Pyne Gould Corporation Ltd v Bath Street Capital Ltd
[2020] NZHC 1247
•5 June 2020
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
COMMERCIAL PANEL
CIV-2018-404-1971
[2020] NZHC 1247
BETWEEN PYNE GOULD CORPORATION LIMITED
Plaintiff
AND
BATH STREET CAPITAL LIMITED
First Defendant
ANDREW HOWARD BARNES
Second Defendant
Hearing: 8 May 2020 Counsel:
R B Lange, J K Goodall and C F Fan for plaintiff J Dixon QC and M Kersey for defendants
Judgment:
5 June 2020
JUDGMENT OF KATZ J
This judgment was delivered by me on 5 June 2020 at 4:00pm pursuant to Rule 11.5 High Court Rules
Registrar/Deputy Registrar
Solicitor: Simpson Grierson, Auckland
Russell McVeagh, Auckland
Counsel:J K Goodall, Bankside Chambers, Auckland J Dixon QC, Shortland Chambers, Auckland
PYNE GOULD CORPORATION LIMITED v BATH STREET CAPITAL LIMITED & ANOR [2020] NZHC 1247 [5 June 2020]
Introduction
[1] Pyne Gould Corporation seeks damages of $22 million from Bath Street Capital and its director and shareholder Andrew Barnes, arising out of the sale of trustee company Perpetual Trust Limited. Bath disputes Pyne Gould’s claim against it and has filed a counterclaim.
[2]Two interlocutory applications are before me for determination:
(a)an application by Bath for further discovery from Pyne Gould; and
(b)an application by Pyne Gould for further particulars of Bath’s defence and counterclaim.
Background
[3] In 2013 Pyne Gould sold its shareholding in Perpetual Trust to Bath. The parties agreed in the share sale agreement that various events within a certain period (the carry period), including any sale or disposal of Perpetual Trust’s shares or business, would trigger a further payment to Pyne Gould.
[4] In 2014 Pyne Gould acquired another trustee company, Guardian Trust Limited. Following that acquisition, Pyne Gould wanted to transfer its shareholding in both trustee companies to a new company, Complectus Limited. This was within the carry period. As a result, any transfer of the shares in Perpetual Trust would have triggered a payment obligation to Pyne Gould. To avoid this, Bath negotiated a variation to the share sale agreement. The parties’ new agreement was set out in a deed of termination of agreements and carry (“DTAC”). It replaced the original carry obligation with an obligation on Bath to make a payment of $22 million to Pyne Gould when Complectus listed on the NZSX.1
[5] Pyne Gould alleges that Bath falsely represented to it that the shareholders’ agreement governing Complectus (which was between Bath and Milford Limited) would contain a mutual intentions clause confirming that the shareholders intended to
1 The New Zealand Securities Exchange, the main board of the New Zealand Exchange.
list Complectus on the NZSX by the end of 2014. Complectus did not, however, list on the NZSX by the end of 2014 and has not listed to date. Pyne Gould says that, as a result, it has been deprived of the $22 million payment under the DTAC to which it was entitled.
[6] Bath denies misrepresenting its intentions (or those of Milford) to Pyne Gould and says there was no commitment, or obligation, to list Complectus within a certain period. As the DTAC only requires Pyne Gould to be paid when the shares of Complectus are listed, and that has not yet happened, no payment is owing. Bath also counterclaims against Pyne Gould for breach of the DTAC (as more fully set out at
[67] below).
Bath’s discovery application
Procedural background and overview of issues
[7] An earlier proceeding between the parties, covering broadly the same issues, was discontinued. The parties agreed that the affidavits of documents filed in that proceeding could be relied on in this proceeding, but that additional tailored discovery should also be provided.
[8] Pyne Gould’s solicitors prepared the first draft of the proposed tailored discovery categories and sent them to Bath’s solicitors on 22 January 2019. At the first case management conference, in February 2019, I directed that tailored (rather than standard) discovery be provided. I made directions to facilitate the finalisation of agreed discovery categories, failing which I reserved leave to seek directions. Further negotiations ensued, including by correspondence, telephone conversations, and at least one in person meeting between counsel. The tailored discovery categories were finally agreed on 17 May 2019.
[9] When Pyne Gould subsequently served its affidavit of documents on Bath, however, no documents were discovered in some of the agreed categories. Bath was surprised at this and made inquiries of Pyne Gould. Pyne Gould disclosed that the lack of documentation was not because there were no documents in those categories,
but because Pyne Gould had subsequently decided that some of the agreed discovery categories were not relevant, in their entirety.
[10] In short, Pyne Gould’s position is that it is not required to discover all documents in an agreed discovery category but is entitled to apply an overarching “relevance filter” pursuant to which not only individual documents within a category, but entire categories, may be assessed as irrelevant and therefore not discovered. Bath’s position, on the other hand, is that Pyne Gould is obliged to discover all documents within an agreed discovery category.
[11] Bath also challenges the adequacy of Pyne Gould’s search for documents and identifies a number of specific alleged deficiencies with Pyne Gould’s discovery.
Discovery framework – the High Court Rules
[12] The High Court Rules envisage two kinds of discovery – standard discovery and tailored discovery.2 Standard discovery requires each party to disclose documents that are or have been in that party’s control and that are:3
(a)documents on which the party relies; or
(b)documents that adversely affect that party’s own case; or
(c)documents that adversely affect another party’s case; or
(d)documents that support another party’s case.
[13] Standard discovery therefore only requires disclosure of documents of actual and direct relevance. This is a narrower test than the previous Peruvian Guano “train of inquiry” test, which also captured documents of indirect relevance.4
[14] The other type of discovery is tailored discovery. It must be ordered when the interests of justice require an order involving either more or less discovery than
2 High Court Rules 2016, r 8.6.
3 High Court Rules 2016, r 8.7.
4 Compagnie Financiere du Pacifique v Peruvian Guano Co (1882) 11 QBD 55 at 57.
standard discovery would involve.5 The concept of proportionality is central to tailored discovery.6 It is presumed, unless the Court determines otherwise, that the interests of justice will require tailored discovery in certain categories of proceedings, including those where (as here) the total sum in issue exceeds $2.5M.7
[15] As the learned authors of McGechan on Procedure observe, the High Court Rules (“rules”) do not specify the scope of tailored discovery, namely whether it is “adverse documents” or something narrower or broader. Relevance to an issue in the proceeding must, however, be the starting point.8 In Body Corporate 212050 v CoveKinloch Auckland Limited (in liquidation) Associate Judge J P Doogue observed that:9
There is no prescription of the degree of relevance which any particular documents must have before the court will make a tailored discovery order. In cases where greater discovery is called for, such as where the presumption in r 8.9 applies, it may be that a less rigorous measuring stick of relevance is to be applied. I am not aware of any authority exactly on this point but it would seem obvious that the documents must have some degree of connection to, or relationship with, the issues in the case before tailored discovery can be ordered. It is unlikely that the “interests of justice” could be invoked to direct a party to provide documents which are entirely irrelevant.
[16] I endorse those observations. The rules provide for tailored discovery to be ordered when the interests of justice require an order involving either more or less discovery than standard discovery would involve.10 It necessarily follows that the relevance threshold for agreeing categories of documents for tailored discovery may be broader than the “direct relevance” test that applies to standard discovery (as reflected in the four classes of documents in r 8.7). For example, the parties could choose to formulate all or some categories with a wider test of relevance in mind (such as the Peruvian Guano test).
5 High Court Rules 2016, r 8.8.
6 Goodman Fielder Consumer Foods Pty Ltd v Heinz Wattieʼs Ltd [2017] NZHC 177 at [12].
7 High Court Rules 2016, r 8.9.
8 Robert Osborne and others McGechan on Procedure (looseleaf ed, Thompson Brookers, updated to 9 December 2019) at [HR8.10.01] citing ASB Bank Ltd v Commissioner of Inland Revenue [2014] NZHC 2184, (2014) 26 NZTC 21-098 at [7].
9 Body Corporate 212050 v Covekinloch Auckland Ltd (in liq) [2017] NZHC 2642 at [24].
10 High Court Rules 2016, r 8.8.
[17] When tailored discovery is appropriate, the parties are required to agree a proposal in relation to the discovery order that should be made, with respect to:11
(a)Categories – the parties are required to identify the categories of documents required to be discovered, and for each category to seek to limit discovery to what is reasonable and proportionate. This may be done (for example) with reference to subject matter, date range, types of documents or key individuals.
(b)Methods and strategies for locating documents – the parties are required to seek agreement on what methods and strategies are appropriate to conduct a reasonable and proportionate search for the documents identified in the agreed categories.
[18] Although in this case the parties agreed the categories, they did not appear to turn their minds to the methods and strategies for locating documents.
[19] If the parties are able to agree categories of tailored discovery, an order requiring such discovery will usually be made by consent. In the event of failure to agree, then the scope of discovery may be determined at a case management conference or, if necessary, a defended interlocutory hearing.12
[20] If a tailored discovery order is made, then the party ordered to provide discovery is required to disclose the documents that are or have been in that party’s control either in the relevant categories or using another method of classification that facilitates the identification of particular documents.13
[21] A party may apply for an order varying the terms of a tailored discovery order on the ground that compliance (or attempted compliance) with the terms of the order has revealed a need for variation, or there has been a change of circumstances that justifies reconsideration.14 There was no variation application by Pyne Gould in this
11 High Court Rules 2016, sch 9 pt 1 cl 3.
12 Intercity Group (NZ) Ltd v Nakedbus NZ Ltd [2013] NZHC 1054 at [10]-[11].
13 High Court Rules 2016, r 8.10.
14 High Court Rules 2016, r 8.17.
case, however. Rather, Bath applied for further and better discovery pursuant to r 8.19 of the rules. That rule provides that if there are grounds for believing that a party has not discovered one or more documents, or a group of documents, that should have been discovered, the Judge may order that party:
(a)to file and serve a further discovery affidavit identifying if such documents are, or have been, in that party’s control; and
(b)to make any such documents in the party’s control available for inspection.
[22] The key issue therefore is whether there are grounds for believing that Pyne Gould has not discovered documents that should have been discovered. This issue must be assessed, however, in the context of an existing consent order for tailored discovery and the agreed discovery categories.
Has Pyne Gould failed to comply with its obligation to make a reasonable search for documents within the scope of the tailored discovery order?
[23] The first issue I must consider is whether Pyne Gould has failed to comply with its obligation to make a reasonable search for documents within the scope of the tailored discovery order. This is an overarching issue because if Pyne Gould has failed to conduct a proper search it will need to undertake a further, more comprehensive, search. This may address some or all of Bath’s specific discovery concerns.
[24] Bath’s concerns regarding the adequacy of Pyne Gould’s search for documents appear to have been prompted, at least in part, by the fact that Pyne Gould has only produced 708 documents in total, whereas Bath (which undertook comprehensive electronic searches) has discovered 12,457 documents. Pyne Gould submitted, however, that no conclusions can be drawn solely from the disparity in the numbers, as Bath not only had to discover documents relating to its dealings with Pyne Gould, but also its dealings with Milford, the vendor of NZ Guardian Trust, various financiers and advisers, as well as regulatory authorities and counterparties. Pyne Gould’s discovery has been within a much narrower compass. Even so, the disparity in the number of documents discovered is stark.
[25] Based on the correspondence between the parties regarding discovery issues, Bath summarised the key aspects of Pyne Gould’s discovery process as follows:
(a)Pyne Gould undertook the discovery process itself, with some assistance on IT issues provided by Simpson Grierson.
(b)Despite being a listed company throughout most of the relevant time, Pyne Gould did not maintain any hardcopy documents or a document management system for soft copy documents, so did not search for documents of that type in its own records; instead it asked its personnel to search their records.
(c)Only two Pyne Gould personnel were asked to conduct searches for relevant documents – George Kerr (Pyne Gould’s managing director) and Russell Naylor (one of Pyne Gould’s directors).
(d)Mr Kerr’s search was limited to keyword searches of his email files.15 Pyne Gould advised that Mr Kerr did not have any hard copy documents, or soft copy documents (including text messages) so did not search for them.
(e)Pyne Gould initially suggested that Mr Naylor’s search was also limited to his email files. It now appears that he may have searched three document folders on a separate hard-drive. Whatever the scope, Mr Naylor apparently limited his searches to just six key words and confined himself to materials that would potentially respond to categories 10, 11, 16, and 17. From this it seems that Mr Naylor did not search, for example, for any emails relating to the negotiation, entry into, or variation of, the DTAC.
15 It is not clear if this search encompassed all categories of the tailored discovery schedule, given that Pyne Gould subsequently formed the view that some of those categories were not in fact relevant.
(f)None of the other directors of Pyne Gould, or any of its employees or agents (such as Mr Walker) were asked to conduct keyword searches. Bath advised that, as far as it can determine:
(i)“Specific inquiries” were made of the three other directors – although the nature and content of those inquiries has not been disclosed.
(ii)Some of Mr Walker’s documents were included in Pyne Gould’s discovery, but Pyne Gould has not stated how that came about, or what searches he conducted, of what range of documents, if any at all.
(iii)Praxis Group (which provided “back of house” services to Pyne Gould, including maintenance of soft copy records) was requested to undertake some “further searches” in response to Bath’s letter of 21 October 2019. It is unclear what those searches were or what form they took. No extra documents were provided in response to that letter.
(iv)Pyne Gould’s legal counsel, Susan O’Rourke, may not have been asked to search for any documents whatsoever.
[26] Pyne Gould’s response to Bath’s criticisms of its discovery process was fairly high level. In essence, it said that it has fully and patiently engaged with “[Bath’s] repetitive requests” and has carefully explained that the discovery task has been appropriately focussed, particularly having regard to the fact that Mr Kerr was primarily responsible for the relevant transaction and other directors had limited involvement. Pyne Gould did not engage with Bath’s summary of Pyne Gould’s discovery process (as set out above), other than to say that the allegation that Ms O’Rourke may not have been asked to search for any documents is speculative and baseless. I therefore assume that, apart from that matter, Bath’s summary of the discovery process undertaken by Pyne Gould is broadly accurate.
[27] The rules required the parties to endeavour to agree what methods and strategies are appropriate to conduct a reasonable and proportionate search for the documents in the agreed tailored discovery categories, with reference to the following (non-exhaustive) factors:16
(a)appropriate keyword searches;
(b)other automated searches and techniques for culling documents (including concept searching, clustering technology, document prioritisation technology, email threading, and any other new tool or technique);
(c)a method to be used to identify duplicate documents; and
(d)whether specialist assistance is required to locate documents efficiently and accurately.
[28] Unfortunately, however, the parties do not appear to have reached such agreement (or possibly even attempted to do so).
[29]As for the appropriate extent of the search for documents, r 8.14 provides that:
8.14 Extent of search
(1) A party must make a reasonable search for documents within the scope of the discovery order.
(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.
16 High Court Rules 2016, sch 9 pt 1 cl 3.
[30] What is required for a reasonable search is therefore context-specific. Here, it is relevant that this is a major commercial proceeding that has been assigned to the Commercial Panel. Pyne Gould seeks damages of $22 million. Bath seeks significant but as yet unquantified damages in respect of its counterclaim. The proceedings are complex. Given this context, a reasonable and proportionate search required the parties to make significant efforts to locate documents within the tailored discovery categories. While the individuals involved in the transaction, including in particular Mr Kerr, may be the persons best placed to search for and locate hard copy documents, external IT support may well have been appropriate to facilitate the search for electronic documents, particularly given that the relevant events occurred six years ago.
[31] If electronic (or other) documents have been “lost” due to the passage of time, an explanation should be provided for this. If documents are said to be no longer recoverable the relevant party must explain why they are not recoverable and what steps have been taken to recover them.17 For example, in RHH Ltd v Anderson a party had explained the lack of documents prior to a particular date as being because she had moved computer servers.18 She was ordered to depose whether she had backed up documents when she changed servers, whether she still had access to those materials, whether she had served them, and whether any relevant documents were available.
[32] In my view, the process summarised at [25] above fell significantly short of what was required for a reasonable and proportionate search for documents in a major commercial proceeding such as this. Appropriate key word searches should have been conducted across all relevant hard drives or other repositories of electronic documents (including the hard drives associated with all persons who may have created, received or accessed relevant documents). If Pyne Gould did not have internal IT experts with the necessary forensic computing skills, external consultants should have been engaged. The key words and phrases used for searching should ideally have been agreed between the parties. They should have been comprehensive enough to capture the majority of potentially relevant documents.
17 Weir v Eini [2020] NZHC 465.
18 RHH Ltd v Anderson [2018] NZHC 2032 at [36].
[33] The appropriate way forward, in my view, is for the parties to endeavour to now reach agreement (somewhat belatedly) regarding an appropriate search methodology in light of my above findings and taking into account the matters set out in sch 9 of the rules. The electronic search process undertaken by Bath, including the key word searches it used, may well provide an appropriate starting point for Pyne Gould’s further search. In the event that the parties cannot agree a search methodology, I will determine the matter. I anticipate, however, that the issue will be able to be resolved between counsel.
Is Pyne Gould obliged to discover all documents within the agreed categories?
[34] Does an order for tailored discovery require the party giving discovery to produce all documents falling within the tailored discovery categories, or must the party also assess each document for relevance? If the latter, what is the appropriate relevance threshold? As I have noted at [15] to [16] above, the rules are silent on the topic.
[35] Pyne Gould asserts that it is entitled to apply an overarching relevance filter to the agreed categories of documents. Its position, in essence, is that the categories simply set the outer boundaries of the required search for relevant documents. A relevance filter must then be applied to any documents that fall within the ambit of the agreed categories. Any documents assessed by the discovering party as irrelevant do not have to be discovered. Pyne Gould’s view is that it is open to a party providing discovery to subsequently decide that an entire agreed category of tailored discovery is irrelevant.
[36] Bath, on the other hand, is of the view that once categories of tailored discovery have been agreed (or ordered) the discovering party is required to discover all documents within those categories.
[37] Counsel were only able to identify one previous New Zealand case in which this issue has been considered. In Farrelly v Wellington City Council the parties had agreed that tailored discovery was appropriate and had made considerable progress on
determining the appropriate categories.19 It appears, however, that final agreement had not been reached in respect of some categories. Associate Judge Johnston therefore treated the plaintiff’s application as one to determine the scope of tailored discovery, rather than as an application for further and better discovery.20 His Honour noted that the touchstone principle of tailored discovery is proportionality and that discovery must be limited to what is reasonable and proportionate.21 He referred to the following passage from Asher J’s decision in Commerce Commission v Cathay Pacific Airways Ltd Cathay Pacific on the issue of what is proportionate:22
To determine the proportionality arguments in relation to tailored discovery of particular categories it is necessary to consider the chances of finding relevant documents in the discovery exercise and their degree of relevance. This should then be balanced against the cost of carrying out that discovery process. Broader considerations such as the amount at issue, the resources of the parties, and delay to the proceedings may also be relevant …
[38] Associate Judge Johnston observed that, once the search for documents in the categories has been undertaken, the tendency is to then assume that all documents in such categories are to be discovered:23
However, depending on the approach that the parties, or the court, take to categorisation, such an assumption may undermine the object of the rules relating to tailored discovery by obliging litigants to discover irrelevant material.
[39] His Honour noted that there does not appear to be any New Zealand authority addressing the point. He found some assistance, however, from two Australian cases, Aveling v UBS Capital Markets Australia Holdings Ltd24 and Owen v Barclays Bank plc.25 On the basis that the core concept of discovery is relevance, his Honour concluded that:26
Unless, in identifying categories of documents for discovery, the parties have agreed, or the Court has determined, that all documents falling into the categories identified are to be listed, or the definitions of the categories include tests for relevance, it appears to me that, even within categories of
19 Farrelly v Wellington City Council [2019] NZHC 1875.
20 Farrelly v Wellington City Council [2019] NZHC 1875 at [13].
21 High Court Rules 2016, sch 9, cl 3(2)(a)(i); Farrelly v Wellington City Council [2019] NZHC 1875 at [16].
22 Commerce Commission v Cathay Pacific Airways Ltd [2012] NZHC 726 at [18].
23 Farrelly v Wellington City Council [2019] NZHC 1875 at [18] and [19].
24 Aveling v UBS Capital Markets Australia Holdings Ltd [2005] FCA 415 at [11] and thereafter.
25 Owen v Barclays Bank plc [2010] NSWSC 1225 at [20]-[25].
26 Farrelly v Wellington City Council [2019] NZHC 1875 at [21].
documentation for tailored discovery, it is still incumbent on the party providing discovery to review the documentation for relevance (as determined by the pleadings, of course). That, in my view, is inherent in what Asher J was saying in the passage from Commerce Commission v Cathay Pacific Airways Ltd ….
[40] The key issue in Aveling was the scope of tailored discovery and, in particular “what are the principles which should guide the parties in identifying categories?” Lindgren J concluded that tailored discovery categories under the Australian Federal Court Rules should be formulated with reference to the relevance standard for standard discovery (namely, direct relevance). For the reasons set out at [15] to [16] above, the position in New Zealand is different and the parties may apply a lower relevance threshold to the formulation of tailored discovery categories, provided that each of the final categories have some degree of connection with the issues in the case.
[41] In Owen v Barclays Bank plc the defendant had taken a two-stage test to determining whether to discover documents, namely:27
(a)does the document fall within a category or categories; and
(b)is it relevant to an issue?
[42] Hislop J held that this approach was “misconceived as regards the categories in respect of which the defendant has been ordered to give discovery.” The defendant had consented to an order that it file and serve a supplementary list of documents giving discovery of certain categories of documents. Hislop J held that, by consenting to that order, the defendant had accepted that the documents falling within the identified categories were relevant to a fact or facts in issue.
[43] In my view, the appropriate starting point in this case is the approach taken by Hislop J in Owen v Barclays Bank. The overall scheme of the rules envisage that parties will (and should) turn their minds to issues of relevance at the time the relevant categories are negotiated. The rules do not appear to envisage a secondary relevance filter being applied to agreed categories. Ideally, the categories should be carefully formulated to capture only documents the parties agree are relevant (albeit it is open
27 Owen v Barclays Bank plc [2010] NSWSC 1225 at [20]-[25].
to the parties to take a broader view of relevance than they would for standard discovery). The cost and efficiency gains associated with tailored discovery may be lost if this is not done and significant disputes about relevance arise later, as has occurred in this case.
[44] In many cases it will be implicit that the parties agreed and accepted that documents falling within the identified categories are relevant and discoverable. In some cases, however, the parties may not have sufficiently turned their minds to issues of relevance at the time the categories were formulated. It may be apparent from the way in which the categories are drafted that the parties intended that a secondary relevance filter to be applied. Farrelly is an example of such a case. One category of documents was simply “financial and other internal records.”28 A reasonable party would interpret such an extremely broad category as only requiring discovery of all relevant financial and internal records.
[45] This case, however, is far removed from Farrelly. This is a Commercial Panel proceeding in which damages of $22 million are sought. Both parties have been represented throughout by leading commercial law firms and senior barristers. The categories of tailored discovery were negotiated between counsel over a four-month period, culminating in a comprehensive and detailed schedule of 21 categories of documents. Each category is specific and has clearly been drafted with care and precision. For example, two of the disputed categories are Category 1 and Category
11. Category 1 refers to:
Documents relating to the negotiation of, and entry into, the Share Sale Deed, Variation Deed, and/or Side Letter.
Communications in this category are likely to include (without limitation) those involving [Pyne Gould], [George Kerr], other directors, employees and agents of [Pyne Gould], [Stephen Walker], MT, Four Winds Legal, [Bath], [Andrew Barnes], TCL, PTL, [New Zealand Guardian Trust], MB, and any other financiers or legal representatives of [Pyne Gould], [Bath], and/or [Andrew Barnes].
[46]Category 11 refers to:
Documents relating to the treatment of the $22 million account receivable in [Pyne Gould’s] financial records or statements for the year ended 30 June
28 Farrelly v Wellington City Council [2019] NZHC 1875 at [23]-[24].
2014 and subsequent reporting periods and equivalent accounting treatment of the Consideration Amount in [Bath’s] accounts, including communications in respect of the same, media and PR advice, and any advice in respect of [Pyne Gould’s] NZX announcements.
Communications in this category are likely to include (without limitation) those involving [Pyne Gould], [George Kerr], other directors, employees and agents of [Pyne Gould], SW, [Bath], AB, [Russell McVeagh], PWC, Grant Thornton and any other auditor, financial adviser or legal representative of [Pyne Gould].
[47] The documents to be discovered are therefore clearly delineated in the words of the categories themselves. Where the parties intended that a relevance filter be applied to a category, they specifically allowed for that. For example, Category 8 states:
Documents relating to listing on the NZX, ASX or any other stock exchange, or [Bath’s] divestment of all or a substantial part of its interest in PTL, NZGT or Complectus, including by way of share sale or asset sale, to the extent relevant to the issues between the parties.
Communications in this category are likely to include (without limitation) those involving [Pyne Gould], [George Kerr], other directors, employees and agents of [Pyne Gould], SW, MT, [Bath], AB, Complectus, [Russell McVeagh], TCL, PTL, NZGT, Milford and CAML and all external consultants (including investment banks, banks or financial advisers) engaged by or on behalf of [Bath] and AB.
(Emphasis in bold added)
[48] At the time the categories were agreed both parties clearly envisaged that documents falling within the identified categories were relevant, save where express provision was made for a relevance filter to be applied. Indeed, Pyne Gould appeared to acknowledge this at the hearing. Pyne Gould subsequently changed its views on relevance, however, and decided not to discover documents in some of the agreed categories (albeit without disclosing its changed position to Bath).
[49] It is of note that Pyne Gould did not apply to vary the tailored discovery order pursuant to r 8.17. It appears unlikely that such an application would have been successful, in any event. A change of heart as to the scope of relevance would not have been likely to constitute a “change of circumstances” justifying reconsideration of the tailored discovery categories. Given that a tailored discovery order was made by consent, and the relevant categories of discovery were agreed, the general
principles relating to the variation or revocation of consent orders would have also applied. In short, consent orders will only be varied in closely circumscribed circumstances, where the interests of justice demand it.29
[50] In essence, Pyne Gould is now arguing for a much narrower view of relevance than that which it took when it negotiated and agreed the discovery categories. Bath takes a wider view of relevance. It remains of the view that all of the documents encompassed within the agreed categories are relevant (save where a specific relevance filter has been agreed). As I have noted at [15] to [16] above, it was open to the parties to make their own assessment of relevance at the time they agreed the discovery categories, provided that the agreed categories have some degree of connection to, or relationship with, the issues in the case. Direct relevance is not required (albeit I note that Bath’s position is that the documents are directly relevant, in any event).
[51] In my view, the parties’ agreement provides strong evidence that the documents falling within the agreed categories are relevant. The categories were carefully negotiated by experienced lawyers over an extended period and do not appear to be overly broad on their face. The categories have been drafted with care and precision. Although Pyne Gould now wishes to confine the issues in the proceeding within a narrow ambit, Bath intends to defend the proceeding (and advance its counterclaim) on a significantly broader basis. It is entitled to do so. Further, in a case that is likely to turn to a large degree on the credibility of the two main protagonists, Messrs Kerr and Barnes, it would not be appropriate to restrict discovery to the very narrow compass now sought by Pyne Gould. The wider context may well form the necessary backdrop against which credibility assessments will need to be made at trial. I am also satisfied that requiring Pyne Gould to provide discovery on the previously agreed basis will not offend the proportionality principle, given the quantum at issue in this case ($22 million).
29 Zhang v King David [2016] NZHC 3018 at [35] and [37].
[52] In conclusion, Pyne Gould is required to give discovery of all documents in the agreed categories, unless the parties have agreed that an additional relevance filter may be applied to a particular category.
[53] This finding, together with my earlier finding that Pyne Gould has not conducted a sufficiently comprehensive search for documents within the agreed discovery categories, makes it unnecessary to consider the specific discovery concerns raised by Bath. Pyne Gould will now need to conduct a further search for documents within the scope of the 21 agreed categories and discover any further documents it locates falling within those categories. It is entitled to apply a relevance filter to those categories where that has been expressly agreed, but not otherwise.
Application for further and better particulars
[54] Pyne Gould seeks further and better particulars of Bath’s defence and counterclaim.
General legal principles
[55] Rule 5.26(b) specifically requires particulars “… of time, place, amounts, names of persons, nature and dates of instruments, and other circumstances as may suffice to inform the Court and the party or parties against whom relief is sought of the plaintiff’s cause of action”.30 Providing proper particulars of pleadings serves a number of purposes, including:31
(a)informing defendants of the case they have to meet (thereby avoiding the risk of “trial by ambush”);
(b)enabling the parties to determine the proper scope of discovery;
(c)limiting the scope of matters the plaintiff may put in issue at trial (or in pre-trial settlement discussions);
30 High Court Rules 2016, r 5.26(b).
31 Platt v Porirua Council [2012] NZHC 2445 per Kós J at [19]; Body Corporate 74246 v QBE Insurance (International) Ltd [2015] NZHC 1360 at [18(a)]; see generally Robert Osborne and others McGechan on Procedure (looseleaf ed, Thompson Brookers, updated to 9 December 2019) at [HR5.21.01] and Price Waterhouse v Fortex Group Ltd CA179/98, 30 November 1998 at 19.
(d)enabling the defendant to engage in a reasonable degree of pre-trial briefing and preparation; and
(e)providing an opportunity for a defendant to seek summary determination on the basis that the claim as pleaded is untenable.
[56] Particulars are not evidence, however, and excessive detail can obscure the real issues.32 In Body Corporate 74246 v QBE Insurance (International) Ltd, Associate Judge Osborne identified three considerations relevant to the assessment of whether there is a real risk that the other party may face a trial by ambush if further particulars are not provided, namely:33
(a)If the particulars sought are within the knowledge or control of the requesting party an order for further particulars may be declined pending the completion of discovery or other matters.
(b)Case management is available to ensure each side is fairly informed of what is in issue, with the Court able to require leading counsel to agree a list of issues.
(c)Briefs of evidence will be exchanged well in advance of the hearing. The Court is also entitled to take into account its ability in cases with substantial evidence to provide for defendants to have extended periods of time to digest and respond to the evidence of the plaintiff.
[57]I now turn to consider Pyne Gould’s specific requests for particulars.
Subparagraph 22(a) – Heads of Agreement
[58] At paragraph 21 of its amended statement of claim, Pyne Gould refers to certain oral and written communications between Mr Barnes and Mr Kerr during March and early April 2014 about releasing Bath’s obligations in respect of the carry rights under the share sale agreement. At paragraph 22 Pyne Gould alleges
32 BNZ Investments Ltd v Commissioner of Inland Revenue (2008) 23 NZTC 21,821 at [45].
33 Body Corporate 74246 v QBE Insurance (International) Ltd [2015] NZHC 1360 at [18(i)]. Citations omitted.
(amongst other things) that Mr Barnes represented to Mr Kerr that Complectus was to be listed on a securities market by 31 December 2014 and that the deferred consideration sum would be paid upon listing.
[59] At paragraph 21 of its defence and counterclaim, Bath admits that communications took place during March and early April 2014 but denies the alleged content of those communications. Then, at paragraph 22 (a) Bath states:
The context in which those communications arose was that stated in the Heads of Agreement, where no listing of securities of Complectus could occur without the approval of [Milford].
[60] Pyne Gould submitted that Bath should provide further particulars stating if it specifically alleged in that sub-paragraph that Pyne Gould was provided with a copy of the Heads of Agreement.
[61] The sub-paragraph does not expressly allege that Pyne Gould was provided with a copy of that document. Neither, in my view, is such an allegation implicit. It is therefore not necessary for Bath to state, by way of particulars, whether it is making such an allegation in this passage. I note for the record, however, that Mr Kersey confirmed at the hearing that Bath does not allege in this sub-paragraph that Pyne Gould was provided with a copy of the Heads of Agreement.
Subparagraph 22(o)(i)(aa) – Shareholder Agreement
[62] At subparagraph 22(n)(ii) of its defence and counterclaim (relating to the context in which the discussions between Mr Barnes and Mr Kerr in March and early April 2014 took place) Bath pleads that it entered into a shareholder agreement with Milford which made no reference to the shareholders intending to list Complectus by
31 December 2014. On the contrary, the shareholder agreement provided that Complectus could not be listed on the NZX without the consent of all its shareholders.
[63] Then, at subparagraph 22(o) Bath pleads that before the release of the DTAC by Pyne Gould, Mr Kerr and Pyne Gould knew that Bath and Mr Barnes could not control the occurrence or timing of a potential listing of Complectus for three
(non-exhaustive) reasons that are set out at sub-paragraphs (i), (ii) and (iii). Sub-paragraph (i) gives the following reason:
(i)there was a shareholder agreement between [Milford] and [Bath] which prevented a listing without the consent of Milford, and either:
(aa) Between 30 March 2014 and 7 April 2014 Mr Kerr or [Pyne Gould] was provided with a copy of the shareholder agreement containing a term substantially the same as recorded at paragraph (n)(ii) above [namely, that Complectus could not be listed without the consent of all its shareholders];
(bb) Mr Kerr or [Pyne Gould] was told of the relevant terms of the shareholder agreement including a term substantially the same as recorded at paragraph (n)(ii) above; or
(cc)Mr Kerr and consequently [Pyne Gould] must have deduced or assumed or understood, given Mr Kerr’s experience, that an investor such as [Milford] would not invest in Complectus without control (or at least negative control) of important corporate decisions in respect of the relevant company, which would include a listing of that entity…
[64] Bath has subsequently provided further particulars of the allegation in (bb) but has declined to further particularise the allegation in (aa). Bath submitted that particulars are not necessary, as the pleading is general in nature. The overarching allegation is that Mr Kerr and Pyne Gould knew about the relevant term in the shareholder agreement. The specific way in which they knew, Bath submitted, does not need to be particularised because no single route (of the three alternatives pleaded) is necessarily the one alleged. Bath further submitted that Pyne Gould already has sufficient information to investigate the allegation, Pyne Gould’s own discovery is as yet incomplete (and may yield evidence that would assist with particularisation), and further particulars would cross the line into a full provision of evidence. Finally, it was submitted that Pyne Gould is not prejudiced by the lack of particularisation.
[65] In my view, however, the allegation in (aa) should be particularised. Bath is making a specific allegation that Mr Kerr or Pyne Gould was provided with a copy of the shareholder agreement during the period 30 March 2014 to 7 April 2014. There must presumably be some basis for such an allegation. For example, there must either be documentary evidence to support the allegation, or Mr Barnes or some other representative of Bath must have some recollection of providing the shareholder agreement to Mr Kerr. (I note that Milford has provided non-party discovery, and
there appears to be nothing to suggest that Milford provided the shareholder agreement to Pyne Gould).
[66] The possibility that Pyne Gould’s further discovery may illuminate matters does not excuse Bath’s current failure to particularise. If further evidence emerges on this topic then the pleading may be amended (or reinstated) at that time.
Paragraphs 123 and 129 – counterclaim damages
[67] Bath denies that the DTAC imposes an obligation on the parties to do all things reasonably necessary to bring about the listing of Complectus on the NZX but says that if there is such an obligation then Pyne Gould has breached it. Specifically, Bath says that Pyne Gould made a false but very public accusation that Bath owed it the
$22 million deferred consideration payment. This public accusation is said to have made it difficult for Bath to raise capital. This, in turn, prevented Bath from being able to list Complectus on the NZX.
[68] Paragraphs 123 and 129 of Bath’s counterclaim address the damages caused by this alleged conduct, and state as follows:
123. To the extent that, as a result of [Pyne Gould’s] conduct pleaded at paragraphs 81 to 105 above, it was not possible for [Bath] to carry out a Reasonable NZX Listing, [Pyne Gould’s] breach caused loss to [Bath] (in an amount to be quantified at trial) in terms of:
(a)the one-off and ongoing costs of the mezzanine financing agreement between [Bath] and ICG necessitated by the lack of ability to carry out a Reasonable NZX Listing, including [Bath’s] reduced bargaining power in respect of its agreement with ICG;
(b)the reduced ability of [Bath] to take on debt in order to fund the growth and expansion of Complectus by merging with and/or acquiring competing or complementary businesses to Complectus (as a result of [Bath’s] debt levels);
(c)the ultimately wasted costs incurred in pursuing a Reasonable NZX Listing, including, for example, the costs of professional services;
(d)the loss of the value of shares that could have been owned by and/or sold by [Bath] following a Reasonable NZX Listing; and
(e)the value of any dividend payments that would have been received by Bath Street Capital Limited as a result of its shareholding in CB Holdings had it been able to carry out a Reasonable NZX Listing.
129. To the extent that, as a result of [Pyne Gould’s] conduct pleaded at paragraphs 81 to 105 above, it was not possible for [Bath] and Mr Barnes to carry out a Reasonable NZX Listing, [Pyne Gould’s] breach caused loss to [Bath and Mr Barnes] (in an amount to be quantified at trial) in terms of:
(a)the one-off and ongoing costs of the mezzanine financing agreement between [Bath] and ICG necessitated by the lack of ability to carry out a Reasonable NZX Listing;
(b)the reduced ability of [Bath] to take on debt in order to fund the growth and expansion of Complectus by merging with and/or acquiring competing or complementary businesses to Complectus (as a result of [Bath]’s debt levels);
(c)the ultimately wasted costs incurred in pursuing a Reasonable NZX Listing, including, for example, the costs of professional services;
(d)the loss of the value of shares that could have been owned by and/or sold by [Bath] following a Reasonable NZX Listing; and
(e)the value of any dividend payments that would have been received by [Bath] as a result of its shareholding in [Bath] had it been able to carry out a Reasonable NZX Listing.
Alternatively or in addition to damages, any obligation of [Bath] under the DTAC to pay the Consideration Amount should be discharged as a consequence of [Pyne Gould’s] breach of the DTAC.
[69] Pyne Gould submitted that Bath should be required to provide particulars of each of subparagraphs 123 (a) to (e) and 129 (a) to (e). In addition, Pyne Gould submitted that Bath should particularise the quantum and nature of the purported losses referred to at paragraph 124 of the counterclaim, which states as follows:
As a consequence of the failure of the NZX Listing, [Bath] suffered loss or damage in an amount to be determined at trial.
[70] Rule 5.32 provides that a statement of claim seeking the recovery of a sum of money must state the amount as precisely as possible. The rationale for the rule is that specifying the quantum of damages will facilitate constructive settlement negotiations and therefore assist an expeditious resolution of the dispute.34 Further, defendants are entitled to know for what sum they are at risk so they may arrange their
34 Milne v North Shore City Council HC Auckland M264/90 9 November 1990 at 10.
affairs accordingly.35 There is extensive case law confirming that damages should be quantified.36 The fact that expert evidence may be required in order to quantify particulars of damage will generally not be a sufficient reason to refuse to provide particulars.37 Even where it is not possible to accurately quantify damages the Courts have generally held that at least an estimate should be provided. Obviously, any estimate can be updated if new information arises, with leave of the Court if necessary.38
[71] In Appanna v Anglesea Hospital Ltd the plaintiff proposed to provide particulars of damages when the expert evidence was completed (as Bath does in this case). Venning J considered that the purpose of the rule requiring particulars of damages when the particulars are exchanged is not served by waiting until the exchange of the briefs of expert evidence. The aim of the process is to make the quantum available as early as possible, even if only an estimate can be provided.39
[72] Bath submitted that particularising the quantum sought is unlikely to promote settlement in this case, as Pyne Gould has professed scepticism of the counterclaim and appears unlikely to attempt to settle it. Bath further submitted that quantification is not necessary for settlement purposes in any event.
[73] I reject that submission. It is not unusual for a litigant to express scepticism regarding an opposing party’s claim. Nevertheless, a clear quantification of the sum at risk tends to focus the parties’ minds on settlement, particularly given the costs of litigation and the inevitability of at least some degree of litigation risk.
35 Rogers v Bullen (1992) 6 NZCLC 67,636; [1992] MCLR 171 (HC) at 3.
36 Milne v North Shore City Council HC Auckland M264/90 9 November 1990 at 10; Rogers v Bullen (1992) 6 NZCLC 67,636; [1992] MCLR 171 (HC) at 3; White Heather Caravans Ltd v Inchcape Motors New Zealand Ltd HC Auckland CP530-SD99, 18 December 2000; Dotcom v Attorney- General [2013] NZHC 697 at [2]; CrossFit Inc v Exercise Industry Association [2016] NZHC 1028 at [116] SKY Network Television Ltd v Television New Zealand Ltd [2017] NZHC 2750 at [44]; Appanna v Anglesea Hospital Ltd [2017] NZHC 2257 at [15]; In the UK, see Perestrello e Companhia Limitada v United Paint Co Ltd [1969] 1 WLR 570 (EWCA) at 571.
37 White Heather Caravans Ltd v Inchcape Motors New Zealand Ltd HC Auckland CP530-SD99, 18 December 2000 at [19]; Appanna v Anglesea Hospital Ltd [2017] NZHC 2257 at [15].
38 Dotcom v Attorney-General [2013] NZHC 697 at [2]; White Heather Caravans Ltd v Inchcape Motors New Zealand Ltd HC Auckland CP530-SD99, 18 December 2000 at [19]; Appanna v Anglesea Hospital Ltd [2017] NZHC 2257 at [20]; also see Ayers v LexisNexis NZ Limited [2012] NZHC 3055 at [55]-[59].
39 Appanna v Anglesea Hospital Ltd [2017] NZHC 2257.
[74] Bath further submitted that the final number is not the most significant factor. Rather, the focus should be on the nature or types of losses claimed, which Bath submitted are appropriately disclosed in paragraphs 123 and 129 of the counterclaim. The other key aspect of damages, Bath submitted, is the method of calculating the loss, which will be disclosed in expert evidence filed well in advance of trial.
[75] While there is force in some of these submissions, the fact remains that at least a ballpark assessment of damages at this stage may well facilitate a sensible approach to settlement. If not, such disclosure will enable Pyne Gould to arrange its affairs, and prepare for trial, knowing the potential extent of its liability.
[76] Bath submitted that since the analysis required to determine the appropriate quantum will be complex, requiring expert evidence. It would therefore be more appropriate to particularise the relevant paragraphs after the exchange of the briefs of expert evidence. Similar arguments were made, unsuccessfully, in both Appanna and White Heather Caravans. I see no reason to depart from the approach taken in those cases. Obviously, the practical reality is that any quantification of damages at this stage is likely to be in the nature of an estimate, possibly underpinned by some preliminary expert analysis. The final damages sought may change once expert evidence has been finalised, at which time the pleading may need to be amended. There is nothing unusual, however, in the need to amend the damages figure as trial approaches.
[77] Turning to the specific subparagraphs in respect of which particulars are sought:
(a)Subparagraphs 123(a) and 129(a) refer to the one-off and ongoing costs of Bath’s mezzanine financing agreement. This cost has presumably largely been already incurred and should be readily quantifiable.
(b)Subparagraphs 123(b) and 129(b) refer to Bath’s reduced ability to take on debt to fund the further expansion of Complectus. I accept that this may be challenging to assess (albeit presumably Bath intends to assess
it for the purposes of trial). Pending expert evidence, at least a ballpark estimate should be given of this head of damage.
(c)Subparagraphs 123(c) and 129(c) refer to the wasted costs of attempting a fruitless IPO, including professional services costs. This would appear to be fairly straightforward to particularise.
(d)Subparagraphs 123(d) and 129(d) refer to the loss of the value of shares that could have been owned by and/or sold by Bath following listing. As with subparagraph (a), this loss has largely if not entirely accrued already. The evidence required to assess this loss is within Bath’s control and at least a ballpark estimate should be given, pending completion of expert evidence.
(e)Subparagraphs 123(e) and 129(e) refer to the dividend payments that might have accrued after an IPO as above. Again, at least an estimate of these losses should be given at this stage.
Result
[78]In respect of Bath’s discovery application, I make the following orders:
(a)Pyne Gould is to discover forthwith all documents it has previously located falling within the 21 agreed discovery categories save that it is entitled to apply a relevance filter where expressly permitted in the schedule of agreed discovery categories.
(b)Pyne Gould is to conduct a further, reasonably comprehensive, search for documents in each of the 21 agreed discovery categories. It is to discover all documents located that fall within those categories (save in respect of those categories where a relevance filter has expressly been agreed). For the avoidance of doubt this includes, but is not limited to, documents in categories 1, 4, 6, 10, 11, 16 and 17 of the schedule of agreed discovery categories.
(c)The parties are to endeavour to agree the methods and strategies that are appropriate to conduct a reasonable and proportionate search for documents in the agreed categories in light of the findings in this judgment and with reference to the matters set out in sch 9 of the rules.
(d)A joint memorandum, outlining the agreed search methodology and the proposed timetable for the completion of further discovery and inspection is to be filed by 12 June 2020. Failing agreement, the parties are to file separate memoranda on that date with their proposed search methodology and timetable directions. I will then make a decision on the issue on the papers, unless further input from counsel is required.
[79] In respect of Pyne Gould’s application for further and better particulars, I order that the following particulars be provided by 26 June 2020 (or sooner, if possible):
(a)In respect of subparagraph 22(o)(i)(aa) of Bath’s defence and counterclaim, Bath is to provide the particulars requested in Schedule 1, paragraph 2, of Bath’s application (or withdraw the relevant pleading).
(b)In respect of each of subparagraphs 123(a)-(e) and 129 (a)-(e), Bath is to provide particulars of the quantum of loss alleged to have been suffered under each head. Where necessary an estimate can be provided, pending the completion of expert evidence. (Bath is not required to provide details of the method of calculation of such losses, however. That is a matter for expert evidence).
(c)In respect of paragraph 124, Bath is to specify the nature and amounts of any loss or damage suffered that is additional to the losses claimed in paragraph 123.
[80] Given that both parties have been successful in their applications40 my preliminary view is that costs should lie where they fall. If costs cannot be agreed based on this indication, then leave is reserved to file memoranda. Any memorandum seeking costs is to be filed by 26 June 2020. Any memorandum in response is to be filed by 3 July 2020.
Katz J
40 With one minor exception, namely that I declined Pyne Gould’s application for further and better particulars of subparagraph 22(a) of Bath’s defence and counterclaim.
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