O'Neil v Beattie
[2020] NZHC 2842
•30 October 2020
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE
CIV-2019-409-339
[2020] NZHC 2842
BETWEEN ANDREW JAMES O’NEIL
First Plaintiff
AND
MOBY TRUSTEES LIMITED, as trustee of the Moby Dick Trust
Second Plaintiff
AND
ANDREW ROSS BEATTIE and LOUIS PETRUS DIRKZWAGER
Defendants
Hearing: 12 October 2020 Appearances:
M J Wallace for the Plaintiffs P J Shamy for the Defendants
Judgment:
30 October 2020
INTERIM JUDGMENT OF ASSOCIATE JUDGE LESTER
This interim judgment was delivered by me on 30 October 2020 at 10.30 am pursuant to Rule 11.5 of the High Court Rules
Registrar/Deputy Registrar 30 October 2020
O’NEIL v BEATTIE [2020] NZHC 2842 [30 October 2020]
[1] The parties entered a joint venture in late 2013 to develop bare land into commercial units. It is common ground that the joint venture came to an end at the end of 2017. At the heart of this proceeding is the question of whose breach led to the joint venture coming to an end.
[2] The defendants apply for further discovery from the plaintiffs in respect of five categories of documents. It will be necessary to address each category, but as is often the case in such applications, discussions during the hearing led to a refinement of some of the categories.
What is in issue?
[3] It is common ground that a joint venture between the first plaintiff and the defendants was entered in late 2013. In August 2014, the first plaintiff contributed his required funds sourced from the second plaintiff and he thereafter made monthly payments to the joint venture, also sourced from the second plaintiff. It seems reasonably clear the parties intended the joint venture to be undertaken through a company called Hickory Ltd as it was incorporated on 23 April 2015 with the first plaintiff and the defendants being directors and equal shareholders.
[4] The land on which the development was to occur was at Hickory Place in Christchurch owned by Hickory Investments (2013) Ltd, a company associated with the defendants.
[5]The plaintiffs plead at para 9 of the statement of claim:
The parties agreed that the Hickory Development would be completed within Hickory Investments (2013) Limited which owned the land but upon completion of the development Unit numbers 3 to 10 would be transferred to a new company: Hickory Limited.
[6] This pleading is admitted but with the defendants saying the pleading reflects an initial agreement, and although Hickory Ltd was incorporated, the idea of transferring the commercial units to that company was abandoned because of potential tax issues.
[7] The defendants plead the initial agreement was replaced with an agreement that the units would remain in Hickory Investments (2013) Ltd and that the first plaintiff would instead take a one-third shareholding in that company. The defendants say that did not occur as the first plaintiff failed to provide information in a timely manner and more importantly, failed to provide his share of funds that the company’s financier, Bank of New Zealand (BNZ), required of the parties.
The BNZ issue
[8] The defendants bring a counterclaim saying the first plaintiff failed to provide the sum of $524,435 which was required to be introduced by the BNZ to further facilitate the development (the BNZ sum). The pleading is those funds had to be contributed instead by the first-named defendant at a cost to him, which is sought to be recovered. The pleadings at the moment do not detail when the call for the funds was made.
[9]It is common ground that the first plaintiff did not contribute the $524,435.
[10] The first plaintiff accepts, as an equal joint venturer, he agreed to contribute an equal one-third share to development costs of the subdivision and the construction costs of the commercial buildings forming part of the Hickory Development.
[11] As to the BNZ sum, the plaintiffs deny the call for that sum was initiated by the BNZ, and say the impetus for the demand was a decision by the second-named defendant choosing to transfer one of the joint venture properties out of the joint venture. Accordingly, the plaintiffs say the BNZ sum was not required for the development costs of the subdivision or the construction of the commercial buildings for the Hickory Development, but was a result of the second-named defendant altering the BNZ’s security position by transferring out of Hickory Investments (2013) Ltd one of the properties tagged for the joint venture.
[12] The plaintiffs say the transfer of the joint venture property was a breach of the joint venture agreement and the defendants cannot rely on the consequences of their own breach (the demand for the BNZ sum) to justify excluding the first plaintiff from the joint venture.
[13] Whether the first plaintiff was in breach in not meeting a warranted call for the BNZ sum or whether the call was a consequence of the first-named defendant’s breach of the joint venture agreement is at the heart of this proceeding.
Discovery principles
[14] While counsel in written submissions took slightly different approaches to the principles to be applied, both referred to Assa Abloy New Zealand Ltd v Allegion (New Zealand) Ltd, where a four stage test was described:1
(a)Are the documents sought relevant, and if so how important will they be?
(b)Are there grounds for belief that the documents sought exist? This will often be a matter of inference. How strong is that evidence?
(c)Is discovery proportionate, assessing proportionality in accordance with Part 1 of the Discovery Checklist in the High Court Rules?
(d)Weighing and balancing these matters, in the Court’s discretion applying r 8.19, is an order appropriate?
Categories of discovery sought
Category 1 – second plaintiff’s documents relevant to the Hickory Development
[15] The second plaintiff is the trustee of the Moby Dick Trust (the Trust). The defendants seek “[a]ll trust documentation relating to the Moby Dick Trust relevant to the Hickory development”.
[16] This category underwent substantial refinement during discussions with counsel.
[17] Mr Wallace, counsel for the plaintiffs, submitted on the face of the pleadings there was nothing in issue in respect of the second plaintiff’s involvement in the joint venture. The second plaintiff provided the funding to the first plaintiff for the joint venture. The defendants admit that the Trust met the first plaintiff’s obligations to the joint venture both as to the initial capital contribution and ongoing monthly
1 Assa Abloy New Zealand Ltd v Allegion (New Zealand) Ltd [2015] NZHC 2760 [2018] NZLR 600 at [14].
payments. Thus, Mr Wallace submitted there was nothing in issue in respect of the payments and so there was nothing to disclose.
[18] Discussions refined this category to a request for copies of resolutions or records of the second plaintiff that record or refer to the terms of the joint venture agreement. Put in that way, Mr Wallace accepted such documents (if they exist) would need to be disclosed.
[19] Accordingly, the second plaintiff is to by affidavit confirm whether it holds any Trust resolutions or other records that may record or refer to the terms of the joint venture agreement and if such exist list them in the usual way.
Category 2 – financial information relating to the first plaintiff
[20]The defendants seek:
All financial information of the first plaintiff in terms of his assets, liabilities and ability to fund the Hickory development and in particular but not limited to his ability to fund his share of the refinancing requirements of the BNZ ...
[21] Discussion around this issue focused on whether the first plaintiff’s financial ability to pay the BNZ sum in the last quarter of 2017 was in fact relevant. I do not consider the first plaintiff’s ability to generally fund his commitments to the joint venture to be relevant. It is not suggested the first plaintiff defaulted on any other payment he was obliged to make to the joint venture, with the first payment being in August 2014, and the dispute of the BNZ sum coming to a head in December 2017. I am satisfied that historical financial information relating to the first plaintiff, that is, from the creation of the joint venture through to the last quarter of 2017, is not relevant to any matter in issue.
[22] Turning then to the first plaintiff’s financial position at around the time he was called upon to pay the BNZ sum, the defendants say at that time the first plaintiff claimed he did not have the funds available and that is why he did not make the payment.
[23] Mr Shamy, counsel for the defendants, submitted that if the first plaintiff did not have the ability to make the payment then that was relevant. Mr Shamy emphasised that this application has come relatively early in the proceeding. If the first plaintiff told the defendants he did not have the ability to pay, and in fact had the ability to pay, that would be relevant to the credibility of the first plaintiff. While Mr Shamy accepted that discovery would not be given simply to bolster a credibility challenge, he said here the documents were sought in relation to a matter in issue.
[24] I do not accept these documents are relevant. The defendants plead the first plaintiff was in breach by failing to provide the BNZ sum. As I have said, it is common ground that the first plaintiff did not pay the BNZ sum. The real issue is whether the first plaintiff was obliged to make that payment under the terms of the joint venture agreement. If he was obliged to make the payment, then whether he had the ability to do so or not is beside the point, as he did not meet that obligation. If the first plaintiff was not obliged to make the payment in terms of the joint venture agreement, then the defendants did not have the ability to treat the first plaintiff’s failure to do so as being a breach of an obligation that he owed to them, whether he had the funds or not. In short, if he had to pay and he did not pay then he was in breach. If he did not have to pay, then there was no breach; his ability to make the payment is irrelevant. The real issue is whether he was so obliged.
[25] While documents disclosing the first plaintiff’s financial position must exist, the discovery sought is unlikely to establish whether the plaintiffs could fund the BNZ sum. Discovery is unlikely to disclose all sources of funding available to the plaintiffs from related companies, Trusts or individuals. A statement of assets and liabilities will not disclose a business, person or other potential sources of funding.
[26] Prior to the filing of this application, Mr Wallace, adopting a pragmatic stance, was prepared to provide discovery of bank statements demonstrating that the first plaintiff did have the ability to make the payment of the BNZ sum. As it was not clear from the papers exactly when the first plaintiff was called upon to pay the BNZ sum, Mr Wallace is to discover (as he has offered) a bank statement(s) that discloses his client’s ability to pay the BNZ sum at the relevant time.
[27] The first plaintiff claims confidentiality in relation to that financial information and once those statements are included in the affidavit already referred to, if counsel cannot agree the terms of an undertaking that meet those concerns, that issue may be referred back to me.
[28] Accordingly, the defendants’ application in respect of para 1(a)(ii) of their application is dismissed.
[29] Mr Wallace’s offer to provide the bank statement(s) is adopted on the basis I have set out.
Category 3 – tax advice
[30] It is common ground that the joint venture members took tax advice in relation to the joint venture. The defendants seek disclosure of all tax advice received by the plaintiffs in relation to the joint venture. The first plaintiff says he did not receive any separate tax advice from the advice that was given to the other joint venture members and he therefore has no tax advice documents to be disclosed.
[31] While it is not clear such documents exist, the wording of the first plaintiff’s affidavit on this issue arguably leaves room for doubt. Mr Wallace was prepared to address any uncertainty that exists.
[32] As a point of clarification, the plaintiffs will in their further affidavit of documents list any documents recording tax advice received, if those documents are not already included in the defendants’ discovery. As the defendants’ discovery has been voluminous, it is not clear whether the defendants have produced any documents relating to tax advice but counsel can work through that practicality.
Category 4 – the terms of the joint venture
[33] This category was described as “[a]ll correspondence and documentation concerning the alleged agreement to take a shareholding in Hickory Limited relevant to the Hickory Development”.
[34] This was another category that was refined during discussions. Given there is no issue the joint venture was originally going to utilise Hickory Ltd, and no issue that company was incorporated with equal shareholdings and the first plaintiff and the defendants being directors, this category of discovery was not targeted as a matter in issue.
[35] The refinement was the defendants sought documents and correspondence relating to the original terms of the joint venture and in relation to proposed or finalised variations of the joint venture.
[36] Mr Wallace, without conceding any such documents existed, pragmatically said he was prepared to review the discovery in light of the refinement and to deal with this in the plaintiffs’ further affidavit.
Category 5 – emails related to Jamon Construction Ltd
[37] Category 5 relates to emails sent to and from a series of email addresses all but two of which related to a company called Jamon Construction Ltd (Jamon).
[38] Jamon was a company of which the first plaintiff was a director and shareholder. It provided construction services to the joint venture for which it was paid.
[39] The first plaintiff, in his statement of claim, alleges he took a major role in the project management of the Hickory Development being undertaken by the joint venture.
[40] The complicating factor is that Jamon was removed from the Companies Register in June 2016.
[41] The defendants say that because the first plaintiff alleges he provided project management and building services to the Hickory Development, emails relating to the first plaintiff’s company’s involvement, and particularly his personal involvement, are relevant.
[42] At the hearing of the application, the issue arose whether the first plaintiff was alleging he provided project management services personally, that is, not through Jamon which he controlled.
[43] Mr Wallace, after the hearing, filed a memorandum (as requested) confirming his instructions that the first plaintiff maintains he personally provided project management and construction know-how to the Hickory Development in addition to that provided through his company, Jamon. The memorandum also asserts that the first plaintiff never used his personal email address for anything to do with the Hickory Development so all emails relating to his personal input used his Jamon email address.
[44] On that basis, it follows that emails sent to and from the first plaintiff’s email address in relation to the project would be relevant. However, the first plaintiff has said (in his affidavit in opposition) that he no longer has access to the emails of Jamon, given the company was removed from the Companies Register over four years ago.
[45] I am satisfied that the first plaintiff’s explanation in that regard requires expansion beyond his bare statement that the documents are not available.
[46] Accordingly, in the affidavit to be filed, the first plaintiff is to explain what became of the computer equipment used by Jamon, whether the first plaintiff used personal computers to access the Jamon email address, and whether it is possible to nonetheless access or recover the Jamon emails. If it is not possible, an explanation of the technical reasons why that is the case should be given.
[47] Until it is known if the Jamon emails can be recovered, I adjourn the balance of the discovery application in respect of this category. Emails to and from the first plaintiff will be relevant but emails to and from other individuals raise privacy issues that will need to be addressed.
[48] Accordingly, once a full and detailed explanation as to the recoverability or otherwise of the Jamon emails is to hand, the defendants are to advise by memorandum if they wish to pursue this aspect of their application further.
Conclusion
[49] The plaintiffs are to file the further affidavit described above. I direct it be filed within 15 working days with leave reserved for that to be revised given timing was not discussed at the hearing.
Costs
[50] If counsel cannot agree costs, memoranda (not more than four pages) are to be filed within 10 working days. If no memoranda are filed within that time there will be no order as to costs.
Associate Judge Lester
Solicitors:
Godfreys Law, Christchurch Landley Law, Christchurch
Copy to counsel:
M J Wallace, Barrister, Christchurch P J Shamy, Barrister, Christchurch
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