Hunter Grain Limited v Price HC Tauranga CIV 2008-470-192
[2010] NZHC 1638
•18 August 2010
IN THE HIGH COURT OF NEW ZEALAND TAURANGA REGISTRY
CIV-2008-470-192
BETWEEN HUNTER GRAIN LIMITED First Plaintiff
ANDROSSOD HOLDINGS LIMITED Second Plaintiff
ANDRICHARD WILLIAM PRICE First Defendant
ANDPRICE COMMODITIES LIMITED Second Defendant
ANDR W PRICE, T L PRICE AND S W E SWAP AS TRUSTEES OF A PRICE FAMILY TRUST
Third Defendants
CIV-2008-470-837
AND BETWEEN HUNTER GRAIN LIMITED First Plaintiff
ANDHUNTER GRAIN (NZ) LIMITED Second Plaintiff
ANDJ SWAP CONTRACTORS LIMITED Defendant
Hearing: 10 August 2010 (Heard at Auckland)
Appearances: L Taylor and I Thorpe for Plaintiffs
H Fulton for Price Defendants
M Fisher and P Hardie for J Swap Defendants
Judgment: 18 August 2010
HUNTER GRAIN LIMITED AND ANOR V RICHARD WILLIAM PRICE AND ORS HC TAU CIV-2008-
470-192 18 August 2010
JUDGMENT OF ASHER J
[Collateral Purpose – Use of documents application]
This judgment was delivered by me on 18 August 2010 at 4:30 pm pursuant to Rule 11.5 of the High Court Rules
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Registrar/Deputy Registrar
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Date
Introduction
[1] This is an application by the plaintiffs for orders permitting them to use documents obtained from the execution of search orders in these proceedings for a collateral purpose. They seek to use those documents to consider a possible claim against a third party Toepfer International Asia-Pte Ltd (“Toepfer”), and if necessary send a letter of claim to Toepfer and issue proceedings.
[2] The background to the proceedings has been set out in a number of judgments. I derive this summary from my judgment of 10 August 2010 in Hunter Grain Limited v Price.[1]
[1] Hunter Grain Limited v Price HC Auckland CIV-2008-470-192, 11 August 2010.
[3] The plaintiff Hunter Grain Limited (“Hunter Grain”) is a supplier of palm kernel meal. The defendant Mr RW Price was the managing director of Hunter Grain Limited. J Swap Contractors Limited (“J Swap”) was initially used by Hunter Grain as its storage and cartage contractor and in later years as a retailer of stock feed. Mr Price had a close personal relationship with one of the directors of J Swap, Steven Swap (“Mr Swap”). Mr Swap is a trustee of Mr Price’s family trust.
[4] On 11 July 2005 a Hunter Grain company leased from J Swap a New Plymouth warehouse for the storage of palm kernel meal. By 2007 the palm kernel meal business of Hunter Grain and J Swap was substantial and continuing to expand. Hunter Grain claims that during 2007 Mr Price and Mr Swap developed plans to set up a competing business with Hunter Grain importing palm kernel meal into New Zealand. Hunter Grain alleges that Mr Price and Mr Swap negotiated with a major supplier of stock feed, Toepfer, to supply produce to their new business.
[5] In December 2007 Mr Price gave notice of his resignation as managing director of Hunter Grain. When he left he took a computer belonging to Hunter Grain which he had used in the course of his employment as well as for personal matters. It is alleged that he copied the hard drive onto a disc and destroyed the hard
drive, returning the computer with a replacement hard drive that was blank save for basic programmes.
[6] Mr Price resigned as a director on 23 January 2008. The relationship between him and Hunter Grain had broken down. On 14 March 2008 Hunter Grain issued proceedings against Mr Price alleging breach of fiduciary duty, conversion and misuse of confidential information amongst other things. Hunter Grain obtained a search order under Part 33 of the High Court Rules and this was executed on
18 March 2008. Mr Price applied for the search order to be discharged. In a judgment delivered on 25 July 2008 Allen J declined that application. He held there was a serious question to be tried and that Mr Price was liable for conversion, for misuse of confidential information and breach of duties as an employee and director of Hunter Grain. He found that Mr Price had taken the laptop from Hunter Grain after his employment with Hunter Grain had ceased, and that he had taken out the hard drive and replaced it with a blank hard drive save for basic programmes.
[7] Directions were made in accordance with an agreed protocol, for the records seized pursuant to the search orders to be catalogued by an independent accountant who was directed to do this. The protocol was intended to identify Hunter Grain’s business records. The catalogue produced listed over 30,000 documents of which some 22,000 were identified by Mr Price as business records of Hunter Grain. It was claimed that the rest were personal documents.
[8] Following this exercise Hunter Grain issued a second set of proceedings on
2 October 2008 in the Hamilton High Court. This time against J Swap (“the J Swap proceedings”). Since then there have been a number of opposed interlocutory applications in both the Price and J Swap proceedings which have resulted in a number of Court decisions. It has been asserted by both Mr Price and J Swap that Hunter Grain misused material obtained by the search orders, by using them to frame their claims in the J Swap proceedings. There have been decisions of Asher and Hansen JJ and Associate Judge Doogue, where it has been concluded that there has been some use of material obtained from the search orders, in the J Swap proceedings. However, applications that the proceedings should be struck out as a consequence have not been successful.
[9] On 23 April 2010 Associate Judge Doogue in Hunter Grain Ltd v J Swap Contractors Ltd[2] granted Hunter Grain’s application for leave to use documents obtained on discovery in the Price proceedings. Mr Price and the other defendants appealed that decision. That appeal was dismissed in the judgment of Rodney Hansen J on 3 August 2010.[3] Hansen J held:[4]
[2] Hunter Grain Ltd v Price HC Tauranga CIV-2008-470-192, 23 April 2010.
[3] Hunter Grain Ltd v Price HC Tauranga CIV-2008-470-192, 3 August 2010.
[4] at [54]-[55].
[54] Instead of issuing separate proceedings against Swap, the plaintiffs could have joined Swap to the existing proceeding. I was told that they did not do so in order to maintain momentum in this proceeding. There were other avenues of avoiding the inefficiencies and duplication which result from two closely related claims being pursued separately, among them an application to consolidate the proceedings or for an order that they be heard together. It is unnecessary for me to consider these possibilities except to observe that, had the plaintiffs employed alternative strategies, they would have been able to rely on the discovered documents as of right.
[55] Although I have found that the way in which Mr Price came into possession of the documents did not release the plaintiffs from the implied undertaking, it is a weighty factor in their favour on this aspect of the case. Were it not for Mr Price removing the computer and destroying the hard drive, the plaintiffs would have been free to use the documents in the Swap proceedings.
[10] The decision of Hansen J is of limited assistance in relation to this application, as the documents in question in that earlier application were limited in number, and were documents that Mr Price had removed from his work computer which Hunter Grain would have otherwise had as its own documents.
The collateral use of documents
[11] The law relating to the use of an adversary’s documents, obtained in the course of proceedings for purposes going beyond the conduct of those proceedings is now clearly understood. There is an implied undertaking to the Court not to use the adversary’s material for any purpose other than the proper conduct of the action. The existence of that undertaking was articulated by Lord Diplock in Home Office v
Harman,[5] and then by Lord Oliver in Crest Homes plc v Marks,[6] who said:
It is clearly established and has recently been affirmed in this House that 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: See Home Office v Harman.
[5] Home Office v Harman [1982] 2 WLR 338.
[6] Crest Homes plc v Marks [1987] AC 829 at 853.
[12] These cases were referred to by the Court of Appeal in Wilson v White.[7] The implied undertaking is given to the Court. It was observed:[8]
[7] Wilson v White [2005] 3 NZLR 619.
[8] At [20].
The reasons are two-fold:
(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.
[13] It is also clear that there is a corollary to this. As Lord Oliver observed in
Crest Homes plc v Marks:[9]
[9] At 854.
But the implied undertaking is one which is given to the Court ordering discovery and it is clear and is not disputed by the appellants that it can, in appropriate circumstances, be released or modified by the Court.
He also observed:[10]
[10] At 860.
The Court will not release or modify the implied undertaking given on discovery save in special circumstances and when the release or modification will not occasion injustice to the person giving discovery.
What is meant by ‘special circumstances’ was considered by Burchett J in Holpitt Pty Ltd v Varimu Pty Ltd.[11] In allowing the use of documents in subsequent proceedings he observed:[12]
[11] Holpitt Pty Ltd v Varimu Pty Ltd (1991) 103 ALR 684.
[12] At 687.
In my opinion, the Court’s duty, in an application of this kind, is to consider whether the applicant has shown some circumstances 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, whether an exercise of the Court’s discretion in favour of the application would be in the interests of justice.
[14] This power to modify was considered in Sybron Corporation v Barclays Bank Plc[13] where there was an allegation of fraudulent conspiracy organised by senior employees of the plaintiffs to set up a rival trading organisation against that of the plaintiffs in the form of three defendant companies. The plaintiffs obtained documents pursuant to an order of the Court. It was decided by the plaintiffs to issue yet a further set of proceedings and the plaintiffs sought leave in those proceedings
to use documents produced in the earlier proceedings.
[13] Sybron Corporation v Barclays Bank Plc [1985] 1 Ch 299 (ChD).
[15] The Court held that the implied undertaking applied to prevent the plaintiffs from making use of the documents without leave. It was held that the later action could be seen as a tactical device to attempt to circumvent Limitation Act provisions, but that it could not be seen to be a procedural abuse of process. The Court observed that joinder of additional parties as a consequence of discovery was a common procedural occurrence, and took place without objection to discovered documents
being used against the joined parties. Scott J stated:[14]
[14] At 328.
If, instead of joinder, a new action was started, the substance of the situation does not seem to me relevantly different. I cannot see any sensible reason why the Court should regard this new action as inappropriate for the use of the discovered documents.
Leave was granted.
[16] That decision can be usefully contrasted with that in Telstra New Zealand v Telecom New Zealand.[15] There it was proposed to use the documents for a counterclaim against the defendant. The counterclaim appeared to relate to different complaints and relevant legal issues to those in the existing proceedings. Rodney Hansen J distinguished between a new cause of action which is part of a proceeding in respect of which discovery has taken place, and a counterclaim which is not, and may be completely unrelated to the original proceedings. He observed:[16]
It is entirely consistent with the principles underlying discovery that the undertaking should prevent use of discovered documents for the purpose of a counterclaim which is later filed.
[15] Telstra New Zealand v Telecom New Zealand (2000) 14 PRNZ 541 (HC).
[16] At [55].
[17] The policy reasons for holding parties to their undertaking of not discouraging full discovery and fairness to the disclosing party, mean that there must be special reasons for leave to be granted. An application to use material for a purpose not related in subject matter to the proceeding in which the documents were disclosed is unlikely to be successful. On the other hand, a Court is likely to be much more sympathetic where the purpose of the collateral use is to further claims arising from the same facts that arise in the proceedings where disclosure occurred. In such circumstances the disclosed material could have been used in any event if the claims had all been in the same proceeding. Thus new causes of action are permitted as the complained of conduct remains in essence the same, but a plaintiff seeks to pursue further parties.
[18] Even if good reason is shown for allowing the use of disclosed documents for a collateral purpose, the Court still has a broad discretion. If there has been an abuse of procedure by the applicant in the events leading up to the application, or the applicant’s case is hopeless, leave may be refused.
Should leave be granted?
[19] Hunter Grain seeks to use documents obtained in both the Price and J Swap proceedings against Toepfer. It has listed the documents which it seeks to use in a handwritten memorandum of 10 August 2010, and I will refer to those documents as “the disclosed documents”. This is good practice in such an application, and enables the parties to consider the relevance of the specific documents. The plaintiffs' purpose is to consider the possible claims against Toepfer, and possibly pursue a claim. The basis of the possible claim is set out in the grounds of application. It is that Toepfer, amongst other things, “conspired with the first defendant and/or assisted the first defendant to breach fiduciary obligations owed to the first plaintiff and referred to in paragraph 2 above.”
[20] Toepfer could have been properly joined in this proceeding, just as J Swap could also have been a party. Indeed in the recent judgment,[17] I have observed that it would have been an efficient use of resources for J Swap to have been a party to the Price proceedings. The possible allegation against Toepfer is that it conspired with J Swap Contractors Ltd and its representatives and Mr Price to damage the commercial interests of Hunter Grain Ltd by setting up a new grain importing
arrangement which cut Hunter Grain Ltd out. The relevant facts will involve the same factual circumstances as arise in the Price and J Swap Ltd proceedings. There will be a focus on Mr Price’s actions in 2007 and his correspondence and discussions with Toepfer and J Swap Ltd representatives. The purpose will be to show a conspiracy to defeat Hunter Grain’s interests, and knowing assistance of Mr Price in his breach of fiduciary duty. Thus if Hunter Grain had decided to proceed against Toepfer, Toepfer would have been a logical defendant in these proceedings, along with J Swap. The same issues of fact and law would arise, and the same issues in relation to damages.
[17] Hunter Grain Ltd v Price HC Tauranga CIV-2008-470-192, 11 August 2010.
[21] If that had happened, the disclosed documents could have been properly used without leave. There is therefore little sense in refusing the application for leave only because of the circumstance that the claim against Toepfer will be separate because it is too late to join Toepfer to these proceedings. The disclosed documents will be used to pursue Toepfer in relation to the same events that are the subject of the proceedings in which they were produced, although in relation to a new party. This should be permissible.
Discretionary factors
[22] Mr Fisher submitted that the claim against Toepfer was weak. However it is not possible at this stage to form any assessment of the strength of the claim against Toepfer. It cannot be described as certain to fail. Mr Price has already admitted removing documents from his work computer. There is documentary evidence showing that from May 2007 Mr Price and a Toepfer representative were communicating about setting up a new chain of supply, excluding Hunter Grain Ltd. Although Toepfer had no direct relationship with Hunter Grain it may well have
been that it was aware of Hunter Grain’s role. There is the possibility that Toepfer was aware that Mr Price was breaching his fiduciary duties. There is a sufficient case made out for me not to refuse leave on that ground.
[23] I can see no evidence that there has been any abuse of process by the plaintiffs. It is understandable that the initial proceedings were against Mr Price only. The role of J Swap Ltd then may still have not been clear. There was a later tactical decision not to join J Swap Ltd which in hindsight seems surprising. However, there is nothing to indicate any intention to obtain any illegitimate advantage as a consequence, or anything else that would persuade a Court not to exercise its discretion. The rather late filing of this application shortly before the Price proceedings are due to be heard is a matter of concern. This is an awkward time with the Price proceedings a month away. However, if leave is granted it should not pose any significant extra work burden on the existing defendants. I do not accept Mr Fisher’s argument that Toepfer witnesses may, as a consequence, be deterred from coming to New Zealand as witnesses in the proceedings that are already set down for hearing. Toepfer should be made aware in any event of what is happening.
[24] Another criticism of the application is that there is no statement that proceedings will issue against Toepfer. There is only an intention expressed to investigate and as a first step correspond with Toepfer. I do not think again that this should be fatal to the application for leave. It is perfectly sensible that Hunter Grain Ltd will want to investigate the situation and obtain Toepfer’s response to the allegations before deciding whether to issue proceedings. They should not be discouraged from taking that sensible course by a requirement that leave will only be granted if it is definitely intended to issue proceedings.
[25] Thus I conclude that leave should be granted.
Result
[26] Leave is granted to the plaintiffs to use the disclosed documents to consider and action a claim against Toepfer International Asia-Pte Ltd.
[27] The plaintiff has been successful and will have costs on a 2B basis, plus reasonable disbursements, calculated on a half-day hearing.
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Asher J
Solicitors:
J Burton, Izard Weston Lawyers, Wellington – john[email protected]
D Simpson, Simpson Aspen Law, Tauranga - [email protected]PM Hardie, Jones Howden, Matamata – Peter[email protected]
Copy:
I Thorpe, Barrister - [email protected]
H Fulton, Barrister - fulton[email protected]
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