NZ Iron Sands Holdings Limited v Toward Industries Limited
[2018] NZHC 1571
•28 June 2018
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2017-404-001975
[2018] NZHC 1571
BETWEEN NZ IRON SANDS HOLDINGS LIMITED
Plaintiff
AND
TOWARD INDUSTRIES LIMITED
First Defendant
TAHAROA IRONSANDS LIMITED
Second Defendant
Hearing: 29 and 30 May 2018 Appearances:
M D O’Brien QC, M G Colson and M A Ho for Plaintiff J E Hodder QC and J A McKay for First Defendant
R J Gordon and D P McKenzie for Second Defendant
Judgment:
28 June 2018
JUDGMENT OF WYLIE J
This judgment was delivered by Justice Wylie On 28 June 2018 at 2.00pm
Pursuant to r 11.5 of the High Court Rules Registrar/Deputy Registrar
Date:…………………………
Solicitors/counsel:
Gilbert Walker/M O Brien QC, Auckland Chapman Tripp, Auckland
MinterEllisonRudd Watts, Wellington
NZ IRON SANDS HOLDINGS LIMITED v TOWARD INDUSTRIES LIMITED [2018] NZHC 1571 [28 June 2018]
Introduction
The Parties
[1] This proceeding arises out of unsuccessful attempts by the plaintiff, New Zealand Iron Sands Holdings Ltd (NZIS) to purchase the shares in the second defendant, Taharoa Ironsands Ltd (Taharoa), from the first defendant, Toward Industries Ltd (Toward).
[2] Until May 2017, Taharoa was called New Zealand Steel Mining Ltd. It owned and operated an iron sand mining business at Taharoa on the west coast of the North Island. It was a wholly owned subsidiary of Toward which, in turn, was a wholly owned subsidiary of BlueScope Steel Ltd – an ASX listed company.
[3] The iron sand mine was on land owned by The Proprietors of Taharoa C Block Incorporated (Taharoa C). It leased the land to Taharoa.
[4] In March 2016, Toward, with the assistance of an investment bank, Moelis and Company (Moelis), began marketing the iron sand mining business by offering the shares in Taharoa for sale. Toward’s then position was that unless the iron sand mine could be sold, it would have to be closed down.
[5] The sales process initiated by Toward attracted interest from a number of potential buyers. Ultimately, however, it was only NZIS which submitted a formal bid to buy the shares in Taharoa.
[6] NZIS is a special purpose vehicle which was established for the purpose of acquiring the shares in Taharoa. It was established by Gleneagle Securities (Aust) Pty Ltd (Gleneagle), a financial entity which provides advisory and fund management services to a range of clients. NZIS comprises a syndicate of Gleneagle’s clients (many of them New Zealanders) who were interested in acquiring Taharoa’s shares and thus the iron sand mining business.
[7] Both Moelis and Gleneagle were involved in negotiating the sale/purchase of Taharoa’s shares.
The first share sale agreement
[8] On 14 November 2016, each of the parties to this proceeding – NZIS, Toward and Taharoa – entered into a share sale agreement (the first share sale agreement) pursuant to which NZIS agreed to purchase from Toward all of the shares in Taharoa for a purchase price of $1. In addition, NZIS agreed to make future royalty payments of up to $131,700,000 to Toward and to inject a minimum of $30,000,000 into Taharoa to fund expansion of the iron sand mine.
[9] The first share sale agreement was subject to three conditions precedent. In summary:
(a)the parties agreed to negotiate with a Japanese shipping line – Nippon Yusen Kabushiki Kaisha (NYK) – which chartered two purpose-built ships to Taharoa so that Taharoa could export in bulk the iron sands mined by it. The purpose of the negotiations was to seek to persuade NYK to reduce the charter rate for the ships and/or to renegotiate the then operative charter agreement;
(b)the parties agreed to negotiate with Taharoa C to seek to persuade it to unconditionally discharge Toward from its obligations as a guarantor of the mine lease. In particular, Toward wanted to be released from its obligation to reinstate the land once mining had ceased; and
(c)NZIS agreed to provide a mine expansion plan to Towards’s nominated consultant, who was to approve the plan if he/she considered that it met certain objectives set out in the first share sale agreement.
[10] Clause 3.4 of the first share sale agreement required each party to use all reasonable endeavours (other than waiver) to ensure that each condition was fulfilled as soon as was reasonably practicable and, in any event, on or before 14 December 2016 (the due date).
[11] The conditions precedent set out in [9](a) and (b) above were not satisfied by the due date. The first share sale agreement provided that so long as a party had first
complied with, inter alia, clause 3.4, it was entitled to terminate the agreement at any time before its completion if any of the conditions precedent were not fulfilled by the due date.
[12] Toward cancelled the first share sale agreement, relying on the termination provision, on 15 December 2016.
The second share sale agreement
[13] In late 2016/early 2017, Toward undertook a second sales process in relation to the iron sand mine. NZIS participated again. Another entity – Taharoa Mining Investments Ltd (TMI) – also participated.
[14] The second sales process culminated in Toward, TMI and Taharoa entering into a second share sale agreement (the second share sale agreement) in March 2017 whereby TMI agreed to purchase the shares in Taharoa.
[15] The second share sale agreement was settled in May 2017. Taharoa has owned and operated the iron sand mine since that time.
The proceedings
[16] In August 2017, NZIS filed the present proceeding. It raises five causes of action. NZIS alleges, in summary, that:
(a)in breach of the first share sale agreement, Toward and Taharoa failed to use all reasonable endeavours to fulfil the conditions precedent. As a result, Toward’s termination notice was wrongly issued. This allegation forms the basis for the first cause of action against Toward and the second cause of action against Taharoa;
(b)both Toward and Taharoa failed to make NZIS aware of their knowledge of the limited likelihood of NYK agreeing to reduce the charter rates. It is asserted that this was a misrepresentation and/or misleading or deceptive conduct. The misrepresentation is said to be
pre-contractual and the conduct to be in trade pursuant to s 19 of the Financial Markets Conduct Act 2013 and s 9 of the Fair Trading Act 1986. This is the third cause of action alleged against both Toward and Taharoa;
(c)Toward breached the Financial Markets Conduct Act and the Fair Trading Act by the way in which it dealt with NZIS in relation to the conditions precedent in the first share sale agreement. It is alleged that Toward failed to keep NZIS informed of all discussions, negotiations and correspondence with NYK and Taharoa C. This is the fourth cause of action against Toward; and
(d)Toward, through its agent (a Moelis employee), misrepresented NZIS’s prospects of success if it participated in the second sales process which led to the second share sale agreement. Again, it is alleged that this was in breach of the Financial Markets Conduct Act and the Fair Trading Act. This is the fifth cause of action against Toward.
NZIS claims that it lost the opportunity to acquire the shares in Taharoa for a purchase price of $1, when the market value of the shares at the time was $506,000,800.1 It claims damages in this sum on each of the five causes of action, and from both Toward and Taharoa.
[17] Toward denies the claims in their entirety. In addition, it pleads five affirmative defences. Relevantly, for present purposes, its second affirmative defence pleads, inter alia, that NZIS is seeking to advance a “buyer claim” for consequential loss and that clause 15.5(m) of the first share sale agreement provided that Toward has no liability for such a claim.
[18] Taharoa denies the claims detailed in the second and third causes of action brought against it.
1 Initially, the amount claimed was $886,000,000. It was reduced in an amended statement of claim dated 21 March 2018. The market value of the shares is said to be based on a model prepared by Moelis which Toward supplied to NZIS in the course of negotiations. It incorporates, amongst other things, an increase in the price of iron ore after the first share sale agreement was signed.
The present applications
Separate questions
[19] Toward seeks to determine the following questions separately and prior to the substantive trial:
(a)Is NZIS making a “buyer claim” as that term applies to clause 15 of the first share sale agreement?
(b)In seeking damages based on the loss of an opportunity and/or loss of profits (direct or indirect anticipated future financial performance of the business) related to the proposed acquisition of the shares in Taharoa, is NZIS seeking consequential loss, as that term is defined by clause 15.5(m) of the first share sale agreement?
(c)If (a) and (b) are answered in the affirmative, is NZIS therefore prevented by clause 15.5(m) of the first share sale agreement from claiming the damages sought?
(d)Insofar as the fourth and fifth causes of action (under the Financial Markets Conduct Act and the Fair Trading Act)2 also seek damages based on potential trading profits, is this type of loss recoverable under the Financial Markets Conduct Act and the Fair Trading Act?
[20] Taharoa seeks to have the following questions determined separately and prior to the substantive trial:
(a)Is Taharoa, as the company the subject of the first share sale agreement, a “party” as that term is used in clause 3.4 of the first share sale agreement?
2 The amended application, filed after the amended statement of claim, did not refer to the third cause of action which also invokes the Financial Markets Conduct Act 2013 and the Fair Trading Act 1986. Whether this is an oversight or intentional is not clear. It makes no difference for present purposes.
(b)If Taharoa is a “party”, as that term is used in clause 3.4 of the first share sale agreement, is Taharoa entitled to the benefit of the “buyer claim” protections in favour of the “seller” appearing in clause 15 of the first share sale agreement?
[21]NZIS opposes both applications.
Third party discovery
[22] NZIS has brought an additional interlocutory application. It seeks orders that Taharoa C, TMI, Wayne Coffey, Rosemary Coffey and Melrose Private Capital Ltd (Melrose) each undertake non-party discovery of specified classes of documents.
[23] None of these entities/persons are parties to the proceeding. As a result of settlement of the second share sale agreement, Taharoa is now a wholly owned subsidiary of TMI. TMI is owned as to 60 per cent by Taharoa C and as to 40 per cent by Melrose. Mr Coffey is the chief executive of Taharoa C and the executive director of TMI. He is a director of Taharoa, and he and Mrs Coffey are directors and shareholders of Melrose.
[24]NZIS’s application has been opposed by the non-parties.
[25] Neither Toward nor Taharoa filed a notice of opposition to this application. Tailored discovery as between NZIS, Toward and Taharoa has been agreed.
The separate questions applications
Submissions
[26] Mr Hodder QC, for Toward, submitted that questions (a) to (c) noted in [19] above, if determined in its favour, will reduce the value of NZIS’s claim from
$506,000,800 to a claim for nominal damages only. He argued that there are few, if any, matters of fact that need to be resolved for these questions to be decided and that question (d), in [19] above, is purely a question of law. It was put to me that determination of the separate questions prior to the substantive trial is likely to best secure the just, speedy and inexpensive determination of the proceeding. It was said
that, if the Court determines the separate questions in Toward’s favour, it is very likely that the proceeding will come to an end, without the need for a full trial; at the least, a determination in Toward’s favour is likely to facilitate settlement, with substantial time and cost savings for all concerned.
[27] Mr Gordon, for Taharoa, said that the questions Taharoa wishes to raise are questions of contractual interpretation, involving two clauses in the first share sale agreement. He argued that the questions require little, if any, evidence, that they are of narrow scope, and that they are clearly delineated from the issues that might need to be addressed at any later trial. He submitted that, if the questions are determined in Taharoa’s favour, this will end its involvement in the proceeding.
[28] Mr O’Brien QC, for NZIS, said that the Court should hear evidence as to the context in which the first share sale agreement was negotiated before considering the questions posed by either Toward or Taharoa. He argued that the Court cannot look at clause 15.5(m) in isolation and that it is necessary to look at the subclause in context, first by reference to clause 15 as a whole, then by reference to the first share sale agreement in its totality, and, finally, against the circumstances as they were at the time the first share sale agreement was negotiated and entered into. It was argued that the first share sale agreement was a bespoke agreement, negotiated over a lengthy period between Gleneagle, on behalf of NZIS, and Moelis, on behalf of BlueScope Steel Ltd and Toward. It was submitted that a proper understanding of the factual position is required to give meaning to the relevant provisions and that a proper understanding cannot be readily gleaned from evidence in a truncated separate questions hearing.
Relevant law
[29]Counsel were largely agreed as to the relevant law.
[30] The Court’s jurisdiction to make the orders sought by Toward and Taharoa derives from r 10.15 of the High Court Rules. That rule provides as follows:
10.15 Orders for decision
The court may, whether or not the decision will dispose of the proceeding, make orders for—
(a)the decision of any question separately from any other question, before, at, or after any trial or further trial in the proceeding; and
(b)the formulation of the question for decision and, if thought necessary, the statement of a case.
[31] The purpose of the separate questions procedure was succinctly summarised by Eichelbaum J in Innes v Ewing as follows:3
… Clearly the underlying purpose is to expedite proceedings by limiting or defining the scope of the trial in advance or obviating the need for a trial altogether …
[32] This purpose is consistent with the general objective of the High Court Rules, namely to secure the “just, speedy and inexpensive determination of any proceeding”.4
[33]The discretion conferred by r 10.15 is broad. The starting point is the:5
[10] … assumption that all matters in issue are to be determined in one trial because that would normally be the most expeditious and efficient manner for dealing with a proceeding …
An applicant has the burden of displacing this assumption.6 This burden is “not insignificant”.7
[34] The Courts have generally approached separate question applications with caution. Judges have from time to time warned of:8
… the extreme unwisdom … of adopting this procedure of preliminary issues
…
and pertinently observed that:9
… the shortest cut so attempted inevitably turns out to be the longest way round.
3 Innes v Ewing (1996) 4 PRNZ 10 (HC) at 18.
4 High Court Rules, r 1.2.
5 Turners & Growers Ltd v Zespri Group Ltd HC Auckland CIV-2009-404-4392, 5 May 2010.
6 At [10].
7 KPMG New Zealand v Gemmell HC Auckland CIV-2008-404-4288, 27 March 2009 at [20].
8 Windsor Refrigerator Co Ltd v Branch Nominees Ltd [1961] Ch 375 (CA) at 396 per Lord Evershed MR.
9 At 396.
It has been noted separately that:10
… Preliminary points of law are too often treacherous short cuts. The price can be, as here, delay, anxiety and expense …
The separate question procedure can be particularly inappropriate in complex cases.11
[35] The general practice in England and Wales is to require that separate hearings be decided on the basis of agreed facts, the rationale being that if there are serious disputes of fact, then a preliminary issues judgment can be problematic.12
[36]The Court of Appeal in this country has observed as follows:13
… It is important that the use of [r 10.15] is invoked only when the objects of the rule will be met. Too frequently parties to litigation tend to seek determination of an issue or issues which will not result either in the resolution of the dispute or narrow in a practical and significant fashion the length or ambit of the substantive hearing. More importantly, the need to be sure that the issues in question are properly discrete and not intertwined with other questions, law or fact, is frequently overlooked …
[37] Whether or not a separate question is appropriate for hearing prior to the substantive trial must turn on the circumstances of the instant case, and it:14
… should never be dismissed out of hand …
In the end, it is a matter of discretion, and the discretionary judgment required in each case is likely to turn on the Judge’s experience in dealing with litigation generally.15
[38] The principle questions that are likely to fall for consideration when separate question applications are before the Court can be succinctly summarised as follows:16
10 Tilling v Whiteman [1980] AC 1, [1979] 1 All ER 737 (HL) at 25, 744 per Lord Scarman. See also at 738-739 per Lord Wilberforce; Treaty Tribes Coalition v Urban Maori Authorities [1997] 1 NZLR 513 (PC) which was referred to in Haden v Attorney-General (2011) 22 PRNZ 1 (HC) at [49].
11 Haden v Attorney-General, above n 10, at [48].
12 See, for example, McLoughlin v Grovers (a firm) [2001] EWCA Civ 1743 (CA); Steele v Steele
[2001] CP Rep 106 (Ch).
13 All Seasons Properties Ltd v Smith CA151/96, 28 May 1997 at 1.
14 Clear Communications Ltd v Telecom Corp of New Zealand Ltd (1998) 12 PRNZ 333 (HC) at 335.
15 Rio Beverages Ltd v The Golden Circle Cannery HC Auckland CL30/91, 14 February 1992 at 6 per Barker J.
16 Haden v Attorney-General, above n 10, at [50]. See also Turners & Growers Ltd v Zespri Group Ltd, above n 5, at [11]; Karam v Fairfax New Zealand Ltd [2012] NZHC 1331 at [59]; Andrew
(a)Will there be difficult demarcation questions between those issues to be addressed at the first trial and those left for the second?
(b)Will the separate question(s) bring the proceeding to an end?
(c)What potential time saving does the separate question(s) offer?
(d)How will appeals be dealt with?
(e)Are there any other practical considerations tending one way or the other?
Analysis
[39] I analyse the present applications by reference to each of the principle questions noted immediately above.
Demarcation
[40]I start with demarcation.
[41] Toward and Taharoa submit that this factor is strongly in favour of granting their respective applications. They argue that the proposed separate questions are of narrow compass and relate to a small number of discrete issues that can be readily delineated from the issues that will need to be addressed at any later substantive trial. They argue that the proposed separate questions will require minimal, if any, factual evidence.
[42] NZIS, on the other hand, submits that the issues and associated evidence cannot be clearly demarcated from the issues and evidence that will need to be explored at the substantive trial.
[43] I have already discussed above NZIS’s pleadings. Toward has suggested that there are some 59 separate issues requiring resolution on the pleadings as they
Beck and others McGechan on Procedure (online looseleaf ed, Thomson Reuters) at [HR10.15.05].
currently stand. It notes that the separate questions it wishes to raise deal with only a very small number of those issues.
[44] The first three questions which Toward wishes to raise separately require interpretation of a limitation clause contained in the first share sale agreement. The fourth question is a question of law. Both of Taharoa’s separate questions require interpretation of the first share sale agreement.
[45] Affidavits have been filed by some of the persons primarily responsible for drafting the first share sale agreement, namely Selva Nithan Thirunavukarasu, a lawyer in an Australian firm who, along with others, acted for NZIS, and Michael Dodge, a lawyer from Melbourne who, along with others, acted for BlueScope Steel Ltd and Toward.
[46] Mr Thirunavukarasu says that the parties engaged in negotiations about the first share sale agreement between July and November 2016, and that clause 15 was the subject of specific negotiations in late July and early August 2016. He says that the clause interrelated with the issue of the representations and warranties to be provided by Toward as part of the sale and that, ultimately, as in any negotiation, the commercial and legal terms of the transaction were interrelated. He says that:
Nothing was finally agreed until everything was agreed.
At the trial, he intends to give evidence concerning the negotiations in general, including those specifically in relation to clause 15, and its interaction with the representations and warranties which Toward was prepared to give.
[47] It is Mr Dodge’s evidence that, on 3 August 2016, a version of the first share sale agreement was provided to Toward’s representatives, in which all of Toward’s warranties were removed. As a consequence, the limitations and qualifications clause
– now clause 15 – was redrafted as a “buyer acknowledgements clause”. The buyer claims clause was removed entirely. He notes that these changes were not, however, agreed and that the deleted clauses were reintroduced into the draft agreement on the following day. He says that the only substantive amendments to clause 15 thereafter related to clauses 15.1 to 15.3, largely relating to monetary limits and timeframes, and
the introduction of clause 15.16, headed “no limitations for fraud, etc”. He says that no changes were made during negotiations to the wording of clause 15.5, which contains the consequential loss exclusion at clause 15.5(m). He also says that no changes were made during negotiations to the wording of the definitions of the words “claim” or “buyer claim” contained in the first share sale agreement.
[48] In an affidavit filed in reply, Mr Thirunavukarasu says that Mr Dodge was not a party to all of the discussions. He accepts that at one stage a draft of the first share sale agreement was proffered without any vendor warranties and with no buyers claims clause. He says this raised serious issues for NZIS, and that there were two separate meetings and discussions about the terms of the first share sale agreement. He says that he met with other representatives for NZIS, that they discussed the issue at length, and that it was made clear that he and other NZIS representatives would not attend a meeting with Mr Dodge until the clauses were reinstated. He says that, ultimately, Toward agreed to reinstate the seller warranties and buyers claims clause, including clause 15.5(m). He says that once it was agreed that the seller warranties and the buyers claims clauses would be reinstated, negotiations continued in the following weeks focusing on the cap on the buyers claims clause, which appears in clause 15.1 of the first share sale agreement.
[49] I do not consider that there is any significant factual dispute between Mr Thirunavukarasu and Mr Dodge. Indeed, Mr O’Brien, who advanced this part of the case for NZIS, accepted that on all central points the witnesses are largely in agreement.
[50] A more important issue in considering the applications is the extent to which evidence will likely be required of the factual matrix leading up to the parties entering into the first share sale agreement.
[51] Traditionally, the Courts in New Zealand applied the “plain meaning” rule – if the words of the contract were plain and unambiguous as they stood, they were treated as speaking for themselves and evidence of context was not admitted to show that the parties intended something different. More recently, the Courts have become more willing to receive evidence of surrounding circumstances for the purpose of
interpreting written contracts. Such evidence can sometimes have the effect that what prima facie seems the most obvious meaning of the words used, is displaced by a secondary, less obvious meaning. The Courts have held that evidence of the context in which a contract was entered into can be admitted, because it is always possible that what appears to be the plain meaning of the document may, on further examination, turn out not to be.17
[52] This more modern approach was best articulated by Lord Hoffmann in Investors Compensation Scheme Ltd v West Bromwich Building Society.18 He said as follows:19
… I do not think that the fundamental change which has overtaken this branch of the law … is always sufficiently appreciated. The result has been, subject to one important exception, to assimilate the way in which such documents are interpreted by judges to the common sense principles by which any serious utterance would be interpreted in ordinary life. Almost all the old intellectual baggage of “legal” interpretation has been discarded. The principles may be summarised as follows:
(1)Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.
(2)The background was famously referred to by Lord Wilberforce as the “matrix of fact,” but this phrase is, if anything, an understated description of what the background may include. Subject to the requirement that it should have been reasonably available to the parties and to the exception to be mentioned next, it includes absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man.
(3)The law excludes from the admissible background the previous negotiations of the parties and their declarations of subjective intent. They are admissible only in an action for rectification. The law makes this distinction for reasons of practical policy and, in this respect only, legal interpretation differs from the way we would interpret utterances in ordinary life …
(4)The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using
17 See generally Jeremy Finn, Stephen Todd and Matthew Barber Burrows, Finn and Todd on the Law of Contract in New Zealand (6th ed, LexisNexis, Wellington, 2018) at [6.3.1].
18 Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 (HL).
19 At 912.
those words against the relevant background would reasonably have been understood to mean. The background may not merely enable the reasonable man to choose between the possible meanings of words which are ambiguous but even (as occasionally happens in ordinary life) to conclude that the parties must, for whatever reason, have used the wrong words or syntax …
(5)The “rule” that words should be given their “natural and ordinary meaning” reflects the common sense proposition that we do not easily accept that people have made linguistic mistakes, particularly in formal documents. On the other hand, if one would nevertheless conclude from the background that something must have gone wrong with the language, the law does not require judges to attribute to the parties an intention which they plainly could not have had …
(Citations omitted)
[53] This statement of the law was adopted in New Zealand in Boat Park Ltd v Hutchinson.20 It has been relied on in numerous contractual interpretation cases since. Recently, in Firm PI 1 Ltd v Zurich Australian Insurance Ltd,21 the Supreme Court declined to reconsider the principles of contractual interpretation, and referred again to Lord Hoffmann’s approach as representing the position in New Zealand.
[54] It follows that the exercise of interpreting a contractual provision involves identifying what the parties meant through the eyes of a reasonable reader. That meaning is most likely to be gleaned from the language used,22 but the Courts will also look at the contract as a whole and in context, because the words used by the parties must be set in that context. The Courts are prepared to look at the factual matrix, even if the words of the contract seem clear at first sight.23 The context of an agreement will usually operate as a cross-check, but the plain meaning of a provision is provisional, and is always susceptible to being altered by context.24 Pre-contractual negotiations, if they shed an objective light on meaning, can be relevant and admissible, but not if they are simply evidence of subjective intention.25
20 Boat Park Ltd v Hutchinson [1999] 2 NZLR 74 (CA) at 81-82.
21 Firm PI 1 Ltd v Zurich Australian Insurance Ltd [2014] NZSC 147, [2015] 1 NZLR 432 at [60].
22 Arnold v Britton [2015] UKSC 36, [2015] AC 1619 at [17].
23 Vector Gas Ltd v Bay of Plenty Energy Ltd [2010] NZSC 5, [2010] 2 NZLR 444 at [4] per Blanchard J, at [22] per Tipping J, at [64] per McGrath J.
24 At [24] per Tipping J.
25 At [20] per Tipping J.
[55] Although Mr Hodder for Toward and Mr Gordon for Taharoa sought to persuade me that the provisions on which they seek to rely are plain on their face, and that little, if any, factual evidence will be required, I cannot, consistent with the relevant authorities, be confident that will be the case. In order to interpret the first share sale agreement, the Court will have to have regard to the evidence of those who were involved in the lead up to the agreement. It will have to look at the factual context in which the first share sale agreement was entered into. It may have to consider the parties’ negotiations. If such evidence was given in a truncated manner at a separate questions hearing, there would be a risk that the Court would not hear all relevant evidence, or properly be able to apply all of the interpretative tools that can be used. The correct interpretation of the buyer claim provisions in clause 15.5(m) falls to be assessed against the factual background known to the parties, and (perhaps) the negotiations and discussions that took place at the time.
[56] Further, I am not satisfied that the interpretation issues which would need to be addressed in an initial hearing, if a separate hearing was directed, would be discrete. There are a lot of other provisions in the first share sale agreement which would still need to be determined at any substantive trial. There is a risk of significant evidential overlap. There are, as a result, potential difficulties with issue estoppels. There is a risk that I, as the allocated Judge, could inadvertently disqualify myself from conducting the subsequent hearing.
[57] I accept that the fourth separate question – see para [19](d) – which Toward wishes to raise involves a pure issue of law, and that little or no evidence is likely to be required to determine it. I raised with Mr Hodder at the hearing what would happen if I agreed that the fourth question could be raised as a separate preliminary question, but not the other three questions. He advised me that the purpose of the application, and the “prize” from Toward’s perspective, is to dispose of the claim for $506,000,800 made by NZIS. He told me that Toward would not proceed with the separate question proposal if it was only the Financial Markets Conduct Act and Fair Trading Act question which was approved by the Court to be dealt with on a preliminary basis.
[58]In my judgment, demarcation issues count against the applications.
Finality
[59]I now turn to the issue of finality.
[60]It has been noted as follows:26
The fact that the separate question, if answered affirmatively, will not bring the proceedings to an end is not determinative. Rule 10.15 makes that clear on its face. But it is a consideration tending against granting the application. The Courts also need to guard against granting a separate question which absorbs the bulk of the substantive issues for trial, thus turning an interlocutory application into a substantive one.
(Citations omitted)
[61] NZIS submits that answering both sets of proposed separate questions in the affirmative will not obviate the need for a trial. I disagree. If both sets of separate questions were answered affirmatively, I suspect that that would effectively bring the proceedings to an end or, at the least, make them more amenable to settlement. The claim would change from one for $506,000,800 to one for nominal damages, or perhaps damages of no more than $6,000,000, in accordance with a limitation of liability clause contained in the first share sale agreement.
[62] This factor favours the grant of the applications. It is consistent with the purpose of r 10.15 and the High Court Rules generally.
Time savings?
[63]I turn to consider time savings.
[64]In this regard, it has been noted as follows:27
There are two aspects to this enquiry. First, the potential hearing time saved. A mathematical approach is called for. The applicant should be able to demonstrate (by reference to reasoned time estimates) the potential time saved if the question is answered affirmatively. The applicant also needs to address the counterfactual: what total time will be taken if the question is answered negatively? The absence of significant potential time savings will be a consideration against granting an application under Rule 10.15.
26 Haden v Attorney-General, above n 10, at [50](b).
27 At [50](c).
Secondly, any potential delay to final resolution of the whole case, and any associated inefficiencies resulting from splitting trial into two parts. An affirmative answer to the separate question cannot of course be assumed. An important consideration will be how long the gap is likely to be between hearing the separate question and the hearing of the remaining issues. Will final resolution now be later than if everything proceeded at once? Associated inefficiencies may include duplication of preparation for counsel (reacquainting themselves with issues from the earlier trial), and time spent retraversing matters at the second trial. Similarly, duplication of evidence. An interregnum delay (and the need to ‘restart’ counsel) is inefficient and costly. It may result in loss of momentum, increased costs and reduced prospects of settlement.
(Citations omitted)
[65] Toward and Taharoa say that any substantive trial is likely to take four weeks. NZIS does not disagree.
[66] Toward and Taharoa estimate that any separate questions hearing will require a one to two-day hearing. NZIS submits that any separate questions hearing will take four to five days. It clearly envisages calling rather more evidence than either Toward or Taharoa.
[67] If the separate questions are answered in favour of Toward and Taharoa, then it seems to me likely that the proceedings will either come to an end, or will take rather less time than would otherwise be the case.
[68] If the separate questions are answered in favour of NZIS, then the overall hearing of the matter as a whole will take additional time. There could perhaps be some time saving, if the parties determine that evidence at the first hearing does not need to be called again at the second hearing, but this is a possibility only. As I have noted, there would still be very many contractual interpretation questions that would need to be considered at any second hearing. I suspect that any time saving would be limited.
[69] The parameters are between, say, four days and four to five weeks. There is clearly potential for significant time saving.
[70] It is, however, relevant that a substantive trial of some four weeks duration is not likely to be able to be accommodated in the roster until mid-2019 at the earliest.
If a separate questions hearing is ordered, it could perhaps be accommodated in the roster later this year, although if four to five days is required, it is more likely that it will not be able to be accommodated in the roster until February 2019. The end result could be to push the substantive hearing back into 2020.
[71] I am not persuaded that allowing the separate questions applications will necessarily result in any great time saving, unless the separate questions are all answered in favour of Toward and Taharoa. I cannot and do not assume that.
Appeals?
[72] That leads into the next issue – namely appeals. In this regard, it has been noted as follows:28
Multiple appeals are likely to be inefficient. They are likely to delay resolution of proceedings, and enlarge the period between the preliminary hearing and trial of the remaining issues. It may be desirable to make it a condition of granting a Rule 10.15 application that the hearing of appeals be postponed until determination of all issues in the proceeding. Even then, however, parties may still seek to be released from that condition.
(Citations omitted)
[73] The amount of money in dispute in this proceeding is clearly significant. There must be a very real prospect that any one or more of the parties could appeal any decision given on the separate questions or given following the substantive hearing.
[74] If the separate questions are not heard by this Court until later this year or early 2019, it is unlikely that any appeal would be heard by the Court of Appeal until mid to late 2019. If there is an appeal to the Supreme Court, that could well take the matter into 2020. Any appeals would inevitably delay the substantive hearing.
[75]Neither Toward nor Taharoa offered to be bound by a “no appeal” condition.
[76]If the hearing is split, multiple appeals are likely.
28 At [50](d).
[77] This factor counts against allowing the separate questions to be dealt with discretely.
Other considerations
[78] The separate questions applications have been lodged early. They do not raise the issue of whether either Toward or Taharoa has breached obligations under the first share sale agreement. This, however, does not compel the conclusion that they can or should be dealt with discretely.
Result
[79] Having considered all of the principle criteria relevant in this case, I am not persuaded that Toward and Taharoa have established “good, preponderant reasons” in favour of a separate questions hearing.29 To my mind, the single most important factor is the likelihood that substantial evidence would be required for a separate questions hearing, and the resulting demarcation issues. I decline Toward’s and Taharoa’s respective applications.
Non-party discovery
The application
[80] As I have noted, NZIS seeks non-party discovery against TMI, Taharoa C, Melrose, and Mr and Mrs Coffey.
[81] Following amendments to the scope of the application made in the course of the hearing, it now seeks the following:
(a)Any document relating to any communication from 14 November 2016 to 15 December 2016 between Mr Coffey and a BlueScope Steel Ltd or Toward board member, or a senior executive(s) of either, including telephone logs or flight records;
29 Karam v Fairfax New Zealand Ltd, above n 16, at [58](d).
(b)Any document relating to the attempted fulfilment of the mining lease guarantee condition precedent;
(c)Any document on or after 22 December 2016 and up to and including 31 May 2017 relevant to:
(i)the need for and/or impact of any reduction in charter rates or any other change to the NYK agreements and/or NYK’s likely response to a request for such a reduction or request;
(ii)any proposed expansion of the mine;
(iii)the release of the mining lease guarantee; or
(iv)the costs of and arrangements in relation to remediation upon cessation of mining activities (including the existing environmental bond).
(d)To the extent not covered above, all communications involving two or more of:
(i)Taharoa C;
(ii)Mr Coffey; or
(iii)TMI
in relation to any plans for or interest in the possible sale or acquisition or ownership or potential ownership of the mine or Steel Mining (Taharoa) or in the mine or the Steel Mining’s (Taharoa’s) shares by interests associated with Taharoa C in the period 1 June 2016 to 31 May 2017 (in relation to why Taharoa C interests might be preferred, the NYK agreements or charter rates, any mine expansion or the mining lease guarantee or remediation upon cessation of mining activities (including the existing environmental bond)).
Relevant law
[82] The application is governed by r 8.21 of the High Court Rules, which relevantly provides as follows:
8.21Order for particular discovery against non-party after proceeding commenced
(1)This rule applies if it appears to a Judge that a person who is not a party to a proceeding may be or may have been in the control of 1 or more documents or a group of documents that the person would have had to discover if the person were a party to the proceeding.
(2)The Judge may, on application, order the person—
(a)to file an affidavit stating—
(i)whether the documents are or have been in the person’s control; and
(ii)if the documents have been but are no longer in the person’s control, the person’s best knowledge and belief as to when the documents ceased to be in the person’s control and who now has control of them; and
(b)to serve the affidavit on a party or parties specified in the order; and
(c)if the documents are in the control of the person, to make those documents available for inspection, in accordance with rule 8.27, to the party or parties specified in the order.
…
[83] In Vector Gas Contracts Ltd v Contact Energy Ltd, Kós J summarised the principles relevant to such applications as follows:30
[28] First, it will be seen that the power to make an order under r 8.21 is discretionary. In this it contrasts with r 8.5(1) — the ordinary party discovery provision — where a Judge must make an order unless formal discovery is unnecessary.
[29] Secondly, in determining an application for non-party discovery order, the Court should have regard to the test under r 8.7 for standard discovery —
i.e. the adverse documents regime. But, as Judge Osborne observed in Westpac New Zealand Ltd v Adams, the former Peruvian Guano approach may still inform a non-party discovery order in some instances. To that extent the “train of inquiry” approach, broader than the adverse documents regime, remains
30 Vector Gas Contracts Ltd v Contact Energy Ltd [2014] NZHC 3171, [2015] 2 NZLR 670. See also Taylor v Asteron Life [2017] NZHC 871 at [104](1)-(4).
relevant. However excursions on the train of inquiry are not to be encouraged in the case of non-party discovery …
[30] Thirdly, a non-party discovery order must still be necessary. This point flows to an extent from the first two, but particularly the first. Previous decisions of this Court have observed that the former requirement in r 8.26, that an order for particular discovery be “necessary”, no longer exists under r
8.21. Technically, that is correct. But it is I think a distinction without a difference, in practice. It is simply a consequence of the 2011 changes to the discovery provisions in the High Court Rules, which made party discovery presumptive. That is not the case with non-party discovery, as the opening words of r 8.21(2) make clear. Such discovery remains discretionary. As Mr Cooper (who carried the burden of the argument for the applicants) candidly accepted, no Court will make a non-party discovery order that is unnecessary. In my view it remains implicit in r 8.21 that the non-party discovery order be necessary, so that the discretion should be exercised. That is to say, without limitation, other sources of evidence are unlikely to be sufficient because they are materially incomplete or unreliable. And that the documents sought may make a real difference, and are not merely marginal.
[31] Fourthly, there is the vexed question of confidentiality. It is clear that s 69 of the Evidence Act 2006 applies to party and non-party discovery. It provides an explicit basis to impose restrictions on disclosure of confidential information, in a discovery context. But it does so only where an identifiable public, rather than private, interest in protection exists.
(Citations omitted)
Submissions
[84]Mr Colson ran this part of the argument for NZIS. He argued that:
(a)the documents sought are relevant to three of NZIS’s five causes of action. First, NZIS asserts that Toward failed to discharge its good faith and reasonable endeavours obligation under the first share sale agreement in relation to the mining lease condition precedent; secondly, NZIS asserts that Toward engaged in misleading and deceptive conduct by failing to keep NZIS informed of all discussions and negotiations with Taharoa C; thirdly, NZIS submits that Toward made misleading and deceptive representations to NZIS that it was the preferred bidder in the second sales process, when that was not the case and Taharoa C was the preferred bidder;
(b)all three of these causes of action plead the same loss – that by virtue of the pleaded breaches, NZIS was not able to acquire Taharoa’s shares.
Mr Colson argued that the prospects of the conditions precedent being satisfied in the absence of a breach will be a key issue in the proceeding, and that the documents sought should help identify the timing and progression of the attempts by the parties to satisfy the conditions precedent;
(c)the documents sought should help identify the extent of Toward’s knowledge of the intentions of Taharoa. He put it to me that this is relevant in assessing Toward’s conduct and statements made by Toward to NZIS during the conditions precedent period, and in the lead up to the second share sale agreement. He argued the documents will allow the Court to make an assessment of the prospects of the conditions precedent being satisfied, if the defendants had not – as alleged by NZIS – breached their obligations as pleaded; and
(d)all of these issues are relevant to and raised by the pleadings, and that the documents sought are not simply a fishing expedition. He put it to me that non-party discovery is necessary, because some of the documents will not be under the control of Toward, and that it is likely that those documents could make a significant difference to NZIS’s claim.
[85] Mr Gordon, acting for the non-parties, accepted that the non-parties will hold documents that are relevant in a general sense, because they have communicated directly with parties to the litigation, but he argued that:
(a)the application is simply a fishing expedition, being pursued for a collateral purpose;
(b)the non-party discovery sought is not relevant to the matters that are actually in issue on NZIS’s pleaded case;
(c)NZIS has proceeded on the basis that it is only the first, fourth and fifth causes of action that are relevant to this application. Those pleadings
concern Toward’s conduct in relation to the satisfaction of the conditions precedent in the first share sale agreement, and its representations to NZIS. He argued that the non-parties cannot, exclusively of Toward, hold documents that are relevant to these issues, and that communications as between the non-parties themselves and/or internally within a non-party can have no bearing on Toward’s conduct, much less what it may have said to NZIS concerning the same. He referred to the relevant affidavit evidence; and
(d)non-party discovery cannot, at present, be said to be necessary.
Analysis
[86]I am not persuaded that non-party discovery is yet necessary.
[87] The first, fourth and fifth causes of action as presently pleaded are concerned with Toward’s conduct, and not with the conduct of the non-parties. There is no claim that any non-party intervened in the contractual obligations assumed by the parties in the first share sale agreement to satisfy the conditions precedent set out in that agreement. The parties will be discovering documents they received from Taharoa C (and NYK) about any attempted negotiations. As pleaded, this is not a case about what may or may not have been sitting behind the non-parties’ written communications to NZIS, Toward and Taharoa. Absent any claim that the non-parties somehow intervened in the process, documents held by non-parties as to what they thought at the relevant time about any approaches made to them have no obvious relevance to the claims that NZIS is pursuing.
[88] I cannot see, at this stage, that it is necessary for NZIS to have non-party discovery in order to get relevant documents which should already be held by the parties to the proceedings who have agreed to a tailored discovery process. In my judgment, it is simply wasteful and duplicative for the non-parties to be ordered to provide discovery material that is already likely to be discovered in any event.
[89]It is also arguable that the claim has been brought for a collateral purpose.
[90] The second share sale agreement was entered into in March 2017. Shortly thereafter, NZIS’s lawyers sent a letter before action to BlueScope Steel Ltd and Toward. In that letter, NZIS sought to compel Toward to settle a sale of the shares in Taharoa to it, notwithstanding that the first share sale agreement had been cancelled some three months earlier.
[91] At much the same time, NZIS wrote to the non-parties, detailing a damages claim it asserted it could bring against them as well. While NZIS’s claims were roundly rejected by the non-parties, NZIS stuck to its assertion that the non-parties – or at least some of them – had misused confidential information, which it was said had been “unconscionably derived” through various breaches.
[92] The inference is open that the application for non-party discovery is made for a collateral purpose – namely to glean information to support the threatened damages claim against the non-parties. If that is the case, then it is clearly “fishing”,31 and this is not a proper use of the r 8.21 process.
[93] I also agree with Mr Gordon that it is noteworthy that NZIS has not offered to meet the non-parties’ costs in attending to discovery, and notwithstanding that it seeks to involve them in proceedings which do not directly concern them.32
[94] I accept that it may later transpire that non-party discovery is required. That will depend on what is discovered by the parties to the litigation. If something discovered opens up a train of inquiry which requires non-party discovery, it will be open to NZIS to then make application. To my mind, its present application is premature.
[95] I am not satisfied that, to date, the requirements for the Court to make an order under r 8.21 have been satisfied. NZIS’s application is declined.
31 Australian Mutual Provident Society v Architectural Windows Ltd [1986] 2 NZLR 190 (HC) at 196.
32 Clear Communications Ltd v Telecom Corp of New Zealand Ltd (1994) 8 PRNZ 200 (HC) at 202.
Costs
[96] NZIS is entitled to its reasonable costs and disbursements on the separate questions applications brought by Toward and Taharoa.
[97] The non-parties are entitled to their reasonable costs and disbursements against NZIS in relation to the non-party discovery application.
[98] It is my preliminary view that costs should be assessed on a 2B basis with allowance for one counsel only for each party, and for the non-parties. If the parties and the non-parties accept that view, then they should be able to calculate the resulting costs liabilities.
[99] If the parties/non-parties do not accept that view, or if there are any other areas of disagreement, then I direct as follows:
(a)any memorandum seeking costs/disbursements is to be filed within 10 working days of the date of release of this judgment;
(b)any memorandum in reply is to be filed within a further 10 working days; and
(c)memoranda are not to exceed five pages.
I will then deal with the issue of costs on the papers unless I require the assistance of counsel.
Further timetable directions
[100]The parties sought timetable directions, to progress the litigation.
[101] I have read the memoranda filed by counsel. There was a measure of agreement. I make directions as follows:
(a)there is an order for tailored discovery, incorporating the listing and exchange protocol set out in pt 2 of sch 9 of the High Court Rules, as
set out in Appendix 1 to this judgment. Discovery and inspection is to be completed by 5 October 2018;
(b)any interlocutory applications arising out of discovery or otherwise are to be filed and served by 9 November 2018;
(c)a case management conference is to be allocated at the first available date after 9 November 2018 to review progress, and make timetable directions for the hearing of any interlocutory application(s) filed;
(d)the close of pleadings date is to be 23 weeks before the date allocated for the commencement of the trial;
(e)the plaintiff’s briefs of evidence and its nominations for the common bundle are to be served not less than 22 weeks before trial;
(f)the defendants’ briefs of evidence and their nominations for the common bundle are to be served not less than 11 weeks before trial;
(g)the plaintiff’s briefs of evidence in reply are to be served not less than six weeks before trial;
(h)the plaintiff is to file and serve the common bundle not less than four weeks before trial, and its opening submissions and chronology not less than one week before trial; and
(i)the Registrar is to allocate a four-week fixture in the second half of 2019, in consultation with counsel.
Wylie J
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