Hemi v Tyler
[2020] NZHC 2166
•26 August 2020
IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY
I TE KŌTI MATUA O AOTEAROA KIRIKIRIROA ROHE
CIV-2018-419-243
[2020] NZHC 2166
BETWEEN HOHUA WARREN HEMI
Plaintiff
AND
MICHAEL STEPHEN TYLER
Defendant
Hearing: 13 August 2020 Appearances:
J A MacGillivray and M K Brady for Plaintiff K T Bond and U B Keller for Defendant
Judgment:
26 August 2020
JUDGMENT OF ASSOCIATE JUDGE LESTER
This judgment was delivered by me on 26 August 2020 at 3.00 pm pursuant to Rule 11.5 of the High Court Rules
Registrar/Deputy Registrar 26 August 2020
HEMI v TYLER [2020] NZHC 2166 [26 August 2020]
[1] This is a factually dense case involving business relationships undertaken through multiple companies spanning 15 or more years, which is not a promising starting point for a defendant’s application for summary judgment or to strike out the plaintiff’s claim.
[2] This proceeding has already been subject to a judgment of Paul Davison J delivered on 21 May 2019, dealing with an appearance under protest to jurisdiction by Mr Tyler and a forum conveniens argument.1
[3] I gratefully adopt his Honour’s summary of the background and nature of the claim, albeit with some minor variations to reflect amendments to the statement of claim since Paul his Honour’s judgment:
[2] In his statement of claim the plaintiff sets out the background and context of his claim against the defendant, which arises from a wider dispute between himself and his business partner, Mr Robert Stone (Mr Stone). The plaintiff pleads two causes of action. The first alleges that the defendant has acted in breach of his duties as trustee for [a Cayman Island company, Auto Net] of shares in Autoterminal New Zealand Limited (ATNZ). The second alleges that the defendant has breached fiduciary duties owed to the plaintiff.
[3] The plaintiff and Mr Stone entered into a business relationship around 1991 for the purpose of purchasing used cars in Japan and exporting them to New Zealand and elsewhere in the world. The plaintiff says that his partnership with Mr Stone was on the basis that they each had a half share or interest in all partnership assets, and would operate all aspects of the partnership business together for their joint and equal benefit.
[4] The plaintiff says that his business partnership with Mr Stone is conducted through a complex structure of corporate entities incorporated in various jurisdictions around the world, all of which are ultimately beneficially owned by himself and Mr Stone equally. The plaintiff says that one of the corporate entities in the partnership structure is ATNZ, which was incorporated in April 2000 at his and Mr Stone’s direction. Its role was to sell and distribute cars imported into New Zealand from Japan on behalf of IBC Japan Co Limited (IBC), which was the first corporate entity established by the partnership, and which undertakes the core business of the partnership, buying and exporting used cars from Japan around the world including to New Zealand.
[5] The plaintiff says that another corporate entity beneficially owned by Mr Stone and himself is iCOMM International Incorporated (iCOMM), which was incorporated in January 2005 under the laws of the Philippines, and is based in Cebu in the Philippines. iCOMM was established to provide accounting and office services to IBC and other corporate entities owned by the partnership business.
1 Hemi v Tyler [2019] NZHC 1114.
[6] The plaintiff alleges that when ATNZ was incorporated, he and Mr Stone employed the plaintiff’s brother, Mr Hoani Hemi, to manage the ATNZ business, to hold the position of director of the company, and to hold the shares of the company as bare trustee for the plaintiff and Mr Stone equally. In March 2001, at the plaintiff’s and Mr Stone’s direction, Mr Hoani Hemi transferred the shares he held in ATNZ to Auto Net, … which is beneficially owned by the plaintiff and Mr Stone, each having a 50 per cent interest.
[7] The plaintiff alleges that upon the resignation of Hoani Hemi as the director of ATNZ in May 2004, he and Mr Stone appointed the defendant as director. The plaintiff says that in March 2009, at his and Mr Stone’s direction, Auto Net transferred its shares in ATNZ to the defendant to be held as bare trustee for [Auto Net …], and on the basis that the defendant would exercise all rights in respect of the ATNZ shares as instructed by the plaintiff and Mr Stone. In his statement of claim the plaintiff alleges that the defendant holds the shares in ATNZ as bare trustee for [Auto Net …].
[8] The plaintiff says that he and Mr Stone employed the defendant around 1999 in a management role for their partnership business based in the Bahamas, and alleges that the defendant was aware from the outset that the plaintiff and Mr Stone each owned 50 per cent of the partnership business.
[9] The plaintiff says that his business relationship with Mr Stone deteriorated from around 2014 and has since led to legal proceedings between them. The plaintiff alleges that from around the same time his relationship with the defendant also deteriorated, and the defendant has since sided with Mr Stone, and acted on Mr Stone’s instructions in relation to the management of the partnership business and its corporate entities, and has refused to act on the instructions of the plaintiff.
[10] In his first cause of action the plaintiff seeks relief by an order of the Court requiring the defendant, as bare trustee of … the ATNZ shares, to transfer those shares to [Auto Net]. That cause of action also alleges that the defendant has breached his duty not to profit from that trust by paying himself a shareholder salary from ATNZ.
[4] The plaintiff, Mr Hemi, in his second cause of action, pleads that the business relationship between him and the defendant, Mr Tyler, gave rise to fiduciary duties particularised as follows in the draft second amended statement of claim.
43.The business relationship between Mr Hemi and Mr Tyler is such as to give rise to fiduciary duties owed by Mr Tyler to Mr Hemi, particulars of which are as follows:
(a)Mr Hemi and Mr Stone reposed significant trust and confidence in Mr Tyler in allowing Auto Net to transfer to him legal ownership of the shares in ATNZ as trustee;
(b)Mr Hemi and Mr Stone reposed significant trust and confidence in Mr Tyler by appointing him as director and CEO of ATNZ;
(c)Mr Hemi and Mr Stone have reposed significant trust and confidence in Mr Tyler by appointing him as director and President of Icomm;
(d)Mr Hemi and Mr Stone have reposed significant trust and confidence in Mr Tyler by sharing with him confidential information about the wider affairs of their business partnership outside the direct affairs of Icomm and ATNZ;
(e)By permitting Mr Tyler to hold legal rights and powers as particularised above, Mr Hemi has placed himself in a position where significant aspects of his business interests are heavily reliant on the actions of Mr Tyler and where he is vulnerable to the actions of Mr Tyler.
Mr Tyler’s application
[5] As noted, Mr Tyler brings an application for summary judgment and/or to strike out Mr Hemi’s claim. A stay is sought on different grounds and I will deal with the stay separately.
[6]The application claims the pleaded fiduciary duties are unsustainable as:
(i)no duty of obedience on Mr Tyler can arise in the type of fiduciary duty pleaded;
(ii)there is no business relationship between Mr Hemi and Mr Tyler, such as to give rise to a fiduciary duty;
(iii)whatever the business relationship between Mr Hemi and Mr Tyler involved, Mr Hemi did not repose significant trust and confidence in Mr Tyler.
[7] Mr Hemi, in his affidavit in opposition, sworn 1 May 2020, refers to operating as IBC’s representative sales agent in New Zealand, with that arrangement operating from 2000 until 2014 without any formal agreement, which he says reflects the collaborative approach and common ownership of the two companies.
[8] Mr Hemi acknowledges that although Mr Stone and he did not directly own any shares in ATNZ, and never had owned shares, the company was incorporated on
their instructions to pursue their interests. The short point behind Mr Hemi’s case is that ATNZ always operated for the benefit of Mr Stone and himself and at their ultimate direction, and did so while Mr Tyler was sole shareholder and director. Mr Hemi refers to Mr Tyler holding one share and being the practical controller of iComm and, again, says that iComm was incorporated at the instigation of himself and Mr Stone. Mr Hemi says up until the breakdown of his relationship with Mr Stone, iComm always operated for their benefit and at their ultimate direction.
[9] Mr Hemi deposes that although Mr Tyler was appointed President of iComm, in reality he took instructions on important matters from Mr Stone and Mr Hemi. Mr Tyler had no authority to make important or strategic decisions on his own (and did not do so).
[10] Mr Hemi says it was common for him and Mr Stone to give instructions and to receive reports directly to and from iComm’s in-house counsel and chief financial officer, without the involvement of Mr Tyler.
[11] The basic proposition behind Mr Hemi’s case is set out at para 24 of his affidavit:
24.It is my position that Mr Tyler knew he was given positions of power and responsibility within the business partnership on the basis that he was under the control and direction of me and Mr Stone as 50/50 owners and that we gave him these positions trusting that he would act on our instructions and for our joint benefit. Mr Tyler knew when taking on the various roles he has throughout the business partnership that while he may legally be a director or shareholder of various entities and make day-to-day running decisions, that the ultimate decision making power and ultimate beneficiaries of the companies that form the business partnership were Mr Stone and me. Neither Mr Stone or I would ever have made Mr Tyler President of iComm or given him complete legal control over ATNZ if we thought he could then side against one of us or ignore our instructions or requests for information.
[12] Mr Hemi confirms that prior to the breakdown of the relationship between himself and Mr Stone, Mr Tyler reported to and took instructions from himself and Mr Stone in relation to the operation of ATNZ and iComm, as they were the ultimate owners of those companies and the overall businesses. As examples of the practical control Mr Hemi had, he says that he was able to obtain any information he wanted in
relation to the entities and was also consulted on in relation to their management. On any important strategic issue he said he and Mr Stone would confer with each other and reach consensus before giving instructions to Mr Tyler and others. He said, “Mr Tyler would never make important decisions without deferring to Mr Stone and me.”
[13] Another example relied on by Mr Hemi of the true nature of the relationship is that he says he was provided with full financial reports for ATNZ on a monthly basis. He notes he received those despite he had no legal position within ATNZ at all. However, prior to the breakdown of his relationship with Mr Stone, he said he would regularly meet with Mr Tyler at ATNZ to receive reports and to give guidance and directions. He had complete access to all ATNZ’s business records and says:
Mr Tyler understood that he was running a business for me and Mr Stone and that we were ultimately in charge until the breakdown of my relationship with Mr Stone, he took no issue with this.
[14] Mr Hemi said a similar situation applied to iComm, as with ATNZ, as to the provision of information and control.
[15] Mr Hemi’s ultimate complaint is that Mr Tyler has sided with Mr Stone in respect of the dispute between Mr Hemi and Mr Stone. At the end of the day, Mr Hemi says all he expected of Mr Tyler was that when Mr Stone and he gave Mr Tyler the positions he holds at ATNZ and iComm, that Mr Tyler would act in the joint interests of Messrs Stone and Hemi, or not at all.
[16] Much of Mr Hemi’s evidence is disputed by Mr Tyler, but Mr Bond, counsel for Mr Tyler, confirmed he did not submit that any of the conflicts were in that narrow class of disputed fact that could be resolved in a summary hearing.2 Mr Bond’s submission was that Mr Hemi’s version of events did not undermine the basis of the summary judgment/strike out application.
2 A-G v Rakiura Holdings Ltd (19860 1 PRNZ 12 at [14].
Summary judgment and strike out principles
[17]Mr Tyler’s written submissions outline his reliance on the following principles.
Summary judgment
13.Rule 12.2(2) of the High Court Rules provides the Court may give judgment against a plaintiff if the defendant satisfies the Court that none of the causes of action in the plaintiff’s statement of claim can succeed. An application for defendant’s summary judgment is:
13.1different from a summary judgment application by the plaintiff in that the defendant has to show that the plaintiff cannot succeed;3 and
13.2similar to a strike out application but for the fact that summary judgment allows for affidavit evidence, meaning the Court can have regard to the evidentiary material, rather than simply relying on the plaintiff’s pleadings.
14.As with a strike out application, summary judgment will not be appropriate where it is possible for the plaintiff to amend its claim to remedy the defects relied on by the defendant. It is only appropriate where the defendant has a clear answer to the plaintiff’s claim which cannot be contradicted.4 The nature of the evidence relied on by the defendant to support a summary judgment has to be in the nature of a “king hit”, and the onus is on the defendant to show that none of the claims can succeed.5
Strike out
15.Rule 15.1 of the High Court Rules provides that the Court can strike out all or part of a claim if it discloses no reasonably arguable cause of action, is likely to cause prejudice or delay, is frivolous or vexatious or otherwise an abuse of process.
16.The established criteria for a strike out were summarised by the Court of Appeal in A-G Prince [1998] 1 NZLR 262 (CA) at 267, and endorsed by the Supreme Court in Couch v A-G [2008] NZSC 45 at [33], per Elias CJ and Anderson J as follows:
16.1Pleaded facts, whether or not admitted, are assumed to be true. This does not extend to pleaded allegations which are entirely speculative and without foundation.
16.2The cause of action must be clearly untenable.
16.3The jurisdiction to strike out is to be exercised sparingly, and only in clear cases, reflecting the Court’s reluctance to terminate a claim or defence short of trial.
3 Westpac Banking Corp v MM Kembla NZ Ltd [2001] 2 NZLR 298 (CA).
4 Attorney-General v Jones (2001) 15 PRNZ 347 (CA).
5 Westpac Banking Corp v MM Kembla NZ Ltd, above n 3.
16.4The jurisdiction is not excluded by the need to decide difficult questions of law, requiring extensive argument.
16.5The Court should be particularly slow to strike out a claim in any developing area of the law.
Mr Tyler’s case
[18] Mr Bond says it is common ground that the relationship between Mr Hemi and Mr Tyler does not fit within any established categories of fiduciary relationship. He says it is therefore necessary for Mr Hemi to establish the relationship has the necessary fiduciary element. Mr Hemi must establish he was entitled to place trust and confidence in Mr Tyler and rely on him not to act contrary to Mr Hemi’s interests.6
[19] Mr Br Bond says the relationship between Mr Hemi and Mr Tylor lacks any of the characteristics or elements of a fiduciary relationship and Mr Hemi cannot have had a reasonable expectation that Mr Tyler owed him fiduciary duties.
[20] Mr Bond says it was Auto Net that transferred the shares to Mr Tyler to hold on trust, not Messrs Hemi and Stone. At the time of transfer Messrs Hemi and Stone were not directors of Auto Net and any shareholding they held in Auto Net they held indirectly. Further, it is said that Auto Net, not Messrs Hemi or Stone, appointed Mr Tyler as director of ATNZ.
[21] In the same vein, it is submitted it was Auto Net and IBC (as trustee for Auto Net) that appointed or allowed Mr Tyler to remain as director and President of iComm, not Mr Hemi. Mr Tyler is said to have acquired information regarding the group of companies ultimately owned by Messrs Hemi and Stone by virtue of the roles he had, not because Mr Hemi shared confidential information with him.
[22] Mr Bond submits the group of companies created by Messrs Hemi and Stone is a group of independent and separate entities, albeit with both Messrs Hemi and Stone at the top as the “ultimate beneficial owners”. Mr Tyler says, and Mr Hemi accepts, that structure was put in place following professional advice.
6 Chirnside v Fay [2006] NZSC 68, [2007] 1 NZLR 433 at [80].
[23] Mr Tyler emphasises that Messrs Hemi and Stone have no direct legal interest in Auto Net, let alone ATNZ or iComm. There are at least four layers of separation between Mr Tyler as director and shareholder of ATNZ, and as director and shareholder of iComm, and Mr Hemi as ultimate beneficiary of the group. Even then, Mr Tyler says it must be kept in mind when referring to Mr Hemi as an ultimate beneficiary of the group of companies, that Mr Hemi is merely a discretionary beneficiary of the Trust that holds the shares in Auto Net.
[24] Mr Tyler says while Messrs Hemi and Stone remain able to exercise indirect control over Mr Tyler through the corporate structures they set up, there is no direct relationship and certainly not a fiduciary relationship with Mr Tyler. Mr Hemi and Mr Stone, through putting into place the corporate structure, accepted that enforcement of any rights they had would occur down through the layers of the structure.
[25] Mr Tyler says the corporate structure created by Messrs Hemi and Stone, with the benefit of advice, means Mr Tyler was subject to obligations that are already governed by well-established statutory and common law duties. It is said there is potential for these duties to be in conflict with the fiduciary duties claimed by Mr Hemi which stands against finding a fiduciary relationship.
[26] Accordingly, Mr Tyler relies on the fact there is a formal corporate structure deliberately put in place by Messrs Hemi and Stone. Mr Tyler says that structure is inconsistent with the fiduciary duties now pleaded. In short, the submission is that Mr Hemi chose, through that corporate structure, to distance himself from Mr Tyler and now cannot be heard to say that the relationship was a close one.
[27] Mr Bond relied on Mahura Corp v Amaltal Corp Ltd, where two companies that had been in partnership incorporated a joint company to replace the partnership7. The issue was whether the former partners continued to owe any fiduciary duties to each other as shareholders of the joint company as a result of some of the partnership
7 Mahura Corp v Amaltal Corp Ltd [2007] NZSC40, [2007] 3 NZLR 192.
terms having been carried over into the new company structure and into their shareholders agreement. The Supreme Court did not accept that argument, saying:8
These were commercial companies who had elected not to continue as partners and, instead, to frame their relationship by internal and external rules applicable to a company, supplemented by a contract between them in their capacity as shareholders. There is no warrant then for imposing upon them generally obligations not found in the company’s own constitution, in companies legislation or in the terms of the contract. As partners they would have owed fiduciary duties to one another, but their relationship no longer took that unincorporated form. They had deliberately substituted the Companies Act regime for that of the Partnership Act.
[28] Mr Bond submitted that before a fiduciary duty could exist, there would have to be a relationship of close proximity between the parties, either before or at the time of the alleged breach of duty.9 Mr Bond said proximity was absent here as a consequence of the structure put in place by Messrs Hemi and Stone. Nor, Mr Bond submitted, was Mr Hemi in a vulnerable position vis-a-vis Mr Tyler, vulnerability being a cardinal feature of a fiduciary relationship.10
Mr Hemi’s response
[29] Mr MacGillivray, counsel for Mr Hemi, in answer to the application to strike out and/or for summary judgment, submitted the position was straightforward. He referred to the detail of Mr Hemi’s affidavit summarised above. He emphasised that for present purposes, that evidence is to be taken at face value. He said the evidence showed that Messrs Hemi and Stone gave legal and practical control to Mr Tyler, but on the basis that Mr Tyler was subject to the limitations as described in Mr Hemi’s evidence. While Mr MacGillivray did not use these words, in a sense the argument was that Mr Tyler was not only a trustee of the shares in ATNZ for Auto Net, he was a trustee of the power he held as President/manager for Messrs Hemi and Stone or, at least, if “trustee” is not the applicable concept, Mr Tyler would only exercise such powers at the direction and/or with the approval of Messrs Hemi and Stone.
[30] At the end of the day, Mr MacGillivray said the issue was so fact intensive that it was unsuitable for a summary challenge.
8 At [19].
9 Saunders v Houghton [2009] NZCA 610, [2010] 3 NZLR 331 at [97].
10 At [98].
Discussion
[31] In my opinion, Mr Tyler’s submissions miss the focus of Mr Hemi’s argument. The whole point of Mr Hemi’s case is he and Mr Stone continued to have control, in fact notwithstanding the corporate structure they had put in place meant they had distanced themselves from legal control. That Messrs Hemi and Stone, over an extended period, in fact controlled ATNZ and iComm, arguably points to Mr Tyler having accepted that control ultimately rested with Messrs Hemi and Stone. On Mr Hemi’s evidence, Mr Tyler accepted his roles on the basis that he would be subject to direction from Messrs Hemi and Stone and that is the way matters operated for many years.
[32] Equity looks to the substance and not to the form. On Mr Hemi’s evidence, Mr Tyler deferred to Messrs Hemi and Stone on all important decisions and took on his management roles on that basis. On Mr Hemi’s case, Mr Tyler accepted he was subject to Mr Hemi’s and Mr Stone’s direction.
[33] Mr Hemi says Mr Tyler was aware that Messrs Hemi and Stone owned everything “50/50”. In substance, the relationship Mr Hemi describes with Mr Stone was that of a quasi-partnership or joint venture.
[34] There is no suggestion in the evidence that Mr Tyler, in the positions he held, had a casting vote or some sort of veto where Mr Hemi and Mr Stone disagreed.
[35] In short, notwithstanding that Messrs Hemi and Stone did not have legal control over ATNZ and iComm, Mr Tyler accepted they were the controllers and deferred to them.
[36] In my view, it is at least reasonably arguable, that it was inherent in the way the structure operated, as described by Mr Hemi, that he reposed trust and confidence in Mr Tyler – as did Mr Stone. Mr Hemi and Mr Stone were vulnerable to Mr Tyler no longer agreeing to take significant management steps only with their joint approval. That vulnerability being demonstrated by Mr Tyler now denying Mr Hemi has any direct rights or control. Mr Hemi’s evidence makes it at least reasonably arguable that Messrs Hemi Mr Stone intended to retain, and did exercise, control over the
companies over an extended period. They intended to and did exercise control even though they separated themselves from legal control. Mr Tyler would have been aware from his knowledge of the structure of the companies that Messrs Stone and Hemi did not have legal control, but nonetheless, on Mr Hemi’s evidence, Mr Tyler treated them both as having control.
[37] In these circumstances, I consider Mr Tyler’s focus on the “black letter” structure to miss the point of Mr Hemi’s case. That the legal structure is inconsistent with the control that Messrs Hemi and Stone exercised, is part of the basis of Mr Hemi’s case, not a reason for striking it out or giving summary judgment for Mr Tyler.
[38] Mr Bond submitted that to find a fiduciary relationship existed between Mr Hemi and Mr Tyler, would place Mr Tyler in a conflict of duty situation in respect of an obligation of disclosure to Mr Hemi, given Mr Tyler was involved in proceedings against Mr Hemi’s interests. If Mr Tyler is involved in, or has knowledge of proceedings contrary to Mr Hemi’s interests then that is because Mr Tyler is arguably in breach of his fiduciary duty to Mr Hemi in the first place. Had Mr Tyler acted in the manner pleaded by Mr Hemi, that is, acting on the joint instructions of he and Mr Stone, and if unable to do so, not favouring one or the other, the potential for breach of duty would in all likelihood not arise. Nor do fiduciary duties exist in isolation from their context and it is possible for relationships to have fiduciary and non-fiduciary elements.11 I do not consider the prospect of a conflict of duties to mean Mr Hemi will be unable to show Mr Tyler owed him fiduciary duties.
Application for stay
[39] The application for stay is based on different grounds. It is said that if it is arguable that a fiduciary duty existed, it was owed to Messrs Hemi and Stone jointly, so that it is not open for Mr Hemi to bring this claim in his own name.
[40] The submission is Mr Hemi claims the duties owed by Mr Tyler arise out of the arrangements made by the “business partnership” that existed between
11 Appanna v Anglesea Hospital Ltd [2019] NZHC 474 at [291] and [292].
Messrs Hemi and Stone. That such a partnership existed is not accepted by Mr Tyler, but it is said that if there was such a partnership, that the duties would be owed to the partnership and not Mr Hemi personally.
[41] Mr Stone, in a brief affidavit in support of Mr Tyler’s application for summary judgment or strike out, refers to Mr Hemi’s claim that he was in a business relationship with Mr Stone. Mr Stone says, “I deny (and have consistently denied) that any such business partnership exists”.
[42] Mr MacGillivray has put in evidence a winding-up petition issued by Mr Stone in the Grand Court of the Cayman Islands where he seeks various orders including the winding-up of Auto Net. The petition is dated 17 June 2020. The pleading on behalf of Mr Stone says:
Messrs Stone and Hemi are business partners in a joint venture originally commenced in 1991. Their business partnership has spanned decades and now involves a group of companies including [Auto Net] as set out below.
The nature of the business relationship between the Stone and Hemi Interests is a partnership and/or joint venture and is based on mutual trust and confidence.
[43] Mr Tyler did not seek to try and reconcile Mr Stone’s denial of a partnership with Mr Hemi in this case or Mr Stone’s pleading above.
[44] Mr Stone’s position, as disclosed in the winding-up petition, is consistent with Mr Hemi’s evidence. It is not inconsistent with Mr Hemi’s case that Messrs Stone and Hemi wished to retain control and dealt with Mr Tyler on that basis.
[45] I do not find Mr Tyler’s proposition attractive. It would mean that Mr Tyler, breaching his fiduciary duty to Mr Hemi in favour of Mr Stone, and Mr Stone breaching the mutual trust and confidence he has pleaded he owed Mr Hemi, could between them, defeat Mr Hemi’s rights.
[46] In the absence of compelling authority or principle that would make a stay the only outcome in these circumstances, I consider the application for stay to be without merit. If Mr Hemi is right, Mr Tyler is in breach of his fiduciary duty to Mr Hemi by co-operating with Mr Stone to damage Mr Hemi’s interests. On Mr Bond’s
submission, Mr Hemi could only pursue relief for breach of fiduciary against Mr Tyler with the approval of Mr Stone, who is benefitting from that breach of fiduciary duty. I do not accept that submission.
Mr Hemi’s application for discovery
[47] In the affidavit of documents sworn by Mr Tyler, he says he does not consider he has any documents to discover and gives some explanation. I do not comment on the accuracy of the grounds relied on by Mr Tyler to not disclose documents he holds in relation to ATNZ or iComm, or communications between himself and Mr Stone relating to those companies. The only documents “listed” in Mr Tyler’s list were in relation to the documents for which privilege are claimed, such being, “All communications between myself and Harkness Henry Lawyers dating from about 2 August 2019” (legal advice privilege), and in respect of materials preparatory for proceedings, and correspondence between himself and Harkness Henry from 2 August 2018 to the date of his affidavit (litigation privilege).
[48] Mr Hemi’s application for discovery seeks documents relating to Mr Tyler’s involvement in various proceedings which arise out of the wider business dispute between Messrs Hemi, Stone and their entities. Four High Court proceedings are referred to.
[49] Mr MacGillivray submits there is no legitimate reason why ATNZ or iComm, and therefore by extension Mr Tyler, would have any involvement in the four proceedings listed. The documents are sought as it is said they go to the claim that Mr Tyler has sided with Mr Stone in his interests against Mr Hemi and his interests, and are therefore relevant to the claim of breach of loyalty.
[50] It is said that there is a reasonable basis for believing the documents exist. Mr Tyler, in his affidavit in opposition to the application for particular discovery, under the heading “Communications regarding various disputes”, says:
I only propose to deal with this category of documents very briefly. I accept that communications do exist between me and various parties relating to the various proceedings. However, these disputes are all on going and I am advised that my communications are almost by definition subject to litigation
privilege. It is not my privilege to waive and I am not prepared to do so in any event.
[51] As I discussed with counsel for Mr Tyler, I do not consider this response satisfactory. Who and when Mr Tyler has been corresponding with are matters that Mr Hemi, given the nature of his allegations, is entitled to know. Until Mr Tyler identifies the communications he accepts exist, Mr Hemi’s advisors are not in a position to assess whether the privilege claims are valid.
[52] This is not to suggest that privilege may not attach, but Mr Tyler’s assumption that the communications are privileged does not relieve him from the obligation to properly identify such documents in his list.
[53] Accordingly, there is an order that Mr Tyler is to give discovery in terms of Category 1 of the Schedule annexed to Mr Hemi’s application for particulars of discovery dated 1 May 2020.
[54]The next category of documents has subparts.
[55] Subpart 2(a) are documents relating to, or evidencing, Mr Tyler’s salary or any other benefit of any sort including indemnities from Mr Stone or his de facto partner Ms Fernandes, or their entities. Mr Hemi’s concern is that Mr Tyler is being paid some extra amount from ATNZ with the agreement of Mr Stone in exchange for co-operation.
[56] Mr Tyler has deposed that his salary is unchanged from the time when Mr Hemi had access to ATNZ’s records. Such is not a basis for denying Mr Hemi discovery, but it is relevant to proportionality.
[57] Accordingly, there is an order that Mr Tyler is to provide a copy of his employment contract, last pay slip, and any other document recording any other benefit of any sort whatsoever provided, or to be provided, to him from entities within the business corporate structure, or from Mr Stone, Ms Fernandes, or entities associated with them.
[58] It may be that the discovery given by Mr Tyler in this regard is very brief given his position is that there are no such other benefits, but given Mr Tyler accepts that he has the benefit of an indemnity of some sort, then it is appropriate that there be disclosure as sought.
[59] The second category sought, subpt 2(b), was agreed between counsel at the hearing and no order is required.
[60] In relation to the next category sought, subpt 2(c), documents relating to any authorisation permitting Mr Tyler to pay himself a shareholder’s salary from ATNZ or to increase his shareholder’s salary from ATNZ, I consider it appropriate that these be provided. I do not consider this as an onerous obligation, and I so order.
[61] Subpart 2(d) relates to communications to and from Mr Stone or any other person relating to or evidencing any proposal, plan, promise or arrangement under which Mr Tyler has or might stand to gain, from the resolution of the dispute between Messrs Stone and Hemi, expressly or implicitly in return for assisting Mr Stone in relation to the dispute.
[62] I asked Mr MacGillivray what grounds there were for believing that such documents existed. Mr MacGillivray submitted:
It is implausible that a person would become embroiled in a wider business dispute, as Mr Tyler has done, were he simply acting for the benefit of ATNZ and iCOMM … [a] strong inference can be drawn that these documents exist because on Mr Tyler’s own evidence, no reasonable person would become involved in the extensive dispute between Mr Stone and Mr Hemi to the extent that Mr Tyler has if they were only receiving … shareholder salary.
[63] If the documents exist, they are relevant to the proposition that Mr Tyler is breaching his duty of loyalty.
[64] Mr MacGillivray submitted there may also be plans afoot between Messrs Stone and Tyler in respect of new entities to be put in place following the resolution of the dispute between Messrs Stone and Hemi, hence the breadth of the discovery sought.
[65] With Mr Tyler accepting in his evidence set out at [51] above, that there are communications between him and others relating to the various proceedings, there may well be documents that fit within the categories sought by Mr Hemi. Further, in his list of documents in identifying why he does not consider he is obliged to discover certain documents, Mr Tyler refers to the documents he has in very general terms. Describing the communications with Mr Stone as “in relation to the affairs of ATNZ” does not help in attempting to understand what the documents relate to.
[66] I am satisfied it is appropriate to make an order for discovery in terms of subpt 2(d) of the discovery Schedule, and I so order.
[67] Mr Bond referred to the possibility of discovering the documents by groups. Mr MacGillivray is content with that, provided the requirements for grouping set out in McGechan on Procedure [HR8.16.04] and [HR8.16.05] are complied with.12 The listing and exchange protocol in Pt 2 of Sch 9 to the High Court Rules 2016 is also to be complied with.
[68] The application sought that the further list be provided within 20 working days of the date of this judgment, and that is appropriate.
Costs
[69] Mr Hemi has been successful in resisting Mr Tyler’s application to strike out or for summary judgment and is also successful in his application for discovery. There is no reason why costs should not follow the event on a 2B basis together with disbursements as fixed by the Registrar, and I so order.
Associate Judge Lester
Solicitors:
Braun Bond and Lomas, Hamilton Tompkins Wake, Hamilton
12 Andrew Beck (ed) McGechan on Procedure (online looseleaf ed, Thomson Reuters).
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