Pure Elite Holdings Limited v BodCo Limited
[2018] NZHC 2845
•5 November 2018
IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY
I TE KŌTI MATUA O AOTEAROA KIRIKIRIROA ROHE
CIV-2016-419-0261
[2018] NZHC 2845
BETWEEN PURE ELITE HOLDINGS LIMITED
First Plaintiff
PEH NEW ZEALAND LIMITED
Second Plaintiff
EVER HEALTH NEW ZEALAND LIMITED
Third Plaintiff
AND
BODCO LIMITED
First Defendant and First Counterclaim Plaintiff
Continued over page...
Hearing: 19 April 2018
Further submissions 2, 8, 9 and 17 May 2018
Appearances:
A S Ross QC and C Jiang for the Plaintiffs and the Counterclaim Defendants
S W Hood and E R Anderson for the First Defendant S M Jass for the Second and Third Defendants
Judgment:
5 November 2018
JUDGMENT OF ASSOCIATE JUDGE SMITH
This judgment was delivered by me on 5 November 2018 at 4.00pm, pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
PURE ELITE HOLDINGS LTD v BODCO LTD [2018] NZHC 2845 [5 November 2018]
BRIAN NOEL WAGSTAFF
Second Defendant and Second Counterclaim Plaintiff
RICHARD CHEW YOUNG
Third Defendant and Second Counterclaim Plaintiff
RANDOLPH EDWARD CASIMIR VAN DER BURGH
Fourth Counterclaim Defendant
GEOFFREY IAN POLLARD
Fifth Counterclaim Defendant
[1] The plaintiffs apply for particular discovery against the first defendant (BODCO).
The defendants' discovery lists and the application for particular discovery
[2] On 31 October 2016, the parties were directed to file and serve discovery lists. By consent, the discovery was to be standard discovery under r 8.7 of the High Court Rules 2016.
[3] BODCO has filed two affidavits of documents. The first was filed on 22 December 2016. The second affidavit was filed on 11 April 2018.
[4] The plaintiffs had filed an application for particular discovery after they were served with BODCO's first affidavit of documents. On receipt of BODCO's second discovery list, the plaintiffs elected to file a fresh application for particular discovery. The fresh application was only filed a few days before the hearing.
[5] At the hearing, Mr Hood advised that he was not ready to address the plaintiffs’ new discovery application. By consent, I heard submissions from Mr Ross in support of the application, and made directions for BODCO to file written submissions in opposition, and the plaintiffs to file written submissions in reply. Submissions have since been received from both parties.
Background
[6] The plaintiffs say that the first plaintiff (Pure Elite) was established in 2012 to pursue opportunities for the sale of New Zealand dairy products to China, including infant milk formula.
[7] Pure Elite was interested in acquiring production assets in New Zealand to support what would be a vertically integrated chain, from farm gate through processing, canning and blending plants, to the Chinese market. The products would be distributed through the third plaintiff (Ever Health) and joint venture partners in Hong Kong and China.
[8] The plaintiffs say that the second defendant, Mr Wagstaff, who was a director of BODCO, approached them in about May 2014 to discuss the creation of an independent supply chain of milk powder products from New Zealand to China. Mr Wagstaff was also a director of Danpac (NZ) Ltd (Danpac), and Danpac owned the business and assets of a powdered milk canning and blending plant then under construction at Te Rapa, Hamilton.
[9] Discussions ensued. A central component of the discussions was the capitalization of Danpac, to allow the construction of the plant to be completed and the business to be developed. The Danpac business would provide a necessary component of the vertical integration plan. There were also discussions over raising USD200,000,000 in capital for the acquisition of Mataura Valley Milk (MVM). Through a trust, Mr Wagstaff was a shareholder in MVM.
[10] The discussions culminated in the signing of a short Heads of Agreement document on 24 September 2014 (the HOA). The HOA contained a clause stating that it was subject to each party receiving legal and tax advice acceptable to them, but it also contained a provision stating that it was intended to create binding legal obligations between the parties.
The terms of the HOA
[11] The parties to the HOA were Pure Elite, Danpac, BODCO, Mr Wagstaff and the third defendant Mr Young. I will refer to BODCO, Mr Wagstaff and Mr Young collectively as "the BODCO parties". The second plaintiff (Pure Elite New Zealand) was also named as a party, although it had not then been incorporated.
[12] The HOA recorded that BODCO then owned 100 per cent of Danpac, and that Danpac required cash to complete the construction and commissioning of its Te Rapa plant, and also for working capital. The total investment required was assessed at
$10,413,000, and that sum would be contributed in the proportions $5,310,630 by Pure Elite New Zealand, and $5,102,370 by BODCO. The parties recorded that a further
$3,000,000 might be required in 2015 and beyond to meet Danpac's capital needs.
[13] The $10,413,000 was broken down into two sums. First the sum of $3,000,000 which would be required to meet Danpac's working capital requirements in the period to 31 December 2014. Secondly, there was the cost of the (partially completed) building and plant, agreed to be $7,413,000.
[14] Mr Wagstaff warranted that, within 30 days of signing the HOA, he would procure the transfer to Danpac of all assets of the Danpac business not already owned by Danpac. The sum of $1,600,000 was credited for the transfer of those assets, leaving BODCO's cash contribution to the capitalisation of Danpac at $3,502,370.
[15] On transfer of those assets and payment of its cash contribution, BODCO would subscribe for 49 per cent of the capital of Danpac. Pure Elite New Zealand (or its nominee) would subscribe for the remaining 51 per cent of Danpac, in consideration for the $5,310,630 to be paid by it "in cash, paid up in accordance with agreed milestones".1
[16] Danpac's board was to consist of five directors, three to be appointed by Pure Elite New Zealand and two by BODCO.
[17] All of these arrangements were subject to Pure Elite completing due diligence to its satisfaction within 30 days of signing the HOA, and (within the same period) the parties agreeing a revised business plan and budget for Danpac, to cover the ensuing 18-24 months. With those things attended to, Pure Elite was to establish Pure Elite New Zealand, and "capitalise Danpac in a manner that ensures the most appropriate corporate structure between the parties…"2
[18] There appears to have been no clear agreement on when the parties were to make their respective cash contributions to the capitalisation of Danpac, beyond an agreement to commit the necessary resources and work together to plan, facilitate and complete the capitalisation, within 30 days of signing the HOA. Cl 2.2(c) provided that Pure Elite New Zealand's contribution was to be subject to the approval of the revised business plan and budget for the next 18-24 months, and that "The investment
1 HOA, cl 17.
2 HOA, cl 1.1.
may or may not be injected in tranches linked to milestones either time and/or goal orientated as per the business plan."
[19] The HOA did contain a timeline, which envisaged completion of the capitalisation of Danpac "as per business plan" within 31-90 days and completion of Danpac's plant within the same period. However, that appears to have been conditional on a number of steps, including reaching agreement on a revised business plan and budget for the next 18-24 months.
[20] An exclusivity clause in the HOA required Danpac and the BODCO parties to terminate any discussions then taking place with any other person concerning the capitalisation of Danpac. That restriction was to last for 30 days from the date of the HOA.
Implementation of the HOA
[21]Mr Hood summarised the events after the signing of the HOA, as follows:
(1)On 20 October 2014, the Companies Office records for Danpac were amended to show Pure Elite New Zealand as holder of 51 shares;
(2)The plaintiffs did not raise any capital.
(3)[Mr Wagstaff] voiced his concerns at the funding delays and sought changes to the shareholding of Danpac;
(4)The plaintiffs did not accede to these suggestions or make any capital contributions;
(5)30 days after the signing of the HOA, the exclusivity period expired and the defendants sought alternative funding and/or partnership arrangements;
(6)On 23 February 2015, the Companies Office register was amended to remove [Pure Elite New Zealand] as a 51 per cent shareholder in Danpac;
(7)The plaintiffs allege that on 12 May 2017, they cancelled the HOA for repudiation by the BODCO parties;
(8)Despite never having contributed any capital to Danpac, the plaintiffs have sued the defendants for NZ $55,000,000 and NZD$227,000,000.
[22] The plaintiffs say in their claim that a number of steps were taken by the parties pursuant to the HOA. Some of them are mentioned in the brief summary provided by
Mr Hood. They say that Pure Elite carried out due diligence in relation to Danpac, and on 22 November 2014 it incorporated Pure Elite New Zealand. On 20 October 2014, Ever Health (not Pure Elite New Zealand) was registered as the owner of 51 shares in Danpac, for which it paid $51. That gave Ever Health a 51 per cent majority shareholding in Danpac. The balance of the Danpac shares (49 shares) was then held by BODCO.
[23] On 24 November 2014, Pure Elite New Zealand acquired Ever Health's 51 shares in Danpac. The transfer of those shares was authorised by Danpac's board by resolution dated 5 December 2014. 3 However this transfer was never registered in the Companies Office.
[24] The third defendant (Mr Young) resigned as a director of Danpac, and that resignation was registered in the Companies Office on 21 October 2014. Mr Wagstaff remained a director of Danpac.
[25] Mr van der Burgh and Mr Pollard, respectively the fourth and fifth counterclaim defendants, were appointed as directors of Danpac representing the plaintiffs. The plaintiffs say those appointments were registered with the Companies Office on 28 October 2014. Following those appointments, Danpac's board consisted of Mr Wagstaff, Mr van der Burgh, and Mr Pollard.
[26] The plaintiffs say that Pure Elite provided a part-time financial controller for Danpac, and that Mr van der Burgh became a joint signatory of Danpac's bank account. Pure Elite was represented at numerous operational and budget meetings of Danpac, and established financial systems, record-keeping systems, and reporting templates for Danpac.
[27] The plaintiffs say that BODCO also carried out a number of steps pursuant to the HOA, including providing an asset register to Pure Elite New Zealand, providing
3 The relevant directors' resolution, as pleaded by the defendants in their second amended statement of defence, read:
That the transfer of 51 shares in Danpac (NZ) Limited from [Ever Health] to [Pure Elite New Zealand] be entered into the company's register of members.
budget and financial records to Pure Elite New Zealand, and providing existing business plans to Pure Elite New Zealand.
[28] However, no business plan and budget covering the 18-24 month period following the signing of the HOA was ever agreed. The plaintiffs say that there was thus no clear time frame for Pure Elite New Zealand and BODCO to make their respective cash contributions.
[29] By the end of 2014, no capital had been put into Danpac. The plaintiffs say in their claim that BODCO was unable to contribute its cash of $3,502,370 under the HOA, and that they themselves encountered delays in meeting their capital commitment. They plead that, as a result of the parties' mutual delays in raising their capital commitments, BODCO, Pure Elite and Pure Elite New Zealand did not finalise the revised business plan, or complete a shareholders' agreement, a sales and marketing plan, or the appointment of a managing director or chief financial officer for Danpac.
[30] Nevertheless, the plaintiffs say that, in reliance on the HOA and the agreed scheme to develop the business, they committed significant resources during January, February and March 2015 to secure the first drawdown from a party they described as their new cornerstone funding partner. Their position is that despite both sides' delays in paying in their capital contributions, the HOA remained on foot. Neither side made time of the essence, and both considered themselves bound by the HOA. The plaintiffs say that the parties also continued with their contemporaneous endeavours to raise the USD200,000,000 in respect of the MVM part of the business scheme.
The defendants' alleged breaches of the HOA
[31] In their second amended statement of claim4 the plaintiffs contend that, from late February 2015, the defendants took a number of steps which constituted wrongful repudiation of the HOA. These steps were said to be (i) procuring the purported
4 The plaintiffs have very recently filed a third amended statement of claim, but counsel confirmed in the course of a telephone conference convened on 31 October 2018 that the further amended pleading does not affect the issues in the plaintiffs' particular discovery application, and that I may deliver judgment on the particular discovery application without reference to the third amended statement of claim.
removal of Mr van der Burgh and Mr Pollard as directors of Danpac (without any notice to them), (ii) procuring amendments to the Companies Office register to reflect those steps, (iii) wrongly procuring the removal of Pure Elite New Zealand as the registered holder of 51 shares in Danpac (leaving BODCO as the only registered shareholder of Danpac), and (iv) procuring an amendment to the Companies Register to show the re-appointment of Mr Young as a director of Danpac.
[32] The plaintiffs say that on 19 February 2015 Mr Wagstaff and Mr Young signed a document purporting to contain resolutions of the board of directors of Danpac. The document recorded Danpac's entry into the HOA, and Ever Health's agreement, among other things, to acquire the 51 per cent shareholding in Danpac. It then stated that Ever Health did not pay the subscription price, and that accordingly the transaction contemplated by the HOA was not completed. The document went on to record the appointment of Mr van der Burgh and Pollard as signatories on Danpac's bank account, and stated that Danpac's Companies Office particulars were "erroneously amended in relation to the appointment of Ever Health directors, the resignation of [Mr Young] as a director of [Danpac] and the transfer of shares to Ever Health". The document stated that Danpac's directors did not update the share register and the directors' register. It then referred to cl 10.16 of Danpac's constitution, which was said to allow the directors to pass a board resolution unanimously in writing without holding a board meeting.
[33]The 19 February 2015 Danpac board resolutions read as follows:
1.The Company remove the Ever Health Directors as signatories on the Company's bank account.
2.The Company immediately repay the Ever Health loan.
3.The Company rectify the Companies Office Records to reflect the Company's register by:
a.removing the Ever Health Directors as directors;
b.reinstating Richard Chew Young as a director of the Company; and
c.amend the shareholding to reflect the Company share register.
4.The Company change its registered office and address for service to the following address:
[Wynn Williams' Auckland premises]
5.Wynn Williams is authorised to give notice of the changes set out in paragraph 3 and 4 above to the Companies Office using the company key.
[34] The plaintiffs say that a number of steps were then taken pursuant to those resolutions. On 23 February 2015, a "Particulars of shareholding" document was registered at the Companies Office. It showed the removal of Ever Health as a shareholder, and the allocation of Ever Health's shares to BODCO. "Particulars of Director" documents filed on the same day stated that Mr Pollard and Mr van der Burgh had ceased to be directors from 23 February 2015.
[35] Another "Particulars of Director" form was registered on 9 March 2015. It showed that Mr Young had been appointed as a director of Danpac, on 23 February 2015.
[36] The plaintiffs say that these (allegedly unauthorised) actions made it possible for the defendants to cause Danpac, by deed dated 27 February 2015, to issue $500,000 in convertible notes (equal to 10 per cent of the shares in Danpac) to a financier called Zhuhai Hengqin Aorta Investment Co Limited (Zhuhai).
[37] Notwithstanding the plaintiffs' pleaded view that these steps taken by the defendants amounted to wrongful repudiation of the HOA, the plaintiffs say they did not cancel the HOA. Indeed, they plead that Mr Pollard, acting on behalf of all of the plaintiffs, affirmed the HOA by writing to Mr Wagstaff on 26 March 2015 and demanding that the allegedly unauthorised actions be rectified.
[38] The plaintiffs plead further breaches of the HOA by the defendants from and after 29 October 2015, including the appointment of Braithwaite and Pearks Limited (Braithwaite) as Danpac's authorised company agent, without the knowledge or authority of Mr van der Burgh and Mr Pollard. They say that Braithwaite then procured further amendments to the Companies Office records for Danpac, again without the knowledge or approval of Mr van der Burgh or Mr Pollard.
[39] Later, BODCO entered into a subscription agreement with China Animal Husbandry Group (CAHG). The plaintiffs say that BODCO's new solicitors, McBreens, represented to CAHG's solicitors (Bell Gully) that no other party had held any interest in Danpac. The plaintiffs refer to a "critical exchange" between McBreens and Bell Gully in the period December 2015 to January 2016, in which Bell Gully asked for clear assurances that no other party had held any interests in Danpac. By letter dated 15 January 2016 McBreens sent Bell Gully copies of Danpac's share register and register of directors, and advised that they were instructed that:
1.No shares in Danpac were ever issued to Ever Health.
2.No share transfer was ever executed in relation to a transfer of shares in Danpac to Ever Health.
3.There is no agreement in force with Ever Heath relating to the subscription or acquisition in Danpac or BODCO.
4.No shareholder or board resolution of Danpac was passed or signed to appoint any Ever Health nominee as a director of Danpac.
5.Negotiation took place regarding investment in Danpac and a draft heads of agreement was prepared, however, it was never signed as the other party was not able to demonstrate at any time that it had access to the necessary funding to proceed with the proposal.
6.The matter with Ever Health did not at any time proceed to become a formal agreement.
[40] The plaintiffs say that, in combination, these steps allowed the defendants to subsequently "sell" the plaintiffs' interests in Danpac to others, in breach of the HOA.
[41] The plaintiffs say that at all material times they remained ready, willing and able to perform the HOA, subject to the extent to which the defendants' repudiatory conduct impaired their ability to perform. But eventually, on 12 May 2017, they accepted the defendants' repudiation and cancelled the HOA.
[42] The plaintiffs plead causes of action in breach of contract, breach of fiduciary obligation, breaches of the Companies Act 1993, and breaches of s 9 of the Fair Trading Act 1986. Substantial damages are sought.
The defendants' statement of defence
[43] The defendants agree that no business plan and budget for Danpac covering the 18-24 months following the signing of the HOA was ever agreed. Nor was a shareholders' agreement or sales and marketing plan agreed. No appointment of a managing director for Danpac, or a chief financial officer, was made. They deny that the plaintiffs took any steps towards achieving these things.
[44] What the defendants say is that any obligation they may have had to transfer the shares in Danpac to Ever Health (or other entities associated with the plaintiffs) was conditional on the HOA being complied with, and in particular on Pure Elite New Zealand complying with all of its obligations under the HOA (including the introduction of $5,310,630 in capital) before the relevant time periods as set out in the HOA, and in any event prior to the HOA expiring on 24 December 2014 (the date provided by the timeline in the HOA for completion of the capitalisation of Danpac).
[45] The defendants plead that Pure Elite and Pure Elite New Zealand failed to complete their obligations under the HOA in relation to raising the necessary capital within the prescribed timeframe. They admit the various steps taken on or around 23 February 2015, including the appointment of a new authorised agent for Danpac, but say these actions were taken because, despite the HOA coming to an end on 24 December 2014, the relevant plaintiffs refused to unwind the various changes that had been made to Danpac's shareholding and directorships.
[46] The defendants say that by the time Mr Young was re-appointed to the board of Danpac on 9 March 2015 no authorisation was required from Mr van der Burgh and Mr Pollard, because "it was an implied term, or an oral term of the HOA, that if the HOA came to an end without being fully implemented, then any changes to the shareholding or directorship of Danpac would be unwound." By the time Mr Pollard wrote to Mr Wagstaff on 26 March 2015 complaining about the steps taken to alter the Danpac shareholding and directorship details, they had no obligation to rectify those steps.
[47] The defendants acknowledge that on 30 November 2015 the Companies Office register for Danpac was updated to show the amalgamation of Danpac with BODCO.
Danpac was then struck off the Companies Register. They further acknowledge that on or around 26 July 2016 the amalgamated company issued shares to CAHG, and that four new directors were appointed to the amalgamated company.
The plaintiffs' particular discovery application
General submissions for plaintiffs
[48] In a memorandum prepared for the hearing, Mr Ross said that at the heart of the dispute between the parties is the purported "taking" of the plaintiffs' 51 per cent shareholding in Danpac on 23 February 2015. The plaintiffs say that the defendants achieved this by unilaterally altering Danpac's records and the registers, expunging the fact that the plaintiffs occupied two directorship positions and held 51 per cent of Danpac's shares. They dispute the defendants' contention that there was an implied term in the HOA which allowed the defendants to unilaterally remove the plaintiffs from their directorships and majority shareholding in Danpac.
[49] Mr Ross submits that the claim of "error" in the purported board resolutions of 19 February 2015 jars with the defendants' pleading in their second amended statement of defence that the HOA had come to an end, and that there was an implied term in the HOA allowing the defendants to "unwind" the share transfers and appointments of directors and expunge the records of the plaintiffs' interests. He further submits that these changes appear to have allowed BODCO to represent that there were no other interests in Danpac, and to enter into deals with new investors.
[50] Mr Ross submits that the assurances given by McBreens in the letter of 15 January 2016 to Bell Gully directly contradicted the documents transferring shares and appointing directors in favour of the plaintiffs. He says that the assurances were supported by registers (prepared by Wynn Williams) which "curiously did not mention or include the resolutions transferring shares to [Ever Health] or appointing Messrs van der Burgh and Pollard as directors".
[51] Mr Ross also asks rhetorically why McBreens were instructed to do this work, rather than Wynn Williams, which knew of the plaintiffs' interests in Danpac. The plaintiffs wish to ascertain whether the registers supporting McBreens' assurances to
Bell Gully came from Wynn Williams. They say that the documents contain Wynn Williams' document references, which should make it easy for BODCO to procure the originals.
The particular documents sought
[52] The plaintiffs now seek by way of particular discovery further documents explaining how precisely (author, dates, etc) "these manoeuvres" were achieved. The particular documents sought initially comprised a total of 8 categories of documents, some divided into sub-categories.
[53] Some of the plaintiffs' requests appear to have been resolved in the course of post-hearing submissions. In that category are requests (3) and (5)(iii). Most of request (6) is also in this category, and in the end there appeared to be little dispute over request (7).5
[54]Details of the requests on which judgment is required are set out below.
BODCO's opposition
[55] In a memorandum filed for the hearing on 19 April 2018, Mr Hood identified the following grounds of opposition:
(a)The application seeks discovery and inspection of privileged documents.
(b)The application erroneously claims that BODCO has failed to advise the basis for redacting certain privileged documents and that the claim of privilege should be disallowed. This is despite the fact that the affidavit (of documents) of Anthony McKenna clearly provides a redaction log.
5 Mr Ross' memorandum of 8 May 2018. In respect of the documents in request No. 6, Mr Ross said that the plaintiffs still seek discovery of the consideration paid by CAHG for its shareholding in BODCO, and how that consideration was calculated.
(c)The application and Mr Ross' Memorandum assert that BODCO has failed to disclose documents between BODCO and CAHG/Zhuhai. No evidence had been provided to justify these allegations. If needed, BODCO can provide evidence that there are no further documents to be discovered. A detailed explanation would have been provided to the plaintiffs, had they requested this.
(d)The application is a fishing expedition for further documents that are not confined to the pleadings, including metadata and draft iterations of documents that could only be related to an allegation the plaintiffs have not made and they likely know that they have no basis to make. The plaintiffs have not provided an evidential basis for this application.
Applications for particular discovery – legal principles
[56]Rule 8.19 of the High Court Rules materially provides:
8.19Order for particular discovery against party after proceeding commenced
If at any stage of the proceeding it appears to a Judge, from evidence or from the nature or circumstances of the case or from any document filed in the proceeding, that there are grounds for believing that a party has not discovered 1 or more documents or a group of documents that should have been discovered, the Judge may order that party—
(a)to file an affidavit stating—
(ii)whether the documents are or have been in the party’s control; and
(iii)if they have been but are no longer in the party’s control, the party’s best knowledge and belief as to when the documents ceased to be in the party’s control and who now has control of them; and
…
[57] The Courts have applied the following four-stage approach to considering an application under r 8.19:6
6 See for example Assa Abloy New Zealand Ltd v Allegion (New Zealand) Ltd [2015] NZHC 2760 at [14], and Lighter Quay Residents' Society Inc v Waterfront Property (2009) Ltd [2017] NZHC at [16].
(1)Are the documents sought relevant, and if so how important will they be (a criterion described as "materiality" in Robert Jones Holdings Ltd v McCullagh [2016] NZHC 2529)?
(2)Are there grounds for belief that the documents sought exist? This will often be a matter of inference. How strong is that evidence?
(3)Is discovery proportionate (balancing the time and cost of discovery against the potential value of discovery);
(4)Weighing and balancing these matters, in the Court's discretion applying r 8.19, is an order appropriate?
[58] The Learned authors of McGechan on Procedure note that the first three stages from Assa Abloy (above) are each necessary but not of themselves sufficient conditions of jurisdiction under r 8.19, as they are still subject to the weighing and balancing exercise in the fourth stage: Lyttelton Port Company Ltd v Aon New Zealand [2016] NZHC 2996 at [8].
[59] There is no obligation on a party served with an application under r 8.19 to file any evidence in response – the burden is on the applicant to make out its case that there are relevant grounds for belief: Plumpton v Terry [2016] NZHC 988 at [26].7
Discussion and conclusions
[60]I will deal with the plaintiffs' remaining discovery requests in turn.
Requests (1) and (2)
[61]The plaintiffs request the following further documents:
(1)All documents (currently undisclosed) providing the factual foundation for the assurances given by McBreens to Bell Gully in the letter of 15 January 2016.
(2)All documents (currently undisclosed) showing how the registers attached to McBreens' letter to Bell Gully of 15 January 2016 came into McBreens' possession, and all correspondence between BODCO and Wynn Williams, McBreens, or any other persons about the existence or creation of those registers.
7 McGechan on Procedure, at [8.19.03].
[62] The plaintiffs say that a number of (hard copy) collections of shareholding and directorate registers for Danpac have been discovered, but none of these records bears a date. They seek particular discovery of correspondence relating to the existence or creation of those registers, and all documents showing how the registers (which appear to have been maintained by Wynn Williams throughout) came into McBreens' possession.
[63] Mr Ross submitted that it is strange that these collections do not include the resolutions from late 2014 involving the transfer of shares to Ever Health and the appointment of Messrs van der Burgh and Pollard as directors, while the resolution dated 19 February 2015 declaring the shareholding and directorships "erroneous", and "rectifying" the registers is included. He submitted that the documents sought will show who drew what documents, and who knew about the plaintiffs' claims at the relevant time.
[64] The plaintiffs did initially ask for disclosure of the full, original McBreens and Wynn Williams files. However, Mr Ross advised in his memorandum of 8 May 2018 that BODCO has now agreed to make available for inspection the full McBreens and Wynn Williams files, limited to non-privileged documents, which resolves those requests.
[65] In his submissions in response to request (1), Mr Hood said that BODCO's solicitors have reviewed the McBreens' file and identified a total of five documents, all of which were considered to be subject to solicitor/client privilege. These documents comprise emails and a draft letter (not sent) in the period between 8 January 2016 and 12 January 2016. One of those documents was disclosed in BODCO's discovery lists, but with redactions of passages that were claimed to be subject to solicitor/client privilege. The others were bulk-listed under r 8.16(2). Although BODCO says that it has complied with its discovery obligations, and if the plaintiffs wished to have privileged documents individually listed that should have been raised at the outset, Mr Hood volunteered to make the documents available for the Court's inspection if the Court considered that appropriate.
[66] In reply, Mr Ross submitted that the origin of Danpac's registers, chain of custody, and correspondence regarding them are of prime relevance. He submitted that, if all non-privileged documents had been disclosed (as BODCO's solicitors assert), it remains a mystery how McBreens obtained the registers (which had been created by Wynn Williams) to give to Bell Gully. He submitted that the most likely explanation is that they were provided to McBreens by Mr Wagstaff with one or more of the documents for which privilege has been claimed. If that is so, then the documents are likely to be communications not for the purpose of obtaining advice, but for the purpose of providing facts to give to Bell Gully. Such documents would not be subject to solicitor/client privilege, and should be disclosed. The claim to privilege for them is challenged on that basis. If the privilege has been properly maintained, there must be other communications, not yet discovered, which provide the facts upon which the assurances were given to Bell Gully. Those other documents should be produced.
Order for production
[67] Pursuant to r 8.25(2) of the High Court Rules, I directed BODCO to produce for my inspection copies of the January 2016 documents in respect of which the plaintiffs challenge BODCO's claims to solicitor/client privilege. I have received and considered these documents.
My conclusions on requests (1) and (2)
[68] I consider first BODCO's claim to privilege in respect of the emails and draft letter referred to in paragraph [65] of this judgment.
[69] The first challenged document (discovery no. 00267) was an email dated 11 January 2016 from Mr Wagstaff to McBreens. On the face of it, the email appears to be part of a continuum of instructions provided by Mr Wagstaff to McBreens for the purpose of giving and receiving confidential professional legal advice.8 I do not
8 Evidence Act 2006, s54(1), and Balabel v Air India [1988] 2 All ER 246 (CA) at 256, referred to by Keane J in Bain v Minister of Justice [2013] NZHC 2123, 21 PRNZ 625 at [142], and by Collins J in Mitre 10 (New Zealand) Ltd v Thistle Dome Holdings Ltd [2015] NZHC 2719 at [15]. In Balabel, Taylor LJ said:
In most solicitor and client relationships, especially where a transaction involves protracted dealings, advice may be required or appropriate on matters great or small at various stages.
see any basis for setting aside the claim to solicitor/client privilege in respect of this document.
[70] Documents 2 and 3 (respectively, discovery nos. 0632 and 06398) are an email from McBreens to Mr Wagstaff dated 12 January 2016 and a draft letter dated 12 January 2016 from McBreens to Bell Gully (not sent). Together, it appears to me that that email and draft letter constitute McBreens' advice and work product prepared on Mr Wagstaff's instruction. I see no basis to disturb the claim to solicitor/client privilege that has been made in respect of them.
[71] Document 4 (discovery no. 06361) is an email dated 12 January 2016 from Mr Wagstaff to McBreens. On the face of it, the document does not appear to have been sent for the purpose of giving or receiving confidential professional legal services. In my view, it and the documents referred to in it should be disclosed. 9
[72] Document 5 is an email dated 11 January 2016 from Mr Wagstaff to McBreens sent at 12.15pm. The document appears to me to add nothing on the issues, but to the extent that it might, it would appear to be part of the continuum of communications between Mr Wagstaff and McBreens at about this time for the purpose of receiving and giving legal advice. I see no basis to order disclosure of this document.
[73] There is no proof that other documents are in the power of BODCO that are relevant to the plaintiffs' request (1). That request is accordingly refused, except in respect of document 4 (discovered document 06361). That document, and the
There will be a continuum of communication and meetings between the solicitor and client. The negotiations for a lease such as occurred in the present case are only one example. Where information is passed by the solicitor or client to the other as part of the continuum aimed at keeping both informed so that advice may be sought and given as required, privilege will attach. A letter from the client containing information may end with such words as 'please advise me what I should do'. But, even if it does not, there will usually be implied in the relationship an overall expectation that the solicitor will at each stage, whether asked specifically or not, tender appropriate advice. Moreover, legal advice is not confined to telling the client the law; it must include advice as to what should prudently and sensibly be done in the relevant legal context.
9 As the Court of Appeal observed in Simunovich Fisheries Ltd v Television New Zealand Ltd [2008] NZCA 350, where a client's document was not prepared for the purpose of seeking advice, it does not attract privilege merely because it was sent to the lawyer as an adjunct to a communication in which advice was sought or given. It is privileged only if in the circumstances its disclosure would reveal the content of the privileged communication. (At [169].) In this case BODCO has produced nothing that would suggest that disclosure of the documents referred to in the email would result in the disclosure of a privileged communication.
documents referred to in it, are to be disclosed to the plaintiffs within 20 working days of the date of this judgment.
[74] On the first part of the plaintiffs' request (2), the order for disclosure I have made in respect of Document 4 may or may not provide an answer or partial answer to the issue of how the registers attached to McBreens' letter to Bell Gully dated 15 January 2016 came into McBreens' possession. Beyond that, I am not satisfied the plaintiffs have proved that there are further documents in the power of BODCO on that point. For example, it appears to be entirely possible that the registers referred to may have been handed to Mr Stokes of McBreens in the course of a meeting. BODCO and its advisers are aware of their discovery obligations, and in the absence of proof that further documents do exist I do not think it appropriate on this point to look any further behind the sworn BODCO discovery lists.
[75] In the second part of request (2), the plaintiffs seek particular discovery of all correspondence about the existence or creation of the registers.
[76] I accept that any undisclosed correspondence or communications relating to the creation and maintenance of these registers, if it exists, is likely to be relevant (although some of it may be privileged). For example, if and to the extent there were communications between BODCO or its agents and Wynn Williams relating to the appropriate form of the registers, those would in my view be communications made in the course of a confidential relationship between BODCO and its solicitors, for the purpose of giving and receiving legal advice. On that basis, the documents would be privileged.
[77] However, to the extent that Wynn Williams may have carried out the function of maintaining the Danpac share and directors' registers, it seems to me that the firm's actions in doing so would almost certainly have been administrative in nature only, and not for the purpose of giving or receiving legal advice. If that is right,
communications with Danpac for the purpose of maintaining the share register (or the directors' register) could not attract solicitor/client privilege. 10
[78] At this stage, there is no sufficient evidential basis for me to conclude that there exist documents relating to the existence or creation of the Danpac registers that have not been disclosed, and I do not believe there is a basis for me to make an order for particular discovery on the request for these documents. In coming to that view, I take into account the possibility that, while certain transactions may have been registered with the Companies Office in late 2014, Mr Young and Mr Wagstaff did state in the form of directors' resolution dated 19 February 2015:
… however, in accordance with clause 5.1(c) of [Danpac's] constitution, the directors did not update [Danpac's] share register and the directors register.
[79] There appears to be an issue as to whether Danpac ever had a registered constitution. A form of constitution has been discovered by BODCO however, and cl 5.1 of this document details a number of situations in which the directors are entitled to refuse or delay registration of a share transfer. One of them (cl 5.1(c)) is:
(c) If a holder of any such share has failed to pay on due date any amount payable in respect of such share either by the terms of issue of such share or by the terms of any agreement between the shareholders and [Danpac] to pay in capital or otherwise in accordance with the constitution (including any call made on such share) and such default is continuing.
[80] And under s 96 of the Companies Act 1993 (the Act) the expression "shareholder" in relation to a company is relevantly defined to mean:
(a)A person whose name is entered in the share register as the holder for the time being of one or more shares in the company …
[81] In all of those circumstances, there is insufficient evidence for me to conclude that the late-2014 events (in which 51 Danpac shares are said to have been transferred to Ever Health, Mr van der Burgh and Mr Pollard are said to have been appointed directors of Danpac, and the Danpac directors are said to have resolved to approve the transfer of the shares from Ever Health to Pure Elite New Zealand) were ever followed
10 For example, a hypothetical instruction from BODCO or someone acting on its behalf to Wynn Williams, limited to an instruction to add or remove the name of a person or party to or from Danpac's share register (or its register of directors), would not be privileged.
up with corresponding entries in Danpac's share register and register of directors. If that turns out to be the position, it is not clear how the provenance of the various forms of register (none of which apparently made any mention of Ever Health, Pure Elite New Zealand, Mr Pollard or Mr van der Burgh) could assist the plaintiffs' case or damage BODCO's case. The substantial issues between the parties in this part of the case would appear to be whether Ever Health and/or Pure Elite New Zealand became entitled to be registered in the Danpac share register as the owner of 51 shares (and thus prima facie owners of those shares), and whether Mr Pollard and Mr van der Burgh were validly appointed directors, or whether the plaintiffs' rights were only conditional, and expired when the HOA came to an end on 24 December 2014 (if, as BODCO alleges, it did). If there were evidence that at some point there existed a Danpac share register that showed Ever Health or Pure Elite New Zealand as a shareholder (or a directors' register that named Mr Pollard and Mr van der Burgh), there would be an obvious issue as to what has become of that/those registers. But at this stage there is no such evidence, and the possibility that one of the discovered register forms was at some point altered (to remove the plaintiffs' interests) seems to me to be no more than speculation.
[82]For those reasons I decline to order particular discovery on request (2).
Request (4)
[83]The plaintiffs request the following further documents:
(4)Native format (including metadata) of the following documents:
(i)document created by Wynn Williams with the reference "JAB-407098-1-17-V1:TMD", being a resolution of the board of directors dated 19 February 2015 … including any prior versions;
(ii)document created by Wynn Williams with the reference "JAB-407098-1-6-V1:JAB", consisting of a register of directors, interests register (part A – F); and title/cover sheet and indexes (copies of which appear separately at Doc IDs
…), including any prior versions;
(iii)undated constitution of Danpac (Doc ID …), including any prior versions;
so that the plaintiffs can discern the date of creation of those documents, the identity of the persons who created them, the date(s) they were accessed, the dates they were accessed and edited, etc.
[84] In respect of sub-paragraphs (i) and (ii) of this request, the plaintiffs submitted that it was impossible to tell from BODCO's supplementary list where many of the documents listed came from (eg whose file) or, except for emails, who was responsible for creating them. Mr Ross submitted that it was relevant to know who created the various company records, when they were created, edited and so on. The native files (Word documents) should contain metadata that disclose date of creation and author. He submitted that it was also necessary to have prior versions produced.
[85] In respect of the documents requested at sub-paragraph (iii), the plaintiffs' position is that they had not seen any Danpac constitution until they saw reference to it in the form of directors' resolution dated 19 February 2015. The Companies Office Register for Danpac does not refer to any constitution, and an email from Lynette Pearks dated 24 July 2016 to Mr Wagstaff, Mr Young and others said that Ms Pearks did not know where the references to a constitution in the 19 February 2015 Directors'
Resolution came from.11
[86] In his submissions, Mr Hood referred to clause 11 of the Listing and exchange protocol at Part 2 of Schedule 9 to the High Court Rules. Cl 11 of Part 2 deals with "Exchange format", and subclause 11(4) provides:
(4)If a document has relevant metadata, parties may request its provision in native file format. Either -
(a)the document ID must be contained within the name of the native file format, for example, "document ID.xls"; or
(b)the file name of the native file must be specified in an additional field in the spreadsheet.
[87] Mr Hood submitted that the information sought in this request was unnecessary, but in order to resolve the matter he has retrieved and provided to the plaintiffs metadata information for the documents requested at request 4(i) and (ii). That information was provided to the plaintiffs' solicitors on 24 April 2018. The share
11 In his memorandum, Mr Ross referred to Ms Pearks as "BODCO's own accountant".
register and the form of directors' resolution both appear to have been created in February 2015 by Wynn Williams (the share register document on 3 February, and the form of directors' resolution on 19 February).
[88] In his reply submissions, Mr Ross said that the plaintiffs required a screenshot of the document details (Word document properties). This was said to be necessary to obtain a relevant document for inclusion in the common bundle of documents for trial, and in the plaintiffs' briefs of evidence.
[89] Mr Hood advised that counsel's enquiries of BODCO have elicited the advice that it has not been able to source a native file or document properties for the form of constitution. He submitted that the plaintiffs are on a fishing expedition with this request, and noted that the request was not supported by any affidavit.
[90] In respect of the form of constitution, Mr Ross submitted that it is inadequate for BODCO's solicitors to say that they have made enquiries and been advised that BODCO has not been able to source a native file or document properties for the constitution. He submitted that the document is clearly a document under BODCO's control, and BODCO is responsible for obtaining it from Mr Wagstaff. The document has a very specific document number (P8651_8651.001_001.doc), and the author ought to be readily identifiable. Proper enquiries need to be made about the origins of the document (given that Mr Wagstaff presumably instructed Wynn Williams to draft resolutions and change the Companies Office Register on the strength of the constitution). The enquiries should involve questions about whose computer produced document numbers of that kind, how the document got into Wynn Williams' hands etc (the likelihood is that it came to Wynn Williams by email). A specific electronic search should also be made for emails from Mr Wagstaff to Wynn Williams in the period December 2014 to February 2015, looking for this document.
[91] In his further memorandum dated 9 May 2018, Mr Hood referred to the letter dated 24 April 2018 from BODCO's solicitors to the plaintiffs' solicitors, in which it was confirmed that enquiries had been made for the constitution document (native format version), but none had been found. The solicitors said that BODCO only has a PDF copy of the document, provided to it by its solicitor on 1 September 2016. The
letter said that the plaintiffs would have to ask Mr Wagstaff about the creation of the constitution, as BODCO was not aware of the date of creation of the document, the author, or when the document was accessed or edited.
[92] In the final round of submissions, Mr Ross' memorandum of 17 May 2018, Mr Ross repeated the submission that the constitution document (including native format versions) is under BODCO's control, and it is obliged to obtain it. A proper enquiry needs to be made about the origins and subsequent possession of the document.
My conclusions on request (4)
[93] I think BODCO has sufficiently answered the requests for the documents in (i) and (ii). The metadata/document creation details have been provided, and I can see little purpose in requiring BODCO to provide screenshots. It appears that the information has come from Wynn Williams, and, as such, the Court and the parties should be able to rely on it at trial. The information provided by Mr Hood at paragraph 27 of his memorandum dated 2 May 2017 can presumably be produced by consent at trial, and referred to by witnesses and counsel as necessary. In the exercise of my discretion, I decline to order further particular discovery in respect of the documents in request 4(i) and (ii).
[94] I think the form of Danpac's constitution is in a different category. The fact that the document was apparently never registered with the Companies Office is surprising, and the form of constitution appears to have been relied upon by Mr Wagstaff and Mr Young in the form of directors' resolution dated 19 February 2015. The validity of that form of resolution is one of the matters at the heart of the dispute.
[95] The real issue here appears to be over the extent of the search conducted by BODCO for the native version of the constitution. Rule 8.14 of the High Court Rules deals with the extent of a search a party must make for documents within the scope of the discovery order. Rule 8.14(2) provides:
8.14 Extent of search
...
(2)What amounts to a reasonable search depends on the circumstances, including the following factors:
(a)the nature and complexity of the proceeding; and
(b)the number of documents involved; and
(c)the ease and cost of retrieving a document; and
(d)the significance of any document likely to be found; and
(e)the need for discovery to be proportionate to the subject matter of the proceeding.]
[96] I accept Mr Ross' submission that BODCO is not entitled to simply redirect the plaintiffs' enquiries to Mr Wagstaff. The constitution does, after all, purport to be Danpac's constitution, and Danpac, having amalgamated with BODCO, was then removed from the Company register. In those circumstances, it seems to me that any native version of the constitution of Danpac would be a document in BODCO's control.
[97] The document's identifying computer number is known, and it does not seem to me that making further enquiries to see if a native version of this document can be found would be unreasonable. Considering the factors at r 8.14(2), the proceeding is a major commercial proceeding, and it may be that the native version will be significant.12 There is nothing before me to suggest that the cost of retrieving the native version (or at least pursuing enquiries further) would be disproportionate.
[98] I accordingly direct that BODCO is to provide, within 20 working days of this judgment, an affidavit stating the steps taken by it to locate native format (including metadata) of the undated constitution of Danpac (Document ID BOD.0001), including any prior versions. BODCO's further search should include enquiries of Mr Wagstaff, and such enquiries as may be necessary to establish whose computer was used to create the constitution (and any prior versions of it). To the extent that those steps result in
12 For example, in the (hypothetical) situation where the document's metadata showed that it was only created some time after 19 February 2015.
BODCO locating native format (including metadata) of the constitution, including prior versions, the affidavit is to list the documents located.
Request 5(i) and (ii)
[99]The plaintiffs request the following further documents:
(5)Full copies of the following documents showing the materials/correspondence which have been redacted by BODCO:
(i)email from Mr Wagstaff to various recipients dated 1 November 2015 at 9.40pm;
(ii)email from Mr Wagstaff to Henry Stokes of McBreens dated 11 January 2016 at 12.15pm;
[100] The plaintiffs are concerned with redactions BODCO has made to these two documents.
[101] The plaintiffs challenge any claim to legal professional privilege in relation to these two documents, on the basis that it seems likely that the redacted information comprises statements of fact that were relied upon by McBreens in giving assurances to Bell Gully.
[102] Mr Hood submitted that BODCO's supplementary affidavit of documents sworn on 11 April 2018 did contain an appropriate redaction log, showing that solicitor/client privilege is claimed for these two documents.
[103] Mr Ross' submissions in respect of these two documents were the same as his submissions in respect of requests (1) and (2) in paragraphs [63] and [66] above.
[104] Following the issue of my Minute dated 18 July 2018, I have received and considered unredacted copies of these documents.
My conclusions on requests 5(i) and (ii)
[105] The email from Mr Wagstaff dated 1 November 2015, which was redacted in full, is an email to Ms Pearks, Mr Stokes of McBreens, and a number of individuals
who appear to have been privy to the draft Agreement which Ms Pearks referred to in her reply email dated 1 November 2015 (which has been disclosed).
[106] The 1 November 2015 email does expressly seek legal advice from McBreens, in addition to providing Mr Wagstaff's comments on parts of the draft Agreement (and inferentially, inviting advice and/or comments from McBreens on appropriate alterations to the draft Agreement). There were also requests made to some of the other addressees of the email, including Ms Pearks, but the likelihood appears to be that these requests would have been for the purpose of collecting information to "feed in" to McBreens, for the lawyers to advise on the final form of the Agreement.
[107] Having regard to those considerations, I do not see any basis to disturb the claim to solicitor/client privilege for the redacted parts of the email from Mr Wagstaff to Mr Stokes and others dated 1 November 2015. The plaintiffs' request 5(i) is accordingly refused.
[108] I have already considered and rejected13 the challenge to the privilege claimed for the email dated 11 January 2016. For the same reasons the application for particular discovery made in request 5(ii) is refused.
Request 6
[109]The plaintiffs requested the following further documents:
(6)All correspondence (currently undisclosed) between BODCO and CAHG (including between their representatives and solicitors) relating to:
(i)the plaintiffs' shareholding or asserted interest in Danpac;
(ii)how to extinguish the plaintiffs' shareholding or asserted interests or how the plaintiffs' shareholding might have been extinguished;
(iii)the value of BODCO prior to the issuing of the first tranche of 67 shares to CAHG; and
(iv)the value of the contribution that Danpac's business or Danpac's assets made to the value of BODCO.
13 At paragraph [72] of this judgment.
[110] The plaintiffs say that BODCO has provided very limited correspondence between its solicitors, McBreens, and CAHG's solicitors, Bell Gully, in relation to its agreement with CAHG. They believe that there is further correspondence which has not yet been discovered, such as internal BODCO correspondence in relation to Bell Gully's enquiries in the December 2015/January 2016 period.14
[111] In his submissions dated 2 May 2018, Mr Hood submitted that counsel and BODCO have complied with their respective discovery obligations. He said there was no evidence to suggest relevant documents had not been discovered, and the plaintiffs have been advised that BODCO has no further documents to discover.
[112] In his reply submissions, Mr Ross took Mr Hood's submissions to be the provision of an assurance from counsel that there were no further documents to disclose on this request, with the exception of one item. The plaintiffs still seek documents evidencing the consideration (including purchase price) paid by CAHG for its shares/interests in BODCO, and how the figure was arrived at. That was said to be of prime relevance to the valuation exercise and the assessment of the plaintiffs' loss.
[113] In his 9 May submissions, Mr Hood expressed concern as to what he saw as attempts to require counsel or his firm to personally verify BODCO's discovery, to the standard required of a party (rather than of counsel). He pointed out that counsel has already confirmed compliance with his professional obligations.
[114] Mr Ross dealt with the issue briefly in his 17 May submissions. He submitted that it is well established that a solicitor cannot leave his client to determine what documents are relevant and what documents are privileged, and must ensure that the client discovers all relevant documents (referring to r 8.13 of the High Court Rules, which requires:
14 Mr Ross referred to an email from Bell Gully to Mr Stokes of McBreens dated 8 January 2016, in which Bell Gully asked Mr Stokes (among other things) to "confirm on behalf of your client that no shares [in Danpac] were ever issued to Ever Health", and to "confirm on behalf of your client that no share transfer was executed in relation to a transfer of shares in Danpac to Ever Health", and to "confirm on behalf of your client that there is no agreement in force with Ever Health relating to the subscription or acquisition of shares in Danpac or BODCO". (In response, McBreens wrote their letter of 15 January 2016, in which they said "No shares in Danpac were issued to Ever Health", "No share transfer was ever executed in relation to the transfer of shares in Danpac to Ever Health", and "There is no agreement in force with Ever Health relating to the subscription or acquisition in Danpac or Bodco.")
... a solicitor acting for a party in a proceeding to take reasonable care to ensure that the party:
(a)Understands the party's obligations under the discovery order, and
(b)Fulfils those obligations.
Mr Ross submitted that the plaintiffs are entitled to take counsel's written submissions as confirmation that they have met their solicitors' obligations (which are owed to the Court and other parties, not just the client).
My conclusions on request (6)
[115] The only issue on request (6) appears to be that identified by Mr Ross in his reply submissions dated 8 May 2018, namely a request for "evidence of the consideration (including purchase price) CAHG paid for shares/interests in [BODCO] and how this figure was arrived at".
[116] I note at the outset that BODCO has produced what appears to be an incomplete, unsigned draft of a share subscription agreement, and that this document does state (at cl 4.1) the consideration for the 67 shares CAHG would take in BODCO. However, BODCO and CAHG appear to have been negotiating on the form of an appropriate share subscription agreement into 2016, and it is not at all clear whether the consideration stated in the 8 November 2015 document was the finally agreed subscription price. For the purposes of this application I will proceed on the basis that it might not have been.
[117] The plaintiffs' allegations relating to the issue of shares to CAHG are in a section of their second amended statement of claim headed "Subsequent breaches by the defendants". The claim is essentially that Pure Elite New Zealand was entitled to a 51 per cent stake in Danpac, and was unlawfully deprived of that entitlement by the various alterations to the shares and directors' registers of Danpac, and the subsequent issue of convertible notes to Zhuhai, issue of shares to CAHG, amalgamation of Danpac with BODCO, and the removal of Danpac from the Companies Register.
[118] The defendants (including BODCO) admit in their second amended statement of defence that on or around 26 July 2016 they issued shares to CAHG and appointed four new directors.
[119] The plaintiffs' case is that the HOA was still in force when the defendants issued the shares to CAHG, and the issue of the shares to CAHG put it (further) out of the power of the defendants to restore to Pure Elite New Zealand the 51 per cent stake in Danpac to which the plaintiffs say it was entitled.
[120] The damages sought by the plaintiffs on their first cause of action (breach of contract) include:
(1)Loss of the value of 51 per cent of the shares in Danpac, to be quantified following discovery and expert evidence, but currently estimated to be no less than NZ$55 million; …
[121] It seems to me that the amount paid by CAHG for its stake in Danpac must be relevant to the first head of damage claimed by the plaintiffs, namely the "loss of the value of 51 per cent of the shares in Danpac". The amalgamation of BODCO and Danpac was registered with the Companies Office on 30 November 2015, and although it was approximately eight months after that when the BODCO shares were issued to CAHG, the agreement between CAHG and BODCO/Danpac was clearly under negotiation as at 8 November 2015, and a subscription price had been inserted in a draft agreement as at that date. The plaintiffs say that the CAHG subscription price is capable of informing the market value of Danpac shares as at February 2015 (if that is the correct date for the assessment); the expert valuers will be able to work backwards from the date CAHG and BODCO agreed on the CAHG subscription price, making appropriate adjustments for any material changes in the interim period, whether by way of capital introduced or otherwise. Particularly if the subscription price was agreed between CAHG and the BODCO parties as early as November 2015, I accept that that price may be capable of informing the question of the value of the Danpac shares at the earlier date, and I think the fact that a figure as at 8 November 2015 has already been disclosed makes it important that the valuers do not work with a figure that is not a "real" one.
[122] To the extent BODCO had other assets, additional to its stake in Danpac, it should not be difficult for the experts who will provide valuation evidence on each side to identify (with the assistance of BODCO financial statements) any such additional assets, and to provide their opinions on the value on the amount CAHG should be regarded as having agreed to pay to acquire an interest in the Danpac assets.
[123] I note also that the entry into the transaction with CAHG is expressly pleaded as a particular of breach of an alleged fiduciary duty owed by the defendants — in paragraph 51(d) of the second amended statement of claim, the defendants are alleged to have breached fiduciary obligations owed to the plaintiffs by effectively taking and using for their own benefit the value of Pure Elite New Zealand's shares in Danpac, "commencing with the Zhuhai transaction and continuing thereafter with the unauthorised transaction with CAHG".
[124] The plaintiffs' case is therefore that at least part of the loss they claim to have suffered did not happen when Ever Health was removed from the Companies register in February 2015 — it was suffered when the BODCO parties put it out of their power to convey the Danpac shares (back) to Ever Health or Pure Elite New Zealand, by amalgamating Danpac with BODCO and then issuing shares in BODCO to CAHG. Equitable damages are sought on the breach of fiduciary obligation cause of action, and it seems to me that the pleading raises the issue of the value of the assets formerly represented by shares in Danpac, at the date of the alleged "unauthorised transaction" with CAHG (when the plaintiffs' say their shares in Danpac were wrongfully taken by the defendants and used for their own benefit).
[125] On that basis, the price CAHG was prepared to pay for its BODCO shares (the value of which would have been dependent in part on the value of the former Danpac assets and liabilities) is likely to be relevant on the issue of the market value of Danpac shares at the date of the agreement to subscribe. I conclude that it is more likely than not that the consideration CAHG was prepared to pay for its BODCO shares in late 2015 will be relevant to the valuation exercise, and that any documents showing how the consideration was arrived at are also likely to be of assistance in the valuation exercise, and thus relevant to an issue in the case.
[126] For those reasons I consider that BODCO should disclose documents sufficient to show what CAHG agreed to pay for its interest in BODCO, and (to the extent they may exist) documents showing how that figure was arrived at. BODCO is directed to file and serve a further discovery list disclosing those documents within 20 working days of the date of this judgment. To the extent that this disclosure may raise issues of confidentiality, that will be a matter going to the manner of inspection of the documents, and in particular which representatives of the plaintiffs should be permitted to inspect and on what terms. Leave is reserved to the parties to apply by memorandum for any directions that might be required on any such issue if counsel are unable to reach agreement on it.
Request (7)
[127]The plaintiffs seek the following further documents:
(7)All correspondence (currently undisclosed) between BODCO and Zhuhai (including between their representatives and solicitors) relating to:
(i)the plaintiffs' shareholding or asserted interest in Danpac;
(ii)how to extinguish the plaintiffs' shareholding or asserted interests or how the plaintiffs' shareholding might have been extinguished;
(iii)the quantification of the consideration of $500,000 for convertible notes worth 10% of the shares in BODCO; and
(iv)the value of BODCO as agreed with Zhuhai prior to issuing the convertible notes to Zhuhai.
[128] The plaintiffs initially sought this discovery for reasons similar to the reasons they sought particular discovery relating to the CAHG transaction.
[129] In his memorandum of 2 May 2018, Mr Hood submitted that BODCO and counsel have complied with their discovery obligations. He confirmed that counsel's obligations as set out at r 8.13 have been discharged, and advised that there are no further documents for discovery.
[130] In his reply submissions, Mr Ross described that state of affairs as "extraordinary", as there appear to have been no documents whatsoever relating to the
Zhuhai convertible notes transaction other than a memorandum of understanding and the final convertible note deed. However, he went on to say that if BODCO is satisfied that no such documents exist on the basis of proper enquiry of Mr Wagstaff and his counsel, then the plaintiffs will accept that assurance.
My conclusions on request (7)
[131] While Mr Hood took issue with what he took to be a suggestion that he or his firm have provided some sort of personal guarantee that no such documents exist, the fact remains that there is insufficient evidence before me on which I could conclude that either BODCO or its solicitors have failed to discharge their obligations under the rules, or that there exist further documents for discovery. For that reason, I decline to order particular discovery on request (7).
Request 8
[132]The plaintiffs seek the following further documents:
(8)Annual accounts/financial statements of BODCO from 2014 and onwards.
[133] In support, Mr Ross submitted that a key issue in the proceeding is the value of the plaintiffs' interest in Danpac (or BODCO subsequent to the amalgamation of the two companies). However, to date BODCO has not disclosed any annual accounts/financial statements.
[134] In his submissions in opposition, Mr Hood noted that Danpac's financial statements to 31 March 2015 have already been discovered. He submitted that the plaintiffs' claim is that damage occurred and should be assessed as at 23 February 2015, and in those circumstances financial statements after 31 March 2015 are of questionable relevance. Danpac has since amalgamated with BODCO, and has received investment funds from elsewhere. In those circumstances the accounts for the period after 31 March 2015 would not assist the valuation process. No evidence has been provided by the plaintiffs or by their intended expert witness to the contrary, and that is fatal to the plaintiffs' request.
[135] In reply, Mr Ross submitted that BODCO's accounts after 23 February 2015 will provide important evidence of what Danpac shares would have been worth as at the currently pleaded date of damage. Experts can work backwards from the later accounts, adjusting for any introduction of capital between February 2015 and the date of the accounts. Alternatively, the plaintiffs' claims include claims under the Act and the Fair Trading Act 1986. Breaches of those statutes can attract remedies beyond the standard contract measure, including restitution and equitable remedies (such as a constructive trust over the plaintiffs' interests in BODCO arising from the amalgamation, for which compensation is not confined to a specific date of damage).
[136] Mr Ross advised that the plaintiffs would be prepared to provide appropriate undertakings as to confidentiality regarding the financial statements which are sought.
My conclusions on request (8)
[137] I think that if the price CAHG was prepared to pay for its BODCO shares is relevant and discoverable on the plaintiffs' damages claim, as I have held to be the case, it must follow that, at least for the 2016 and 2017 years, the financial statements of BODCO, will also be relevant. They will be necessary for the expert valuers to assess what component of the price CAHG paid for its BODCO shares was attributable to the assets of Danpac, and that in turn will be a relevant factor in the (hypothetical) assessment of market value for Danpac shares at the date of the CAHG subscription.
[138] It appears that CAHG did not actually subscribe for its shares in BODCO until July 2016, which would likely have been in BODCO's 2017 financial year. In those circumstances I consider that BODCO should provide particular discovery of its financial statements for each of its financial years which cover the 2015 and 2016 calendar years — that should pick up the initial impact of both the November 2015 amalgamation with Danpac and the July 2016 share subscription by CAHG. I make an order accordingly. Thereafter, I am not convinced that BODCO financial statements are likely to be of much assistance. CAHG's involvement makes it less likely that BODCO's financial performance after that time could inform a hypothetical market value of Danpac shares, and subsequent changes in BODCO's statements of financial position also seem unlikely to be relevant.
[139] As with request (6), if the particular discovery ordered on this request raises issues of confidentiality, that will be a matter going to the manner of inspection of the documents, and in particular which representatives of the plaintiffs should be permitted to inspect and on what terms. Leave is reserved to the parties to apply by memorandum for any directions that might be required on any such issue if counsel are unable to reach agreement on it.
Costs
[140]Counsel made submissions on costs in their memoranda dated 8, 9 and 17 May.
[141] The plaintiffs ask for an order for costs. They say that a number of the requests made in the application were satisfied by BODCO at or after the hearing, and it should not have been necessary to file the application to elicit those responses. On that basis, they contend that the application should be treated as having been largely successful, irrespective of my decision on the unresolved requests.
[142] For BODCO, Mr Hood also asked for an order for costs. He submitted that the requested categories of documents were not raised with counsel before the application was filed, and many have been resolved with minimal correspondence. He submitted that the plaintiffs sought orders for physical inspection of files without following the procedure prescribed by r 8.27(4), and they appear to have accepted that many of the documents sought have already been provided (or there is nothing further to provide).
[143] Mr Hood then submitted that the application erroneously claimed that BODCO had failed to advise the basis for redacting privileged documents. In fact, Mr McKenna's affidavit did provide a redaction log. He further submitted that the Court should not have been troubled with some aspects of the application (for example, the screen shots which the plaintiffs have sought — the relevant metadata could be the subject of an agreed statement of facts, or stamped on the relevant document in the common bundle).
[144] Mr Hood also raised certain issues relating to the plaintiffs' first particular discovery application, but that application appears to have led to BODCO filing a
further discovery list (in April 2018) and I do not consider that it is appropriate to consider BODCO's criticisms of one particular aspect of that application.
[145] In reply, Mr Ross submitted that the bulk of the issues raised by BODCO in opposition to the costs claim arose from BODCO's own delay in filing its supplementary discovery list, and in providing inspection. The supplementary affidavit was due on 28 March 2018, but it was not served until 11 April 2018, and inspection was not provided until 12 April 2018. The plaintiffs were not responsible for BODCO's delay in providing its supplementary affidavit.
[146] I do not see this as a case where either side has had a complete "victory" on the application. The plaintiffs' challenge to BODCO's privilege claims was largely unsuccessful, and the plaintiffs did not prove that further discoverable documents existed in the categories covered by requests (2), (5) and (7).
[147] Against that, the plaintiffs might well argue that they should not have been put to the trouble of filing their first application for particular discovery. However, I did not hear argument on that, and there was no formal application for costs directed to the plaintiffs' first discovery application.
[148] In all of those circumstances, I think the justice of the case will best be met if costs are reserved. I make an order accordingly.
Result
[149]I make the following orders:
(1)Within 20 working days of the date of this judgment, BODCO is to file and serve a (further) supplementary verified list of documents, listing the documents and describing the steps that I have directed it to disclose and/or describe in paragraphs [73], [98], [126] and [138] of this judgment. Leave is reserved to apply for any directions that may be required relating to inspection of the documents directed to be disclosed
on requests (6) and (8), in accordance with paragraphs [126] and [139] of this judgment.
(2)Costs are reserved.
Associate Judge Smith
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