Kiriwai Consultants Ltd v Holmes

[2013] NZHC 3290

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2013-404-000531 [2013] NZHC 3290

BETWEEN  KIRIWAI CONSULTANTS LIMITED Plaintiff

ANDKENNETH ANGUS HOLMES Respondent

KENNETH ANGUS HOLMES and DAVID BRIAN RUSSELL AS TRUSTEES OF THE K A HOLMES 2003

FAMILY TRUST Second Defendants

HOLMES VENTURES LIMITED Third Defendant

Hearing:                   27 November 2013

Appearances:           P J Dale for Plaintiff

B D Gray QC for Defendants

Judgment:                10 December 2013

JUDGMENT OF COURTNEY J

This judgment was delivered by Justice Courtney on 10 December 2013 at 2.00 pm

pursuant to R 11.5 of the High Court Rules

Registrar / Deputy Registrar

Date................................

KIRIWAI CONSULTANTS LTD v HOLMES & ORS [2013] NZHC 3290 [10 December 2013]

Introduction

[1]      The plaintiff, Kiriwai Consultants Limited, applies to vary a consent order requiring it to give discovery of documents relating to dealings between its director, Christopher Emmens and named third parties.1  Kiriwai asserts that its counsel, Mr Dale, misapprehended the extent of discovery required when he signed a consent memorandum agreeing to the order being made.  Further, Kiriwai maintains that the documents required to  be discovered  are irrelevant and there are confidentiality issues affecting the third parties that make it unfair to require Kiriwai to produce them.

[2]      The defendants oppose the application on the ground that the consent order was founded upon a contract between the parties that can only be set aside or varied if it was obtained by a mistake qualifying under the Contractual Mistakes Act 1977, the rationale being that the underlying agreement must itself be set aside. It is agreed that no such mistake can be shown.

Relevant principles

[3]       Mr Gray QC, for the defendants, relied on Phillips v Phillips2  in which the Court of Appeal treated the Court’s jurisdiction to set aside a consent order as being based on grounds that would justify setting aside a contract, the question then being whether it is in the interests of justice to do so.  However, the point was not argued; counsel simply accepted that as the position and later decisions, including those in which Phillips is cited, have proceeded on the basis that this Court may set aside consent orders as part of its inherent jurisdiction to control its own processes without specifying the need for a qualifying mistake. For example, in Auckland Regional

Services Trust v Lark Richardson J said that:3

It is well settled that the High Court has an inherent jurisdiction to set aside a consent order if the interests of justice require it but good ground must be established to warrant that course.

1      Minute of Lang J 25 September 2013

2      Phillips v Phillips [1993] 3 NZLR 159 (CA).

3      Auckland Regional Services Trust v Lark [1994] 2 ERNZ 135 (CA).

[4]      Even though  Phillips was cited, this statement  does not  suggest that  the jurisdiction to vary or set aside a consent order could only be exercised if there were a qualifying mistake.   Subsequent decisions of this Court, in which the point has been  argued  in  greater  detail,  have  expressed  doubt  about  there  being  such  a limitation on the jurisdiction. In Ryde Holdings Ltd v Sorenson Fisher J expressed

the view that the approach taken in Phillips:4

… may be an unduly narrow perception of the court’s jurisdiction to set aside consent orders. There is much authority to suggest that the Court has a more general inherent jurisdiction to set aside consent orders which might otherwise perpetuate a miscarriage of justice.

[5]     In Stead v The Ship “Ocean Quest of Arne” Thomas J considered the circumstances in Phillips in some detail.  His Honour noted that it would have been inappropriate to revoke the consent order in that case, given that it related to an agreement over relationship property with the issue being whether that underlying agreement could be vitiated by mistake or unconscionability.  He considered that:5

...  I have some difficulty with the notion that, if there is a ground on which

the underlying contract may be vitiated, a consent order should stand …

I find it much easier to accept that circumstances may arise in which the requirements of justice would indicate that an order by consent should be revoked or varied, notwithstanding that the validity of the underlying agreement cannot be challenged.   As a matter of practice many consent orders  of  an  interlocutory nature  would fall  into  this  category.    Indeed, [counsel] was prepared to concede that orders in the nature of timetable orders would do so.  She sought, however, to differentiate consent orders of this kind from consent orders based on a more formal or substantive agreement between the parties.  But I am not certain that such a distinction has any validity for the purpose of determining whether this Court has the inherent jurisdiction to revoke or vary a consent order based upon an agreement.  It is preferable, I believe, to accept that the inherent jurisdiction exists, but recognise that there will be some circumstances in which it is most unlikely that the jurisdiction will be exercised.

[6]      Likewise, in Bullivant v ENZA Ltd Rodney Hansen J considered it to be settled that this Court has an inherent jurisdiction to set aside a consent order if the interests of justice require it, with the grounds necessary to justify that course not

confined to grounds which would justify setting aside a contract.6

4      Ryde Holdings Ltd v Sorenson CP1277/87, 8 March 1985.

5      Stead v The Ship Ocean Quest of Arne [1995] 3 NZLR 415 at 419-420.

6      Bullivant v ENZA Ltd [2001] 1 NZLR 498 (HC).

[7]      In Kain v Hutton7  the Court of Appeal cited Phillips, Bullivant and Stead in stating that:

It needs to be demonstrated that it is in the interests of justice to withdraw the order.

[8]      Finally, both Kain and Phillips were cited by the Court of Appeal in Butcher v Finnigan in support of the following statement:8

This  Court  views  an  application  to  set  aside  a  consent  order  with considerable caution.  It will only be prepared to disturb such an order if the interests of justice require it and only if a good ground or grounds is established.  Examples of such a good ground are an order that was not in fact made with the consent of the party challenging it or an order founded on an agreement vitiated by mistake.

[9]      Treating  an  agreement  vitiated  by mistake  as  merely an  example  of  the circumstances in which a consent order may be set aside makes it clear that the jurisdiction is not limited to cases where a qualifying mistake can be shown but that it is the inherent jurisdiction, to be exercised where the interests of justice require it.

Nature of the substantive proceeding

[10]     Kenneth Angus Holmes9  is the sole director of Holmes Ventures Limited (HVL).10   At the relevant time Mr Holmes and Brian David Russell,11 as trustees of Mr Holmes’ family trust, owned 90% of HVL’s shares. Kiriwai owned the remaining ten per cent.  One of Kiriwai’s directors, Christopher Emmens, was HVL’s general

manager.

[11]     HVL  terminated  Mr  Emmens’  employment  in  September  2012.     HVL suspected Mr Emmens of having diverted customers and business opportunities from HVL in breach of his duties as an employee. Mr Emmens, for his part, claims to have had a basis (unspecified) for a personal grievance claim against HVL which he

decided not to pursue.

7      Kain v Hutton [2007] NZCA 199, [2007] 3 NZLR 349 at [230].

8 [2012] NZCA 250.

9      The first defendant

10     The third defendant.

11     The second defendants.

[12]     The parties negotiated a settlement agreement that took in both the sale of Kiriwai’s shares in HVL under the shareholders’ agreement and the issues arising as a result of the termination of Mr Emmens’ employment.  Under the agreement Mr Holmes and Mr Russell paid $1m for Kiriwai’s 10% shareholding.  This figure had been offered by HVL on a non-negotiable basis, without mention of negotiations then under way between HVL and Port of Tauranga for that sale of the shares in HVL’s subsidiary, Quality Marshalling (Mount Maunganui) Limited (QML).

[13]     The agreement was settled on 15 November 2012.  Less than a month later, on 12 December 2012, Port of Tauranga Limited announced that it had acquired the shares in QML for $34m.   Kiriwai says that it was entitled to a fair price for its shares and that, in light of the negotiations for the sale of QML, the $1m paid for its shares represented a substantial under-value.

[14]     In this proceeding Kiriwai alleges a breach of duty against Mr Holmes in his capacity as the director of HVL, a breach of the shareholders’ agreement by Mr Holmes and Mr Russell  and breaches of fiduciary duty by Mr Holmes and Mr Russell. It seeks relief under s 174 of the Companies Act 1993.

[15]     The defence is that the payment represented a fair value of the shares, taking account of the fact that it also represented a settlement of all issues between the parties, and particularly the employment dispute, and that there has therefore been an accord and satisfaction.

Events leading to the consent order

[16]     Immediately after his employment with HVL was terminated Mr Emmens began contracting to HVL’s rivals, including ISO Ltd.  HVL suspects Mr Emmens of using confidential information in his new work. The primary basis for this suspicion appears to be the fact that Mr Emmens emailed financial information about HVL to himself while he was on sick leave and shortly before his employment was terminated.  Mr  Dale,  for  Kiriwai,  points  out  that  this  fact  alone  is  hardly incriminating since Kiriwai was entitled to the information under its shareholders’

agreement. I note also that in the pleading the defendants do not make any allegation based on the use of confidential information.

[17]     The defendants sought discovery of, among other things, all communications

relating to Mr Emmens’ dealings with ISO and other named persons from 1 January

2012 up to the date of discovery being requested.  Kiriwai resisted on the basis that documents created after April 2013 could not be relevant because they substantially post-dated Mr Emmens’ employment with HVL and significant confidentiality issues would  arise;  the  third  parties  do  not  consent  to  their  communications  with Mr Emmens being disclosed. The documents being sought were referred to by the parties as “the Contested Category” of documents.

[18]     Kiriwai provided a list claiming confidentiality over the Contested Category of documents.  On 17 July 2013 the defendants applied for particular discovery of the Contested Category of documents (paragraph 1(a) of the application), discovery of Mr Emmens’ diary entries, phone records, emails and other documents (paragraph

1(b) of the application) and orders setting aside Kiriwai’s claim for confidentiality

(paragraph 1(c) of the application).

[19]     There   followed   correspondence   between   Kiriwai’s   solicitors,   Dawson Harford, and the defendants’ solicitors, Claymore, with an agreement eventually reached in August 2013 under which Kiriwai withdrew its opposition to paragraphs

1(a) and (c) of the application.  The defendants agreed that the end date for discovery of the Contested Category (paragraph 1(a) of the application) would be 1 April 2013 on the condition that Mr Emmens gave an undertaking that he had not used confidential information after that date in providing services to his clients.  However, Kiriwai would not agree to pay costs and the defendants’ solicitors filed a memorandum seeking orders in terms of the application and costs.

[20]    Correspondence ensued between Claymore and Mr Dale, with Claymore pointing out that the agreement based on Mr Emmens’ undertaking had only ever related  to  paragraphs  1(a) and  (c)  of the defendants’ application  which  left  the application for particular discovery at paragraph 1(b) of the application and the claim for costs outstanding.   The defendants’ position was that limiting discovery of the

Contested Category of documents in return for Mr Emmens’ undertaking did not relieve Kiriwai of providing an affidavit as to documents disclosing all documents in the Contested Category and that Kiriwai should pay costs.  In a letter 11 September

2013 Claymore proposed a resolution that would see Kiriwai provide a list of documents in the Contested Category up to 1 April 2013, the undertaking from Mr Emmens as to use of confidential information and costs.

[21]     In an about-turn, however, Mr Dale advised that Mr Emmens would not provide an undertaking after all.   This decision was prompted by correspondence from   the   solicitors   for   Port   of   Tauranga   and   QML   alleging   breaches   of confidentiality by Mr Emmens after 1 April 2013 and seeking a statutory declaration confirming that there had been no breach of confidentiality obligations. Referring to this demand in a letter to Claymore, Mr Dale advised that:

Nevertheless this development does to an extent overlap with the current proceedings and in particular your request for an undertaking from Mr Emmens.

Given that we have not been able to agree upon the terms and because of this further threat Mr Emmens declines to provide any undertaking in respect of events post-1 April 2013.  I observe that it is odd that HVL should even seek an undertaking bearing in mind it no longer owns any shares in QML …

Mr Emmens will provide a supplementary list of documents up to the date of

1 April  2013.    Anything  after  that  date  is  irrelevant.    The  affidavit  of documents will address the issues contained in your application.

Kiriwai will agree to the amount sought for costs set out in your letter 11

September 2011.

In my view all of the issues in relation to your application are now resolved and we ought to advise the Court accordingly.

(emphasis added)

[22]     Claymore’s response was:

It is incorrect that documents relating to Mr Emmens’ dealings with ISO Limited,  Michael  Duggan,  Turan Mehta,  David  Lucas  and/or  the  Indian customers of Quality Marshalling (Mt Maunganui) Ltd after the date of 1

April 2013 are irrelevant to this proceeding.  This is because such documents are likely to disclose evidence of Mr Emmens’ dealings with those companies or individuals prior to  the date of settlement between  the parties.   The defendants are reinforced in this view by Mr Emmens’ recent refusal to provide   the   requested   undertaking   in   circumstances   where   you   had previously indicated that he was prepared to do so …

Against the foregoing, we confirm that the defendants will either require discovery to date or an undertaking in the terms set out at paragraph 4.1(b) of our letter 11 September 2013 to cover off the post-1 April 2013 position.

(emphasis added)

[23]     Mr Dale replied:

The plaintiffs will provide a further list of documents dealing with events to date  but  on  the  basis  that  they  are  relevant  for  the  reasons  set  out  in paragraph (b) of your letter …

(emphasis added)

[24]     Claymore then prepared a joint memorandum of counsel which Mr Dale signed.   The orders now sought to be varied were made in accordance with the memorandum.

[25]     Mr Dale explained that when he signed the consent memorandum he thought it meant that documents after 16 November 2012 would be discoverable only if they related to Mr Emmens’ dealings with the third parties before November 2012.  He did not think that documents relating to fresh dealings after November 2012 could be relevant and therefore could not be discoverable.  The explanation is reflected in Mr Dale’s letter 9 October 2013 and his memorandum filed in support of the application.

[26]     It would have been preferable for Mr Dale to have filed an affidavit rather than a memorandum and to have arranged for other counsel to appear.  However, Mr Gray did not object to Mr Dale addressing the issue from the bar.   There is no challenge to Mr Dale’s explanation.  The question is whether, in the circumstances, it is in the interests of justice for the consent order to be varied.

Is varying the consent order in the interests of justice?

[27]     There are two factors that bear on the question whether varying the order is in the interests of justice.  First, if the order stands Kiriwai will be adversely affected as a result of its counsel’s error.  The terms of the order to which Mr Dale consented were clear.   With the benefit of Mr Dale’s explanation I can see how his misapprehension arose.   However, had Mr Dale checked with Claymore to ensure that the defendants still recognised the gloss indicated in previous correspondence

the current situation would have been avoided.   It is likely that the defendants’ application for discovery would have proceeded to a hearing and the matter would have turned on the issue of relevance.

[28]     If discovery is required now in terms of the consent order there will be a claim to confidentiality which will, inevitably be challenged.  There is a trial date in February 2014 which will be lost.

[29]     Secondly,  Kiriwai  has  always  maintained  that  documents  coming  into existence  well  after  the  termination  of  Mr  Emmens’ employment  could  not  be relevant.  Mr Emmens has gone on oath in this application to describe the extent of the work he undertook for QML’s competitors in 2013. Mr Dale submits that seeking documents coming into existence so long after the termination of the agreement, and in relation to entirely fresh arrangements between Mr Emmens and ISO is a fishing expedition.

[30]     In  his  affidavit  in  opposition  Mr  Holmes  deposed  that  he  considers  the Contested Category of documents to be relevant because settlement with Kiriwai and Mr Emmens was an overall settlement of all issues between the parties, including the suspected breach of Mr Emmens’ duties as an employee and that the price paid for Kiriwai’s shares reflected these issues.

[31]     In an earlier letter addressing the issue of relevance, Claymore stated that the documents were relevant because:

They were most likely to disclose evidence of Mr Emmens’ dealings with those companies or individuals prior to the date of settlement between the parties.

[32]     It is evident that only conduct before the settlement agreement in November

2012 can be relevant.  The defendants say that documents that came into existence subsequently may be evidence of happened before that date.  But there must be some basis for this assertion.  Otherwise it is speculation.  On the evidence before me there is no basis for concluding that documents created after November 2012 and which relate to fresh contracts between Mr Emmens and his clients are likely to show what Mr Emmens was doing prior to November 2012.  Had the defendants produced an

example from the documents already discovered showing instances of the conduct complained of from which I could have concluded that later documents are likely to show similar conduct there would have been some basis for that assertion.   But without such a foundation, it is speculative to suggest that later documents might show something that earlier documents do not.  The defendants’ position seems, to me, very much a fishing expedition.

[33]     Given my conclusion that the Contested Category of documents has, on the evidence before me, no discernible relevance, and the fact that situation has not come about through wrongdoing by Kiriwai but rather lack of care by its counsel and the consequence of not varying the order will be loss of the trial date, I consider that it is in the interests of justice to vary the order.

Result

[34]     I make an order varying the consent order in the terms sought in paragraph 1

of Kiriwai’s application.

[35]     In the usual course Kiriwai would be entitled to costs. In the circumstances, however, I am not inclined to make such an award. If counsel wish to pursue the

matter they may file memoranda.

P Courtney J