court. The Court’s leave would be additionally required.
[51] If consent is not available, then the plaintiff should proceed on the basis of an interlocutory application filed in the normal way and supported by the appropriate evidence. For the reasons previously set out in this judgment, I view it as appropriate that the application be on notice and served on the second and third defendants.
Outcome
[52] The plaintiff’s request in terms of the memorandum filed for leave to use in the Employment Court email documentation provided by the second and third defendants in the discovery process in this proceeding is not granted.
Associate Judge Osborne
Solicitors:
Castle Brown, Auckland. [email protected]
McKay Mackie, PO Box 125, Waipawa. [email protected]
R E Harrison QC – [email protected]
39 See above at [30].
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