O'Brien v Parkinson

[2021] NZHC 3161

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2019-404-002814

[2021] NZHC 3161

UNDER

Companies Act 1993

BETWEEN

LOUISA JANE O’BRIEN on behalf of GENERAL DYNAMICS CORPORATION LIMITED

First Plaintiff

LOUISA JANE O’BRIEN
Second Plaintiff

AND

KEVIN PARKINSON

First Defendant

KEVIN PARKINSON as trustee of KEVIN PARKINSON FAMILY TRUST
Second Defendant

ANNA VALERIENA KEDRINSKAIA and LISTON TRUSTEE SERVICES LIMITED

Third Defendants

Hearing:

30 August 2021

Further submissions received: 1 and 20 October 2021

Appearances:

J M McCartney for Plaintiffs (2814) and First Defendant (2351) S Morris for Defendants (2814) and Plaintiff (2351)

Judgment:

24 November 2021

JUDGMENT OF ASSOCIATE JUDGE P J ANDREW

[Disallowing claim of privilege and application for further discovery by Mr Parkinson

O’BRIEN v PARKINSON & ORS [2021] NZHC 3161 [24 November 2021]

CIV-2020-404-002351

UNDER

The Property (Relationships) Act 1976

BETWEEN

KEVIN JAMES PARKINSON

Plaintiff

AND

LOUISA JANE O’BRIEN

First Defendant

GENERAL DYNAMICS LIMITED
Second Defendant

KEA GNSS LIMITED
Third Defendant

KEVIN JAMES PARKINSON as trustee of the KEVIN PARKINSON FAMILY TRUST

Fourth Defendant

LOUISA JANE O’BRIEN as trustee of the LOUISA PARKINSON FAMILY TRUST

Fifth Defendant

ANNA VALERIENA KEDRINSKAIA and LISTON TRUSTEE SERVICES LIMITED

as trustees of the ANNA KEDRINSKAIA TRUST

Sixth Defendants

This judgment was delivered by Associate Judge Andrew on 24 November 2021 at 3.00 pm

pursuant to r 11.5 of the High Court Rules Registrar / Deputy Registrar

Date…………………….

Introduction

[1]    These are relationship property proceedings between Louisa O’Brien and Kevin Parkinson, who separated in 2013. Ms O’Brien applies for orders setting aside Mr Parkinson’s claim to solicitor–client privilege over certain documents pursuant to s 67 of the Evidence Act 2006.1 She contends that the communications and documents at issue were prepared for a dishonest purpose.

[2]    Ms  O’Brien’s  complaint  is  that  Mr  Parkinson  and  his  new  partner,    Ms Kedrinskaia, and the Anna Kedrinskaia Trust,2 deliberately concealed relationship property dispositions of $90,000 to 21 Heuchan Lane, Wānaka3 (comprising $30,000 paid as an initial deposit, and $60,000 drawn out from the successor company of GDC in the mortgage payments). Ms O’Brien further says that she and GDC were deliberately deceived as to the true position over the application of property and profits and that Mr Parkinson concealed the true beneficial ownership of the Property.

[3]    In my minute of 13 September 2021, I ordered Mr Parkinson and the trustees of the AKT4 to provide the contested documents to the Court for inspection.5

[4]    Having now inspected the documents, this judgment contains my decision on whether I should disallow Mr Parkinson’s claim of privilege over them. The critical issues are whether Ms O’Brien has established a prima facie case of dishonest purpose and whether the communications and documents at issue were prepared as part of the instrumentation of the alleged dishonest purpose.

[5]    Separately, Mr Parkinson applies for orders for particular discovery against Ms O’Brien.6 This judgment also contains my decision on that application.

1      The Act.

2      The AKT.

3      The Property.

4      The AKT Trustees.

5      Pursuant to r 8.25(2) of the High Court Rules 2016.

6      Under r 8.19 of the High Court Rules.

Background facts

[6]    A more comprehensive factual background is contained in my judgment of 14 July 2020, granting Ms O’Brien’s application to bring a shareholder derivative action on behalf of GDC against Mr Parkinson, both in his personal capacity and his capacity as a trustee.7

[7]    In short, Ms O’Brien and Mr Parkinson commenced their relationship in 1984. They were married in 1994 and, as noted, separated in 2013. GDC was incorporated in about 1981. Ms O’Brien and Mr Parkinson are GDC’s directors, and together with their family trusts, own all the shares in it. The nature of GDC’s business is at issue between the parties. Ms Parkinson says that it was an electronic engineering company whose role was predominantly to  provide  contractual  professional  engineering.  Ms O’Brien says that GDC was involved in the design, development, manufacture and supply of electronic systems.

[8]    On 28 November 2013, Mr Parkinson entered into an agreement for sale and purchase to buy a property at 21 Heuchan Lane, Wānaka. The purchase price was

$525,000. Mr Parkinson initially signed the agreement for sale and purchase in his name, but on 29 April 2014 signed a deed of nomination assigning the benefit and obligations of the agreement to the AKT Trustees, who are the current registered proprietors.

[9]    In the shareholder derivative proceeding Ms O’Brien alleges, in the related first and second causes of action, breach of fiduciary duty by Mr Parkinson and breach of s 131 of the Companies Act, contending that Mr Parkinson diverted property, profits and opportunity of GDC for his benefit or for the benefit of interests associated with him.

[10]   In the third and fifth causes of action, Ms O’Brien alleges dishonest assistance and resulting trust. Under those heads, Ms O’Brien alleges Ms Kedrinskaia participated in Mr Parkinson’s alleged fiduciary breaches and that the Property was

7      O’Brien v Parkinson [2021] NZHC 1681 [Derivative action judgment]. Mr Parkinson subsequently appealed against that decision, which the Court of Appeal dismissed: see Parkinson v O’Brien [2021] NZCA 309 [Court of Appeal judgment].

transferred to the AKT in furtherance  of  concealing  those  breaches,  as  well  as Mr Parkinson’s interest in the Property and the purchase funds’ source. Ms O’Brien seeks orders requiring the AKT Trustees to transfer the Property into GDC’s name.

[11]In the relationship property proceedings, Ms O’Brien seeks:

(a)to trace what she says is the relationship property, business and profits that originated in GDC to the accounts operated by and/or for the benefit of Mr Parkinson and Ms Kedrinskaia (whether in her personal trustee capacity, and including the Property);

(b)to trace all of the profits generated following the purchase of the property and whether by GDC, or any other successor company;

(c)declarations that she holds interests in the Property based on contribution to the purchase price and/or the reduction of the mortgage; and, on that basis, orders transferring and restoring the Property to herself; and

(d)orders setting aside a number of dispositions under s 44 of the Property (Relationships) Act 1976, including the transfer of the Property to the AKT Trustees and the deed of nomination (with the result that the property reverts to Mr Parkinson).

Ms O’Brien’s application under s 67 of the Evidence Act

Legal principles

[12]Rule 8.25 of the High Court Rules provides:

Challenge to privilege or confidentiality claim

(1)        If a party challenges a claim to privilege or confidentiality made in an affidavit of documents, the party may apply to the court for an order setting aside or modifying the claim.

(2)        In considering the application, a Judge may require the document under review to be produced to the Judge and may inspect it for the purpose of deciding the validity of the claim.

(3)The Judge may –

(a)set aside the claim to privilege or confidentiality; or

(b)modify the claim to privilege or confidentiality; or

(c)dismiss the application; or

(d)make any other order with respect to the document under review that the Judge thinks just.

[13]   Ms O’Brien’s challenge is based on s 67(1) of the Evidence Act, which provides:

Powers of Judge to disallow privilege

(1) A Judge must disallow a claim of privilege conferred by any of sections 54 to 59 and 64 in respect of a communication or information if satisfied there is a prima facie case that the communication was made or received, or the information was compiled or prepared, for a dishonest purpose or to enable or aid anyone to commit or plan to commit what the person claiming the privilege knew, or reasonably should have known, to be an offence.

[14]   The Act makes no attempt to define a “dishonest purpose”. However, as noted in Mahoney on Evidence,8 the approach of the English common law judgment of Crescent Farm (Sidcup) Sports Ltd v Sterling Offices Ltd has continued to be influential.9 In that case Goff J held that privilege will not be lost merely because the purpose amounts to a civil wrong. Dishonesty must be present, although this will include “all forms of fraud and dishonesty, such as fraudulent breach of trust, fraudulent conspiracy, trickery and sham contrivances”.

[15]   Associate Judge Lester in Spackman v Martin,10 adopted the following passage from Cross on Evidence:11

Removal of the privilege under the “dishonest purpose” limb of s 67(1) requires dishonesty, in the sense of an intention to deceive, or to commit “sharp practice” by intentionally taking advantage of a misapprehension.

8      Mahoney on Evidence Act and Analysis Thomson Reuters 2018 (eds Macdonald & Optican).

9      Crescent Farm (Sidcup) Sports Ltd v Sterling Offices Ltd [1972] Ch 533 (Ch).

10     Spackman v Martin [2021] NZHC 157 at [41].

11     Matthew Downs (ed) Cross on Evidence (online ed Thomson Reuters) at [EVA67.3].

Analysis

[16]   My decision to inspect the contested documents does not necessarily mean that a prima facie case of dishonest purpose has been made out pursuant to s 67(1), as  Ms McCartney suggested in her submissions.12 As noted, r 8.25(2) simply provides that a Judge may require documents to be produced for inspection for the purpose of assessing the validity of any claim. Likewise, it does not follow from the Court of Appeal’s finding in its decision dismissing Mr Parkinson’s appeal there is a prima facie case of dishonest participation by the AKT Trustees that the threshold of dishonest purpose under s 67(1) has been made out in the context of this application. I must assess the contents of the particular, contested communications before me to determine if they meet the threshold in s 67(1) of the Act and, accordingly, whether I should disallow Mr Parkinson’s claim to privilege over them.

[17]   The circumstances relating to the purchase of the Property in 2013 – the same year that Mr Parkinson and Ms O’Brien separated – are very much at issue; in particular  the  circumstances,  as  noted,  of  the  deed  of  nomination.  Whether   Mr Parkinson has any beneficial interest in the property is also a significant trial issue.

[18]   In  the  multiple  interlocutory  applications  to  date,  Mr  Parkinson  and   Ms Kedrinskaia have given evidence that at all times the Property was owned by   Ms Kedrinskaia and the AKT Trustees and Mr Parkinson was never intended to, and never did, have a beneficial interest in it. Ms O’Brien’s application for leave to bring the derivative shareholder action was defended  on that basis.  Mr Parkinson and   Ms Kedrinskaia say that their account is consistent with the deed of nomination of  29 April 2014 and by the registration of the AKT Trustees as the proprietors.

[19]   Ms O’Brien challenges those claims. She contends that it is clear from the following documents that Mr Parkinson does, and always intended to, have a beneficial interest in the Property:

12     Seamer Holdings Ltd v Kupe Group Ltd [1995] 2 NZLR 274, (1995) 8 PRNZ 247, in which the Court of Appeal held that a prima facie case of fraud is not required to justify inspection.

(a)The resolution of the AKT Trustees dated 29 April 2014. That resolution records:

2.The purpose of the transaction is for the trust to purchase and hold the property as a bare trustee for Anna Valerievna Kedrinskaia and Kevin Parkinson

(b)Two deeds of record, the background of which Ms O’Brien says “purports” to reflect the version of Mr Parkinson and Ms Kedrinskaia as to the purchase of the property and the balance of which seeks to contradict the bare trust arrangement and set out references to conduct as examples that the parties did not consider the bare trust arrangements were in place.

(c)The statements for two bank accounts in the name of Ms Kedrinskaia (and all undiscovered until at least October 2020) and all showing receipt of income of GDC’s business and payments out of the same to reduce the borrowings secured against the Property.

[20]   The detailed explanations given by Mr Parkinson and Ms Kedrinskaia, including the contention that the AKT Trustees’ resolution was never acted upon, are trial issues. However, at this interim stage, I conclude that Ms O’Brien has established a prima facie case of a dishonest purpose for the purposes of s 67(1). I am satisfied the contested documents in [19](a) – (c) support Ms O’Brien’s contentions that     Mr Parkinson and Ms Kedrinskaia concealed relationship property dispositions and/or the application of property and profits of GDC. I find there is a prima facie case that Mr Parkinson intended to defeat Ms O’Brien’s interests. It is not a simple case of mere civil wrong. Rather, it is one of a prima facie case of sham contrivances and more than just a passive intent to deceive.13

[21]   In support of this conclusion I refer to the Court of Appeal’s judgment dismissing Mr Parkinson’s appeal against my judgment of 14 July  2020 granting  Ms O’Brien leave to bring a shareholder derivative action application.14 In respect of

13     Rollex Group, above n 17, at [48].

14     Court of Appeal judgment, above n 7.

my conclusion Ms O’Brien could establish a reasonably arguable claim of dishonest assistance, the Court held, relevantly:

[74] We are not persuaded that that conclusion was erroneous. Indeed, we consider that it gains some support from the additional documentation which the respondents have been granted leave to adduce. In that regard Ms McCartney submitted that when all the bank statement entries are taken into account, there was no repayment of the claimed advance but instead an ongoing funnelling of the profits of GDL through to the joint account of Mr Parkinson and Ms Kedrinskaia. She also submitted on the basis of the additional bank statements adduced in evidence that there were numerous entries that showed funds from the business entities carrying on the diverted GDC business being paid for the property mortgage account.

…

[77] On the face of it at least, the material which was before the High Court together with the additional material submitted on appeal provides support for the submission that overall the contemporaneous documents provide a significant challenge to the affidavit evidence of Mr Parkinson and Ms Kedrinskaia that Mr Parkinson did not contribute to the property purchase price.

[22]   I turn, then, to consider whether the contested documents were made or received or prepared as part of an instrumentation of the dishonest purpose. As Kós J (as he then was) held in Rollex Group, in respect of solicitor/ client privilege:15

Only exceptionally, where the right of access is abused so as to assist in an act of dishonesty, will the privilege be set aside. A client’s confession to his or her lawyer of past offending, for instance, would not qualify. Nor, normally, will a client seeking legal advice as to the boundaries of legitimacy in relation to future conduct be unprotected.

[23]   On that basis, I accept it would have been entirely legitimate for Mr Parkinson and Ms Kedrinskaia to, for example, have sought advice from their solicitors in relation to ownership options for the Property, including seeking advice about the impact of Mr Parkinson’s separation.

[24]   In their written submissions the parties have addressed the question of whether the dishonesty needs to involve the solicitors. I reject Ms Morris’s contention, for  Mr Parkinson, that there needs to be some “connivance” of the solicitors involved.

15     Rollex Group, above n 17, at [35] (emphasis in original).

The lawyer need not be a witting participant.16 I do not interpret the judgment of Kós J held in Rollex Group as suggesting otherwise.17

[25]   I agree with Ms McCartney’s submission, for Ms O’Brien, that any communication or document that reflects an ongoing intention by Mr Parkinson to have an interest in the Property as part of the instrumentation of the dishonest purpose, should be disclosed to Ms O’Brien. I also agree that any agreement, including a relationship property agreement that relates to any interest by Mr Parkinson in the Property, can be said to be part of the instrumentation. It is not decisive whether or not the dishonest purpose was able to be realised.

[26]   I find that only four documents can properly be construed as “part of the instrumentation of”18 the dishonest purpose. None of the documents on the Snedden & Associates solicitors’ file fall into that category, including the Snedden & Associates’ timesheet. It is only the following documents on the Barter & Co files that can be linked in any meaningful way with the prima facie dishonest purpose:

(a)First, an unsigned agreement for the sale and purchase of the Property in the names of “Kevin Parkinson” and “Anna Parkinson” as purchaser;

(b)Second, a signed agreement for sale and purchase of the Property dated 28 November 2013, with the purchaser described as “Kevin Parkinson” and the name “Anna Parkinson” crossed out;

(c)Third, an unsigned property sharing agreement of April 2014 between Anna Kedrinskaia and Kevin Parkinson (containing four clauses). That document expressly states that “Anna and Kevin” have agreed to purchase the Property upon the basis that the Anna Kedrinskaia Family Trust completes the purchase as trustee for them as beneficiaries in their respective shares as provided for in the deed; and

16     Icepack Group Ltd v QBE Insurance (International) Ltd, above n 14, at [45].

17     Rollex Group, above n 17, at [45].

18     Rollex Group, above n 17, at [45].

(d)Fourth, an email from Mr Parkinson to Wendy Deleaveau of 14 April 2014 in relation to the Property (and including an attached spreadsheet showing transactions made “to date” for the Property). That email expressly states that, in relation to the Property, “[a]s explained, a family friend is helping out with keeping mine and Richard’s names off the title of the property in the interim. We have other business dealings and arrangements with her ...”.

[27]   Each of these documents has a clear link to the critical issues of whether     Mr Parkinson intended to obtain to have a beneficial interest in the Property, and whether he was dishonestly concealing relationship property or GDC’s funds in the Property that Ms O’Brien is entitled to trace. Mr Parkinson may have an innocent explanation for the instruction to Ms Deleaveau at Barter & Co to keep his and his son Richard’s names off the title of the Property, but that is a trial issue. Prima facie, the threshold under s 67 of the Act is met.

[28]   Accordingly, I grant Ms O’Brien’s application to set aside privilege but only in relation to the four documents identified at [26](a) – (d) above.

Mr Parkinson’s application for further and better discovery against Ms O’Brien

[29]   I need only deal very briefly with this application. In substance, there is little merit to it and, in any event, following Ms O’Brien’s further affidavit of documents of 13 August 2021 and a number of concessions made by her at the hearing, there is nothing left for me to resolve.

[30]   I agree with Ms McCartney’s submission that Mr Parkinson has made this further discovery application very late in the proceedings and in breach of timetable directions I have previously made. In my minute of 30 November 2020, I directed that all outstanding  interlocutory  applications  were  to  be  filed  and  served  by  12 February 2021. This current application was not made until 30 July 2021. I also note that Ms O’Brien originally filed an affidavit of assets and liabilities in the Family Court, sworn 20 October 2017, in which she stated that the parties had agreed as to the division of family chattels. Mr Parkinson has failed to provide any adequate

explanation as to why discovery issues relating to family chattels have not been addressed on a much earlier occasion.

[31]   Ms O’Brien accepts, properly in my view, that the agreement for sale and purchase of her Rimutaka property should have been included in her affidavit of documents of 22 October 2020. That omission, as I understand it, has now been rectified and the document provided to Mr Parkinson, as it should have been.

[32]I record Ms O’Brien’s agreement to provide Mr Parkinson with the following:

(a)An  estate  distribution  statement  in  relation   to   the   gift   from  Ms O’Brien’s mother; and

(b)Ms O’Brien’s personal income tax returns from 2018 to the present.

[33]   In the circumstances it is not necessary for me to make any orders in relation to the discovery application.

Result

[34]   I grant Ms O’Brien’s application for orders setting aside privilege, but only in relation to the four documents identified at [27](a) – (e) above.

[35]   As to costs, I find that there should be no order as to costs. Both parties have had a measure of success and in my view the appropriate outcome is that costs are to lie where they fall.

Associate Judge P J Andrew