Lawrence v Glynbrook 2001 Limited HC Dunedin CIV-2009-412-000713
[2011] NZHC 747
•21 June 2011
IN THE HIGH COURT OF NEW ZEALAND DUNEDIN REGISTRY
CIV-2009-412-000713
BETWEEN D R LAWRENCE Plaintiff
ANDGLYNBROOK 2001 LIMITED First Defendant
ANDCRAIGADEAN DAIRY FARM LIMITED Second Defendant
ANDC W LAWRENCE Third Defendant
ANDA N W LAWRENCE Fourth Defendant
ANDB D LAWRENCE Fifth Defendant
ANDA N W LAWRENCE AND B D LAWRENCE AS TRUSTEES OF THE ANW LAWRENCE FAMILY TRUST Sixth Defendants
ANDMARBLE HILL DAIRIES LIMITED Seventh Defendant
Hearing: 7 June 2011
Appearances: S M Bisley for Plaintiff
T Shiels, D Tobin and P Brits for Defendants
Judgment: 21 June 2011
JUDGMENT OF VENNING J
This judgment was delivered by me on 21 June 2011 at 9.45 am, pursuant to Rule 11.5 of the High
Court Rules.
Registrar/Deputy Registrar
Date……………
Solicitors: Russell McVeagh, PO Box 10-214, Wellington [email protected]
LAWRENCE V GLYNBROOK 2001 LIMITED HC DUN CIV-2009-412-000713 21 June 2011
Downie Stewart, PO Box 1345, Dunedin 9058 P D Brits
Copy to: T J Shiels, PO Box 5029, Dunedin 9058 [email protected]
D R Tobin PO Box 1424 Dunedin 9054 [email protected]
Applications
[1] There are a number of interlocutory applications before the Court:
application by the plaintiff for answers to interrogatories;
application by the plaintiff for further particulars; application by the plaintiff for further discovery; application by the defendant for further security;
cross-application by the plaintiff for a decrease in the security;
defendants’ challenge to the plaintiff’s claim to privilege.
Interrogatories/further particulars
[2] At the outset of the hearing counsel confirmed agreement had been reached in relation to the plaintiff’s applications for interrogatories and further particulars.
[3] The interrogatories have been provided. By consent the application for answers to interrogatories is dismissed with costs to the applicant/plaintiff on a 2B basis together with disbursements as fixed by the Registrar.
[4] The defendants have also agreed to provide further and better particulars. By consent the further and better particulars are to be provided by 28 June. Costs to the plaintiff on a 2B basis together with disbursements as fixed by the Registrar on that application.
[5] That leaves the remaining applications before the Court, namely the application for a top-up of security, the cross-application to reduce security and the
application for further and better discovery and the issue of the challenge to privilege.
Security for costs
[6] It is convenient to deal with the application and cross-application in relation to security for costs first. In this interlocutory judgment it is unnecessary to recite the background facts. They have been adequately covered in Associate Judge Osborne’s judgment on security for costs delivered on 16 December 2009. It is sufficient for present purposes to record that following the further discovery and disclosure process the plaintiff has now amended his statement of claim. The plaintiff has added a further five causes of action to his claim against the defendants.
He now pleads:
breach of an agreement made in October 2001 relating to the family farming
partnership (against the first, third, fourth, fifth and sixth defendants);
breach of the deed against the first, third, fourth, fifth, sixth defendants;
a constructive trust against the sixth defendants;
breach of fiduciary duty against the third, fourth and fifth defendants;
an order under s 174 of the Companies Act 1993 against the first, second, third, fourth, fifth and sixth defendants;
breach of the Companies Act 1993 – failure to provide information against
the second defendant; and
in addition he seeks an order under s 348 of the Property Law Act 2007 setting aside various dispositions by the first defendant. Relief is claimed against the third, fourth, fifth, sixth and seventh defendants.
[7] In his judgment of 16 December 2009 Associate Judge Osborne ordered the plaintiff to provide security for costs in the sum of $14,000 in two equal tranches, the first on or before 11 February 2010 and the second by the setting-down date. The first tranche has been paid.
[8] The amended and expanded pleading prompted the defendants to seek further security. The plaintiff responded by making a cross-application for orders that he should not be required to pay any further security and that the security already paid should be released or, alternatively, that he should only pay security in a reduced amount.
[9] In support of his cross-application the plaintiff says:
there has been a significant change in circumstances since the order for
security was made;
the second defendant has sold land to the seventh defendant, a company owned and controlled by the third defendant, at an undervalue and has dissipated the proceeds of sale to the third, fourth and fifth defendants in an
attempt to render the first defendant judgment proof;
the defendants have unnecessarily increased the plaintiff’s costs by their
response to interlocutory processes;
the defendants precipitated the proceeding and have perpetuated it by
refusing to engage in seeking to resolve the issues.
[10] The first issue is the jurisdiction for the orders sought. The Court has inherent jurisdiction to review, set aside or vary an order for security where there has been a significant change in material circumstances or where the interests of justice so require: Cargill NZ Ltd v Palmerston Wool Co Ltd [1]; Stead v The Ship “Ocean
Quest of Arne”;[2] O’Malley v Garden City Helicopters Ltd (1994) 8 BRNZ 182;[3]
Gordano Building Contractors Ltd v Burgess.[4] The need for a significant change in material circumstances is particularly relevant where the application is effectively to review the existing order rather than for further security.
[1] Cargill NZ Ltd v Palmerston Wool Co Ltd (1997) 11 PRNZ 52.
[2] Stead v The Ship “Ocean Quest of Arne” [1995] 3 NZLR 415.
[3] O’Malley v Garden City Helicopters Ltd (1994) 8 BRNZ 182.
[4] Gordano Building Contractors Ltd v Burgess [1988] 1 WLR at 890.
[11] The first significant change in circumstances relied on by the plaintiff is that the Official Assignee has confirmed that all of the plaintiff’s claims vest in the plaintiff rather than the Official Assignee. In his judgment as to security Associate Judge Osborne discussed the effect of the plaintiff’s adjudication and bankruptcy and noted the absence of any evidence of disclaimer. The letter from the Official Assignee, which the plaintiff has now obtained, is to an extent ambiguous but, in any event is evidence that could and should have been obtained prior to the first hearing for security. I decline to take it into account. To allow it to be considered at this stage would be to enable a party to effectively seek to improve their case after the initial hearing by leading further evidence that was (or in this case, could have been) available to them. The circumstances in relation to the plaintiff ’s position vis-à-vis the Official Assignee have not changed. The information in the letter is a matter that could have been and should have been clarified prior to the first hearing. As Mann LJ observed in delivering the decision of the Court of Appeal in Gordano, there must be a material change of circumstance. A plaintiff cannot return and seek to have an order varied or set aside by producing fresh evidence as to the state of affairs extant at the date of the order. There would be no end to the matter if such a situation was
tolerated.[5]
[5] At 894.
[12] Next, the defendants say that the discovered documents contradict the evidence of Mr Lawrence, the third defendant, that the defendants relied on in the original security for costs application. It is said that as a result of discovery and further steps in the proceeding some of the assertions the defence made at the first hearing are demonstrably inaccurate. The defendants had originally denied an agreement the plaintiff was entitled to an interest in Glynbrook. It is submitted the defendants now admit in the third amended statement of defence that the plaintiff is entitled to a 12.5% shareholding. However, whilst that fact was initially denied in
the pleadings and may now be admitted, (although the pleading is couched
carefully), there is nothing particularly unusual about changes to pleadings and admissions being made as the case progresses through the various iterations of the pleadings. It is clear from [18] to [25] (and [21]–[22] in particular) of his judgment that Associate Judge Osborne was aware of this issue relating to the 12.5% shareholding. Indeed he noted the third defendant’s effective admission of a basic
12.5% deal. The further information is not a significant change in material circumstances.
[13] Next, it is said that the defendants argued at the security hearing that the plaintiff had agreed to manage Edendale Farm but they had been unable to provide any document during the disclosure process that records that agreement. That is not a significant change in material circumstances.
[14] The plaintiff further says that in his second affidavit, the third defendant had denied the plaintiff had fulfilled his obligations under the August/October agreements to pay 1.75 million into the second defendant. The plaintiff says that the documents discovered by the defendants demonstrate that he did make such a contribution. The pleading in relation to the second defendant at the time of the application for security was limited to a demand for further information. While the defendants denied he was entitled to the information, inter alia, on the grounds that the plaintiff had not put up the full 1.75 million in cash or kind and had not worked in the business for five years as was also required, Associate Judge Osborne did not consider those to be particularly strong grounds of defence to that aspect of the claim. Again, even accepting the fresh information is as the plaintiff alleges, it does not support the Court revisiting the original order for security at this time. It was not a material issue at the first hearing.
[15] In any event, in his second affidavit for the first security for costs hearing, the third defendant accepted (at [23]) that the plaintiff had contributed at least 1.37 million to Craigadean. That information was before Associate Judge Osborne. While there may now be further information that improves the plaintiff’s case in relation to that aspect it cannot be said to be a significant change in material circumstances.
[16] Next, the plaintiff says that in the third defendant’s first affidavit he stated:
There were no surplus funds in Glynbrook and the only money paid out to shareholders was wages or drawings.
[17] The plaintiff says that the statements of account discovered for Glynbrook for the years that have been disclosed show that dividends were paid out to shareholders. I acknowledge the point, but as I read the decision that issue does not seem to have been of significance to the Associate Judge.
[18] Next, the plaintiff argues that, overall, his prospects of success in respect to the claims have strengthened as a result of discovery. The plaintiff seeks to have the Court revisit the issue of merits of his claim. On an application for security for costs the Court should be cautious about exploring in too much detail the issue of merits. Associate Judge Osborne recorded that caution. The Court will not revisit an order for security where it said the merits of one side or the other have improved following disclosure. That would be an impossible situation. There are now more claims before the Court, but they also raise other issues, such as a limitation defence.
[19] The next point taken by the plaintiff is that Glynbrook has sold some 275 hectares of land in an attempt to render it judgment proof. The plaintiff refers to a communication he says supports that. The defendants deny that that was the purpose of the sale. The issue can only be resolved at trial. The plaintiff has lodged a caveat against the property. The caveat was sustained in the judgment of 9 May. Further, as Mr Shiels observed, the cause of action under s 348 is specifically directed at unravelling the transaction the plaintiff complains of the position is protected.
[20] The plaintiff then says that the defendants have unnecessarily increased the plaintiff’s costs during the interlocutory stages of the proceedings. To the extent there is merit in that submission and the defendants’ actions have led to the plaintiff incurring unnecessary costs, the plaintiff will be entitled to an award of costs for such interlocutory processes. Costs on interlocutory applications should be dealt with as the case proceeds: r 14.8. It is not an issue that should lead to a reduction in what was a relatively modest award of security for costs in the substantive proceedings.
[21] Finally, it is said that the defendants precipitated the proceeding and have perpetuated it by refusing to engage in attempts to resolve the issues between the parties. To the extent the initiation of the proceedings is relevant it is a matter that was before Associate Judge Osborne. Without considering any settlement negotiations, it is not possible to properly attribute responsibility for the failure to settle, and in any event, that is not an issue which should bear on security in this case.
[22] It follows that I conclude none of the matters raised by the plaintiffs are sufficient to meet the test of a significant change in material circumstances or are such that the interests of justice require the Court, at this time, to revisit the previous order for security. The application to review the previous order for security is declined.
The application for an uplift in security
[23] The defendants seek an order increasing the order for security on the grounds:
the scope of the pleadings have expanded so that the time and cost that will be involved in the case has substantially increased since the order was made;
and
the defence are likely to incur substantially increased costs in the
proceedings.
[24] The proceeding has changed in character. What was formerly a case involving two causes of action has now expanded to a case involving seven causes of action. The hearing time required to deal with the case will inevitably be longer. Although there is a degree of overlap amongst the causes of action the issues involved have undoubtedly expanded. Further work will be required on the part of the defendants to respond to the case they now face.
[25] Accepting, for present purposes, the argument that the defendants may have brought the cause of action under the Property Law Act upon themselves by their actions, even putting that claim to one side, the new causes of action for breach of fiduciary duty and under s 174 of the Companies Act are significant new claims.
[26] I decline to engage in the detailed assessment of the merits of the additional causes of action that the plaintiffs sought to engage in. I accept for present purposes that the causes of action are arguable and the documentation obtained through the disclosure process, in part at least, provides support for the claims. But it remains for the plaintiff to establish his claims in whole or in part, which can only be done at trial. It cannot be said that the defences are patently lacking in merit.
[27] I am satisfied that the matter can be appropriately addressed by increasing the security for costs, given that there has been a change in character in the proceedings but to recognise the points made by the plaintiff by restricting the increase to a very modest one.
[28] There will be an order requiring the plaintiff to provide a further $7,000 by way of security, that sum to be provided by 31 July 2011.
Application for further and better discovery
[29] The plaintiff sought orders for further discovery in relation to three categories of documents.
Category A
financial statements for the partnership for the year 2003 onwards; Glynbrook financial statements for the year 2010;
draft or alternatively final financial statements for Glynbrook, Craigadean, Lawrence Machinery Group Ltd, Fairplace Grazing Ltd and the partnership;
documents underlying financial records (bank statements, journals and ledgers) for all Lawrence group companies and the partnership, i.e. source
documents.
Category B
Craigadean financial statements for the year 2002;
financial statements of Fairplace Grazing Ltd;
financial statements of Lawrence Machinery Group Limited;
Glynbrook’s share register.
Category C
[30] Documents associated with the sale of Glynbrook’s land. During submissions Mr Bisley confirmed that documents had recently been provided in relation to this category. He sought to reserve leave to apply further if necessary. The argument therefore focused on categories A and B.
[31] It has to be observed that the defendants have not complied with their discovery obligations in a structured and organised way. That has undoubtedly led to a suspicion on the part of the plaintiff that documents have deliberately been withheld. To that extent, the defendants cannot complain that they face this further application. Mr Brits, the solicitor for the defendants has confirmed that, by oversight, a number of the Excel spreadsheets for files were not imported into the affidavit of documents when it was prepared and when the second affidavit of documents was prepared and sworn on 9 April 2010. The problem was then compounded when, after the defendants advised the plaintiff’s solicitor of the omission, the solicitors requested an updated list which was sworn on 20 September
2010. However, by that date, the amended pleading had been filed. It raised issues in relation to the sale of the land. Mr Brits did not turn to his mind to the amended pleadings and did not enclose documents relevant to that additional pleading.
Further, after the fourth affidavit of documents was sworn the defendants discovered some further old emails and attachments, which had previously not been discovered.
[32] Against that background it is not surprising the plaintiff considers the discovery to be defective and is suspicious whether the defendants have complied with their obligations.
[33] It may well be, as counsel for the defendants submitted, that the documents now sought do not exist. However, given the defendants’ failings in relation to discovery to date, the defendants should formally confirm that position.
Discovery order
[34] I direct that the defendants are to file and serve, within 15 working days of delivery of this decision, a final list relating to the following documents:
Category A
financial statements for the partnership between the third, fourth and fifth
defendants from the year 2003 onwards;
documents underlying the annual financial accounts for all Lawrence Group
Companies and the partnership, i.e. the source of documents.
[35] I do not make an order for discovery of the Glynbrook financial statements for the year 2010. I record counsels’ acknowledgement that such documents are discoverable but as they have not yet been completed they will be discovered upon their completion.
[36] Nor do I require the defendants to discover draft or final financial statements. I accept counsel for the defendants’ advice that the documents that have been supplied are the documents the defendants held. Some have not been signed as final accounts, while others have been. The affidavit of the documents should, however,
confirm that to the best knowledge of the deponent the financial statements provided are copies of the latest iteration of the particular documents.
Category B
Craigadean financial statements for the year ended 2002;
financial statements of Fairplace Grazing Ltd for the year ended 2007 and any subsequent year if it traded thereafter. If the documents are not available
because the company ceased trading that should be confirmed;
financial statements for the Lawrence Machinery Group Ltd for the year
ended 2003, 2005, 2006, and 2007;
the Glynbrook share register (if it exists). It may well be, as counsel submitted, a share register was not prepared for Glynbrook. If so that should
be confirmed.
[37] The plaintiff’s position is reserved in relation to the documents within
category C.
Privilege
[38] The defendants made application to set aside the plaintiff’s claim to privilege in relation to a number of documents where the privilege claimed was legal, professional privilege. Mr Tobin made the point that some of the documents were not supported by litigation privilege nor a solicitor/client privilege. For example, he referred to a file note of communications between solicitors and file notes of meetings attended by all parties. Of course, as Mr Bisley submitted, if notes have been made on those documents for the purposes of providing legal advice they would be privileged: s 54(1) Evidence Act 2006.
[39] I decline the invitation to inspect those documents. Counsel for the plaintiff will be well aware of the obligation on the plaintiff and counsel in relation to the
claims for such privilege. I direct counsel for the plaintiff to review the documents in the schedule to the privilege claimed and to file a memorandum with the Court within 15 working days to confirm that in counsel’s opinion privilege properly applies to the documents and the privilege is maintained. If there are any documents which, after review, counsel accepts privilege cannot be maintained, those documents are to be made available with the memorandum to counsel for the defendant.
Costs
[40] The defendants have succeeded in opposing the application for security and in obtaining a modest uplift in security.
[41] The plaintiff has succeeded on the application for discovery.
[42] Costs on a 2B basis are to follow those applications just as they followed the applications for answers to interrogatories and further particulars.
[43] I decline to make any costs order on the issue of privilege.
Venning J
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