Pacific Pearl Accommodation Limited v Zhou
[2021] NZHC 2187
•27 August 2021
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2019-404-2230
[2021] NZHC 2187
BETWEEN PACIFIC PEARL ACCOMMODATION LIMITED
Plaintiff
AND
KENING ZHOU and NAIYUAN SANG
as Trustees of the ZHOU AND SANG FAMILY TRUST
Defendants
Hearing: 14 July 2021 Appearances:
Cathy Murphy for the Plaintiff
Rodney E Harrison QC and D L C Liu for the Defendants
Judgment:
27 August 2021
JUDGMENT OF ASSOCIATE JUDGE R M BELL
This judgment was delivered by me on 27 August 2021 at 11:00am
pursuant to Rule 11.5 of the High Court Rules
………………………….
Registrar/Deputy Registrar
Solicitors:
Gregory Simon Law, Auckland, for the Plaintiff
Heritage Law (DLC Liu), Auckland, for the Defendants
Copy for:
Cathy Murphy, Barrister, Auckland, for the Plaintiff Rodney E Harrison QC, Auckland, for the Defendants
PACIFIC PEARL ACCOMMODATION LIMITED v KENING ZHOU and NAIYUAN SANG [2021] NZHC 2187 [27 August 2021]
[1] The defendants apply to strike out three of the plaintiff’s five causes of action and for further discovery, but I have to decide the strike-out application only on the first cause of action. The plaintiff withdrew the second and third causes of action. The strike-out application is on both substantive and procedural grounds. The pleading is procedurally defective and should be amended, but it shows triable issues of fact which cannot be decided summarily. I give directions for further discovery.
[2] In the first cause of action Pacific Pearl Accommodation Ltd, as lessee, sues Mr Zhou and Ms Sang, as lessors, for damages under s 228(1)(b) of the Property Law Act 2007 for unreasonably withholding consent, or for not consenting within a reasonable time, under s 226(2) of the Property Law Act to an assignment of its lease. The statement of claim has other causes of action, but they are not relevant to the strike-out application or the discovery application.
[3] The lease is for a boarding house at 9 Bicknell Road, Favona, Auckland. The term is 10 years from 15 May 2013 with two rights of renewal of five years each. Hargian Enterprises Ltd was the original lessor but it assigned the reversion to Mr Zhou and Ms Sang in February 2015. Pacific Pearl is the original lessee.
[4] The lease uses the Auckland District Law Society Deed of Lease (6th edition, 2012) and includes this provision as to assignment:
ASSIGNMENT OR SUBLETTING
33.1The Tenant shall not assign, sublet or otherwise part with the possession of the premises, the carparks (if any) or any part of them without first obtaining the written consent of the Landlord which the Landlord shall not unreasonably withhold or delay if the following conditions are fulfilled:
(a)The Tenant proves to the reasonable satisfaction of the Landlord that the proposed assignee or subtenant is (and in the case of a company that the shareholders of the proposed assignee or subtenant are) respectable, responsible and has the financial resources to meet the Tenant’s commitments under this lease and in the case of the subtenant, the subtenant’s commitments under the sublease. The Tenant shall give the Landlord any additional information reasonably required by the Landlord.
(b)All rent and other moneys payable have been paid and there is not any subsisting breach of any of the Tenant’s covenants.
(c)In the case of an assignment a deed of covenant in customary form approved or prepared by the Landlord is duly executed and delivered to the Landlord.
(d)In the case of an assignment to a company (other than a company listed on the main board of a public stock exchange in New Zealand or Australia) either a deed of guarantee in customary form approved or prepared by the Landlord is duly executed by the principal shareholders of that company and delivered to the Landlord or a bank guarantee from a registered trading bank in New Zealand on reasonable terms approved by the Landlord as security for the performance by the company of its obligations under this lease is provided to the Landlord.
(e)The Tenant pays the Landlord’s reasonable costs and disbursements in respect of the approval and the preparation of any deed of covenant or guarantee and (if appropriate) all fees and charges payable in respect of any reasonable inquiries made by or on behalf of the Landlord concerning any proposed assignee subtenant or guarantor. All such costs shall be payable whether or not the assignment or subletting proceeds.
…
33.3Where any Tenant is a company which is not listed on the main board of a public stock exchange in New Zealand or Australia, then any change in the legal or beneficial ownership of its shares or the shares of its shareholder or issue of new capital in the company or its shareholder where in any case there is a change in the effective management or control of the company will require the written consent of the Landlord which will not be unreasonably withheld or delayed.
[5] The dispute here is about the Pacific Pearl’s attempts to obtain the lessors’ consent to an assignment in 2019.1 That has to be seen in the light of these provisions of the Property Law Act 2007.
225Application of sections 226 to 228
1 There have been other disputes between the parties. In October 2014, Pacific Pearl had given an undertaking to the defendants’ son to obtain a code of compliance certificate and certificate of acceptance for the building at 9 Bicknell Road. Pacific Pearl accepts that it is bound by the undertaking. Its compliance with that promise has been one of the matters of dispute between the parties. In May 2019 they settled a rent review dispute. The lessors sought cancellation of the lease but in a decision of 26 November 2020, van Bohemen J dismissed their claim: Zhou v Pacific Pearl Accommodation Ltd [2020] NZHC 3133.
(1)Sections 226 to 228 apply if there is a covenant in the lease that the lessee will not, without the consent of the lessor, do 1 or more of the following things:
(a)Transfer or assign the lease
…
226Consent to assignment, etc, or change of use
(1)This section applies to a lessor who receives after 31 December 2007 an application by a lessee requesting the lessor’s consent to do 1 or more of the things referred to in section 225(1)(a) to (f) (whether the lease came into operation before, on, or after that date).
(2)The lessor—
(a)must not unreasonably withhold consent to the doing of the thing or things specified in the application (whether or not the covenant expressly provides that consent must not unreasonably be withheld); and
(b)must, within a reasonable time,—
(i)give the consent; or
(ii)notify the lessee in writing that the consent is withheld.
227When consent is unreasonably withheld
(1)For the purposes of section 226(2)(a), consent is unreasonably withheld if,—
(a)as a condition of, or in relation to, giving consent, the lessor—
(i)requires the payment of an amount (whether by way of additional rent, or by way of premium or fine) or other consideration; or
(ii)imposes on the lessee any unreasonable condition or precondition; or
(b)consent is withheld because the lessee—
(i)is bankrupt (if the lessee is an individual); or
(ii)is in receivership or liquidation (if the lessee is a company); or
(iii)is in receivership or is being liquidated under section 342 of the Companies Act 1993 (if the lessee is an overseas company).
(2)Subsection (1) does not limit section 226(2)(a), nor does it prevent the lessor from requiring the lessee, if the lease so provides, to pay the reasonable legal or other expenses of the lessor in giving consent.
(3)If the lessor refuses consent, or gives consent subject to a condition or precondition, the lessor must, on the written request of the lessee, promptly give the lessee written notice of the reasons for—
(a)the refusal; or
(b)the imposition of the condition or precondition.
228Damages may be recovered from lessor if consent is unreasonably withheld
(1)A person specified in subsection (2) who suffers loss because of a failure by a lessor to comply with section 226(2) may recover from the lessor—
….
(b)damages for any loss suffered because of any other failure by the lessor to comply with section 226(2).
(2)The persons referred to in subsection (1) are—
(a)the lessee; or
….
[6] On 6 July 2019, Pacific Pearl made an agreement for the sale of the business to Goldstar Trustees Ltd or nominees. The purchase price was initially $850,000 but was later reduced by agreement to $750,000. Settlement was to be on 30 August 2019. The parties used the ADLS/REINZ agreement for sale and purchase of a business. The agreement was conditional on the landlord giving consent to the assignment of the lease (cl 8.4). While the agreement provided details of the lease, no date was set for the landlord’s consent.
[7]Clause 21 said:
This agreement is conditional on the settlement of another agreement for the sale and purchase of the business at 5 Opawa Crescent, Favona, Mangere. Settlement of both agreements is interdependent and will be effected contemporaneously.
[8]Clause 20 recorded that the combined purchase price of the two businesses was
$1,500,000. There was also another contemporaneous agreement under which the purchaser would transfer certain properties in Manurewa to Pacific Pearl. Norfolk Pine Lodge Ltd, a company associated with those behind Pacific Pearl, was the vendor of the business at 5 Opawa Crescent. That agreement also required a landlord’s consent.
[9] There is evidence about correspondence between the parties, especially between Pacific Pearl’s lawyers and the lessors’ lawyers. That evidence is not necessarily complete. The lessors say:
(a)they never went so far as to refuse consent to the proposed assignment;
(b)the conditions they sought were not unreasonable; and
(c)their overall conduct was not unreasonable.
[10] A close examination of the evidence would be required to decide those matters, including setting out all the correspondence. That is not needed here, because the lessors accept that these questions are for trial and cannot be decided summarily. Instead they say that they are not liable because, even if they breached any duty under s 226 of the Property Law Act, they did not cause Pacific Pearl any loss under s 228. The proposed assignment failed for other reasons.
[11] Only a general outline of the correspondence is required. I do not refer to every item. On 16 July 2019, Pacific Pearl gave notice to the lessors of the sale and sought consent but did not give any information to satisfy the lessors as to the suitability of the proposed assignee. On 22 July, the lessors’ lawyer wrote to lawyers for Pacific Pearl asking for information. On 14 August, Pacific Pearl and Goldstar made a written variation reducing the purchase price to $800,000 and setting the date for the lessors’ consent at 29 August 2019. An email of 22 August by the lessors’ lawyers to Pacific Pearl’s lawyers raised questions that Pacific Pearl may be in breach of the lease. Its lawyers denied that. An email of 5 September by the lessors’ lawyer sought disclosure of Pacific Pearl’s financial statements for the last three years and asked about
compliance with the undertaking of October 2014. On 6 September, the lessors’ lawyer queried Pacific Pearl’s compliance with a resource consent. On 9 September, Pacific Pearl instructed a new lawyer. Some of his correspondence shows that he was still getting to grips with the matter. On 10 September, the lawyers for Goldstar wrote to Pacific Pearl’s lawyer, saying among other things:
Both business sale agreements are conditional upon landlord consent to assignment of the leases. Neither landlord has provided consent to assignment as yet. We hereby advise that our client exercises its right to terminate both agreements on the basis that the condition of landlord consent to the assignment of the leases has not been fulfilled.
[12] That was not the end of the matter. On 17 September, Goldstar’s lawyers wrote again to Pacific Pearl’s lawyer, saying that Goldstar was still interested in buying both businesses. If Pacific Pearl could obtain its lessors’ consent in principle by 20 September, a new offer would be made on substantially the same terms “but with greater certainty around management arrangements post-settlement, etc.” Further information was requested. On the same day Pacific Pearl’s lawyer wrote to the lessors’ lawyer advising that consent in principle was required by 20 September. The requested financial statements were provided. Goldstar’s lawyers also emailed that day saying, among other things, that the assignee would not be Goldstar but a subsidiary. On 19 September, the lessors’ lawyer wrote to Pacific Pearl’s lawyer, saying that they were willing to consent to the proposed assignment subject to terms and conditions set out in the letter. Details of the conditions are not required here.
[13] There was an exchange of correspondence between Pacific Pearl’s and the lessors’ lawyers on 20 September but that was overtaken by an email from the lawyers for the lessors of the Norfolk Pine premises, saying among other things:
We have now received our client’s instructions they are not willing at this time to grant consent to the assignment of the lease.
Our client’s main concern is the vague information that has been received as to the day to day running of the business and the “hands off” management of the property
…
Our client is willing to consider any further information that the new owner can offer.
[14]With that, Goldstar’s lawyer emailed Pacific Pearl’s lawyer:
At this stage, with the existing landlord consent issues with Pacific Pearl and now these issues I am instructed to “down tools”.
[15] That was the end of the attempts to assign the lease to Goldstar. In March this year Pacific Pearl’s shareholders made a new agreement to sell the business by way of a sale of shares. Under that agreement the business was sold for $640,000. In the hearing I was told that that agreement had fallen over. Pacific Pearl claims damages of $110,000 reflecting the difference in the sale prices in the two agreements.
The substantive strike-out application
[16] The lessors say that Pacific Pearl’s claim for breach of s 228 of the Property Law Act should be struck out for these reasons:
(a)The agreement of 6 July 2019 with Goldstar was interdependent with the Norfolk Pines agreement. Goldstar cancelled both agreements, as it was entitled to, for non-satisfaction of conditions requiring lessors’ consents to assignment. Because the Norfolk Pines lessor had not given its consent, any alleged failure by Mr Zhou and Ms Sang to give consent had not caused any loss to Pacific Pearl. There was another cause – the absence of consent by the Norfolk Pines lessor.
(b)The “consent in principle” to an assignment sought on 17 September was not a true consent. It was no more than an expression of interest. Consent could only be required if there were already a contract in place between the assignor and the assignee. Moreover, although the lessors were not told, the proposed assignee was not Goldstar but another company.
(c)That assignment did not proceed because the Norfolk Pines lessor refused its consent and Goldstar told its lawyer to drop tools. Their lawyer’s letter of 19 September had nothing to do with any assignment not going ahead.
[17] Before considering those reasons, I note the basis for striking out the first cause of action. The lessors say that the cause of action is badly drafted, but that is a procedural matter and is dealt with later. But here the lessors are not concerned with the pleading except to note that the cause of action is under s 228 of the Property Law Act. Instead, the lessors rely on evidence to say that the cause of action is bound to fail on the facts and a trial is not required.
[18] When a cause of action is struck out under r 15.1(a) of the High Court Rules 2016 because it discloses no reasonably arguable cause of action, defence, or case appropriate to the nature of the pleading, the court is not concerned with whether the plaintiff has evidence to support its case. Instead it assumes that the plaintiff will be able to prove what it has pleaded and assesses whether the pleading is legally sound.2 In such cases evidence has a limited role: to provide context with uncontroversial information, as when, say, a contract whose interpretation is in issue is put in evidence. The court may also strike out a pleading because of an affirmative defence. Limitation is the standard example.3 The basis for strike-out is that, because of the affirmative defence, the claim is considered to be frivolous, vexatious or an abuse of process, even though the claim fails substantively rather than procedurally. Evidence may be used to show clearly that a claim is out of time or to show arguably that it is within time, but the court is not otherwise concerned with the adequacy of the plaintiff’s proof. As a matter of procedural law, for some causes of action, those alleging fraud or similar reprehensible conduct, a plaintiff may have to respond to a strike-out application with evidence to show a proper basis for their claim.4 In general on strike-out applications the court is concerned with whether the pleading is sound and can be used to set out the facts to be proved by evidence at trial. Whether a plaintiff can prove their case is left for trial.
[19] The lessors’ total reliance on evidence to discredit the case for Pacific Pearl runs counter to that general approach. Theirs is more like a defendant’s application for summary judgment, where the court gives judgment on the merits to the defendant
2 Under the test in Attorney-General v Prince [1998] 1 NZLR 262 (CA) at 267 and Couch v Attorney-General [2008] 3 NZLR 725 (SC) at [33].
3 Trustees Executors Ltd v Murray [2007] NZSC 27, [2007] 3 NZLR 721 at [33].
4 Schmidt v Pepper New Zealand (Custodians) Ltd [2012] NZCA 565 at [15]; Commissioner of Inland Revenue v Redcliffe Forestry Venture Ltd [2012] NZSC 94, [2013] 1 NZLR 804 at [33].
if satisfied that none of the plaintiff’s causes of action can succeed.5 But in this case the lessors do not attack all Pacific Pearl’s causes of action, only the first. Still the similarity to a defendant’s summary judgment application provides a justification for the lessors’ application. Suppose that on a defendant’s summary judgment a judge was not satisfied that all of a plaintiff’s causes of action would fail but held that some would. It would be pointless to allow the hopeless causes of action to go to trial. The judge would strike them out, leaving only those that survived the summary judgment application. With that, it must be open to a defendant to recognise that a summary judgment application may not succeed against all the causes of action and to apply to strike out only those causes of action which would fail under the summary judgment test. The lessors have done that here. That means that in considering the strike-out application I will apply the test for a defendant’s summary judgment application under the principles in Westpac Banking Corp v M Kembla New Zealand Ltd. 6 While the principles are well-known, this is worth repeating:7
Application for summary judgment will be inappropriate where there are disputed issues of material fact or where material facts need to be ascertained by the Court and cannot confidently be concluded from affidavits. It may also be inappropriate where ultimate determination turns on a judgment only able to be properly arrived at after a full hearing of the evidence. Summary judgment is suitable for cases where abbreviated procedure and affidavit evidence will sufficiently expose the facts and the legal issues.
[20] The Court of Appeal has cautioned against striking out when the defendant claims that it did not cause the pleaded loss. In Sew Hoy & Sons Ltd (in rec and in liq) v Coopers & Lybrand McKay J said:8
Causation means more than the mere creation of the opportunity to incur loss… To say one decides by the application of common sense is not to provide a test, but rather to say it is a jury question. That being so, it must be rare that a Court will be able to strike out an allegation that a particular loss was caused by a particular breach. That can only be appropriate where on the facts alleged the argument for causation is untenable.
(Emphasis added)
5 High Court Rules 2016, r 12.2(2)
6 Westpac Banking Corp v M Kembla New Zealand Ltd [2001] 2 NZLR 298 (CA) at [58]–[64].
7 At [62].
8 Sew Hoy & Sons Ltd (in rec and in liq) v Coopers & Lybrand [1996] 1 NZLR 392 (CA) at 399. Thomas J is to similar effect at 407. In Saunders & Co v Bank of New Zealand [2002] 2 NZLR 270 (HC) a causation allegation was held to be untenable.
[21] Now for this case. Liability in damages for delay in consent and for unreasonably withholding consent under s 228 of the Property Law Act 2007 is still new. Counsel did not cite any cases decided under it. The principles for its application have still to be worked out. That suggests that the safer course is to allow the case to go to a full hearing with evidence tested. In Westpac Banking Corp v M Kembla New Zealand Ltd, the Court of Appeal said novel or developing points of law may require the context provided by trial to provide the court with sufficient perspective.9
[22] As for the lessors’ first reason, the termination of the agreement to sell the Pacific Pearl business by Goldstar’s lawyers on 10 September presents a problem that Parliament may not have foreseen. There were interdependent agreements for sale and purchase of two businesses, each of which required the lessor’s consent to assignment. Neither landlord gave their consent. The lessors in this case say that even if they breached their duty under s 226 they did not cause any loss. That was caused by the other landlord not consenting. But what if both lessors unreasonably withheld consent? If each tenant has a claim against their landlord for a breach of s 226, can that landlord say that they did not cause any loss because the other landlord also caused the loss by the other contract falling over? It would seem incongruous for two unreasonable landlords to escape liability by relying on the other’s unreasonableness. I can only identify the issue, but I cannot resolve it. That will require a full hearing with more evidence and argument than have been given so far.
[23] The lessors’ second reason says that there cannot be such a thing as a “consent in principle”. There is a counter-argument. The correspondence can be read as Pacific Pearl seeking consent ahead of any fresh agreement with Goldstar. Goldstar wanted to see if the lessors’ consent would be given, before it made a fresh agreement with Pacific Pearl. That could still trigger the duty under s 226 not to delay consent and not to withhold it unreasonably. The duty is not necessarily tied to the tenant having an enforceable agreement with a prospective assignee. There may be a difference in how loss is measured but not in the fact that a wrongful failure to give consent in time may cause loss. Where the tenant has a binding agreement with a proposed assignee which does not go ahead because the lessor does not give their consent, there may be
9 Above n 6, at [62].
a measurable loss of bargain. If there is not a binding agreement, but the landlord wrongly refuses consent, there may be a claim for a loss of a chance for not being able to make an agreement.10 Damages are discounted, but not eliminated.
[24] The lessors also made the point that Goldstar proposed an assignment to a subsidiary instead of to itself. It is arguable for Pacific Pearl that that issue could have been resolved, if some of the matters in the lessors’ lawyer’s letter of 19 September had been addressed.
[25] The lessors’ third reason relies on Goldstar telling its lawyers to drop tools. They say that was because of the Norfolk Pines lessor refusing consent. But it is not clear that that lets the lessors off the hook. Evidence from Goldstar may show that its decision no longer to explore buying the businesses had more than one cause. Its lawyer’s email of 20 September referred to “the existing landlord consent issues with Pacific Pearl.” The letter of the lessors’ lawyer of 19 September setting conditions for an assignment may also have prompted Goldstar to lose heart and, if the conditions were unreasonable, the lessors may be liable for the loss of the chance. This will turn on evidence from Goldstar, which has not been given. It would be wrong to pre-empt what that evidence might be.
[26] With that, the substantive part of the lessors’ application to strike out the first cause of action fails.
The procedural strike out application
[27] The lessors say that the first cause of action is not properly particularised, as required by r 5.26 of the High Court Rules 2016:
The statement of claim—
(a)must show the general nature of the plaintiff’s claim to the relief sought; and
(b)must give sufficient particulars of time, place, amounts, names of persons, nature and dates of instruments, and other circumstances to inform the court and the party or parties against whom relief is sought of the plaintiff’s cause of action; and …
10 For loss of a chance, see cases such as Benton v Miller & Poulgrain [2005] 1 NZLR 66 (CA).
[28] The current statement of claim has a lengthy narration of facts and then pleads distinct causes of action. The narration includes two averments that without reasonable grounds the lessors failed or refused to consent to assignments, the first requested in July and the second on 17 September. For the first cause of action, it is pleaded that the lessors had no reasonable grounds to withhold consent to the requests for assignment of the lease; their refusal to consent was in breach of s 226(2)(a) of the Property Law Act; and as a result of the unreasonable withholding of consent, Pacific Pearl suffered loss, being the loss of a valuable sale to Goldstar.
[29] The lessors’ case will be that they did not actually withhold their consent to an assignment, they asked proper questions to obtain information about matters on which they had to be satisfied before deciding whether to consent to an assignment, they did not propose any unreasonable conditions and they were not otherwise unreasonable. Given those indications, Pacific Pearl’s pleading is not clear on how it alleges that the lessors breached their obligations under s 226(2). While it says that the lessors unreasonably withheld their consent, the unreasonableness is not specified. Particulars are required. Defects in a pleading such as inadequate particulars are a procedural issue. Pleading errors can often be cured by amendment. Strike-out is not normally ordered when errors can be fixed.11
[30] Typically when a tenant seeks a landlord’s consent to an assignment, the tenant will provide information about the assignee to satisfy the landlord as to the assignee’s suitability. Once the landlord has the information required, they must give a response within a reasonable time (s 226(2)(b)). If they do not consent, their refusal must not be unreasonable (s 226(2)(a)). That provides a framework for pleading a breach of s 226(2). If Pacific Pearl’s case is that the lessors did not respond within a reasonable time, it should plead when time began to run (say by reference to information provided) and when a reasonable time expired. If it says that the lessors’ requests for further information should not be taken into account in calculating a reasonable time, it should plead why. If it says that the lessors set unreasonable conditions for consent, it should say what those conditions are and why they are unreasonable. If it says that the lessors’ requisitions were misdirected, the pleading should say which ones and
11 Marshall Futures Ltd v Marshall [1992] 1 NZLR 316 (HC) where Tipping J distinguished between a pleading that is a total write off and one that is deficient but capable of effective repair.
why. If it says that other aspects of the lessors’ response were unreasonable, it should say what they were and why. Addressing these matters will give a more informative pleading.
[31] Pacific Pearl will need to file a new statement of claim, if only to delete the second and third causes of action, which are now withdrawn. It may wish to consider whether its fourth and fifth causes of action are better pleaded as affirmative defences to the lessors’ counterclaim.12 When it files the new statement of claim, it should give proper particulars of the breaches of s 226(2), taking into account the matters I have suggested above.
The discovery application
[32] The lessors apply for further discovery under r 8.19 of the High Court Rules 2016. A common practice on such applications is to provide a schedule of classes of documents which the applicant considers the respondent ought to have but did not discover. That was not done in this case, but in the hearing the scope of the discovery requisitions was clarified.
[33] The lessors seek discovery of file notes of Pacific Pearl’s solicitor. He has said in correspondence that he has a file note of a conversation with the lessors’ solicitor to the effect that the lessors consented to the assignment. The file note has not so far been discovered, nor has Pacific Pearl said that the file note does not exist. It ought to disclose it if it does exist. If it does not, it should say so. Pacific Pearl will be required to disclose the solicitors’ file notes but may claim privilege under ss 54 and 56 of the Evidence Act 2006 where appropriate. Records of conversations with a lawyer acting for the other side of a transaction or dispute are not normally subject to privilege unless they are exploring settlement.
[34] The lessors seek discovery of documents of Norfolk Pine Lodge Ltd relating to its agreement with Goldstar, including its efforts to obtain the consent of its landlord. The Pacific Pearl and Norfolk Pine agreements with Goldstar were
12 The counterclaim seeks to enforce the undertaking of October 2014 in footnote 1 above. In its fourth cause of action, Pacific Pearl seeks relief for a contractual mistake for the undertaking. In its fifth cause of action it pleads that the undertaking was frustrated.
interdependent. Both agreements required the landlord’s consent to the proposed assignments. Pacific Pearl’s agreement was avoided purportedly for Norfolk Pine’s inability to obtain its landlord’s consent. Norfolk Pine’s documents are accordingly relevant to the issues in this case.
[35] The question is whether Norfolk Pine’s documents are in the control of Pacific Pearl for discovery. It is required to disclose for inspection documents in its control but not documents in the control of others.13 Under r 1.3 of the High Court Rules 2016:
control, in relation to a document, means —
(a)possession of the document; or
(b)a right to possess the document; or
(c)a right, otherwise than under these rules, to inspect or copy the document
[36] Lonrho Ltd v Shell Petroleum Co Ltd dealt with a different test for discovery, “possession, custody or power”, but Lord Diplock’s dictum as to power has been influential in deciding control under the current rules:14
Identification of documents requires that they must be or have at one time been available to be looked at by the person upon whom the duty lies to provide the list. Such is the case when they are or have been in the possession or custody of that person; and in the context of the phrase “possession, custody or power” the expression “power” must, in my view, mean a presently enforceable legal right to obtain from whoever actually holds the document inspection of it without the need to obtain the consent of anyone else. Provided that the right is presently enforceable, the fact that for physical reasons it may not be possible for the person entitled to it to obtain immediate inspection would not prevent the document from being within his power; but in the absence of a presently enforceable right there is, in my view, nothing in Order 24 to compel a party to a cause or matter to take steps that will enable him to acquire one in the future.
[37] A director or some other authorised agent makes an affidavit of documents for a company.15 The agent’s affidavit discloses documents in the control of the company, not documents in the control of the agent personally.
13 Under r 8.16(1)(e) of the High Court Rules, it must disclose other documents which it knows would be discoverable if they were in its control.
14 Lonrho Ltd v Shell Petroleum Co Ltd [1980] 1 WLR 627 (HL) at 635.
15 High Court Rules 2016, rr 8.24(2)(b) and 9.82.
[38] Pacific Pearl and Norfolk Pine are separate entities. Mr Allan Eaton is Pacific Pearl’s sole director and shareholder. He swore its affidavit of documents. Ms Angela Singh is Norfolk Pine’s sole director. Mr Eaton is not a director of Norfolk Pine. Ms Singh and Mr Eaton are Norfolk Pine’s shareholders. Subject to one matter, Norfolk Pine’s documents are not in the control of Pacific Pearl. There is no evidence to suggest that it has any enforceable right to inspect or copy documents of Norfolk Pine. Accordingly Pacific Pearl is not required to disclose documents in the control of Norfolk Pine.
[39] The qualification is that there may be documents in the joint control of both companies. The likely documents are their lawyers’ files and records relating to the sales to Goldstar and other documents about the sales where the two companies worked jointly. Both companies had the same lawyers for their interdependent agreements. The companies had a common interest in the agreements proceeding. The lawyer may have worked for both companies under a joint retainer. In those circumstances, each company may have a right to inspect and copy their joint documents and neither could stop the other’s right to do so.
[40] Pacific Pearl has not so far addressed that aspect in its discovery. It should do so. Even if it contends that Norfolk Pine holds documents that are not in its control, it should nevertheless identify the documents as held by a third party. Pacific Pearl and Norfolk Pine may also wish to consider whether they wish to insist strictly that documents in the sole control of Norfolk Pine are not in the control of Pacific Pearl. Such insistence may lead to an application for non-party discovery with added delay and expense in the proceeding.
[41] Another class of documents is that showing Pacific Pearl’s mitigation efforts – the steps it took to resell its business. Counsel for Pacific Pearl accepted that they should be discovered.
Outcome
[42]I make these orders:
(a)I dismiss the application to strike out the first cause of action in Pacific Pearl’s statement of claim but I direct it to file and serve an amended statement of claim by 23 September 2021 giving proper particulars of the lessors’ alleged breaches of s 226 of the Property Law Act 2007, taking into account the matters in paragraph [30] above.
(b)I order Pacific Pearl to file and serve by 8 October 2021 a further affidavit of documents stating whether the following documents are or have been in its control; and if they have been but are no longer in its control, its best knowledge and belief as to when the documents ceased to be in its control and who now has control of them:
(i)The file notes of its solicitor;
(ii)Documents in the joint control of it and Norfolk Pine relating to the agreements with Goldstar and attempts to obtain landlords’ consent to assignments; and
(iii)Documents relating to its steps to re-sell its business or otherwise mitigate its loss.
The affidavit should also state whether it knows of relevant documents in the control of third parties. In making the affidavit of documents Pacific Pearl is not required to waive any privilege for documents it discovers.
(c)The Registrar is to arrange a case management conference for further directions no earlier than 26 October 2021.
(d)Leave is reserved to apply for further directions.
[43] I ask counsel to confer on costs. If they cannot agree, memoranda may be filed and I will decide costs on the papers. Any memorandum seeking costs should be filed by 9 September and any response by 16 September. Costs on this application should
be resolved promptly as I shall not be available after Labour weekend. It is better not to leave costs to another judge.
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Associate Judge R M Bell
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