Parsons v O'Connor
[2021] NZHC 1047
•12 May 2021
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2020-404-265
[2021] NZHC 1047
UNDER the Companies Act 1993 section 174 BETWEEN
MICHAEL KENNETH PARSONS
First Plaintiff
GREEN SHOOTS HOLDING LIMITED
as trustee of THE GREEN SHOOTS
LIFESTYLE AND EDUCATION TRUST
Second PlaintiffAND
PAUL MICHAEL O’CONNOR and BHW TRUSTEE 2017 LIMITED
as trustees of the O’CONNOR FAMILY TRUST
First Defendants
SALLY JANE CAREY and
ANDY FOX as trustees of the FOX CUB TRUST
Second DefendantsDATAMINE LIMITED
Third Defendant
Hearing: 21 April 2021 Appearances:
T Nelson for the Plaintiffs J Cundy for the Defendants
Judgment:
12 May 2021
JUDGMENT OF ASSOCIATE JUDGE R M BELL
This judgment was delivered by me on 12 May 2021 at 11:00 am pursuant to Rule 11.5 of the High Court Rules
…………………………. Registrar/Deputy Registrar
PARSONS v O’CONNOR [2021] NZHC 1047 [12 May 2021]
[1] The main question in this application for further discovery is whether Mr Parsons can be required to disclose documents of his employer, when his employer has told him not to. The answer is that the documents are not in Mr Parsons’ control and he is not required to discover them. The defendants may have to use other means to obtain the documents, such as an application for non-party discovery.
[2] The case concerns Datamine Ltd which carries on business as a data analytics consultancy. The plaintiffs seek relief as prejudiced shareholders under s 174 of the Companies Act 1993. Mr Parsons, the first plaintiff, started as an employee but later became a director. Mr O’Connor and Ms Carey were the other directors. Mr Parsons and his company, Green Shoots Holdings Ltd became shareholders. Mr O’Connor’s family trust and Ms Carey’s family trust are the other shareholders. The parties have fallen out. The details of the plaintiffs’ oppressiveness claim are not relevant to this decision.
[3] The discovery question arises under the defendants’ counterclaim against Mr Parsons for breach of the shareholders’ agreement. In 2019, Mr Parsons stopped working for Datamine and took a job with Air New Zealand as General Manager, Data and Analytics. The defendants say that he breached a provision in the agreement not to be involved in a similar business to Datamine’s, including as an employee.
[4] Air New Zealand has a subsidiary, 11 Ants Analytics Group Ltd, which provides analytical services. Datamine also provides data and analytic services to Air New Zealand. It considers that its business with Air New Zealand has dropped since Mr Parsons left it. On the other hand, Mr Parsons says that Air New Zealand remains a significant client of Datamine and that the two companies are not in competition.
[5] The defendants’ application for further discovery under r 8.19 of the High Court Rules 2016 seeks these documents:1
(a)Correspondence between the first plaintiff and Air New Zealand (Air NZ), relating to his employment as General Manager, Data and Analytics, at Air New Zealand, including (but not limited to) any Linkedin messages, SMS and iMessages, showing the circumstances in which the first plaintiff was offered the role;
(b)Correspondence relating to Air NZ’s renegotiation of its Master Services Agreement with Datamine in 2019, including documents setting out the reasons why the term of the Agreement was shortened;
(c)Documents relating to Air NZ’s decision to replace or replicate services previously provided by ‘Datamine, either internally, or with services provided by another third party; and
(d)Documents showing the nature of services offered by Air NZ within the data and analytics field, including documents showing its reporting and analytics offering to current, past and prospective Airpoints participants, and documents showing the first plaintiff’s involvement with these services.
[6] The plaintiffs filed their affidavit of documents on 24 September 2020 in response to Associate Judge Smith’s direction to make standard discovery. In response to the present application, Mr Parsons swore two supplementary affidavits of documents – on 26 February 2021 and 10 March 2021. Datamine took issue with changes made between the February and the March affidavits. I treat the March affidavit as replacing the February one and as representing Mr Parsons’ present position on the discovery application.
[7] The documents are all stored electronically. Mr Parsons says that he has searched his personal emails on his own email address, SMS and iMessages on his phone, messages to and from his LinkedIn account and work emails using his work email address and his work computer.
[8] Part 5 of his affidavit deals with documents not in his control. The group-listed documents include:
1 The application also sought other orders which were directed at matters of technical non- compliance but at the hearing I was told that those had been resolved.
Other emails and documents in the control of Air New Zealand including those relating to the renegotiation of the MSA or the replacement of Datamine services or services provided to Airpoints partners or 11 Ants.
Other documents in the control of 11Ants relating to its services.
He says that these documents are respectively in the control of Air New Zealand and 11Ants. Air New Zealand has instructed him not to disclose them. Moreover, because he is a shareholder of Datamine, Air New Zealand has barred him from having anything to do with renegotiation of the master services agreement with Datamine and he is not allowed to have in his possession any documents relating to that.
[9] Datamine says that Mr Parsons must disclose all relevant documents in his control and that includes Air New Zealand documents that he can access as its employee.
[10] Under r 8.16 of the High Court Rules 2016, a party making discovery must list documents that:
(a)are in the control of the party giving discovery and for which the party does not claim privilege or confidentiality:
(b)are in the control of the party giving discovery for which privilege is claimed, stating the nature of the privilege claimed:
(c)are in the control of the party giving discovery for which confidentiality is claimed, stating the nature and extent of the confidentiality:
(d)have been, but are no longer, in the control of the party giving discovery, stating when the documents ceased to be in that control, and the person who now has control of them:
(e)have not been in the control of the party giving discovery but which that party knows would be discoverable if that party had control of them.
[11]Under r 1.3:
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
…
document means—
(a)any material, whether or not it is signed or otherwise authenticated, that bears symbols (including words and figures), images, or sounds, or from which such symbols, images, or sounds can be derived, and includes—
(i)a label, marking, or other writing that identifies or describes a thing of which it forms part, or to which it is attached:
(ii)a book, map, plan, graph, or drawing:
(iii)a photograph, film, or negative; and
(iv)information electronically recorded or stored, and information derived from that information.
[12] On an application for further discovery under r 8.19(a) and (c) of the High Court Rules, when the court finds that there are grounds for believing that a party has not discovered documents that should have been discovered, the judge may order a party to make an affidavit disclosing documents in that party’s control and to make those documents available for inspection.
[13]Under r 8.27:
(1) As soon as a party who is required to make discovery has filed and served an affidavit of documents, that party must, subject to rule 8.28, make the documents that are listed in the affidavit and that are in that party’s control available for inspection by way of exchange.
…
[14] Under r 8.28 a party is not required to make privileged documents available for inspection. Inspection of confidential documents may be restricted.
[15] The meaning of “control” in these rules is constant. The documents which a party is required to make available for inspection under r 8.27 as in their control are the same documents which that party has listed in their affidavit of documents as being within their control. Because of “must” in r 8.27 there is no room for saying that even though a document is in a party’s control, they do not have to make it available for
inspection (except under any provisos in the rule or r 8.28). The rule does not give the court any discretion to disallow inspection. The same applies to orders to make documents available for inspection under r 8.19. That rule gives the judge the power to order further discovery and to make documents available for inspection, but that power is exercised according to the discovery principles underlying Part 18 subpart 1 of the High Court Rules 2016. If the judge orders discovery of further documents, an order to make them available for inspection will follow as a matter of course. It would be wrong to read the rule as conferring a discretion to disallow inspection of documents ordered to be discovered (unless inspection is barred under any of the provisos in rr 8.27 and 8.28). Otherwise a party who has not made discovery correctly would be in a better position than one who had done it right at the outset. They should not be allowed to argue on an application for further discovery under r 8.19 that the inspection rules should be adjusted for them. They should be held to the same rules as those who make discovery correctly.
[16] The law was not always so. In the past the courts distinguished between possession for discovery and possession for production for inspection. A party had to disclose all documents in his “corporeal possession” even if the documents belonged to someone else but could not be required to produce documents that did not belong to them. So in Clinch v Financial Corporation, Page-Wood V-C said:2
… if you have any possession – that is enough. There may be grounds for not producing; but even then you must give discovery.
[17] In connection with possession for an affidavit of documents, Bray on Discovery says:3
All documents must be included which are in his corporeal possession whether he has the exclusive property or only a partial property in this. It is conceived that he must also schedule those in his corporeal possession … in which he has no property at all.
But as for production for inspection the text says:4
2 Clinch v Financial Corporation (1866) LR 2 Eq 271 at 273.
3 Edward Bray The Principles and Practice of Discovery (Reeves and Turner, London, 1885) at 224.
4 At 193.
And:5
Possession or power for the purpose of founding thereon an order for production has a far narrower significance than for the purpose of inclusion in the affidavit. Many documents may have to be included in the affidavit of documents of which production cannot be ordered as not being in the party’s possession or power in this more limited sense.
Possession (or power) for the purpose of actual production … means not corporeal possession but legal possession, a right and power to deal with them.
As an example, in Kearsley v Philips6 the court declined to order production of documents disclosed in a discovery affidavit where the documents were in the joint possession of the defendant and another.
[18] Because of this past practice, it has sometimes been suggested that the court has a discretion whether to order production by balancing competing interests.7 The old cases on production do not show any such balancing. The current rules do not give any room for such a discretion.
[19] There is, I suggest, a reason why it is no longer necessary to observe the distinction made in the older cases. In the past it was not possible to obtain non-party discovery, except in limited circumstances.8 Accordingly, “possession” was given a wide meaning so that even if the party holding the document could not be required to produce it, it was at least identified and other means could be used to put it in evidence. Now a party making an affidavit of documents must disclose documents not in their control which they are aware of.9 And non-party discovery is available on a wider basis to access such documents.10 The old reason no longer applies. The upshot is that the “control” test is to be applied on the basis that a document will be considered to be in the control of a party if that party could be made to produce it under r 8.27.
[20] Under the old test for production, a party would not be ordered to produce a document to which they did not have a right to possession. For the reasons given above, that informs the test for control under the current rules. Against that, Datamine
5 At 194.
6 Kearsley v Philips (1883) 10 QBD 465 (CA).
7 Dale v Jeffrey (2009) 19 PRNZ 568 (HC) at [24].
8 Norwich Pharmacal Co v Customs & Excise Commissioners [1974] AC 133 (HL).
9 High Court Rules 2016, r 8.16(e).
10 High Court Rules 2016, r 8.21.
submitted that a party was required to disclose documents in their physical possession, whether or not they had a right to possession. In support it cited Disclosure:11
… there is nothing in the [Civil Procedure] Rules [1998 (UK)] to limit disclosure to cases where the physical possession is lawful. Accordingly, it is submitted that even a thief would have to give disclosure of stolen documents if appropriate to litigation to which he was a party.
[21] But the text also records that under the English Civil Procedure Rules, r 31.3, inspection can be resisted not only on grounds of privilege but also on more general grounds that a document is not within a party’s control or that it would be disproportionate to require it to be inspected.12 Citing National Crime Agency v Abacha it says that the court retains a discretion to refuse inspection.13 Again, our rules do not give the court a discretion to refuse inspection.
[22] The “control” test to decide whether documents should be disclosed was introduced under an amendment to the High Court Rules in 2004. Before that, the test was whether the documents were in the “possession, custody or power” of the party required to make discovery. As to “power”, the speech of Lord Diplock in Lonrho Ltd v Shell Petroleum Co Ltd has been influential: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.
11 Paul Matthews and Hodge M Malek Disclosure (5th ed, Sweet & Maxwell, London, 2017) at 182, [5.63].
12 At 270, [9.06].
13 National Crime Agency v Abacha [2016] 1 WLR 4375 (CA) at [28] and see [31] for the court’s balancing of competing interests.
14 Lonrho Ltd v Shell Petroleum Co Ltd [1980] 1 WLR 627 (HL) at 635.
[23] That has been followed in New Zealand.15 The test of a legally enforceable right to inspect a document has been applied to the third limb of the “control” test under the present rules.16
[24] “Document” has an extended definition, not only hard copy documents but also information that is electronically recorded or stored (but which may be reproduced in hard copy). While tangible objects such as hard copy documents can be held, stored, handed over or lost, “possession” does not go so well with information. Information is knowledge. It is learned, remembered, forgotten, shared or kept secret; but it is not possessed in the same way as an object. When we say, “I have an idea” we say what we think, not that we can physically hold that thought.17 As the definition recognises, information can be recorded and stored electronically. But because information cannot be possessed physically, it is better to use the third limb of “control”. The right to inspect or copy information stored electronically goes to access to the information and the right to retrieve and use it. Datamine wants Mr Parsons to disclose information he can access on his work computer. His employer can control his access to that information and can require that he use it only for his employment. It would be odd to say that Mr Parsons has physical possession of that information.
[25] The general rule is that documents of an employer which an employee can access for his work are in the control of the employer, not the employee. There is a similar rule for company documents which a director can access, but the case law shows a greater willingness to require directors to disclose where the director is considered to have control of the company and therefore control of the documents.
[26] The general rule is illustrated by subpoena cases. They are useful as a subpoena duces tecum requires the witness to produce documents.18 The witness’s ability to do so may be in issue. The cases are an a fortiori illustration. In the days before non-party discovery could be ordered, a subpoena duces tecum was used to require production in court of documents held by a non-party. If a witness could not
15 Equiticorp Industries Group Ltd v Hawkins [1994] 2 NZLR 738 (HC).
16 Dale v Jeffrey (2009) 19 PRNZ 568 (HC).
17 The law on breach of confidence is a matter of obligation, not property: Thomas v Farr plc [2007] EWCA Civ 118 at [39].
18 For the history of subpoenas duces tecum, see Lord Denning MR’s account in Penn-Texas Corp v Murat Anstalt (No 2) [1964] 2 QB 647, [1965] 3 WLR 682 (CA) at 663.
be compelled to bring documents of his employer to court under a subpoena, that is a pointer that they are not discoverable as in his control. In Crowther v Appleby, Coleridge CJ said:19
Mr Sharpley has not the books and documents in his possession otherwise than as the servant of the company, and without their authority or consent, he could have no right to remove them from their proper place of custody and bring them up to London.
[27] In Eccles & Co v Louisville and National Railroad Company, a case involving letters rogatory from Alabama, Vaughan Williams LJ said:20
This is the case of a servant or employee who, according to the view which I take of the evidence, had no authority from his master to produce the documents in question; and upon the evidence before us I also take it that, although he had in a sense possession, custody, and control of the documents, he had not possession, custody, or control of them in the sense that he was justified, as between himself and his master, in shewing them or producing them in evidence without the authority of his master.
And Buckley LJ said:21
…it appears to me that it was competent to him to say that, though the documents were in his control, he had control of them merely in the capacity of a servant, and that, if the plaintiffs seek to compel production of them, they ought to bring his principal before the Court and obtain an order for their production in his presence.
Kennedy LJ dissented on the ground that there was no evidence that the employer instructed the employee not to produce the documents, but it is not necessary to consider that aspect here as it is clear that Air New Zealand has instructed Mr Parsons not to disclose the documents.
[28]In Penn-Texas Corp v Murat Anstalt (No 2) Lord Denning MR said:22
The question arises, what is to be done when the documents are in the possession of a company? How is the court to compel production of them? One thing is quite clear. It is no good serving a subpoena duces tecum on any of the officers or servants of the company: for each of them can say that he has no authority from the company to produce them, and that would be an end of any proceedings against him.
19 Crowther v Appleby (1873) LR 9 CP 23 at 29.
20 Eccles & Co v Louisville and National Railroad Company [1912] 1 KB 135 (CA) at 145.
21 At 147.
22 Penn-Texas Corp v Murat Anstalt (No 2) [1964] 2 QB 647, [1965] 3 WLR 682 (CA) at 663.
[29] The High Court of Australia recognised the principle in Rochfort v Trade Practices Commission, where Mason J said:23
To acknowledge that the employee’s possession is sufficient in itself to sustain an obligation to produce, without reference to his employer, would be to disregard the employer’s rights with respect to his documents. What is more, it would deprive him of the privilege of objecting to produce a document on the ground that it has a tendency to incriminate him. The privilege against self-incrimination is that of the witness who is called to produce. He cannot claim the privilege on the ground that the document tends to incriminate another…
Recognition of these interests of the employer suggests that in general it is he, not his employee, who should be required to produce the documents. Of course, the protection of the employer’s interests must give way to the public interest and the efficient administration of justice in case of collision between the two. So, if it is impracticable to serve a subpoena on the employer, e.g., by reason of absence overseas, incapacity, or his whereabouts, being unknown, the court will insist on production of the documents by his employee or agent who holds them. In these circumstances, the prompt dispatch of court business must prevail over the protection of the employer’s interests.
[30]As for discovery of documents, in Ambler v Ambler Master McBride said:24
Thus, if the secretary/treasurer of a company happened to have some of the documents of the company at his residence, and he happens to own 10 per cent of the issued shares of the company and is a party to an action wherein the question of the value of his shares in the company are concerned, clearly no order will issue requiring him to produce the documents of the company in his physical possession because they are not his documents but those of another.
[31] Most of the discovery decisions, however, prove the rule by stating exceptions to it. In London and Yorkshire Bank Ltd v Cooper, an order was sought for a liquidator to produce documents of the company in liquidation. Brett MR said:25
It has been argued that the documents are not in his control; but if they are in his possession, they are prima facie under his control. The defendant,Wing, may shew that he is the servant or the agent of some other person, and that there is somebody who has power to prevent the production of the documents.
23 Rochfort v Trade Practices Commission [1982] 153 CLR 134 at 145. See also Gibbs CJ at 139 and 140–141.
24 Ambler v Ambler (1980) 1 ACWS (2d) 421 (OSC) at [4].
25 London and Yorkshire Bank Ltd v Cooper (1895) 15 QBD 473 (CA) at 474.
After stating that the liquidator was required to hold the company’s documents, he continued:26
He is bound to keep them during that period, but who is there that can give to him any order respecting them? No one has the control of the documents, and he is as to their production the absolute and sole master; he has the absolute control of them and therefore he is bound to produce them.
[32] In Dallas v Dallas,27 the British Columbia Court of Appeal ordered the defendant, who had effective control of the company, to disclose documents of the company:
It is evident that the company does not control him but that he controls the company in such a manner as to make it his “other person”.
And:28
In this case the company is a juristic person with the capacity to exercise effective control over these documents, but the evidence shows that the company is an instrument of the defendant and under his sole direction and control. Any nominal control exercised by the company would in reality be the control of the defendant.
In B v B Dunn J referred to a director’s right to inspect documents and said:29
But the right to inspect… is a right vested in a director in his capacity as a director or officer of the company; he is in a fiduciary relationship with the company; he owes duties to the company and to its shareholders. Without the consent of the company he has no right to inspect documents, much less to take copies of them or remove them from the premises of the company for his own purposes unconnected with the business of the company. Because, in his capacity as a director, he has the right to inspect the company documents, it does not follow that in his personal capacity he has an enforceable right to inspect or to obtain possession or control of them so that the documents can be said to be in his power. It is a question of fact in each case whether or not a director has such an enforceable right; much will depend upon the share structure of the company. In cases of a one man company, where the director owns all or substantially all the shares and any minority shareholders are not adverse to him, then the inference may be drawn that the company, although a separate legal entity, does not control him but he controls the company in such manner as to make it his other person or alter ego. In such a case, where the director controls the company and nominates the other directors, all the documents are within his power in the sense that in truth and in fact his is able to obtain control of them.
26 At 474.
27 Dallas v Dallas (1960) 24 DLR (2d) 746 (BCCA) at [5].
28 At [8].
29 B v B [1978] Fam 181 at 188–189.
[33] In other parts of his judgment, Dunn J held that a director might be required to disclose company documents in his actual possession, leaving the court to decide in its discretion whether to order production.30 For the reasons I have given above, I do not consider that those aspects of his decision apply under our rules, but that does not detract from the statement above.
[34] In Dale v Jeffrey,31 Associate Judge Abbott ordered the defendant to disclose documents of a Spanish company, of which the defendant was a majority shareholder and an executive director. While Associate Judge Abbott founded his decision on control, it can also be noted that the court cannot order non-party discovery by a foreign company which does not carry on business in New Zealand.
[35] Associate Judge Andrew’s decision in Ultra Fire Sprinkler Systems Ltd v Ultra Fire Protection Ltd is an example of the general principle that employees are not required to disclose their employer’s documents.32 It was suggested in argument that his decision was inconsistent with Dale v Jeffrey and that I had to decide between the two. To the contrary, both decisions reflect the same principle that a party can be required to disclose as documents within their control only those to which they have enforceable rights to access and copy. In one the director had that right, in the other the employee did not.
[36] In this case Mr Parsons as an employee has access to some information held by his employer, but not all the information sought by the defendants. He can use his employer’s information only for his employment. His employer has instructed him not to disclose that information and he therefore does not have its authority to include it in his discovery affidavit. The information is not in his control. He has correctly identified it in his latest discovery affidavit as being in the control of his employer. Because it is not in his control, he cannot be ordered under r 8.19 to include it in an affidavit of documents.
30 At 193–194 .
31 Dale v Jeffrey (2009) 19 PRNZ 568 (HC).
32 Ultra Fire Sprinkler Systems Ltd v Ultra Fire Protection Ltd [2020] NZHC 2243 at [61] and [65].
[37] There is one other matter. Part 3 of Mr Parsons’ supplementary discovery affidavit, confidential documents, lists documents relating to his employment agreement. Air New Zealand does not object to those documents being disclosed, so long as confidentiality is preserved. Mr Parsons says that these are Air New Zealand documents rather than his own, but even so, he is required to discover them as in his control, as they contain his personal information to which he has an enforceable right of access under the Privacy Act 2020.33
[38] The defendants say that this part of Mr Parsons’ discovery is incomplete. While he has disclosed his employment agreement (with redactions), the defendants’ application seeks documents showing the circumstances in which he was offered his role with Air New Zealand. The circumstances of the case, the recruiting of an employee for a senior management position, is likely to generate more documents than a completed employment agreement. The documents are likely to be relevant as showing the nature of his employment. It would not be disproportionate to require Mr Parsons to disclose those documents. There are not likely to be many and obtaining them should not be difficult. The defendants have made their case for discovery under this head. The plaintiffs did not object to this part of the defendants’ application but had asked for clarification of the scope of documents sought. I am confident that the parties can resolve that.
[39]I make these orders:
(a)Within three weeks of the defendants giving the plaintiffs clarification as to the scope of documents in the first group of the schedule to the discovery application, the plaintiffs are to file and serve an affidavit disclosing those documents. So long as the documents contain personal information under the Privacy Act 2020, Mr Parsons is required to disclose them, even if he does not have his employer’s consent. When he files and serves his affidavit, he will make the documents available for inspection (subject to any confidentiality safeguards).
33 Johansen v American International Underwriters (NZ) Ltd [1997] 3 NZLR 765 (HC). See information privacy principle 6 in s 22 of the Privacy Act 2020, which gives an individual the right to access to their personal information from an agency. Air New Zealand is a New Zealand private sector agency under that Act: ss 4, 7 and 8.
(b)I dismiss the rest of the defendants’ application.
(c)If the parties cannot agree on costs, memoranda are to be filed and I will decide costs on the papers.
(d)I direct the Registrar to set a new case management conference.
(e)Leave is reserved to apply for further directions.
…………………………………….
Associate Judge R M Bell
Solicitors:
Turner Hopkins (M J Robinson/C J Pendleton), Auckland, for the Plaintiffs Lee Salmon Long (T Mullins/J Cundy), Auckland, for the Defendants
Copy for:
T Nelson, Auckland
G P Blanchard QC, Auckland
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