Hunter Grain Limited v J Swap Contractors Limited HC Tauranga CIV 2008-470-837
[2009] NZHC 2614
•2 October 2009
IN THE HIGH COURT OF NEW ZEALAND TAURANGA REGISTRY
CIV-2008-470-0837
BETWEEN HUNTER GRAIN LIMITED First Plaintiff
ANDHUNTER GRAIN (NZ) LIMITED Second Plaintiff
ANDJ SWAP CONTRACTORS LIMITED Defendant
Hearing: 17 August 2009 (Heard at Rotorua)
Counsel: I Thorpe for Plaintiffs
M Fisher and PM Hardie for Defendant
Judgment: 2 October 2009
JUDGMENT OF ASHER J
This judgment was delivered by me on 2 October 2009 at 2:00 pm pursuant to Rule 11.5 of the High Court Rules
………………………………………..
Registrar/Deputy Registrar
………………………………………..
Date
Solicitors:
J Burton, Izard Weston, Wellington
Copy:
I Thorpe, Barrister, WellingtonPM Hardie, Jones Howden, Matamata
HUNTER GRAIN LIMITED AND ANOR V J SWAP CONTRACTORS LIMITED HC TAU CIV-2008-470-
0837 2 October 2009
Introduction
[1] This is an application to review a decision of Associate Judge Doogue given on 12 June 2009, in which he refused to stay or delay discovery in this proceeding pending the hearing of a strike out application.
[2] The issue of the strength of the strike out application was relevant to the issue of stay. Both parties filed submissions related to the strength of the strike out application. Eventually, after some discussion, it has been agreed by both counsel that a more efficient use of the Court’s time was to use the hearing to consider the merits of the strike out application and to finally determine that application, rather than just consider it obliquely. That is what has happened and the parties have been given an opportunity to file further submissions in this regard.
[3] The matter at issue before the Court is now whether the plaintiffs’ claim should be struck out in whole or in part. If it is to be struck out then the application to review Associate Judge Doogue’s decision becomes otiose. However, if it is not struck out, it will still be necessary to consider the merits of that 12 June 2009 decision.
Background
[4] The second plaintiff, Hunter Grain (NZ) Limited (“HGNZ”) is a supplier of palm kernel meal (“palm kernel meal”). Palm kernels are a by-product of the extraction of palm oil and the meal is a useful stock feed for dairy cattle. From 1988
HGNZ imported palm kernel meal and sold it to Intelact Nutrition Limited as the New Zealand retailer. Intelact Nutrition Limited used the defendant, J Swap Contractors Limited (“J Swap”) as a storage and cartage contractor. In mid-2004
Intelact Nutrition Limited decided to source its palm kernel meal from a different importer. At that stage J Swap decided to establish a retail business providing palm kernel meal, sourcing its product from HGNZ.
[5] In 2004 the Chief Executive of HGNZ was a Richard William Price (“Mr Price”). He had formed a close relationship with J Swap, and in particular was a personal friend of one of the directors of J Swap, Stephen Swap. Mr Stephen Swap is a trustee of Mr Price’s family trust. Almost all the dealings between HGNZ and J Swap have been conducted between Mr Price and Mr Stephen Swap.
[6] On 11 July 2005 J Swap leased a New Plymouth warehouse to HGNZ. A deed of lease was signed for three years with a further right of renewal for three years on 11 July 2008. On 18 February 2006 the first plaintiff, Hunter Grain Limited (“HG”), was incorporated. The purpose was to set up a New Zealand vehicle in which Mr Price could have a shareholding. His shareholding in HG was 20 percent and he was the managing director. The other shareholders were, David and Michael Dossor, based in Australia. HG took over the business formerly conducted by HGNZ. The shareholders of HGNZ are solely the Dossors. Mr Price had the day-to- day control of all aspects of HG’s operations in New Zealand.
[7] By 2007 the trade in the business of HGNZ and J Swap was very substantial and continuing to expand. In dollar terms over the period of their engagement, HG’s palm kernel meal sales to J Swap amounted to over $100 million. However, some difficulties started to arise between Mr Price and the Australian shareholders of HG, David and Michael Dossor. From December 2007 J Swap started sourcing palm kernel meal from other suppliers. The previous relationship of trust and confidence that appeared to have existed between them broke down in the months that followed, that breakdown ultimately leading to the issue of these proceedings.
[8] From September 2007 Mr Price began carrying out certain activities which the plaintiffs considered to be in breach of his duties to them. HG commenced proceedings against Mr Price on 14 March 2008. It obtained an Anton Piller order (now called a search order under Part 33 of the High Court Rules), which was executed on 18 March 2008. The execution was supervised by an independent solicitor assisted by another lawyer and two private investigators. Certain hard copy documents were identified and uplifted and a copy was taken of the contents of the hard drive of Mr Price’s laptop computer.
[9] Mr Price challenged the issue of the search order. In a judgment, Hunter Grain Limited v Price HC TAU CIV-2008-470-192 25 July 2008, Allan J concluded that in September 2007 Mr Price had gone to Singapore and dealt with HGNZ’s supplier of palm kernel meal (Wilmar International Limited) directly. On
26 September 2007 Mr Price advised that he intended to resign from HGNZ. Ultimately, in mid-January 2008, it was agreed that his shares would be purchased by Mr David Dossor from HGNZ and that he would resign as a director. Allan J held that there was a serious question to be tried that Mr Price was liable for conversion and misuse of confidential information, and for breach of his duty as a director to act in good faith and in the interests of HG. He refused to discharge the Anton Piller order. He made certain orders as to the identification and inspection of the seized documents and the information on Mr Price’s hard drive, which will be referred to later in this judgment.
[10] Mr Price resigned as a director on 23 January 2008. Allan J inferred that prior to this Mr Price had been negotiating with a different supplier of palm kernel meal for the supply of meal to New Zealand, that company being Toepfer International Asia-Pte Limited (“Toepfer”), and that this was not disclosed to HG. Allan J found that Mr Price had obtained a significant timing advantage by his actions to secure a supply of palm kernel meal while still employed by HG: at [65]. The Judge also found that there was a serious question to be tried in that after
10 January 2008 Mr Price, although no longer employed by HG, went into HG and took his laptop from the premises. He then took the hard drive out and replaced it with a hard drive that was blank, save for the basic programmes. It was accepted before Allan J by Mr Price’s counsel that Mr Price obtained confidential information by taking this step.
[11] HGNZ and HG issued these proceedings against J Swap on 1 October 2008. The proceedings contain allegations that overlap with the allegations in the Price proceedings. In the first cause of action it is alleged that there was a joint venture between HGNZ, HG and J Swap, that between August 2007 and January 2008
J Swap conducted the ventures affairs for its personal benefit and for the benefit of Price and Toepfer. This is alleged to constitute a breach of the fiduciary duties of loyalty and to act in good faith. The second cause of action is for damages for
repudiation of the joint venture. The third cause of action is for a general breach of fiduciary duty on the part of J Swap. The fourth cause of action is knowing assistance (to Mr Price) in breach of fiduciary duty. These causes of action are all causes of actions of the first plaintiff, HG. Damages are claimed, which I am informed from the Bar will be between one-and-a-half and three million dollars for the breaches of fiduciary duty.
[12] The second plaintiff’s causes of action are based on the alleged lease of the New Plymouth premises. HGNZ claims specific performance of the lease or, in the alternative, relief against J Swap’s refusal to renew the lease.
[13] In the statement of defence it is denied that there was a joint venture, or that there was any breach or repudiation, breach of fiduciary duty or knowing assistance. It is denied that there was ever a valid and enforceable lease, and it is asserted that in any event it was determined by mutual agreement of the parties made in September 2007 effective from 1 October 2007.
Strike out issues
[14] The core argument focused on by Mr Fisher for J Swap was that these proceedings were only issued because of reliance on documents obtained as a consequence of the search orders in the Price proceedings. He argued that the reliance was a breach of the implied undertaking not to use documents obtained in discovery for purposes other than the conduct of those proceedings. He also argued more generally that the joint venture causes of action were very weak, and that the claim in relation to the lease was fundamentally weak and hopeless.
Approach to strike out
[15] Rule 15.1(1)(a) of the High Court Rules applies to this application. It provides that the Court may, at any stage of a proceeding, strike all or part of a pleading out, where a pleading discloses no reasonable cause of action or defence or other case appropriate to the nature of the pleading. The criteria for striking out has not been the subject of contention. The pleaded facts, whether or not admitted, are
assumed to be true. The jurisdiction is to be exercised sparingly, and only in clear cases. It is accepted that the jurisdiction is not excluded where the application raises difficult questions of law, even if they require extensive argument.
First argument – improper reliance on documents discovered on exercise of search orders
[16] The judgment of Allan J made certain directions relating to the cataloguing of the material obtained when the search orders were exercised, in particular in relation to the material that was on Mr Price’s personal hard drive, which contained the contents of his work hard drive while he was employed by HG. An independent accountant employed by PricewaterhouseCoopers, Mr Campbell McKenzie (“Mr McKenzie”), was to make a search of two optical discs containing the material, known as PC RP-02 and PC RP-03. He was following a search to produce a catalogue of the folder and file contents of each disc, and provide a description of each document sufficient to identify it. The search was to produce a catalogue of all emails on each of the discs, providing a description of the sender, recipient, the date of the email and the subject heading. Mr Price’s counsel were to inspect Mr McKenzie’s catalogues and advise HG’s solicitors in writing which of the documents the defendants claimed did not comprise HG’s business records. Copies of all HG’s business records, as identified by the defendant, were to be immediately released by the executing solicitors to HG. Mr McKenzie was to review and categorise each document identified by Mr Price as not being an HG business record, as either being business or personal or as “unsure”. HG was to advise Mr Price of any documents where HG disputed the claim that they were not business records. The parties had leave to apply to the Court in the event of any dispute.
[17] Mr McKenzie prepared a catalogue. That catalogue listed an email from Mr Price to Mr Simon Murphy of Toepfer, dated 5 December 2007 with the subject heading “NZ agreement”. It also listed a document dated 7 January 2008 as document 13157. It was an email from Mr Price to Stephen Swap and it was entitled “establishment of our JV”.
[18] Mr McKenzie forwarded to HG the documents in respect of which no objection was taken, by way of a DVD. Included on the DVD was a document
entitled “Price Commodities Limited”. This document appeared to have been attached to the email sent on 7 January 2008 from Mr Price to Stephen Swap under the heading “establishment of our JV”. The document appears to be an action plan for the joint action of Mr Price and J Swap through January and February 2008, which involved them working with Toepfer, (“the action plan”).
[19] The documents that it is said were improperly used are described as “the catalogue” to the extent that it discloses references to and descriptions of the two emails, and the attachment to the email of 7 January 2008. As I understand Mr Fisher’s argument, he submits that neither the subject headings of the
5 December 2007 or 7 January 2008 emails, or the action plan should have been used by HG for any purpose other than the Price litigation. To so use those documents was a breach of the implied undertaking that they would only be used in that limited way. He submitted that it could be inferred that the documents were essential to the decision of HG to issue those proceedings. As a consequence the entire proceedings were tainted and an abuse of process. At the very least, the cause of action alleging knowing assistance by J Swap of Mr Price’s breach of fiduciary duty was so tainted.
[20] In response, Mr Thorpe for the plaintiffs submits that the plaintiffs were entitled to use the documents, which were not confidential, and that in any event they were not pivotal to the decision to issue proceedings.
[21] It is elementary that there is an implied undertaking by a party obtaining discovery not to use discovered documents for collateral or ulterior purposes: Telstra New Zealand Limited v Telecom New Zealand Limited (1999) 14 PRNZ 108 at 113, Wilson v White [2005] 3 NZLR 619 at [20]. The reasons as set out in Wilson v White at [20] are:
(a)The first is a concern that unless there are restrictions on the uses to which discovered documents can be put, parties to litigation may not comply with their discovery obligations; and
(b)Secondly, a sense of fairness associated with the privacy expectations of a party who is required to produce documents for one purpose and is entitled to expect that they will not be used for another.
[22] The implied undertaking will apply even when discovery is provided informally, if the process involves what is in substance the discovery of relevant documents: Wilson v White at [27]. It would also appear that the drift of authority is towards the position that the undertaking applies to any material obtained compulsorily in legal proceedings: Wilson v White at [29]. Thus in Bourns Inc v Raychem Corporation [1999] 3 All ER 154, where documents were supplied by one party at the request of the other in proceedings including the taxation of costs, they were subject to the implied undertaking. The implied undertaking is given to the Court ordering the discovery. It is a corollary that it may be released or modified by the Court: Wilson v White at [21], Crest Homes Plc v Marks at 854.
[23] However, it is now settled that one of the main purposes of obtaining Anton Piller or search orders is to enable a plaintiff to obtain information from defendants for the very purpose of using such information not just against those defendants, but against third parties: Sony Corporation v Anand; Seiko Time (UK) Limited v Domicrest (Fancy Goods) Ltd [1981] FSR 398 at 402. Thus the full rigour of the implied undertaking is not applied if a Court concludes that it is fair that the documents so obtained can be used in other related proceedings. The usual practice is for a party who wishes to use documents obtained pursuant to an Anton Piller or search order against a third party, to apply for and obtain leave to so use the material.
[24] Here the documents were obtained as a consequence of a search order and not a discovery order. Insofar as they were documents that belonged to the defendant, the implied undertaking applies. No leave to use them in these proceedings has been obtained.
[25] Mr Thorpe argued that where a plaintiff executing a search order recovers its own property, rather than the property of the defendant, that the implied undertaking does not apply. He argued that what was recovered in the course of the search order was, at least in part, the plaintiff’s own property. He submitted that the contents of Mr Price’s hard drive in his work computer was owned by the plaintiffs, and that material was wrongfully taken off the work computer when it was uplifted by Mr Price and transcribed on to his own personal hard drive. This appears to have been the conclusion of Allan J in his decision.
[26] The implied undertaking should only pertain to documents that can legitimately be retained by the party that has discovered them. Thus, in Crest Homes Plc v Marks [1987] AC 829 at 853, Lord Oliver stated at p 853 in relation to disclosure of documents in the course of the execution of an Anton Piller order:
… a solicitor who, in the course of discovery in an action, obtains possession of copies of documents belonging to his client’s adversary gives an implied undertaking to the Court not to use that material nor to allow it to be used for any purpose other than the proper conduct of that action on behalf of his client.
[emphasis added]
[27] As a matter of general principle it must be right that items that are clearly the property of a plaintiff, but that have been wrongly taken by a defendant and then recovered on the execution of a search order on a defendant’s premises, should not be subject to the implied undertaking. They do not “belong” to the defendant, and indeed the defendant has no legitimate interest in them. The difficulty in this case will be in establishing the category into which the documents will fall. To whom do they belong?
[28] It is necessary, therefore, to consider the nature of the documents in question.
The 5 December 2007 and 7 January 2008 emails
[29] That implied undertaking would apply, at least on a prima facie basis, to the email of 7 January 2008, categorised as it was as a personal email of Mr Price to Mr Swap, (subject to argument that by it being placed on the employer’s hard drive, the plaintiff also had a right to it). It is not so clear whether the 5 December 2007 email was a personal or work email.
[30] The emails themselves have not been used, and indeed still have not been disclosed to the plaintiffs. The documents were catalogued as not being a business record, and were therefore not disclosed. All that has been made available to the plaintiffs has been the subject headings of the documents. There is an application in the Price proceedings seeking specific release of these documents (although
Mr Thorpe made it clear that this has been done out of an abundance of caution, and that it is maintained that the use of the material to date has been entirely proper).
[31] The policy reasons behind the implied undertaking support its application to a subject heading or summary of material obtained by way of a search order. The summary will give the party receiving it knowledge that it would not have had, but for the search order, and it would be unfair if, without leave, the plaintiff could use the search order summary for purposes other than the pursuit of the proceeding in which the search order was made. The implied undertaking applies, therefore, to the words used to describe documents when a search order is executed. The listed reference to the 7 January 2008 email and “establishment of our JV” should not have been used by the plaintiffs for any purpose other than the Price proceedings.
[32] I do not determine the issue of whether the implied undertaking does not apply because the documents, although they may have been personal to Mr Price, were also the property of HG because they were originally on its hard drive. That issue is difficult, and has not been fully argued, and, in any event, the issue of use, considered at [38]-[48], is determinative of this aspect of the application.
[33] I accept, therefore, Mr Fisher’s submission that there should have been no use of the reference to the 7 January 2008 email in these proceedings. The
5 December 2007 email was not obviously, by its summary heading, a private document of Mr Price’s, and it is unclear whether the implied undertaking applied to it.
The action plan
[34] The position in relation to the action plan is different, in that the entire document was made available to the defendants. This document was listed as a business record of HG, and not as a personal document, by Mr McKenzie. Its receipt was openly and promptly disclosed by the plaintiffs in a letter it sent to Mr Price’s barrister on 7 August 2008, and no objection was taken to it being so listed in the correspondence that followed. It was also referred to explicitly in a letter of
2 September 2008 from the plaintiffs’ lawyers to J Swap. There was no objection to
the use of the document by the plaintiffs from Mr Price or his lawyers. Indeed, it was not until 9 June 2009, almost a year later, when the importance of the disclosed document and its implications for J Swap were more apparent, that any objection was raised by Mr Price’s lawyers.
[35] The copy of the action plan came into the possession of the plaintiffs by a Court process. It came to the plaintiffs through the catalogue prepared by Mr McKenzie pursuant to the order by Allan J. Mr McKenzie classified the document as a business record of HG. The Court can be seen, therefore, through directing this process, as giving permission for the documents so listed to be used without restriction by the plaintiffs. The fact that it may have been listed in this way by mistake cannot cancel the permission, unless the mistake is patent. Given the lack of any objection to this categorisation by Mr Price for over a year, it is difficult to see why the plaintiffs should not have accepted the categorisation on its face.
[36] I am not able to give a final decision on the status of the action plan on the facts, as this is an issue that clearly arises in the Price proceedings and Mr Price is not a party to these proceedings, and has taken no steps to intervene, and has not filed an affidavit. However, for the purpose of this strike out application it is prima facie not a document for which the protection of the implied undertaking can be claimed. I am not satisfied, therefore, that any use of the action plan when these proceedings were issued, was a breach of the implied undertaking.
[37] In case I am wrong on this point, and noting that the implied undertaking applied to 7 January email subject heading, it is necessary to consider the issue of whether, and how, they have been used by the plaintiffs.
The use of the material
[38] In a letter of 7 August 2008 from Izard Weston, acting for HG, to Hugh
Fulton, the barrister for Mr Price, it was stated:
Included on that DVD was a document entitled “Price Commodities Ltd”, a copy of which is attached. This document which appears to have been attached to the email sent on 7 January 2008 from Richard Price to Stephen Swap under the subject heading “Establishment of our JV”.
There was then reference in the next paragraph to the email being an example of implementation of the proposed action plan. There is no reference in this letter or any other letter to the 5 December 2007 email. There is no other reference to the
7 January 2008 email.
[39] The letter of 7 August 2008 was attached to a letter of 2 September 2008 that Izard Weston sent to J Swap. It was stated there, in relation to an allegation of J Swap’s knowing assistance in relation to Mr Price’s breach of fiduciary duty:
We mention that since the judgment of 25 July, further information relevant to the knowing assistance cause of action has emerged from the search protocols undertaken in accordance with that judgment. These were detailed in a letter dated 7 August 2008 addressed to counsel for Richard Price and Price Commodities Ltd. A copy of that letter is attached.
[40] The document entitled “Price Commodities Ltd”, referred to in the
7 August 2008 letter, was the action plan. It is implicit in the letter of 7 August 2008 that the action plan and description of the 7 January 2008 email have relevance to the breach of fiduciary duty claim against Mr Price. This is explicit in the letter of
2 September 2008, where it is referred to as relevant to knowing assistance causes of action.
[41] It is necessary to consider Mr Fisher’s submission that the action plan or description of the email of 7 January 2008 in the 7 August and 2 September letters were pivotal to the decision to issue the proceedings, or at least the knowing assistance action.
[42] I do not propose going through the lead-up correspondence document by document, but it is easy to see in the letters through 2008 a steady hardening of the resolve of HG to pursue equitable remedies against J Swap. Initially, and understandably, the correspondence is conciliatory, as HG searches for an amicable resolution of its differences with J Swap. As the position deteriorates and goodwill dissipates, HG’s position becomes more firm. Allegations of possible collusion were made by Izard Weston to J Swap’s solicitors in a letter of 8 April 2008. In a letter of
28 May 2008 from Izard Weston to the defendant, Izard Weston sets out a claim based on the existence of a joint venture and a claim in respect of the New Plymouth
lease. In a letter of 13 June 2008, approximately two months prior to the disclosure of the search order material, HG’s solicitors accused J Swap of assisting Mr Price and his company to take over the HG supply base, for J Swap’s commercial benefit. There is an allegation of “deceitful conduct”. It is specifically stated that the actions of J Swap amounted to “wrongful assistance by you to Richard Price in breach of the fiduciary duties Richard Price then owed to Hunter Grain as its managing director”.
[43] Thus it is quite clear that the allegations of breach of a joint venture agreement and knowing assistance had been formulated some time before the disclosure of the search material in August 2008, and that proceedings were going to issue in any event. It is relevant to note that Allan J stated in his judgment of
25 July 2008 that HG would be pursuing litigation against J Swap in respect of a breach of an alleged joint venture agreement: at [73].
[44] Indeed, there is nothing to indicate that material obtained pursuant to the search order had any particular significance in relation to the decision to issue proceedings or the drafting of the statement of claim. In its letter of
2 September 2008 Izard Weston referred to the letter of 7 August 2008, which contained the references to the emails and the action plan, as “further” information relevant to the knowing assistance cause of action. There is no reference to the material, either express or implied, in the statement of claim.
[45] I am satisfied, therefore, that at its absolute strongest for the defendant, the information obtained pursuant to the search order only had peripheral importance. The proceedings would have issued in any event.
[46] Mr Fisher relied on Miller v Scorey [1996] 1 WLR 1122, where Rimer J struck out a written statement of claim which was commenced using material obtained on discovery in a different action, the use of which constituted a breach of the implied undertaking. The Judge refused to give any retrospective release from the undertaking so as to wipe away the abuse of process, even though such an application might have been granted if it had been made at the proper time: at 1133. In Wilson v White the Court of Appeal held that a plaintiff was in contempt and ordered a stay, where discovered documents were wrongly used to support a claim.
However, in these cases the discovered documents were of crucial importance to issue the new proceedings, and the particular pleadings.
[47] It may well be that if this proceeding had been based on documents obtained as a consequence of the search orders, in breach of the implied undertaking, that it would be an abuse of process. However, for the reasons already set out, it is clear that this is not the case. This proceeding would have issued whether or not the disclosure had been made. The proceeding is not based on those documents but, rather, a sequence of facts which can be proven without reference to the documentation. I am satisfied that the proceeding would have issued in its present form with or without the search order disclosures. Thus, it cannot be said that the proceeding was in any way tainted, even if the documents were covered by the implied undertaking.
[48] I also accept Mr Thorpe’s submission that any decision to strike out an action must in the end be a proportionate response. At worst this was a minor abuse of process, that has not produced any injustice. It would be wrong for a Court to strike out or stay proceedings as a consequence. Such a response would be disproportionate. There would be an injustice to the plaintiffs which far outweighs any possible prejudice suffered by Mr Price or J Swap. I am not aware of any case where a plaintiff who has a viable cause of action independent of the documents which were wrongly obtained, and who would have issued proceedings in any event, has had its action struck out.
Conclusion on abuse of process
[49] The implied undertaking has been shown only to apply to the subject heading of the 7 January 2008 email. In any event, even if it applied to the action plan, any use of the material has been minimal. For these reasons I conclude that neither the proceeding as a whole, or the knowing assistance cause of action, is an abuse of process. This ground put forward in support of the strike out application fails.
The joint venture/fiduciary duty causes of action
[50] The plaintiff claims a breach of the joint venture agreement, breach of fiduciary duty and knowing assistance. In support of the strike out, Mr Fisher has submitted that the allegations that there was a joint venture between HGNZ and J Swap are weak.
[51] In a strike-out context this is an ambitious submission. The Court must treat the pleaded allegations of fact as true. The pleading alleges a breach of joint venture, the existence and breach of a fiduciary relationship, and knowing assistance.
[52] There is nothing in the material put forward by Mr Fisher that shows the allegations are doomed to failure. In a document of September 2007 HGNZ and J Swap described their relationship as a “trading partnership that reflects a wholesaler/retailer relationship”. J Swap did not object to this description. In an email of 25 January 2008, when the relationship between the parties was worsening, where it was noted that a preferred supplier relationship existed, it was stated in relation to certain matters “… and so mutual respect and confidentiality of sensitive trade info[rmation] is important”. There was obviously a relationship of close trust and confidence between Stephen Swap and Richard Price. The issue will be whether that relationship can be translated into a fiduciary relationship between the plaintiffs and the defendant.
[53] It is not possible on the material available to express any view as to the strengths or weaknesses of the substantive causes of action. It would be quite wrong to do so. However, it is possible to say without further investigation that they should not be struck out as an abuse of procedure or as clearly doomed to failure.
The second plaintiff’s claim based on the lease
[54] Mr Fisher argues that this claim cannot possibly succeed. He submits that the lease was assigned in equity from HGNZ to HG, and then orally cancelled by Mr Price during 2007.
[55] However, the written documents that have been produced show a lease between HGNZ and J Swap, and a notice of written renewal of that lease. They do not show any assignment, and they do not show any cancellation. The alleged cancellation was by Mr Price, and yet it is entirely arguable that Mr Price would have had no actual or ostensible authority to cancel the lease on behalf of HGNZ.
[56] HGNZ did not record the existence of the lease in its accounts of 2006, but that is far from being determinative of the issue. This may have simply been an error.
[57] The allegations of assignment and cancellation turn on inferences that Mr Fisher urges can be taken from various documents. This is not the sort of exercise that should be undertaken on a strike-out application. The pleaded allegations must be accepted as true and correct. If on their face there is a sustainable cause of action, the Court will not go behind that for the purposes of strike-out.
Conclusion
[58] The defendant has not shown that the proceedings are an abuse of procedure, or that any of the causes of action will so clearly fail that they should be struck out. The defendant must accordingly fail in its application to review Associate Judge Doogue’s decision of 12 June 2009. Given the fact that the strike-out application has not succeeded, that decision was clearly appropriate. Further, the Associate Judge was entirely correct to take the robust view that interlocutory steps should proceed even with the strike-out application pending, and that there should not be a stay and consequent delay in the meantime.
[59] Mr Fisher, before the Associate Judge, sought, as I understand it, a stay of discovery orders because discovery as sought was unduly onerous. He was to file an application to limit general discovery by 29 June 2009 but failed to do so. In a later amended application on 27 July 2009 there was reference to discovery, but no articulation of grounds as to why the usual general discovery obligation should not apply.
[60] The Court has a discretion in r 8.18(1) of the High Court Rules to modify the burden of full train of inquiry discovery if it is shown that such discovery is unnecessary or disproportionate. In the rules as they are at present, the obligation is on a party seeking to contest the usual discovery order, to show that some different orders are appropriate. In this case, the dispute concerns highly valuable commercial interests, and the amounts claimed are significant. Nothing has been placed before the Court to show that in the circumstances the broad discovery obligations are unnecessary or so onerous as to be disproportionate. The plaintiffs have made it clear that they will accept the production of databases, rather than the listing of individual vouchers. They have already paid security for costs of $30,000. No satisfactory orders that could be seen as an alternative to the obligation of general discovery have been put to the Court. In the circumstances there is no basis for a stay of the usual discovery orders.
[61] There has already been an unacceptable delay of these proceedings as a consequence of unsuccessful applications by the defendants. The defendants must now meet their interlocutory obligations, and the case should be set down for hearing.
Result
[62] The application for review is dismissed. The defendant’s application to strike-out the claim or causes of action is also dismissed.
[63] A conference should be allocated as soon as possible before an Associate Judge, so that the proceedings can be set down for hearing and the usual directions made.
Costs
[64] The plaintiffs are entitled to costs calculated on a 2B basis, together with disbursements.
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Asher J
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