Panckhurst v Cullinane
[2016] NZHC 2774
•16 November 2016
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2016-404-1189 [2016] NZHC 2774
BETWEEN S C PANCKHURST
Plaintiff
AND
P D CULLINANE, V M CULLINANE, AND N C GOLDIE
First Defendants
A G RAILTON Second Defendant
H DOUGHTY Third Defendant
A RYAN, M GREER, and J RYAN Fourth Defendants
Hearing: 16 November 2016 Appearances:
Mr A H J Commons and Ms N R Miller for the Plaintiff
Mr D J Friar and Mr N F D Moffat for the DefendantsJudgment:
16 November 2016
ORAL JUDGMENT OF ASSOCIATE JUDGE J P DOOGUE
PANCKHURST v CULLINANE AND ORS [2016] NZHC 2774 [16 November 2016]
[1] The proceeding which gives rise to the current application is a claim by the plaintiff who entered into an agreement to become the Chief Financial Officer with responsibilities embracing matters such as strategy for a business known as Lewis Road Creamery (“LRC”). The essence of the agreement was that the plaintiff would not be paid for services that he provided to LRC but would instead receive a shareholding which the plaintiff alleges was to be 10 percent.
[2] The arrangement allegedly came to an end when there was a falling out between the plaintiff and the first defendant Mr Cullinane, who appears to have been the founding party responsible for the creation of the Lewis Road business. In 2013, it is alleged, Mr Cullinane, expressed views to the effect that the shareholding which had been negotiated with the plaintiff was actually out of line with the original concept discussed, which Mr Cullinane considered envisaged a 5 percent shareholding. Mr Cullinane has also alleged in October of 2013 to have justified his “rethink” of Mr Panckhurst’s shareholding on the basis that 5 percent would be a better reflection of Mr Panckhurst’s input into the company. Mr Panckhurst regarded the revision of the position on Mr Cullinane’s part as amounting to a repudiation of the agreement that he had entered into and called upon Mr Cullinane to perform what Mr Panckhurst claimed was the original agreement. In the statement of claim it is alleged that Mr Cullinane failed and or refused to confirm and or perform the agreement which lead to Mr Panckhurst resigning 12 October
2013 and thereafter issuing these proceedings. He seeks specific performance of the agreement pursuant to which he was to obtain shares.
[3] Over the period covered by the dispute a further development had occurred in that the shareholding base in the company had expanded from 1000 shares to the point where a total of 4.59 million shares were on offer so that Mr Panckhurst claims a shareholding based upon the diluted figure just mentioned. For various reasons his claim now is that he is entitled to 7.563 percent of the total shares on issue. That is essentially what the claim is about.
[4] The matter has come before the Court today because the plaintiff alleges that the defendants have not complied with the obligation to give initial disclosure required by High Court Rule 8.4 which provides as follows:
8.4 Initial disclosure
(1) After filing a pleading, a party must, unless subclause (2) applies, serve on the other parties, at the same time as the service of that pleading, a bundle consisting of—
(a) all the documents referred to in that pleading; and
(b) any additional principal documents in the filing party's control that that party has used when preparing the pleading and on which that party intends to rely at the trial or hearing.
(2) A party need not comply with subclause (1) if—
(a) the circumstances make it impossible or impracticable to comply with subclause (1); and
(b) a certificate to that effect, setting out the reasons why compliance is impossible or impracticable, and signed by counsel for that party, is filed and served at the same time as the pleading.
(3) A party acting under subclause (2) must, unless the other parties agree that initial disclosure is not required, or that a longer period is acceptable, either serve the bundle referred to in subclause (1) within 10 working days from the service of the pleading or apply for a variation of that requirement within that period.
(4) If a party fails to comply with subclause (1) or (3), a Judge may make any of the orders specified in rule 7.48.
(5) Despite subclause (1), a party does not need to disclose any document in which the party claims privilege or that a party claims to be confidential.
(6) Despite subclause (1), a party does not need to disclose any document that either—
(a) is the subject of a claim of public interest immunity;
or
(b) is reasonably apprehended by the party to be the subject of such a claim.
(7) Despite subclause (1), a party does not need to include in a bundle served by that party any document contained in a bundle already served by any party or any document attached to an affidavit already filed in court.
(8) The bundle of documents may be served either electronically or as a bundle of copies in hard copy form.
(9) If an amended pleading is filed prior to the making of a
discovery order, this rule applies to that amended pleading if it either—
(a) refers to documents not referred to in any earlier pleading filed by the party who files the amended pleading; or
(b) pleads additional facts.
[5] As a consequence of the failure to allegedly comply with the rule, the plaintiff seeks an order striking out the statement of defence of the defaulting defendant.
[6] At the commencement of the hearing I had a helpful discussion with counsel Mr Commons for the plaintiff/applicant and Mr Friar for the defendants about attempting to streamline and simplify the resolution of the dispute between the parties at this stage of the proceeding. Both counsel, in my view, have taken a positive and realistic view to that type of approach being adopted.
[7] It will be necessary to make brief reference to the approach that I consider that the Court needs to take to the application and which involves some consideration of the objects and the intent of r 8.4.
[8] The rule in the first place obviously is not designed to be a substitute for full and proper discovery which may be ordered under Part 8 as a case proceeds. Disclosure of documents pursuant to r 8.4 would seem to involve a preliminary provision of a few of the documents that are relevant to the pleadings. The process of making the disclosure is, as well, different from the more formalised procedures that have to be followed when giving discovery. There is no requirement to verify what documents are held by affidavit when giving disclosure under r 8.4. It would seem that, given the staging of the initial disclosure, the objective is to provide augmentation of the parties understanding of the case against them to enable effective pleadings to be filed and thus to avoid having to go through a process of later amending pleadings. That may have to be done in any case but in simpler cases timely supply of the key documents may enable the parties to come to an understanding, at an early stage, of the issues that must be dealt with in the pleadings.
[9] So the objectives of the rule itself are relatively modest. They plainly are designed to achieve the overriding objective of the High Court Rules which is to promote the speedy, just and inexpensive determination of the parties’ disputes. Taking all these matters into account what needs to be done when a party is considering his or her obligations under r 8.4 is to make a common sense judgment both as to their expectations of the documents that the other party needs to supply and also on the part of the party who has to make disclosure. The rule represents a further inroad into the old practices of parties trying to keep their cards close to the chest. The decision about what documents must be disclosed is one that requires a pragmatic and robust approach. A party in the position of the plaintiff in this case ought not to be too ambitious in its expectations of what it is going to get. It does not need to because subsequently it will have a full entitlement to discovery in whatever form the Court might direct that to occur.
[10] The approach I intend to take is to consider each of the categories of the documents that the plaintiff complains he was not given adequate initial disclosure of.
[11] The categories of the documents which I will consider will be identified by the number that they have been given in the table helpfully included in Mr Commons synopsis following paragraph 3.12 of that document.
Document 1
[12] On behalf of the defendant Mr Friar has agreed, without prejudice to whether his client was required to make this document available in initial disclosure or not, to provide a copy to counsel for the plaintiff. That step will be taken by the end of this week. That is by 18 November 2016.
Document 2
[13] This document has now been provided as Mr Commons notes in his table.
Document 3
[14] Paragraph 4 of the statement of claim alleges that in or about June of 2011
Mr Cullinane invited Mr Panckhurst to participate in the “…business relating to dairy products”.
[15] The defendant in the statement of defence generally agrees with the allegations but says that Mr Cullinane’s invitation to Mr Panckhurst was for the latter to become involved in a company which was “… a butter manufacturing business”.
[16] Mr Friar says the simple point being made there was that in the interests of accuracy the defendant was providing greater specificity about what LRC’s business actually was, making the point that while it was a dairy business, it was specifically involved in the manufacture of butter. There is no basis upon which I can see that it should be inferred that r 8.4 has been infringed at this point. The statement could well have been made that was made in the statement of defence simply on the basis that Mr Cullinane may be assumed to have known what type of commodity his company was involved in manufacturing without having to refer to any documents. I do not therefore consider that there has been any failure to make initial disclosure in this category.
Document 4
[17] This part of the application is concerned with the pleading of an agreement which is described in paragraph 5 of the statement of claim. It is alleged that Mr Cullinane and Mr Panckhurst entered into the agreement in July 2011 pursuant to which Mr Panckhurst would receive 7.5 percent of the shares and would provide services to the company. While the statement of claim does not say so, it is intended to be a pleading that this was an oral agreement. The agreement was not actually documented until 2013.
[18] The position which the defendant takes is that there was a subsequent shareholders agreement entered into between Mr Panckhurst, Mr Cullinane and other shareholders as to allocation of the share capital. The defendants however say that the part of the agreement requiring Mr Panckhurst to provide services was entered into in July 2011 and was oral in form.
[19] The position therefore is there seems to be on the one hand the contention of the plaintiff that there was a comprehensive or combined shareholding and service agreement whereas the defendants to do not accept that contention.
[20] However Document 4 is concerned with the allegation that the plaintiff puts forward that there was an oral agreement dealing with both aspects of Mr Panckhurst’s involvement in the company.
[21] In the statement of defence the defendants say that the agreement for services in effect was between LRC and Mr Panckhurst rather than an agreement between Mr Panckhurst and Mr Cullinane.
[22] The plaintiff’s position so far as initial disclosure is apparently that the defendant has not provided documents which enable it to put forward this different interpretation of the contractual arrangements between Mr Panckhurst, Mr Cullinane and the company.
[23] The position of the defendant is that the agreement in July 2011 is being responded to and that the defendant does not accept that the oral agreement that the plaintiff alleges was entered into. The defendant is saying that the oral arrangement in July 2011 was supplanted by a later written agreement dealing with the shareholding that Mr Panckhurst was to receive in the company. The defendant claims that there was never any additional agreement concerning the supply of services other than the agreement that was orally entered into on July 2011
[24] The defendants say there were simply no documents relating to the July 2011 arrangement which they were obliged to disclose.
[25] I am unable to agree that there was any default in compliance with r 8.4 because the cumulative requirements of r 8.4(1) have not been demonstrated to have not been met by the defendants. There is no reason to conclude that there were additional documents which have not been disclosed which the defendants used when preparing the pleading and which they intend to rely on at trial.
Document 5
[26] Under this heading the question is raised whether there were documents in the possession of the defendant relating to the oral agreement and the determination that I made in regard to Document 4 must be applicable under this category as well.
Document 6
[27] This category is concerned with further aspects of the response of the statement of defence at paragraph 5 which is again responding to the allegations of the agreement entered into in July 2011. The particular which the defendant puts forward states that when the original agreement was entered into (the oral agreement discussed above) Mr Panckhurst was offered a 5 percent shareholding by LRC that subsequently was adjusted to a 7.5 percent shareholding. Essentially the case for the plaintiff is that the defendants have not provided documents which support their version of the alleged agreement entered into in July 2011 that the shareholding was only to be 5 percent. But given the considerations I have set out above and that the defendants say all this was oral, there is no basis to assume that there is any document that ought to have been the subject of initial disclosure relating to the initial fixing of the shareholding in July 2011 which has not been disclosed. There is no basis upon which the defendants are to be disbelieved when they say that there are no documents relating to this stage of the dealings between the parties which ought to have been disclosed..
Document 7
[28] In the statement of claim at paragraph 6 the plaintiff alleges that
Mr Panckhurst provided services including strategic and financial services and that
he was instrumental in the formation of a joint venture agreement between LRC and Canary Enterprises Limited. Particulars of that joint venture which led to the formation of a new company called Lewis Road Butter are then pleaded.
[29] In response the defendants admitted that there had been a joint venture entered into but otherwise denied the plaintiff’s allegations in paragraph 6. The statement of defence in response to paragraph 6 of the statement of claim then goes on to allege various breaches on the part of Mr Panckhurst of the obligations that he owed to provide services. These included the requirement that he attend to investor relations, engage with banks and providing regular statements of trading position.
[30] The plaintiff says that documents must have been used in the process of drafting the particulars of defence relating to Mr Panckhurst’s alleged defaults.
[31] The defendants’ position is that, with one exception, there were no documents that come within the description of the rule which were used when preparing the pleading. The position the defendant takes is that the assertions in the statement of defence are just part of the general instructions that the defendants gave to their solicitors when assisting them to prepare the statement of defence. The exception, already noted, is a letter which Bell Gully wrote to Mr Panckhurst 6
December 2013. The function of that letter was to cancel the agreement. The letter purported to do that on the grounds that Mr Panckhurst had not carried out the various obligations to which he was subject. The letter contained a detailed list of defaults on the part of Mr Panckhurst and it would appear that these are substantially similar if not identical to the defaults that are pleaded in paragraph 6 of the statement of defence.
[32] I am not clear as to whether the defendants provided this letter to the plaintiffs on the basis that they accepted they should have given initial disclosure or whether it is without prejudice to that point. But in any event it seems that given the letter was dated December 2013 and the statement of defence was not filed until July this year it probably was a document that ought to have been the subject of initial disclosure. However apart from the document, I am unable to infer that there will have been other documents that were relied upon. My grounds for saying that are
that it is quite possible that someone in the position of Mr Cullinane could have formed a view or impression of Mr Panckhurst’s allegedly deficient performance without first having to refer in detail to documents in the company’s control. In fact it seems unlikely that in the very generalised context of an allegation for example that Mr Panckhurst failed to “impress leading fund managers, such as Brian Gaynor and Brook Bone, with a grasp on business or plans for fund raising” that there would have been any relevant document. What is more likely is that a statement of that kind reflects a judgment that was built up from observing Mr Panckhurst in the performance of his role. That is not of course to say that the Court expresses any view on whether the allegations in paragraph 6 of the statement of defence are correct or not but, having been made, it is quite easy to see that they could have been set out without recourse to any document that comes within the purview of High Court Rule 8.4.
Documents 8 and 9
[33] In paragraphs 8 and 9 of the statement of claim the plaintiff alleges that the two companies through which the Lewis Road business is carried on, LRB and LRC, respectively commenced business and generated income from 6 June 2012 and October /November 2013 respectively. Exactly where these allegations fit into the overall case which the plaintiff brings is not clear but that is not a matter I need to consider further at this point. The statement of claim contains those allegations and the defendants were obliged to respond to them. That they did by simply pleading “they deny paragraph 8 [or 9 as the case may be]”.
[34] The Court at this stage is concerned with the question of the adequacy of that pleading and whether it complies with the HCR’s. The issue is whether the defendants ought to have provided documents within the scope of r 8.4 relating to those assertions.
[35] Mr Friar told me that the simple fact was that the defendants did not refer to any documents when drafting the pleading. When I asked him to confirm that the defendants had not filed any evidence concerning the approach that they had taken to using documents in relation to the defence, Mr Friar agreed that no affidavit had been provided. He told me that the defendants were concerned that to go down the
track of filing evidence would invest the requirement under r 8.4 with undesirable complexities and that it could end up causing collateral applications and evidence to be filed.
[36] I must say that there is considerable appeal in the overall thrust of Mr Friar’s submission which is that the rule should not be permitted to cause undue complexity and delay in disposing of civil litigation.
[37] Mr Commons, on the other hand, made the valid point that if there is reason to believe that r 8.4 has not been complied with then a party such as the plaintiff is fully within its rights to bring an application of this kind, to support that application by evidence and to comment negatively if no evidence has been filed by the opposing party. Mr Commons allied that last comment to a further submission that Mr Friar was essentially giving evidence from the bar in regard to the question of what approach the defendants had determined to take when framing their response to paragraphs 8 and 9 of the statement of claim.
[38] In the end I think that there will be cases where it will not be necessary for a respondent to file an affidavit. Conversely, there will be some cases where they will be embarrassed by the lack of such an affidavit to support their position. It may be that a case could be envisaged where a respondent would find itself unable to resist an application for costs or for some other order because they have not filed an affidavit. On the other hand when the Court is considering matters in this area commonsense and inferences will frequently be enough to provide the answer. The response in the statement of defence in this case is a simple one. Counsel and the Court will have had the experience of cases where, for example, counsel is under great pressure of time and they file a statement of defence containing bare denials of the same form as those put forward in this case. The denial is sometimes nothing more than a provisional holding position while the party considers its position. But the point is that whether or not the pleading in the statement of defence is desirable or not, it could easily have been produced without reference to any documents. In fact it is difficult to envisage that the core limited number of documents that r 8.4 is concerned with would contain any document that might bear upon or support the denial which has been set out in the statement of defence. It is crucial to keep in
mind the distinction between an application of the kind in the present case and the response that might be forthcoming from the Court if the defendant did not make discovery of adverse documents later in the proceeding. Plainly, if the defendant had in its control or possession accounting records showing that the assertion in the statement of claim was correct and that the denials were incorrect they would be required to produce the documents on discovery. However, it is difficult as I say, to
imagine any “additional principal documents”1 for initial disclosure which the
defendant is likely to have had reference to when drafting the denial that it did in this case. I do not regard the complaints of the plaintiff as being sustainable in regard to these allegations.
[39] Before I leave this part of the application I should just comment further on some of the difficulties that Mr Friar adverted to and the undesirable consequence that would follow from opposed interlocutory applications emerging as a common response to alleged breaches of r 8.4. While I agree that it is undesirable that litigation become still more cluttered than it is already with interlocutory applications, the answer would seem to lie in a careful but vigorous application of the costs rules to discourage unnecessary and unjustified applications for orders of the kind which the plaintiff seeks here. I consider that that can be the only outcome because as Mr Commons has said in essence if there is a rule there must be consequences for failure to comply with it in appropriate cases.
Document 10
[40] In paragraph 22 of the statement of claim the plaintiff pleads that on 9
August 2013 Mr Cullinane sought to have a meeting with Mr Panckhurst to address
the former’s assertion in the email that Mr Panckhurst’s contribution was not worth
10 percent of LRC shares.
[41] In the statement of defence, the defendants say that they admit paragraph 22 and they further say (amongst other things):
(b) Mr Panckhurst had failed to supply butter and milk projections and turn up to an investor presentation in June 2013.
1 The term used in HCR 8.4(1)(b).
[42] The complaint which the plaintiff makes is that no documents were disclosed
which were “used to support allegations at [22(b)]”.
[43] I do not regard it as being established by inference that there was any document that the defendants must have referred to when preparing this pleading. The pleading is essentially an allegation that Mr Panckhurst failed to do something. It would not of course be surprising if there was a document such as an email reproving Mr Panckhurst for his failing to meet his alleged allegation to do what is set out in paragraph 22(b) of the statement of defence. But that is not the same thing as accepting that there are such documents in existence in the party’s control that were used to prepare the pleading and which the party intends to rely on at the trial.
Document 12
[44] In paragraph 31 of the statement of claim, the plaintiff having pleaded that he had a contract entitling him to a share allocation pleads that Mr Cullinane failed to perform the agreement.
[45] Consistent with their approach which links the entitlement to shares to the provision of services, the defendants alleged that Mr Panckhurst repudiated his obligations to perform the services that were required of him under the compound agreement which linked the obligation to provide services with the entitlement to shares. The defendants then go on to plead that as a consequence of Mr Panckhurst repudiating (as it is alleged) the agreement:
(h) Mr Panckhurst’s abandonment of his duties set back LRC by six months with a consequent loss of profits for that period as well as ongoing costs incurred by hiring personnel to perform the duties which fell to Mr Panckhurst.
[46] The plaintiff says that the defendants have breached their obligations under
HCR 8.4 in the following respect:
Documents used to support the allegations at [31(h)].
[47] Mr Commons submitted in support of this part of the application:
Even if the defendants did not provide principal (or any) documents to their
solicitors, the defendants must have used documents to be able to make the assertions set out. Principal documents would have been used.
[48] I do not accept that it has been established there was a breach of r 8.4 in this area either. It is necessary to keep in mind that this is not the phase of the case at which discovery and the concomitant obligation to disclose adverse documents arises. It is entirely possible that an unparticularised pleading of the kind which is to be found at 31(h) of the statement of defence was based upon an unassisted recollection of Mr Cullinane or someone else associated with LRC. As a matter of inference, the allegation could have been formulated on the basis of nothing more than the recollections and impressions that Mr Cullinane or another officer of LRC had of Mr Panckhurst’s performance. He or they may have genuinely believed Mr Panckhurst did not perform the obligations and that additional accounting/financial staff had to be brought in to do the work that Mr Panckhurst failed to.
[49] I am unable to agree that an allegation such as 31(h) in the statement of defence is explicable only on the basis that when it was drafted the parties had in mind and relied upon specific documents in the control of the defendants.
Case Management conference
[50] The Registrar has allocated a case management conference which will be scheduled for 28 March 2017 at 2.15 p.m. The agenda at that conference will include any substantive issues that arise in relation to discovery, timetabling of discovery and disclosure and generally the provisions of Schedule 9. Further, the parties will need to consider the timing of any interlocutory applications once discovery has been completed and generally they are to address the agenda matters required to be covered at first case management conferences.
Result
[51] The applicant applied to the Court to strike out the defendants’ statement of defence because of alleged failures to comply with High Court Rule 8.4. As a result the plaintiff claimed that he was prejudiced in his conduct of the proceeding and that
he was unable to prepare properly for the first case management conference without initial disclosure from the defendants. He further alleged that the absence of initial disclosure from the defendants and the resulting inability to properly prepare for the first case management conference would prejudice the plaintiff and tend to defeat the objectives of the case management regime as well as preventing the just, speedy and inexpensive determination of the proceedings.
[52] In the result the plaintiff has established only one clear case where there was a breach of the requirements of preliminary disclosure and in that case the document concerned was the one that was already in the possession of the plaintiff and indeed was a letter that the defendants had sent to the plaintiff well in advance of the commencement of the proceedings. The other ten alleged breaches of HCR 8.4, I have found, are not made out.
[53] Having regard to the outcomes achieved by the plaintiff on this application, it would be wholly disproportionate to any breach of the rule to grant the relief sought and to strike out the defendants’ statement of defence. For those reasons the application is dismissed.
Costs
[54] Mr Friar submitted that costs should follow the event which means in the context of this case that the plaintiff having failed to obtain a strike-out order ought to pay costs. Mr Commons was of the view that costs ought to be reserved.
[55] In the circumstances of this case, I consider that there ought to be no order for costs. There is very little decided case law which would guide parties in the position of the plaintiff as to how r 8.4 is to be interpreted. Further, the plaintiff did have some success, albeit limited, with respect to instances of non-compliance with r 8.4. That said, I agree that any breaches were not substantial. In one case, the letter that the defendants’ solicitor wrote to the plaintiff had already been in his possession for a long time prior to the commencement of the proceeding. Further, the defendants took the precaution of making a copy of this available when they filed their notice of opposition. While this last point would not normally excuse the
defendants from costs, at least up to the point of the notice of opposition, it does contribute to an impression that there was no really substantial breach of the spirit and objective of r 8.4 in relation to that document.
[56] So far as the provision of Document One is concerned, there are doubts about whether the defendant in supplying that document on a without prejudice basis was doing what it ought to have voluntarily done pursuant to its obligations under the rule.
[57] For those reasons I conclude that the interests of justice are best served by not making any costs order.
J.P. Doogue
Associate Judge
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