JNJ Holdings Limited v Kent Sing Trading Company Limited
[2016] NZHC 1637
•18 July 2016
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2015-404-0099 [2016] NZHC 1637
BETWEEN JNJ HOLDINGS LIMITED
Plaintiff
AND
KENT SING TRADING COMPANY LIMITED
First Defendant
QUOC THAI Second Defendant
LE QUAN WU Third Defendant
Hearing: 18 July 2016 Appearances:
Mr P Dalkie for the Plaintiff
Mr M Black for DefendantsJudgment:
18 July 2016
ORAL JUDGMENT OF ASSOCIATE JUDGE J P DOOGUE
JNJ HOLDINGS LIMITED v KENT SING TRADING COMPANY LIMITED & ORS [2016] NZHC 1637 [18
July 2016]
[1] The plaintiff in this case has sued the defendants for unpaid rent that is allegedly owing that arises from a deed of lease that was entered into in 2013 for a period of seven years. The premises were Queen Street retail premises. In June
2014, rent having fallen into arrears according to the plaintiff, it issued a notice of default requiring payment of rent of $20,000 approximately. There being no adequate response from the plaintiff’s point of view on 26 June 2014 the plaintiff cancelled the lease and re-entered. Subsequently in October 2014 a replacement lease was entered into between the plaintiff and a third party.
[2] The plaintiff having taken proceedings for the loss of rent, the defendants have filed a statement of defence and also a counter-claim which asserts a number of items of financial loss which are said to arise from breaches of implied covenants in the lease. Specifically, the defendants allege that there was water ingress into the premises particularly between the months of March and June 2014 which damaged stock on display in the shop. The defendants’ claim a total loss of $151,000 approximately under this heading. Mr Black tells me that the basis of the calculation of the value of the lost stock through water damage is the price that was invoiced to the first defendant when it acquired the property.
[3] The plaintiff has been assiduous in its efforts to extract from the defendants on discovery documents which relate to the two main elements that will need to be proved in relation to this claim:
(a) Proof that damage occurred to the nominated items; (b) The value of those damaged items.
[4] The point has now been reached where the plaintiff has filed an application for particular discovery and the groups of documents in regard to which particular discovery is sought are as follows:
A. That the first defendant, make further and better discovery of the following documents:-
a. All invoices that show the purchase from the original source of all of the items of stock that make up the claim for stock losses as pleaded in paragraphs 38(a) and 47(d) of the set off and counterclaim;
b. Relating to the claim in paragraph 38(b) of the set off and counterclaim for losses to shelving and fittings including:-
i. Invoices for the purchase of shelving; and / or
ii. Invoices from shop fitters for the original installation of fittings and shelves; and / or
iii. Invoices depicting the replacement cost of
(allegedly) damaged shelving and fittings.
c. Relating to the claim for loss of profits variously described and pleaded in paragraphs 38(c), 38(d), 38(e) and 47(c) of the set off and counterclaim.
[5] The response from the defendants has been that all the documents that are available in regard to the categories sought, including sub-paragraph “a”, have been provided. There is a generalised assertion that the disruptive circumstances in which the defendants were required to vacate the premises have meant that some documents were lost and the few that have been retained have been made available to the plaintiff.
Principles
[6] I agree with the following statement of principle that Mr Black relied upon as
part of the respondents’ case.
The relevant principles
15. The application under r 300 for further discovery must establish:
(a). Grounds for belief that the party is in or has been in possession of
(b). A document or class of document that
(c). Relates to any matter in question in the proceeding; and
(d). That discovery is necessary at the time.
16.The defendants submit that given their affidavits and upon reading the plaintiff’s affidavit sworn 19th April 2016 (casebook, pg. 4 to 8), the plaintiff has not actually provided sufficient grounds for belief that there are further documents within the defendants’ possession. For example, Mr Park’s affidavit does not address in any substance reasons for believing Mr Thai’s affidavit sworn the 20th April 2016 is wrong.
17.The defendants adopt the principles in AMP v Architectural Windows Ltd [1986] 2 NZLR 190. The grounds for belief may be established from the nature or circumstances of the case or any document filed. They should be specified in an affidavit by a person who has knowledge of them in order to enable the court to form the appropriate belief.
The invoices
[7] There are some unsatisfactory features about the documentary evidence which has been produced in support of the defendants’ claim. However, while counsel for the plaintiff, Mr Dalkie, was critical of the terms in which the defendants have responded to the request for further documentary evidence, I accept that Mr Black is correct when he says there has been a general averment by the defendants that all relevant documents have been produced.
[8] Difficulties and doubts, though, remain, about the source of information which the defendants are apparently putting forward in support of the claim for stock loss. The defendants have produced two separate sets of documents which purport to prove the loss. The first are documents from the counterclaiment to JNJ Holdings, the plaintiff which are dated 13 February 2015. These comprise a statement of the stock loss claim which the first defendant is addressing to the plaintiff. By its nature it does not amount to a primary business record of the first defendant which establishes the fact of loss or the value of the goods lost.
[9] The various documents under discussion throw no light on the source of the goods. They were apparently, as Mr Dalkie points out, probably acquired from an off-shore source because there is a reference in the document to the “Unit price (NZ
$)”.
[10] These documents just discussed are to be contrasted with another group of, what are described as invoices to the plaintiff which a different company, “General Goods” issued which are in a date range from April 2013 to 26 June 2014. General Goods Limited is apparently a company which the proprietors and directors of the first defendants own. The bundle of statements included in the second group were exhibited to the affidavit of Lucinda Thai given on behalf of the defendants and dated 27 February 2015 in opposition to an application for summary judgment. As Mr Dalkie points out, Ms Thai in her affidavit made no reference to the first category of invoices which I have discussed in paragraph [8] of this judgment, being the documents from the first defendant addressed to JNJ Holdings and dated 13
February 2015. In her affidavit Ms Thai made no reference to significant documents which were already in existence according to the date exhibited on them. There has been no detailed analysis carried out of the second category of invoices which I have just been discussing. They seem to cover the same ground as the first category because the total value of each group is the same, namely $151,513.
[11] A further unsatisfactory aspect of the evidence which the defendants have produced is that in her affidavit in opposition to summary judgment sworn on 27
February 2015 Ms Thai made reference to a number of documents that she had had regard to when quantifying the claim which the defendants intended to bring against the plaintiff for stock loss. At paragraph 59 of her affidavit she said:
59.I kept a record of the stock losses that were damaged from the water ingress. I have also checked and collated these records. This has been done under my supervision and involved other staff members. I have quantified the stock losses by:
(a) Sourcing stock inventories that were affected by water damage for each month;
(b) Upon the water damage occurring to the stock, I also made a record of the items that were damaged and had to be discarded.
(c) Each of the damaged items were counted and checked off against our stock inventory and prices;
(d) Notification of the damaged stock and losses has also been given to our accountant Nghia Kha for quantification.
60.As a result of my carrying out this task, I produce as exhibit “K” a Schedule of stock items that were damaged and now claimed against the plaintiff. The Schedule identifies the main occasions where stock items were damaged over the duration of the lease. Although six different months are identified I emphasise that these months were not the only occasions where stock was damaged through water ingress. There were other occasions involving stock damage, but these were not as significant as those shown in exhibit “H”. The defendants reserve the right to claim additional items in the event that this dispute proceeds to trial. The cost of the damaged items and losses shown on the Schedule are at the retail price total $151,513 (including GST).
[12] No discovery has been made of documents corresponding to the other and further documents referred to in 59(a), (b) or (d). Some of these documents, for example the communication to the accountant in 59(d), may or may not have been covered off in discovery to this point. Certainly, some explanation may in due course be required of Ms Thai as to the whereabouts of these additional documents. Mr Black accepted that there might be questions about the whereabouts of these documents at trial but that was a matter of evidence and for the purposes of the present application, he said the Court has to accept that full enquiry has been made to ensure that there is disclosure in accordance with the High Court Rules and that the defendants have sworn that they have supplied everything and the matter cannot be taken beyond that point at this stage.
[13] For the reasons I have outlined in this part of my judgment I regard the state of the documentary evidence that the defendants have disclosed as being incomplete and that there are unexplained issues concerning the whereabouts of some of the documents to which reference has been made. However I accept that given the denials of the existence of any further documents and the explanation that has been given as to their loss where there were admitted documents once in existence, there is no useful order that the Court can make at this point. I therefore do not intend to make the orders sought in paragraph 1A(a) of the application.
[14] The next category of documents which the plaintiff assert the defendants ought to have provided are described in the submission which Mr Dalkie made in the following terms:
27.In respect of the year ended March 31, 2014 the following documents are discoverable by the first defendant:-
(a) The financial statements for that year end. They will either be in the possession of the defendants or in the power of the defendants to obtain since their accountant, who appears to be the tax agent for the first defendant is bound to retain a copy.
(b) The GST returns. These are bound to be filed by legislation.
If the second and or third defendant does not have them then either their accountant will, or they can get them from the IRD.
(c) The Income tax return (IRD form number IR4). Again as with the GST returns these are bound to be filed by legislation. If the second and or third defendant does not have them , then either their accountant will, or they can get them from the IRD.
[15] As I noted previously when setting out a brief chronology of events, the lease of these premises commenced on 1 March 2013. Mr Black has advised today that the case for the defendants will be that the first defendant suffered trading loss in March 2014 (which is in the financial year ended 2014) and the balance was in the following months April, May and June 2014 (which fall into the 2015 financial year).
[16] Mr Black realistically accepted that the financial statements for financial year ended March 2014 were arguably relevant. I agree with that position. It is not only that the losses partly fell into that financial year but there is also strength in the point that Mr Dalkie makes which is that carrying out a comparison of the financial years results being the year in which the loss was allegedly caused against a preceding financial period may be a helpful comparison to make when attempting to determine if there has been loss suffered as the counter-claim defendant asserts. I do not necessarily accept that the position the defendants take that the loss alleged is to be primarily measured against the previous years performance. That is because the loss that the counter-claiment is putting forward in fact seeks to measure the difference between what results the counter-claiment would have achived but for the breaches
of lease against what it actually achieved. But I do accept that by way of background information the results in the previous year may well be illustrative of the correct position. If it is supposed, for example, that the accounts for year ended
2014 show that the company suffered an overall loss – more or less substantial – in the 2014 year then that may have an impact as well on the question of whether the company’s trading activities were profitable and the extent to which that was so.
[17] The next category concerns GST returns for the 2014 year. Mr Dalkie based the case for obtaining these documents on the contention that the GST returns filed, for example on a two monthly basis, enabled a finer-grain picture to be obtained of the performance of the counter-claimant. This could show on a two month by two month basis the fluctuations in the financial performance of the company. Although most of the loss, as I have already said, is alleged to have fallen into the 2015 financial year, it could be that the GST returns in question may assist an expert to come to a view as to whether there is seasonal cycles in the financial returns of the company and to provide a comparison base year on year between 2014 and 2015. Mr Black did not strenuously oppose making those documents available and there will be an order that they, along with the financial statements for year ended 2014, are to be provided.
[18] The next category that was sought was the income tax returns for 2014. Mr Black again took a practical position on these items and indicated that these are available. It is difficult to imagine that they would not be because as Mr Dalkie has observed, they are statutorily required to be filed. There will also be an order that the income tax return for year ended 2014 is to be provided.
Costs
[19] Mr Dalkie seeks costs on a 2B basis. In this case, there has been a reasonably practical approach taken by the defendants to providing discovery but, as I have indicated earlier in this judgment, there are some unresolved doubts in my mind about just what financial documents are actually available and what the provenance of some of those documents are. Further, while I note that Mr Black has taken a
commonsense approach on behalf of his client, it was still necessary for the application to be filed in the first place.
[20] The primary factor though to be taken into account is the principles set out in HCR 14.2 with the dominating principle being that costs follow the event. Of incidental importance but, of still some significance, is the provision in 14.2(g) that as far as possible the determination of costs should be predictable and expeditious. When that sub-rule is factored into the decision together with the general expectation that costs will follow the event, my view is that unless there are genuinely compelling grounds for a departure from the approach mandated in HCR 14.2, then costs must follow the event. I do not consider that there is any reason for departing from that approach in this case. There will therefore be an award of costs on a 2B basis to the plaintiff/applicant. Of course, the interests of the defendants are to some extent safeguarded by rule 14.2(f) which requires that an award of costs should not
exceed the costs incurred by the party claiming.
J.P. Doogue
Associate Judge
0
0
0