Porowini Investments Limited v Hawthorne Geddes Engineers and Architects Limited
[2019] NZHC 524
•20 March 2019
IN THE HIGH COURT OF NEW ZEALAND WHANGAREI REGISTRY
I TE KŌTI MATUA O AOTEAROA WHANGĀREI-TERENGA-PARĀOA ROHE
CIV-2016-488-147
[2019] NZHC 524
BETWEEN POROWINI INVESTMENTS LIMITED
First Plaintiff
PACIFIC MOTOR GROUP LIMITED
Second Plaintiff88 DENT STREET LIMITED
Third PlaintiffAND
HAWTHORNE GEDDES ENGINEERS and ARCHITECTS LIMITED
First Defendant
HILL CONSTRUCTION (2006) LIMITED
Second DefendantWHANGAREI DISTRICT COUNCIL
Third DefendantPETER MARK LISLE GEDDES
Fourth Defendant/First Third Party
CIV-2018-488-134 BETWEEN
PACIFIC MOTOR GROUP LIMITED
PlaintiffAND
POROWINI INVESTMENTS LIMITED
Defendant
AND
HAWTHORNE GEDDES ENGINEERS AND ARCHITECTS LIMITED
First Third Party
HILL CONSTRUCTION (2006) LIMITED
Second Third Party
POROWINI INVESTMENTS LIMITED v HAWTHORNE GEDDES ENGINEERS and ARCHITECTS LIMITED [2019] NZHC 524 [20 March 2019]
WHANGAREI DISTRICT COUNCIL
Third Third Party
PETER MARK LISLE GEDDES
Fourth Third Party
Hearing: 18 March (in Whangarei)
20 March 2019 at 2:15pm (in Auckland)
Appearances:
I C Bassett for Pacific Motor Group Limited
J K Goodall for Porowini Investments Limited
S-J Telford for Hawthorne Geddes Engineers and Architects Ltd and for Peter M L Geddes
T J Rainey for Hill Construction (2006) Limited A V Davison for the Whangarei District Council
Judgment:
20 March 2019
ORAL JUDGMENT OF ASSOCIATE JUDGE R M BELL
[1] I directed this hearing after a case management conference on Monday 18 March 2019. The purpose of the hearing is to give rulings on how to deal with protecting the confidentiality of documents where Pacific Motor Group Ltd seeks added protection.
[2] Pacific Motor Group Ltd filed a supplementary affidavit of documents in November 2018. Part 3 of that affidavit (which runs for over 40 pages) sets out documents for which Pacific Motor Group Ltd claims confidentiality and for which it seeks heightened protection against misuse by the other parties. It seeks restrictions on use and disclosure of the documents in Part 3. It asks that disclosure of documents in some cases be limited to the other parties’ lawyers and expert witnesses, but not extended further.
[3] For the hearing today, the issues have narrowed. The copy of the affidavit with Part 3 lists many documents. Some of them have been highlighted in yellow (the “yellow highlighted documents”). Also listed are franchise agreements between Pacific Motor Group Ltd and various franchisors. Finally, there is a report by Deloitte
made in 2014. Apart from those three groups of documents, Pacific Motor Group Ltd agrees that the balance of the documents listed can be treated as documents which can be disclosed and used in the proceeding without any further restrictions. That is, those documents may be used subject to the restrictions in r 8.30 of the High Court Rules, but Pacific Motor Group Ltd does not seek any added protection for those other documents.
[4] I note from their descriptions that the documents which do not fall into the three special classes would ordinarily be held by Pacific Motor Group Ltd and not shared with the rest of the world. They include, for example, financial statements. Pacific Motor Group Ltd is naturally concerned to keep knowledge of its financial statements restricted. It is, after all, a private company, not a publicly listed company. The profitability or otherwise of the company is a matter of interest only to its directors and shareholders. These financial records have had to be disclosed because of the damages that the Pacific Motor Group Ltd is claiming in both proceedings. The financial records will go to show how it can claim damages.
What the proceeding is about
[5] Pacific Motor Group Ltd carries on business as a motor vehicle dealer. It is a franchisee for Ford, Mazda, Suzuki, Mitsubishi and the AA. It operates in Porowini Avenue, Whangarei. It formerly carried on business in Lower Dent Street but in 2009 it disposed of those premises when Pak’N’Save was extended and Foodstuffs bought the Pacific Motor Group Ltd site. Porowini Investments Ltd bought the land in Porowini Avenue where Pacific Motor Group Ltd has its car dealerships. In the beginning, both Porowini and Pacific Motor Group Ltd were owned by Mr Sheard and by a Mr Roger Taylor who has been associated with other car dealerships and now lives in Dunedin. In 2014, Mr Taylor sold out his interests in Pacific Motor Group Ltd to Mr Sheard. Mr Taylor and Mr Sheard continue to have interests as directors and shareholders in Porowini Investments Ltd.
[6] When Porowini Investments Ltd and Pacific Motor Group Ltd developed the site for the car dealerships they obtained building consents from the Whangarei District Council. They instructed local engineers, Hawthorn Geddes Engineers and
Architects Ltd, to carry out the site survey and design work. Mr Geddes, the fourth defendant, is the director of that company. Hill Construction (2006) Ltd carried out the construction work. Whangarei District Council issued building consents for the two buildings, described in the pleadings as Stages 1 and 2.
[7] The site has suffered differential settlement that has resulted in structural damage to the buildings. That led Porowini Investments Ltd and Pacific Motor Group Ltd to begin the 2016 proceeding. They seek damages for the structural damage to the buildings, the work needed to prevent further settlement and to repair and reinstate the buildings and for associated financial losses. That may include financial losses while work is carried out and associated business interruption losses. The current statement of claim pleads damages, but the amounts have not been quantified yet.
[8] In the 2018 proceeding, Pacific Motor Group Ltd alleges that it and Porowini Investments Ltd are in a joint venture and that Porowini is obliged to apply damages awarded in the 2016 proceeding to remediate the buildings so that Pacific Motor Group Ltd can continue its business from those premises as a going concern. It seeks financial relief from Porowini in case that company does not apply the damages towards remediation.
High Court rules and principles in confidentiality cases
[9] Rule 8.2 emphasises that the parties must co-operate in discovery processes. That goes to when questions of confidentiality arise. It is preferable that the parties agree on arrangements to protect confidentiality in documents. As the Court of Appeal emphasised in Port Nelson Ltd v Commerce Commission,1 experienced counsel should be able to resolve these matters and should not have to come to court for directions.
[10] Under r 8.15 of the High Court Rules, an affidavit of documents must list any documents for which confidentiality is claimed and state any restrictions proposed to protect the claim to confidentiality of the documents. Under r 8.16, the schedule to the affidavit is required to list those documents which are in the control of a party
1 Port Nelson Ltd v Commerce Commission (1994) 7 PRNZ 344 (CA).
giving discovery for which confidentiality is claimed, stating the nature and extent of the confidentiality.
[11] Under r 8.28(3), the party may limit inspection of confidential documents to persons specified in the affidavit subject to restrictions proposed in the affidavit. Under r 8.25, other parties may challenge claims to privilege or confidentiality. On such an application the court may modify or set aside the claims. Under r 8.29, the court may give directions to facilitate inspection.
[12] Rule 8.30 controls use of documents made available on procedural discovery. Rule 8.30(4) says:
(4) A party who obtains a document by way of inspection or who makes a copy of a document under this rule—
(a)may use that document or copy only for the purposes of the proceeding; and
(b)except for the purposes of the proceeding, must not make it available to any other person (unless it has been read out in open court).
Compliance with that rule is important to maintain confidence in the discovery process. The bar on collateral use applies whether the documents are confidential or not. So when the court applies restrictions to confidential documents, it ensures greater protection against collateral use of the information in the documents, whether or not the information would ordinarily be available to the public at large. There may be different levels of protection required according to the information in particular documents.
[13] In this case, the defendants have not applied under r 8.25. Instead Pacific Motor Group Ltd has made its own application seeking directions on how to deal with the confidentiality issue. Given that the parties have not reached agreement on these matters, that was an appropriate course for Pacific Motor Group Ltd to take.
[14] In deciding how to deal with protecting confidentiality in documents, it is necessary to strike a balance. There are legitimate but competing considerations. On the one hand, there is the need to allow one side to have adequate access to documents
relevant to a proceeding, and on the other hand there is the need to protect the side making disclosure from improper use of those documents following discovery and inspection.
[15] There is helpful guidance from the Court of Appeal in Port Nelson Ltd v Commerce Commission.2
The ability of each party to a proceeding to inspect the documents of the other, except for documents which are privileged, is important in enabling the proceeding to be brought to a just conclusion. It avoids parties being taken by surprise. It enables legal advisers to better assess the likely outcome of trial, and to concentrate on what will ultimately prove to be the real issues. In this way it can save cost. Sometimes, however, relevant documents which are not privileged may be commercially sensitive. Examples would be documents showing the detailed costings of products or services which are provided in a competitive market, the marketing plans for a proposed new product, or a patent specification during the period before the application has been accepted and made available for inspection. In some cases, it may be sufficient protection that “a party who seeks discovered documents gets them on condition that he will make use of them only for the purposes of that action and for no other purpose”. … In other cases, the courts have directed that particular documents are to be shown only to nominated persons, typically solicitors, counsel and expert witnesses.
The Court added:3
It is a matter of balancing on the one hand the interests of justice in ensuring that the Commission is able to prepare and present its case, and on the other the interests of Port Nelson in safeguarding its confidential information in a competitive market.
And:4
An order for non-disclosure can only be made when the Court is satisfied in terms of r 312 that such an order is “necessary”. It must be either apparent from the document in question or shown by other evidence that disclosure would be likely to prejudice the party in some significant way. Even the possibility of prejudice may be sufficient, but that will depend on the seriousness of the possible prejudice and on the significance of the document to the issues in the proceeding, and the extent to which limited disclosure may enable the concerns of both parties to be accommodated.
2 Port Nelson Ltd v Commerce Commission (1994) 7 PRNZ 344 (CA) at 347
3 At 348.
4 At 348.
The Court stated that documents must be approached on a one-by-one basis and:5
This is the responsibility of counsel. In the vast majority of cases counsel should be able to agree whether or not a document is such as to require special protection, bearing in mind the restrictions on the use of discovered documents which apply in any event. Where there is some genuine point of difference which warrants referral to the Court, then the Judge can decide. Such referrals should be rare where experienced counsel are involved.
The three classes of documents in this case
The Deloitte report
[16] Mr Bassett explained that the Deloitte report was prepared for Mr Sheard and his interests when they were contemplating the purchase of Mr Taylor’s shares in Pacific Motor Group Ltd. There is nothing in the case to show that the report has been disclosed to Mr Taylor and none of the other defendants have seen it. The document is obviously relevant because it goes to establishing the value of the shares in the company at that time. I can imagine the defendants being critical if they knew that document existed but had not been disclosed.
The yellow highlighted documents
[17] The yellow highlighted documents are financial records which will be of key interest to any independent forensic accounting expert retained by the defendants.
Franchise agreements
[18] The franchise agreements between Pacific Motor Group Ltd and the franchisors are obviously required so that Pacific Motor Group Ltd can show the basis for its business. Indeed, Mr Goodall recognised the relevance of these agreements when he related their importance to the claim against his client. He pointed out that Pacific Motor Group Ltd is claiming that the franchises could potentially be in jeopardy if the premises are not restored.
5 At 349.
[19] The question is whether these documents require any heightened level of protection and whether there is any need to restrict disclosure of these documents.
[20] Pacific Motor Group Ltd’s position is that the lawyers acting for the other parties may see those documents, as may any experts retained by the other parties – for example, forensic accountants – but Pacific Motor Group Ltd wants to draw the line on the directors of the defendants receiving and reading copies of those documents. It says that the Whangarei business community is small, and there are close business relationships that mean there is a real risk to Pacific Motor Group Ltd if documents were made available to the directors of the other parties. This is because they may in turn pass those on to others in the motor trade in Whangarei. The evidence of Mr Sheard pointed to connections between the defendants and others. For example, it was said that Mr Geddes, the fourth defendant, is in an engineering practice which shares premises with a firm of surveyors, Reyburn and Bryant Ltd, and a Mr Woodward has been a director of Reyburn and Bryant Ltd. Reyburn and Bryant are surveyors and worked with Hawthorn Geddes Engineers and Architects Ltd on the development of the site. Mr Woodward apparently has retired but he is said to have 50 per cent interest in another motor vehicle dealership, Northland Toyota, whose premises are over the road from Pacific Motor Group Ltd in Porowini Avenue. There are similar suggestions that the directors of Hill Construction may also pass on information to others in the motor trade at Whangarei. That, then, is said to be the risk.
[21] Mr Bassett emphasised that some of the franchise agreements have provisions as to confidentiality. The franchise agreements are said to be the life-blood of the businesses. Without those franchise agreements, Pacific Motor Group Ltd could not carry on business as an established motor vehicle dealer but would revert to being no more than a company selling second-hand vehicles.
[22] Against that, it is necessary to consider the interests of the other parties. Increasingly, it has been recognised that if a party is to conduct litigation properly it is not always appropriate to restrict disclosure of documents to lawyers and expert witnesses. They must be able to give full and informed advice. Parties are at a disadvantage in deciding how to run a proceeding and whether to settle or not without
full and informed advice from their lawyers and other professional consultants. For a
useful comment on this, I refer to the text “Disclosure”:6
In modern times, however, it is rare that the claimant himself (or, where the claimant is a corporate body, a named officer) is excluded from knowledge, because decisions whether to continue or abandon the action, for example, should be made by the claimant, and not by his advisers.
[23] In this case, I am not satisfied that allowing the directors of the defendants and (in the case of the Whangarei District Council) senior officers of the council to see the documents would pose an unacceptable risk to Pacific Motor Group Ltd, so long as there are appropriate undertakings in place. Mr Bassett submitted that disclosure of these documents would give the other defendants a road-map for running a successful multi-franchise motor vehicle dealership. None of the defendants is in competition against the defendant. That is subject to a comment about Mr Taylor, who has been in the motor trade in the past but is not currently in business. There is a suggestion by Mr Sheard that he may come back into a motor vehicle business in Whangarei, and that he has explored taking an interest in the Toyota dealership. All the same, I discount the risk that disclosure of any of the three classes of documents would in fact pose any serious threat to the business interest of Pacific Motor Group Ltd.
[24] The terms of the franchise agreements do not appear to raise any particular problems. I have no doubt that each of the franchisors has terms in its franchise agreement which require Pacific Motor Group Ltd to adhere to standards for marketing, providing a parts service, servicing vehicles, as well as payment terms and the like. The terms of franchise agreements are relatively common. These ones are hardly likely to come as a surprise to anyone. I bear in mind also that Mr Taylor is apparently a signatory to some of the agreements. It is unlikely that he would learn anything new from those agreements being disclosed to him.
[25] The other matters are financial records and the Deloitte report. They are the kind of information that would ordinarily be disclosed in any proceeding where financial losses need to be established. A claim for financial losses inevitably requires a disclosure of financial records.
6 Disclosure, Paul Matthews & Hodge M Malek, (5th ed 2017, Sweet & Maxwell, London) at 479, para 15.28.
[26] I see little risk to Pacific Motor Group Ltd in those documents being disclosed to the defendants and to Porowini Investments Ltd. In my view, there can be adequate protection if:
[a]the disclosure of the documents within the three classes is restricted to certain named people;
[b]it is recorded that the documents are confidential;
[c]undertakings are given to keep those documents confidential, not to use them for any other purpose except this proceeding, and not to disclose them to anyone else except those people who have themselves been allowed disclosure under this order; and
[d]the documents are to be returned to Pacific Motor Group Ltd or destroyed at the end of the proceeding, whether by court decision or by settlement.
[27] Undertakings are required accordingly. I trust counsel to be able to draft proper terms of those undertakings. The parties should be able to resolve that matter themselves without any difficulty.
[28] One final matter. It was proposed that Pacific Motor Group Ltd should re- swear its supplementary affidavit of documents given that many the documents are now to be treated as if they had been originally listed under Part 1. This decision ought to be sufficient to record the current position for those documents. So long as the matters are recorded in this decision, I see no reason to require Pacific Motor Group Ltd to make a further affidavit amending its supplementary affidavit.
[29] As to costs, this hearing has gone very much as an extended case management conference to work out how confidentiality ought to be addressed. Argument was required. Costs are reserved, to be decided later.
[30] For clarification, those who may receive documents are Mr Roger Taylor, Messrs James Blackburn, Dean Botica, Philip Higham and Peter Geddes of Hawthorn
Geddes, Messrs Senescall and Wayne Hill of Hill Construction, and the CEO and CFO of the Whangarei District Council. Disclosure should also be made to the parties’ lawyers and to any consultants retained as expert witnesses for the proceeding. For those parties that carry insurance, there may be disclosure to the insurers.
……………………………….
Associate Judge R M Bell
Solicitors:
Marsden Woods Inskip Smith (J Golightly), Whangarei, for the First Plaintiff and Third Plaintiff BSA Law (V J Singh), Auckland, for the Second Plaintiff (Pacific Motor Group Ltd)
Morgan Coakle (S-J Telford/L Cox), Auckland, for the First and Fourth Defendants Rainey Law (M Frogley), Auckland, for Second Defendant
Rice Speir (H M Rice/A Davison), Auckland, for the Third Defendant
Copy for:
Jason Goodall, Barrister, Auckland, for the First Plaintiff and Third Plaintiff Ian C Bassett, Barrister, Auckland, for the Second Plaintiff
Tim J Rainey, Barrister, Auckland, for the Second Defendant
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