Peters v Birnie HC Auckland CIV 2009-404-8119

[2010] NZHC 594

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2009-404-8119

IN THE MATTER OF     Section 165 of the Companies Act 1993

BETWEEN  ALLEN PATRICK PETERS First Applicant

ANDBERNARD PAUL QUINN Second Applicant

ANDBIRNIE CAPITAL PROPERTY PARTNERSHIP LIMITED

Third Applicant

ANDWILLIAM NORMAN BIRNIE First Respondent

ANDSTEPHEN ROBERT NORRIE Second Respondent

ANDWILLIAM NORMAN BIRNIE, STEPHEN ROBERT NORRIE AND RICHARD JAMES O'BRYEN HOARE AS TRUSTEES OF THE PAONEONE SETTLEMENT TRUST NO. 5

Third Respondents

ANDPICASSO NOMINEES LIMITED Fourth Respondent

Hearing:         17, 18 and 19 March 2010

Appearances: Z Kennedy and M Pascariu for First and Second Applicants

MP Reed and P Morten for Respondents

B Gray QC Judgment:   19 March 2010

JUDGMENT OF ASHER J

PETERS AND ORS V BIRNIE AND ORS HC AK CIV-2009-404-8119  19 March 2010

Preliminary

[1]      In this application for leave to bring a derivative action under s 165 of the Companies Act 1993, the respondents seek confidentiality orders in relation to the reporting of the hearing.  The request was made orally at the outset of the hearing by Mr Reed QC for the respondents, when he found that there were representatives of the media present in court.  When the issue was raised Mr Kennedy was not prepared to consent to orders being made, and representatives of the media indicated that any such orders would be resisted.   To give Mr Reed an opportunity to consider his situation and prepare submissions, I adjourned his application for confidentiality orders to be heard later in the derivative action hearing.

[2]      There  were  already  orders  that  had  been  made  earlier  in  a  Duty  Judge Minute, directing confidentiality of parts of the affidavits that had been filed by the respondents.  Given Mr Reed’s submission that the issue was of importance to the respondents and the existence of the earlier orders, I made interim confidentiality orders directing that until determination of the substantive application for confidentiality orders, the media would not publish any of the material referred to during the course of the derivative action hearing.

[3]      The derivative action hearing then proceeded, and at the end of that argument

I heard the respondents’ confidentiality application.

[4]      Mr Reed has amended his original oral application.   He no longer seeks general confidentiality orders.   The respondents now accept that the media may publish what has been said in court to date about the derivative action hearing.  What Mr Reed now seeks is a continuation of the orders that were made in the earlier Duty Judge Minute suppressing the publication of material in the respondents’ affidavits. He also seeks an order that the judgment that will be given on the derivative action application and related applications, not contain reference to any of that confidential material.    It  is  now  necessary,  before  the  conclusion  of  this  leave  hearing,  to determine the confidentiality application.

Background

[5]      Two of the applicants, Allen Peters and Bernard Quinn, are directors of the third  applicant,  Birnie  Capital  Property  Partnership  Limited  (“BCPP”).    Messrs Peters and Quinn represent the B Class shareholders in BCPP.   Mr Quinn is an alternate director.    William  Birnie  and  Stephen  Norrie  are the  first  and  second respondents.     They  are  also  directors  of  BCPP,  representing  the  A  Class shareholders.   The third and fourth respondents are trustees of the Paoneone Settlement Trust No. 5, and Picasso Nominees Limited.  They are both entities with a close connection to Mr Birnie.

[6]      At issue in these proceedings is whether the court in its discretion should grant leave under s 165 of the Companies Act 1993 to BCPP to bring proceedings against Messrs Birnie and Norrie for breach of fiduciary duty to BCPP, and to bring proceedings in relation to a put option against Paoneone Settlement Trust No. 5 and Pecasso Nominees Limited, known as “the Lion Rock vendors”.  The effect of the first and the second causes of action against the Lion Rock vendors, should leave be granted, would lead to the vendors being obliged to refund the $19 million purchase price paid in that transaction by BCPP.

[7]      It is not necessary to go into the detail of those proceedings, except to record that one of the key submissions on behalf of the respondents against the granting of leave is that Mr Birnie’s asset position is such that the proceedings are pointless. The Lion Rock vendors, if proceedings were issued and judgment entered, would not be able to repay the $19 million, and Mr Birnie would not be in a position to meet any  damages  award  for  that  amount.    Thus,  the  respondents  argue  that  under s 165(2)(a) of the Companies Act 1993, there is no likelihood of success in the proceedings, and that the money BCPP would be seeking could not be recovered. This is one of the principal reasons put forward as to why leave should not be granted to the applicants to bring the derivative proceeding.

[8]      The  proceedings  were  filed  on  9 December 2009.    On  11 February 2010, prior   to   the   filing   of   the   respondents’   affidavits,   the   respondents   sought confidentiality directions.  They sought an order that the hearing be in chambers, and

that certain confidential information contained in the affidavits that were to be filed, not be disclosed.  They also sought an order limiting publication of the decision of the court.  Only brief grounds were set out.  The applicants abided by the decision of the court and accepted that it was appropriate that directions be made protecting the interests of non-parties.

[9]      The   matter   went   before   a   Duty   Judge   who,   in   a   short   note   on

12 February 2010, declined to grant an order that the hearing be in chambers, but granted the other orders.  The respondents then filed their affidavits.  The issue of confidentiality was not raised again until the oral application at the start of this derivative action hearing.

This hearing

[10]     Mr Reed  asked  at  the  start  of  this  derivative  action  hearing  that  the application for leave under s 165 be treated as a chambers matter.  I declined to do so and directed that the hearing proceed in open court.  Derivative actions are not listed as one of the applications that must be brought by way of originating application under r 19.2 of the High Court Rules.  However, r 19.5 provides that the court may permit proceedings to be commenced by originating application.   Mr Kennedy for the applicants sought permission.

[11]     Section 165(1),  in  particular  the  reference  to  a  shareholder  or  a  director making an “application”, and the nature of a derivative action proceeding, means that it is in the interests of justice that the proceeding commence by way of originating application.   Such an application involves a final determination of an issue, and although this is not determinative, the seeking of such substantive relief means that it is not suited to being treated as an interlocutory application.  This was the view taken

in McKay v PHC Holdings Ltd.[1]Therefore, I granted permission under r 19.5(1) for

the proceeding to commence by way of originating application, and it has so proceeded.  I was not persuaded that the fact a mandatory interim injunction was also sought was a basis for ordering that the proceeding be heard in chambers.

[1] McKay v PHC Holdings Ltd HC Auckland M225/97 19 May 1998, Master Anne Gambrill AJ.

[12]     Matters have proceeded on this basis, with the media present.   However, given the interim orders that I had made, there has been no publication to date of the submissions or exchanges in court pending this determination of the application.

[13]     In  the  course  of  this  decision  I  consider  it  appropriate  to  review  the interlocutory order made by the Duty Judge in a Minute of 12 February 2010.   I invoke the power to vary orders under r 7.10 of the High Court Rules.   This is because that earlier Minute was made without opposition from the applicants, who then abided the decision of the court, and now oppose the making of confidentiality orders, (see paragraphs [34]-[35] below).  The court then did not have much of the information that is now before me.

Submissions

[14]     Mr Reed in a short submission relies on s 69 of the Evidence Act 2006.  He submits that that is the applicable section, and submits that it gives the court a discretion as to whether to direct that material not be disclosed.  He submits that on the basis of a balancing exercise, taking into account the factors set out in s 69(2) and (3), confidentiality orders should be made.  He submits that Mr Birnie’s interest in having his financial affairs remain confidential outweighs the public interest.  He

relies on a decision of Presley v Callplus Limited,[2] where orders were made relying

on  s 69  that  portions  of  affidavits  that  had  been  filed  in  a  derivative  action proceeding not be disclosed to any person other than the parties until further order of the court.  In reply he also relied in the alternative on the inherent jurisdiction of the court.

[2] Presley v Callplus Limited [2008] NZCCLR 37 at para [70]-[75].

[15]     Mr Kennedy for the applicants does not agree that it is now appropriate for there to be any confidentiality orders.   He states that his clients have a general concern that the information the respondents have given about Mr Birnie’s financial position should not be suppressed, as they are a matter of public interest.  He also submits that as a matter of practicality, there has already been so much publication of relevant material that it would cause serious confusion to now suppress some particular information.

[16]     The media companies that have taken an interest in this proceeding have briefed Mr Gray QC to present submissions on their behalf.  Mr Gray submits that the application should be tested against the court’s inherent jurisdiction to grant confidentiality orders.  He submits that s 69 of the Evidence Act 2006 has no part to play in the application as that section relates to the issue of whether information should be disclosed in a proceeding to the court, rather than to the public.  In so far as Presley v Callplus Limited might indicate a contrary view, he submits it should not be followed.  In opposing the request for confidentiality orders he relies on the principle of open justice.  He submits that the principles are now clearly known and understood.    The  onus  is  on  the  respondents  and,  he  submits,  they  have  not discharged it.  He also submits that the form of orders proposed by the respondents are unsatisfactory and would create uncertainty.   He submits there should be no confidentiality orders.

Does s 69 apply?

[17]     Prior    to    the    enactment    of    the    Evidence    Act 2006,    confidential communications were protected under s 35 of the Evidence Amendment Act (No. 2)

1980.   That section gave the court a general discretion to excuse a witness from answering a question or producing a document if the public interest in having the evidence disclosed to the court was outweighed by the public interest in preserving the confidence.  There is a similar common law rule.

[18]     The Law Commission Report,[3]  which led to the enactment of the Evidence Act 2006, stated that the proposed draft section (now s 69) would create a similar judicial discretion to that in s 35, but with a broader application.  Its purpose was to protect confidences not protected by the more specific provisions of the proposed Act.  That intention can be seen expressed in the words of s 69.  The discretion in s 69(1) relates to a discretion that material not be disclosed “in a proceeding”.  The judge under s 69(2) may give a direction if it is considered that the public interest in the disclosure “in the proceeding” is outweighed by the public interest in other matters.

[3] Law Commission Report Evidence Reform of the Law NZLC R55 Volume 1.

[19]     Thus, consistent with the intention expressed in the Law Commission Report, the section relates to the disclosure of material to the court itself, rather than confidentiality orders or suppression orders concerned with prohibiting the dissemination of information already filed with the court to the wider public. Therefore, I accept Mr Gray’s submission that s 69 has no application to the present situation.

[20]     Section 69 was applied in Presley v Callplus Limited, but that was by consent and at the conclusion of the substantive decision being delivered.  It seems from the orders made that they related to material already filed in affidavits, and the orders directed that the material not be disclosed to any person “outside of the parties to the proceeding”.[4]   The orders were made by consent and there was clearly no argument on what principles should apply.  If, as Mr Reed submits, the case is to be treated as authority  for  the  proposition  that  s 69  applies  to  the  dissemination  of  affidavit evidence already filed in the court to the wider public, then I decline to follow it.

[4] At para [73].

The applicable principles

[21]     The paramount principle is that justice should be administered in the open, and subject to the full scrutiny of the media.  This has been affirmed in many leading New Zealand decisions in the criminal area: R v Liddell,[5]and most recently in R v

[5] R v Liddell [1995] 1 NZLR 538.

B.[6]While the general expressions of the principle in the leading cases have not

[6] R v B [2008] NZCA 130.

depended on any particular statutory provision, there is specific statutory provision in the criminal area.  Section 138(1) of the Criminal Justice Act 1985 provides that subject to stated exceptions every sitting of any court dealing with any proceeding in respect of an offence shall be open to the public.   In relation to such criminal proceedings, s 138(2) and (3) contain a statutory exception in providing that there may be orders forbidding publication of evidence, submissions and names.

[22]     There are also specific provisions relating to confidentiality of proceedings in family and taxation legislation.   There is no such specific legislative provision in

relation to ordinary civil proceedings of this type, save for the access to court records provisions of the High Court Rules.  However, there is no doubt that the principle of open justice is given the same paramounce in civil proceedings as it is in criminal proceedings.  This has been affirmed in a number of leading New Zealand decisions, and I refer to Broadcasting Corporation of New Zealand v Attorney General,[7] Clark

[7] Broadcasting Corporation of New Zealand v Attorney General [1982] 1 NZLR 120.

v Attorney General,[8](a tax case), and Vasan v Medical Council of NZ.[9]

[8] Clark v Attorney General (2004) 17 PRNZ 554, 562.

[9] Vasan v Medical Council of NZ [1992] 1 NZLR 310 at 311, 312.

[23]     The  right  to  suppress  publication  in  civil  proceedings  has  also  been recognised as part of the inherent jurisdiction of the court.   In Taylor v Attorney General,[10] the identity of a security agent who gave evidence was suppressed.  The names of parties have been suppressed in a number of civil cases.[11]    However, all those decisions have been expressed as exceptions to the paramount principle of

[10] Taylor v Attorney General [1975] 2 NZLR 675.

[11] For instance, Re T [1975] 2 NZLR 449 at 453, Attorney General v Hancox [1976] 1 NZLR 171, Auckland Area Health Board v Attorney General [1993] 1 NZLR 235, Angus v Hutt Valley Health Corporation Limited HC Wellington CP 129/99 17 June 1999 Wild J.

open justice.  This has been emphasised in a number of recent decisions: Elworthy- Jones v Counties Trustee Co.,[12]  Glaister v Amalgamated Dairies Limited,[13]and Surrey v Speedy.[14]

[12] Elworthy-Jones v Counties Trustee Co. (2002) 16 PRNZ 392.

[13] Glaister v Amalgamated Dairies Limited (2002) 16 PRNZ 756.

[14] Surrey v Speedy (1999) 13 PRNZ 397.

[24]   The process of justice should be transparent, and the decision-maker accountable.   In a statement often quoted in judicial decisions, Jeremy Bentham said:[15]

[15] The Works of Jeremy Bentham. 11 Vols (Edinburgh: Tait, 1843) Vol. IV, p 316.

Publicity is the very soul of justice.  It is the keenest spur to exertion, and the surest of all guards against improbity.   It keeps the judge himself, while trying, under trial.

[25]     There is then, in civil proceedings, an onus on a party to establish a proper foundation for a confidentiality order, just as there is in criminal proceedings.  Given the paramount principle of open justice, it is necessary for a person seeking confidentiality   orders   to   point   to   some   public   interest   such   as   particular

circumstances relating to the privacy of an individual, to justify a departure from the open justice process.  For an example of a case where that onus was discharged, I refer to Angus v Hutt Valley Health Corporation Limited.  I conclude, therefore, that a party seeking to justify a confidentiality order will generally have to show specific adverse consequences that are exceptional.

This application

[26]     It is necessary to identify what the respondents seek to suppress.  With some small exceptions, the bulk of the material referred to relates to Mr Birnie’s financial position.  Although no full statement of assets and liabilities has been provided by Mr Birnie, there are frequent references in his affidavit and that of Mr Norrie to his inability to pay all or part of the $19 million that would be sought from him if leave was granted.  He casts doubt generally on his ability to meet any significant damages award.  The comments do not relate just to him personally but, because they are so closely linked to him, also to the Lion Rock vendors, who are the respondents the applicants wish to pursue in the second cause of action.  Mr Reed’s argument is that the  publication  of  these  details  could  lead  to  Mr Birnie  being  disadvantaged. Further, he submits that BCPP and the other applicants, the shareholders, will also be disadvantaged in that publication might prompt the Bank of New Zealand, which is a mortgagee of BCPP, to take action against it.

[27]     However, it is clear from the material before me that the Bank of New Zealand is fully aware of the proceedings claiming the $19 million, and is taking, as would be expected of a significant creditor, a most active interest in the affairs of BCPP.   I have no doubt that the Bank of New Zealand is aware of Mr Birnie’s financial position.  Publication will make no difference to that awareness.  It may be, as Mr Reed submits, that publication will place some extra pressure on the BNZ to act against BCPP, but there is no hard evidence of this.  Mr Kennedy, whose clients wish BCPP to survive and to maintain relations with the Bank, does  not share Mr Reed’s concern.   Thus, while I cannot discount a possible adverse reaction to further publicity, I can give it little weight.

[28]     I conclude that none of the material in the affidavits that the applicants have sought to suppress has any exceptional commercial sensitivity.  In this respect it can be distinguished from trade secrets or other commercial information that has the hallmark of exceptional sensitivity.   This material can be contrasted to that which was ordered to be confidential in Presley v Callplus Limited.  In that case much of the confidential information appears to have been of a technical nature and may have had a trade secret flavour.  Nor does this material have a personal or family flavour of the type that may on occasions give rise to confidentiality orders.   Nor does this proceeding have the flavour of an abuse of process, or some other unusual feature that might make a court more amenable to making orders.

[29]     I do, however, accept that it is generally embarrassing and unwelcome for any person to have their financial circumstances disclosed to the public, particularly when they are under severe financial pressure as Mr Birnie asserts he is.  Mr Reed submits that this court should not bow before the “tyranny of the media” and points out that Mr Birnie has not initiated these proceedings.  He submits that it is unfair that a litigant, who might be proven to be entirely blameless, should be subjected to intense media scrutiny of his otherwise confidential affairs, as a consequence of other persons choosing to sue him.

[30]     However, this is a feature of the litigation process.  As Viscount Haldane LC

commented in Scott v Scott:[16]

[16] Scott v Scott [1913] AC 417 at 439.

A mere desire to consider feelings of delicacy or to exclude from publicity details which it would be desirable not to publish is not, I repeat, enough as the law now stands.  I think that to justify an order for hearing in camera it must be shown that the paramount object of securing that justice is done would really be rendered doubtful of attainment if the order were not made. Whether the state of the law is satisfactory is a question not for a court of justice but for the legislature.

This statement must be seen in the context of the English position where the courts do not accept that they have inherent jurisdiction to make confidentiality orders in the civil context.   However, his observation has been applied in New  Zealand:

Glaister  v  Amalgamated  Dairies.[17]      More  recently Hansen J  stated  in  Gibson  v

[17] Glaister v Amalgamated Dairies (2002) 16 PRNZ 756 at 758.

Attorney General:[18]

[18] Gibson v Attorney General (1999) 13 PRNZ 12 at 17. 

There are many civil cases that come before the court where the evidence that is to be adduced may impact significantly, and disastrously, on a party’s business. That is a decision for the party to make in bringing the proceeding.

That comment was made in the context of a plaintiff’s application for confidentiality. A similar observation has been made in relation to defendants.[19]    Most defendants would rather not be in court, and they would rather not have their hitherto private affairs aired.   However, open justice requires that as a general rule this is a consequence of civil litigation.  More than embarrassment or detriment to reputation must be shown before a court will intervene.

[19] See Chambers J in Surrey v Speedy.

[31]     It is also significant that there has been extensive publication about the issues in this proceeding already.  Articles have been published in periodicals and online. The nature of the dispute is well known, including the fact that Mr Birnie’s interests could be liable to repay $19 million, and that his financial vulnerability is raised as a reason for not granting leave.   It is unsatisfactory to have one important aspect of that dispute suppressed.  This could lead to an essential aspect of the arguments, and the reasoning in the decision, not being understood and, therefore, not being transparent and open to scrutiny.

[32]     Mr Reed points out that decisions given by the Commerce Commission will often contain redacted portions.  However, as Mr Gray has submitted, the reason for this is likely to be the fact that publication of the details of confidential pricings and other information in a Commerce Commission context could in itself be anti- competitive.  In this court it will only be in exceptional circumstances that part of the court’s reasoning is removed from the public version of a decision.

[33]     There is also force in Mr Kennedy’s submission that given the publicity that has already taken place in this hearing itself, where difficulties of recovering the

$19 million have been expressly alluded to, any further confidentiality orders would

be rather pointless.  Undoubtedly any discerning listener to the submissions already given, or reader of an account of them, will assume that a central issue is Mr Birnie’s financial position and that of his associated interests’ ability to repay the claimed indebtedness.

[34]     I appreciate that if I decline the application, I am also varying an order which granted confidentiality at an earlier date to parts of the affidavits originally filed by the respondents.  There were a total of 26 paragraphs in those affidavits and 11 pages of exhibits that were ordered to be confidential.  However, as I have observed, those orders were made without the benefit of argument, and the applicants who then did not oppose them now do.   There have been a number of material changes of circumstances since then, in particular the further publication of more material about the case and the publication of the submissions in this hearing.

[35]     I  conclude  that  the  orders  that  were  made  should  be  rescinded.    The applicants have not made out a general case for confidentiality orders.  There are two exceptions.  At paragraph 32 of Mr Norrie’s affidavit there is a critical reference to a third party.  That third party has not been at court and accordingly was not able to provide any response.  The comment is not central to the respondents’ case.  I take the view that in the interests of fairness that paragraph should be confidential.

[36]     Also, at paragraph 82 in Mr Birnie’s affidavit he responds to a request for freezing orders that are no longer sought.  That paragraph is, therefore, irrelevant to the  issues  before  the  court  and  it  contains  some  confidential  information  about Mr Birnie’s affairs.  That paragraph will also be confidential.

Result

[37]     The confidentiality orders made on 12 February 2010 are revoked.

[38]     The  application  for  confidentiality  orders  is  declined,  save  for  orders

(pending further order of the court) that paragraph 32 of Mr Norrie’s affidavit of

15 February 2010, and paragraph 82 of Mr Birnie’s affidavit of 15 February 2010,

are to be treated as confidential and not to be published.  If copies of the affidavits are made available to non-parties they will be redacted accordingly.

[39]     There are no other confidentiality orders in relation to these proceedings.

...................................

Asher J

Solicitors:

Z  Kennedy/M Pascariu, MinterEllisonRuddWatts, Auckland (zan[email protected] ,

miha[email protected] ,  emma[email protected] ) T Ivanson, Gellert Ivanson, Auckland (tony[email protected] ) Copy:

MP Reed QC/PA Morten, Auckland ([email protected] ) BD Gray QC, Auckland ([email protected] )

G Horton, Harmos Horton Lusk Ltd (greg[email protected]z ) S Norrie ([email protected] )

W McCulloch, Birnie Capital Property Partnership Limited ([email protected] ) K Gregor, New Zealand Herald, Auckland (Kelly[email protected] )

J McManus, Fairfax Media, Auckland (jenni[email protected] )