OPI Pacific Finance Limited (in liquidation and in receivership) v Serwin Chan & Walshe
[2014] NZHC 2052
•28 August 2014
IN THE HIGH COURT OF NEW ZEALAND WELLLINGTON REGISTRY
CIV-2013-485-3914 [2014] NZHC 2052
BETWEEN OPI PACIFIC FINANCE LIMITED
(IN LIQUIDATION AND IN RECEIVERSHIP)
Plaintiff
AND
SHERWIN CHAN & WALSHE Defendant
Hearing: 26 August 2014 Counsel:
M J Tingey and T B Fitzgerald for Plaintiff
S A Shortall, C A Levermore and C Loughlin for Defendant
R Moon for NZICAJudgment:
28 August 2014
RESERVED JUDGMENT OF DOBSON J
(Plaintiff's application for non party discovery order against NZICA)
Introduction
[1] The plaintiff (OPI) has sought non party discovery from the New Zealand Institute of Chartered Accountants (NZICA), seeking all documents held by NZICA that relate to a review of auditing work undertaken by the defendant (SCW), and in particular the conduct of SCW’s audit of OPI. OPI’s solicitors already have access to the report produced by NZICA on SCW’s auditing, together with three documents passing between SCW and NZICA, as discovered by SCW. The application extends to all documents held by NZICA that passed between it and SCW, together with all working papers prepared in the course of NZICA’s work in the preparation of its
report, together with that report.
OPI PACIFIC FINANCE LTD v SHERWIN CHAN & WALSHE [2014] NZHC 2052 [28 August 2014]
[2] Attention was drawn to these documents by Mr Foy, the audit partner in SCW who was principally responsible for the audit of OPI that is at the heart of these proceedings. He did so in an affidavit in support of an application to strike out parts of the claim. OPI’s solicitors infer that SCW intends to rely on an unqualified report on its auditing work issued by NZICA, as an aspect of its defence of the standard of work that it undertook.
[3] SCW did not oppose OPI’s application, and its counsel took no part in the
argument.
[4] NZICA did not oppose the application to the extent that it related to all items of correspondence and documents that had passed between NZICA and SCW. I made an order for non party discovery of those documents during the hearing, the terms of which is reflected in the minute that I produced after the hearing, to record the various orders I made without opposition during the hearing.
[5] However, NZICA did oppose any order requiring it to discover its own internal working papers. As described by Mr Moon, I apprehend that this would extend to internal records of the review undertaken of SCW’s auditing work, drafts of the report that was produced and extending to contributions by an expert reviewer who was contracted by NZICA to conduct the review.
[6] The application is governed by 8.21(2) of the High Court Rules, which provides:
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.
[7] Mr Moon sought an adjournment of the argument on this aspect of the application, to enable him to have completed an affidavit by a deponent who has recently been out of New Zealand. He indicated that he wished to place before the Court evidence as to the way in which NZICA conducted such reviews, and to address the public policy considerations which he urged were sufficient to outweigh
the interests of justice as between the immediate parties to this litigation, justifying
dismissal of the balance of OPI’s application.
[8] My 12 August 2014 minute of the last teleconference convened in the proceedings on that day specified that the 26 August hearing would be used to determine the parties’ respective applications for non party discovery. I directed that that minute was to be served on NZICA, and understand that it was. There is a real need to progress the proceedings, and having heard Mr Moon on the matters that he considered appropriately put before the Court by way of evidence, I am satisfied that an adjournment of the non party discovery application is not warranted.
[9] The sole ground cited in Mr Moon’s notice of opposition to the application was that the documents sought from NZICA did not relate to a matter in issue in the proceedings. Although I have some sympathy for the view that a report on the auditing competence of SCW, even where it involved consideration of the specific audit that is at issue in the proceedings, is likely to be substantially less helpful than expert evidence called in the case. However, that does not render the documents sought irrelevant.
[10] It seems entirely possible that at trial, SCW will either call (or if necessary subpoena) a representative of NZICA who is sufficiently familiar with the report on SCW’s auditing work to produce the report. In that event, OPI would be entitled to have access to all documents held by NZICA that related to the preparation of the report it had produced. I was persuaded by Mr Tingey that it would be unjustifiably disruptive and unwieldy if access to the documents was left until that eventuality arose.
[11] I am satisfied that NZICA cannot resist providing discovery of the documents on the basis that they are not relevant to an issue in the trial. If NZICA was a party
to the proceeding, no issue of proportionality would arise.1
1 Westpac New Zealand Ltd v Adams [2013] NZHC 3113 at [27].
[12] Although not foreshadowed in his notice of opposition, Mr Moon also argued that discovery should not be provided, for public policy reasons. NZICA is understandably concerned to preserve full and frank exchanges of views about its monitoring of members standards, especially in the context where NZICA retained independent contractors as experts to carry out such assessments. Mr Moon alluded to the chilling effect on such communications if those involved in them have to be conscious of the prospect that their communications may become accessible to a wider audience when they are prepared on a confidential basis.
[13] I took Mr Moon to concede that this public policy concern is not an ongoing one because recent statutory changes have transferred responsibility for monitoring the standard of audits of companies issuing securities to the public, from NZICA to the FMA. Without being provided with the detail of it, I understood Mr Moon to treat that new statutory regime as having its own provisions that would protect the confidentiality of working papers such as those that are in issue on the present application.
[14] I am not persuaded that public policy concerns of the type Mr Moon addressed are sufficient to override the interests of the parties to this litigation in enabling the topic to be tested at trial. This is a balancing exercise that is context and case specific, and does not constitute an evaluation of the competing interests that would apply in other situations.
[15] The confidentiality of the documents does need to be protected. Mr Tingey volunteered that solicitors and counsel for OPI would accept appropriate constraints on their use of the documents that were sought.
[16] Accordingly, I order that, in addition to the NZICA documents that are being discovered by consent, NZICA is to provide a list of all other documents in its control that were created in the course of, or arise out of the relevant review and report of auditing work undertaken by SCW.
[17] That list is to be provided within 14 days of the date of this judgment to solicitors for OPI and for SCW. Thereafter, NZICA is to facilitate inspection of those documents subject to confidentiality undertakings in the terms set out below.
[18] Inspection of the NZICA documents in issue is to be restricted to solicitors for the parties who are working directly on the proceedings, together with any external counsel retained by those solicitors and relevant experts retained in relation to auditing standards in these proceedings. No use is to be made of these documents except for the purposes of evidence in the proceedings.
[19] OPI is to meet the reasonable costs of NZICA in producing a list of the documents and facilitating their inspection. There will be no order as to costs on the
contested aspect of OPI’s application for non party discovery from NZICA.
Dobson J
Solicitors:
Bell Gully, Auckland for plaintiff
Minter Ellison, Wellington for defendant
0