Red Stag Timber Limited v Juken New Zealand Limited
[2023] NZHC 3304
•21 November 2023
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2017-404-002753
[2023] NZHC 3304
BETWEEN RED STAG TIMBER LIMITED
Plaintiff
AND
JUKEN NEW ZEALAND LIMITED
Defendant
Hearing: 9 November 2023 Appearances:
N Flanagan and E Watt for Plaintiff
C L Bryant, G Luen and C Harnett for Defendant
Judgment:
21 November 2023
JUDGMENT OF VENNING J INTERLOCUTORIES
This judgment was delivered by me on 21 November 2023 at 12.15 pm, pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date……………
Solicitors: Meredith Connell, Auckland
Hesketh Henry, Auckland Counsel: A R Galbraith KC, Auckland
RED STAG TIMBER LTD v JUKEN NEW ZEALAND LTD [2023] NZHC 3304 [21 November 2023]
Introduction
[1]The previous judgments on this case refer.
[2] Following the most recent judgment of the Court on 20 October 2023,1 Red Stag Timber Limited (Red Stag) has filed and served its eighth amended statement of claim (8ASOC). Juken New Zealand Limited (JNL) has filed a statement of defence to that 8ASOC. Red Stag has exchanged its evidence and JNL is due to exchange its evidence later this month. The substantive proceeding is for fixture for 10 weeks commencing 12 February 2024.
[3] Despite that, the following interlocutory applications are still before the Court for determination:
(a)Red Stag’s application for orders in relation to further discovery, confidentiality and privilege;
(b)Red Stag’s application for an order JNL answer interrogatories; and
(c)JNL’s application for further and better discovery in relation to quantum.
Leave
[4] The applications require leave. All were filed after the close of pleadings date of 20 June 2023. Red Stag’s application for further discovery and related orders was filed on 26 June 2023 (and amended on 27 October 2023). Red Stag’s application for an order that JNL answer interrogatories was only filed on 27 October 2023, while JNL’s amended application in relation to quantum was filed on 19 October 2023.
Background and procedural history
[5] The general background to the case is set out in the previous decisions of this Court and the Court of Appeal.
1 Red Stag Timber Ltd v Juken NZ Ltd [2023] NZHC 2947.
[6] There is a relevant procedural history to Red Stag’s particular application for discovery. In March 2018, Red Stag sought tailored discovery of a number of categories of documents. The application was opposed and a hearing allocated. Ultimately Red Stag did not pursue the application. Then, in October 2020 Red Stag made another application for particular discovery. On 6 October 2021 in the decision in which he dealt with JNL’s applications for strike out and summary judgment, Gault J also dealt with and made a number of directions in relation to Red Stag’s then application for further discovery against JNL.2 Following that judgment, JNL served a second supplementary discovery affidavit of Gordon Wilmshurst on 21 December 2021. The first, also by Mr Wilmshurst had been filed on 11 May 2021. A further, third supplementary affidavit of documents by Mr Wilmshurst on behalf of JNL was filed on 25 July 2022.
Red Stag’s discovery application
[7]Red Stag’s discovery application seeks orders:
(a)for further and better discovery;
(b)lifting confidentiality restrictions;
(c)setting aside JNL’s claim to privilege be set aside.
[8] Red Stag also seeks unless orders in the event of non-compliance. Red Stag seeks the unless orders as it says JNL remains in default of discovery directed by Gault J.
Further and better discovery
[9] To support its applications in relation to discovery, Red Stag relies on the leave reserved in the judgment of Gault J,3 and the affidavits of Chloe Fleming, Martin Verry, and Briar Perry, ss 4, 56 and 69 of the Evidence Act 2006, and Part 8 of the High Court Rules.
2 Red Stag Timber Ltd v Juken NZ Ltd [2021] NZHC 2662.
3 Red Stag Timber Ltd v Juken New Zealand Ltd, above n 2.
[10]At [124] (d)–(f) of his judgment Gault J reserved leave as follows:
(d)JNL is to file and serve a further affidavit of documents within eight weeks, with leave reserved to file a joint memorandum seeking varied timetable orders if necessary.
(e)Red Stag’s application to set aside JNL’s confidentiality claims is dismissed, with leave reserved to apply to modify a specific confidentiality claim if counsel are unable to reach agreement on a particular document or more specific category of documents.
(f)Red Stag’s application to set aside JNL’s privilege claims is dismissed, with leave reserved.
[11] The parties have made some progress on Red Stag’s application but they still remain apart on a number of issues. At the outset of the hearing Mr Flanagan confirmed that provided JNL confirmed its position by affidavit Red Stag no longer needed to pursue the orders sought in categories 1(c), 2, and 4 of the application. Further, only two of the documents in category 5 remained in issue.
[12] JNL opposes the remaining aspects of the application. It says leave to bring it should be declined as the application seeks irrelevant documents, is oppressive and/or is fishing. JNL also says parts of the application were either not pursued when earlier before the Court or have effectively already been determined by Gault J.
[13] The general considerations in relation to an application for discovery and further discovery under r 8.19 are:4
(a)Are the documents relevant, and if so, how important will they be?
(b)What are the grounds for the belief the documents sought exist?
(c)Is discovery proportionate, balancing time and cost against the potential value of the discovery?
(d)Weighing and balancing these matters in the Court’s discretion is an order appropriate?
4 Assa Abloy New Zealand Ltd v Allegion (New Zealand) Ltd [2015] NZHC 2760 at [14].
[14] Particular discovery proceeds on the basis of an adverse documents test, which requires actual and direct relevance on the pleadings, unlike the former Peruvian Guano test.5
[15] A preliminary point about leave arises. Red Stag seeks to rely on the leave reserved by Gault J, but the leave reserved was only in relation to confidentiality and privilege, not to discovery generally. Next, apart from the application requiring leave under r 7.7 as the close of pleadings date has passed, JNL says that leave is required to bring a second application for further and better discovery: r 7.52.
[16] In my judgment, r 7.52 is not directly applicable to this discovery application, except insofar as it could be shown that Gault J has already determined the precise point against Red Stag. However, I accept that Red Stag requires leave to bring the application under r 7.7, except where it seeks to enforce compliance with the earlier orders of Gault J in its favour.
Category 1
[17] The first category of documents sought are in relation to calculation of damages. Red Stag seeks:
(a)JNL’s profit and loss statements, balance sheets, financial statement documents and management reports relating to the specific entity operating the Wairarapa LVL Mill and the business and financial performance attributable to the Wairarapa LVL Mill; and
(b)volume and profitability documents (including broken down by customer and month) relating to the products JNL produced at the Wairarapa Mill and sold in New Zealand and internationally during that period, management reports, reports/documents provided to JNL’s board or senior management team relating to the products JNL
5 The Compagnie Financiere et Commerciale Du Pacifique v The Peruvian Guano Co (1882) 11 QBD 55 (CA); and Chatfield & Co Ltd v Commissioner of Inland Revenue [2016] NZCA 614, (2016) 27 NZTC 22-084.
produced at the Wairarapa Mill as well as mill financial analysis reporting margins and performance.
[18] Red Stag says the documents are relevant to the assessment of its loss. It reasons that it is possible the Court may find that JNL’s sales of J-Frame after December 2012 would have collapsed (because the customers knew the truth about the product) but not disappeared entirely. Nevertheless, at a certain level of sales, J- Frame would have become commercially unviable and therefore JNL would have withdrawn it from the market. The viability of the mill itself might have been in jeopardy. Mr Verry has attached media reports of the challenges facing JNL’s milling operations. Indeed he filed an affidavit for the hearing with a recent, 30 October 2023, RNZ article noting the possible closure of JNL’s Gisborne mill.
[19]The relevant allegations in the pleading are at para 73 of the 8ASOC:
73 Even if those few Customers that were willing to purchase a Non- Compliant Product had all purchased J-Frame, the volume of those sales would not have covered Juken’s costs, including the costs of:
(a)milling, manufacturing and treating J-Frame;
(b)establishing that J-Frame complies with the Building Code as an Alternative Solution, such as by obtaining a Product Certificate and/or carrying out durability testing;
(c)educating Building Consent Authorities and other Customers about the means by which J-Frame complies with the Building Code as an Alternative Solution;
(d)promoting J-Frame to designers for specification in building plans;
(e)educating Customers about obtaining variations to consented plans where J-Frame has not been specified; and/or
(f)reducing the price of J-Frame.
[20] Red Stag then pleads that J-Frame would not have been a viable product or would have been of marginal viability.
[21] JNL says there is no factual basis for the proposition. It also says it was raised by Red Stag in its October 2020 application but not pursued.
[22] Ms Bryant noted that the sales of J-Frame were relatively modest as Mr Mellsop estimated, 7,243 m³ in 2013. By contrast Red Stag’s single mill produced 165,238 m³ of structural products in 2013. She submitted that the suggestion JNL could not fund the development of an alternative pathway to compliance or that its mill may have closed if production of JNL was halted was simply not credible. Brendan Smith, JNL’s compliance and risk manager, deposed in his affidavit in opposition to Red Stag’s October 2020 application that there were very modest costs to pursue alternative compliance pathways. For example, J-Frame’s BRANZ’s appraisal cost $15,000. The Scion durability trial cost less than $40,000 plus GST. Ms Bryant submitted Red Stag was fishing for commercially sensitive information to support a speculative and unsubstantiated allegation.
[23] Red Stag’s claim in these proceedings is that because of its misleading representations about J-Frame, JNL obtained a share of the timber framing market in New Zealand that it otherwise would not have achieved because, were it not for the representations, customers would not have purchased JNL’s framing timber. If JNL had ceased making the representations or made corrective disclosure after December 2012, JNL would have lost most or all of the small market share it had obtained and would not have been able to regain the market share. Its market share would have been replaced by Red Stag because of its position in the market place. There would also have been an impact on the price of the product.
[24] James Mellsop, the expert economist engaged by Red Stag has calculated Red Stag’s loss on the counterfactual basis if J-Frame was not in the market. Mr Mellsop calculates the loss on the basis that most of JNL’s sales would have gone to Red Stag (84 per cent) and the price for the product would have been materially higher (five per cent).
[25] It is not necessary in order for Mr Mellsop to calculate Red Stag’s loss on that basis to establish that, if the representations had not been made or if corrective disclosure had been made, JNL’s limited remaining sales would have been uneconomic for it. Mr Mellsop has been able to formulate Red Stag’s damages claim.
[26] The principal driver of how much Red Stag’s market share would have increased will be how customers, the market, would have reacted in the event Red Stag’s premise, that the representations were false, is correct.
[27] In my judgment a speculative inquiry into the profitability of JNL’s milling operation at certain levels of production is not of sufficient relevance to the principal claim advanced by Red Stag. As the articles annexed to Mr Verry’s affidavit make clear, there are a number of factors affecting the profitability and viability of a timber mill. A general reference in the pleading to the cost of milling, manufacturing and treating J-Frame cannot support a requirement for the disclosure of 11 years of information of the very detailed nature now sought by Red Stag at this very late stage. It would potentially open up a mini trial on at most a peripheral issue. I also note that Mr Verry raised this issue in his affidavit in support of the October 2020 application, but for its own reasons Red Stag did not pursue the application at the time.
[28] As noted, the costs of alternative certification would be minimal as confirmed by Mr Smith in his affidavit in opposition to the previous application for discovery.
[29] Leave is required to bring the application. Given the procedural background to this application, the very late stage at which this matter has been raised, and the limited relevance of it to the proceeding, I decline leave to pursue this aspect of the application.
Category 3
[30]The documents sought in category 3 are:
(a)correspondence and documents held by third parties (treatment providers, creditors and certifiers) which are relevant to the issues, including the following specific documents and any correspondence and documents relating to:
(i)the interpretation of the relevant standards;
(ii)J-Frame’s compliance with the relevant standards;
(iii)J-Frame’s penetration pattern;
(iv)testing of J-Frame for compliance with H1.2 penetration requirements;
(v)quality assurance processes for J-Frame’s treatment;
(vi)JNL’s LVL boron treatment tested facility comparison report;
(vii)the development of the modified treatment process referred to in JNL 04-0027 and AsureQuality’s assessment and certification of JNL’s Wairarapa Mill, including any re-evaluations.
[31] The documents sought are documents held by JNL’s treatment providers, auditors and certifiers. They are documents of AsureQuality, TimTechChem Ltd (Timtech), Mr Mora, BRANZ, Scion and Kiwi Timber Products Ltd (Kiwi) (and/or Kiwi Timber Treatment Ltd).
[32] Mr Flanagan noted that JNL relies on the fact its products were independently certified by reputable testing agencies. While it has provided or agreed to provide test reports from one of the agencies, AsureQuality, it has declined to provide any further documentation. He noted for instance that JNL has declined to provide documents in relation to treatments carried out by Kiwi Timber Treatment Ltd, which treated J- Frame until 2014. Nor, with the exception of one limited report has it provided any documents in relation to the supplier of the chemicals used for treatment, TimTech.
[33] Similarly, JNL relies upon a BRNAZ certification obtained in 2009 but relied on after December 2012. Finally, Red Stag understands J-Frame was durability tested by Scion (and Veritec, Scion’s laboratory) but it has not provided discovery in relation to that. The documents regarding treatment are relevant. Mr Flanagan emphasised that the case is all about treatment.
[34] The particularly relevant background to this aspect of the application is the treatment of JNL’s J-Frame product. J-Frame is treated with boron for use where hazard class H1.2 applies.
[35] Mr Flanagan submitted that in his decision Gault J had already ruled on this issue. The Judge recorded that if Red Stag put in issue whether J-Frame’s test samples did not show evidence of penetration of boron, then JNL was obliged to provide discovery of the relevant material. Mr Flanagan said that Red Stag subsequently confirmed in correspondence that it did put that matter in issue. He submitted JNL is in breach of an existing order and seeks compliance.
[36] While some of the documents sought may be third party documents, Mr Flanagan submitted that JNL should be ordered to provide discovery of the documents in the hands of the third parties because it is entitled to call for them, relying on the cases of Yashili New Zealand Dairy Co Ltd v AsureQuality Ltd, and Inverness Medical Switzerland GMBH v MDS Diagnostics Ltd.6
[37] JNL opposes the request for further discovery on a number of grounds. It says the documents are not relevant to the matters in issue in the pleading. The scope of discovery sought is oppressive, disproportionate and/or fishing. Next, Red Stag sought discovery of the documents in the earlier application but it either did not pursue discovery of them or they were dealt with by Gault J. As Gault J noted, JNL accepts that J-Frame was not treated using the glueline treatment in NZS 3640 and/or AS/NZS 1604.4 and it also accepts that J-Frame was not treated (or tested) for compliance with the complete sapwood penetration requirement (penetration to the central ninth) in NZS 3640. Finally, and in any event, JNL says the documents are held by non-parties.
[38] Ms Bryant then submitted that in any event, Red Stag has been provided with the basis for certification documents held by JNL and records of AsureQuality’s interpretation of the treatment standards and its testing methodology. JNL has not provided Red Stag with the penetration and retention test reports from AsureQuality’s laboratory as JNL does not consider them relevant to a matter in dispute. AsureQuality did not test J-Frame for complete sapwood penetration. It tested J-Frame for compliance with the penetration requirement for hazard class H1 and AS/NZS 1604.4. The short point from JNL’s point of view is that AsureQuality did not undertake chemical analysis of the central ninth. It has however agreed to provide JNL with
6 Yashili New Zealand Dairy Co Ltd v AsureQuality Ltd [2022] NZHC 332; and Inverness Medical Switzerland GMBH v MDS Diagnostics Ltd HC Auckland CIV-2007-404-748, 21 December 2007.
AsureQuality’s timber treatment program test reports for the period 2013 to September 2017. JNL considers that the parties agree that if boron treated LVL is included in the treatment standards (Red Stag says it is not), then J-Frame met the requirement for preservation retention.
[39] JNL says it has provided discovery of any documents regarding interpretation of the treatment standards by Kiwi, TimTech and Mr Mora. They were not customers and any internal views they may have of the standards that were not expressed to JNL are not relevant.
[40] Kiwi Timber Treatment provided the boron treatment of J-Frame from 2011. It sold its plant to JNL at the beginning of 2014 when the plant was moved to JNL’s mill. TimTech supplied the chemicals used by Kiwi and JNL. Neil Mora was an employee of TimTech.
[41] Scion undertook durability trials of J-Frame. As noted, Veritec is Scion’s in- house laboratory. JNL says it has provided Red Stag with Veritec’s laboratory reports for the test samples and durability trial reports. It also provided documents held by it regarding Veritec’s interpretation of the relevant standards.
[42]The relevant paragraphs of Gault J’s earlier decision are:7
Internal correspondence and documents about the treatment of J-Frame
[97] Mr Flanagan submitted that the relevance of this category turns on the scope of JNL’s admissions to Red Stag’s allegation, in the alternative to its primary claim, that AS/NZS 1604.4 requires penetration in the sapwood of treated veneers. He submitted this category of documents would be relevant if JNL denies that its sapwood was not treated. He also submitted there is an issue about the extent to which JNL’s boron treatment “migrates” into the inner veneers of J-Frame when wet, and documents relevant to that are discoverable.
[98] As indicated, JNL admits that J-Frame was not treated to comply with a complete sapwood penetration requirement. Its compliance case is based on its interpretation that the standards do not require complete sapwood penetration for J-Frame. JNL admits that if there is a complete sapwood penetration requirement, it did not comply.
7 Red Stag Timber Ltd v Juken New Zealand Ltd, above n 2, (emphasis added).
[99] JNL says, however, that prior to 1 September 2017 J-Frame was treated to comply with the penetration requirement for hazard class H1 in AS/NZS 1604.4. JNL says this means test samples must show evidence of penetration of boron in the sapwood of each veneer. JNL says its testing for compliance with the penetration requirements of AS/NZS 1604.4 is not in issue.
[100] I accept that the Court may adopt one of a number of possible interpretations of the standards, but it does not follow that all treatment documents are relevant. That depends on whether there is a factual issue. Whether there is a factual issue here is not clear. If, as JNL understands, Red Stag’s alternative claim is that even AS/NZS 1604.4 requires penetration in the central ninth part of the framing, JNL admits J-Frame does not have such penetration. But if Red Stag’s alternative claim alleges that J-Frame’s test samples do not show evidence of penetration of boron in the sapwood of each veneer, there is a factual issue and documents relating to JNL’s test samples in that respect would be relevant. Red Stag should clarify if this is alleged.
[101] Mr Flanagan also submitted there is an allegation that JNL did not test the durability of J-Frame until at least 2015, and so documents in this category are at least relevant for that period. JNL’s response to this allegation is unclear but I read it as an admission that it did not test the durability of J-Frame until February 2015. The relevance of Red Stag’s allegation to treatment is also unclear. But I accept there is an issue as to whether JNL tested the durability of J-Frame in the remainder of 2015. Documents relating to the durability testing of J-Frame in that period in 2015 are therefore relevant.
Internal correspondence and documents about the testing, auditing and/or certification of J-Frame
[102] Mr Flanagan submitted that JNL has put its testing, auditing and certification regime in issue and must disclose all documents relevant to testing. I accept that insofar as JNL has put its testing, auditing and certification regime in issue, such documents are relevant. But, as indicated in relation to the treatment category, insofar as Red Stag’s case is that J-Frame is non-compliant because it does not meet the complete sapwood penetration (penetration to the central ninth) requirement for solid timber, JNL admits that J-Frame does not have complete sapwood penetration. It also admits that it has never tested for complete sapwood penetration. For these reasons, I do not consider that documents about the testing, auditing or certification of J- Frame are relevant, unless Red Stag alleges that J-Frame’s test samples do not show evidence of penetration of boron in the sapwood of each veneer, as indicated.
[103] There is also the exception for documents relating to the durability testing of J-Frame from February to December 2015, already mentioned.
[43] Two principal points arise out of Gault J’s decision. The first is that even though the heading of the relevant paragraphs refers to “internal correspondence”, the application before the Judge was not restricted to internal correspondence. It sought “all correspondence and documents about the testing, auditing and/or certification of
J-Frame (insofar as it relates to J-Frame’s treatment) and documents relating to testing”.
[44] The second issue is that the parties remain in dispute about the matters in [100] and [102] that Gault J left open subject to clarification by Red Stag.
[45] JNL’s position remains that, as it accepts J-Frame was not treated or tested for compliance with complete sapwood penetration requirement, documents relating to the extent of the boron penetration are not relevant. Red Stag however takes the position that the extent of the penetration (even if not to the central ninth) is still relevant in relation to the standards. That is a matter that still remains open on the pleading and falls within Gault J’s ruling.
[46] As I read his decision, Gault J accepted that while JNL accepted J-Frame does not have penetration to the central ninth, if Red Stag maintains a claim that J-Frame’s test samples do not show evidence of penetration of boron in the sapwood of each veneer, then there is a factual issue about that and documents relating to JNL’s test samples in that respect would be relevant.8
[47] On that basis I accept Mr Flanagan’s submission on behalf of Red Stag. Red Stag has put that matter in issue. If documents exist relevant to the issue identified by Gault J in [100] and [102] and are held by JNL they are to be discovered.
[48] Gault J also accepted that there could be an issue, limited as to whether JNL tested the durability of J-Frame in the remainder of 2015 (after February 2015) so that documents relating to the durability testing of J-Frame from February 2015 are relevant and if held by JNL they are to be discovered.
[49] However, as I apprehend it, the application is now primarily directed at documents held by the third party entities.
[50] To that extent, all that JNL could be required to do at this stage is to ask those third parties (apart from BRANZ) to provide the relevant documentation relating to
8 At [100].
the documents at [30](a)(ii) to (vii). I do not consider that the views of the third parties (apart from BRANZ) as to the interpretation of the relevant standards to be sufficiently relevant. I make such a direction. If the third parties decline, it would require an application for leave to bring non-party discovery out of time. Leave would obviously be required.
[51] JNL also says it has provided additional documents regarding BRANZ’s interpretation of the relevant standards of B2/AS1. JNL takes the view that any internal views held by BRANZ to the extent they are not expressed in the appraisal are irrelevant.
[52] However, again I note that Gault J ruled at [96] that correspondence containing consumer or industry views of the proper interpretation of the pleaded building standards and requirements may be relevant. On that basis the BRANZ documentation is in a different category and should also be discovered.
Category 5
[53]Two specific documents remain outstanding:
(a)JNL’s “initial response” to the Commerce Commission referred to in JNL-01-0157; and
(b)JNL’s discussions with the Standards Committee about the inclusion of JNL boron treated LVL in NZS 3640 referred to in JNL-01-0423.
[54] Mr Flanagan submitted the response to the Commerce Commission was relevant as JNL’s response to the issues raised by the complaint about J-Frame must be relevant to the issues in the proceeding. In relation to the second matter it is said the views of the Standards Committee are relevant to the industry’s understanding of the relevant standard which is at issue.
[55] JNL opposes the application on the basis that information provided in the course of an investigation by a government agency is not a representation to a section of the public for the purpose of civil liability under the FTA: ABB Ltd v NZ Insulators
Ltd (No 1).9 It also says JNL’s assessment of the meaning of the standards is not relevant.
[56] The ABB Ltd case is distinguishable and not directly relevant. Red Stag does not pursue the application for disclosure of the Commerce Commission documents on the basis that JNL’s response is evidence of a further misrepresentation by JNL. To the extent the communication discloses JNL’s response to a challenge to its product certification at the time I accept it is potentially relevant and ought to be disclosed.
[57] JNL’s officers’ discussions with the Standards Committee are, however, not discoverable. Self-evidently discussions are not documents. Further, as Ms Bryant noted, Red Stag says and JNL agrees that NZS 3640 did not provide for boron treatment for LVL. Disclosure is not required of those discussions.
Confidentiality
[58] Red Stag relies on the leave reserved by Gault J to seek to modify specific confidentiality claims if counsel were unable to reach agreement. Unfortunately counsel have not been able to resolve this issue, in particular in terms of Mr Verry’s access to confidential documents. Although, in preparation for the hearing, with Red Stag abandoning the challenge to documents pre-dating December 2012, and with JNL agreeing to relax its claims to confidentiality, the dispute is now limited in scope.
[59] JNL says Red Stag’s grounds for setting aside the confidentiality requirements are essentially the same as those relied on before Gault J and were dealt with in his judgment. It says Red Stag has not proposed any safeguards to protect JNL against misuse of its confidential information. JNL has already waived confidentiality in whole or in part in relation to identified documents.
[60] In his earlier decision Gault J left the matter open while making some broad observations in the expectation it would assist counsel to resolve the issue:10
[118] First, some documents will be more confidential than others. I accept that disclosure of JNL’s highly confidential information, such as trade secrets,
9 ABB Ltd v NZ Insulators Ltd (No 1) [2006] 3 NZCCLR 645 at [92]–[93].
10 Red Stag Timber Ltd v Juken New Zealand Ltd, above n 2, (footnote omitted).
would create a real risk of prejudice to JNL. That is particularly so since, at least in the application, Red Stag seeks to set aside JNL’s confidentiality claims without accepting any restrictions beyond those inherent with documents disclosed on discovery. Mr Flanagan’s submissions seemed to accept that inspection would be on the basis of appropriate undertakings from the representatives of Red Stag given access including at least its CEO, Mr Verry. JNL’s concern about misuse of its confidential documents is heightened by its experience of Mr Verry’s public statements about J-Frame and approaches to JNL’s customers. I expect that risk could be managed where other factors favour disclosure.
[119] Secondly, in the context of the issues in this case and on the basis of a general contention that disclosure of confidential documents is necessary to enable Red Stag to prepare adequately for trial, I consider there is relatively little risk of prejudice to Red Stag in its preparation and conduct of the proceeding. Access by a representative of Red Stag to less highly confidential documents, such as historic financial documents, may be appropriate on terms so as to maximise its visibility of the conduct of the proceeding. But, as Mr Galbraith submitted, JNL’s confidentiality claims do not prevent Red Stag’s counsel from discussing the general position with Red Stag and providing advice. Counsel should be able to obtain proper instructions. This FTA case is unlike Warner-Lambert Co v Glaxo Laboratories Ltd, where the circumstances called for disclosure of technical information to an authorised officer able to make major decisions on its behalf such as whether to continue or abandon a patent infringement action. Also, this is not a case where Mr Verry’s role as a witness about market acceptance or otherwise would appear to be compromised.
[61] The real issue is in relation to Mr Verry’s access to the confidential documents. Ms Bryant confirmed JNL seeks to maintain its claim for confidentiality in relation to pricing and sales information. While unredacted copies have been provided to Red Stag’s counsel and experts, they have not been provided to Mr Verry. JNL also maintains its claim for confidentiality in the identities of its customers. JNL submits they are commercially sensitive and should not be disclosed to Mr Verry.
[62] There is a side issue that the parties unfortunately saw the need to engage in. In support of its submissions in opposition to Red Stag’s application JNL attached a schedule in which it detailed concerns regarding the misuse of its confidential information. Mr Flanagan took strong exception to that on behalf of Red Stag and Mr Verry in particular. I note the issue of the misuse of confidential information has been raised before. It was a live issue before Gault J. Gault J recorded that JNL’s concern about the misuse of confidential documents was heightened by its experience of Mr Verry’s public statements about J-Frame and approaches to JNL’s customers.11 I
11 At [118].
consider it unnecessary for the Court to engage in the allegation and counter allegations on this particular issue. Like Gault J, I recognise confidentiality is appropriate in the area where, as in this case, the parties are direct trade competitors. However balanced against that are practical trial considerations in particular which I return to below.
[63] On the issue of price information a compromise position appears to have been reached. JNL seeks to maintain confidentiality in relation to its pricing. It does not want that disclosed to Mr Verry. Mr Flanagan confirmed that, although it considers the information to be historical and of no future commercial value, Red Stag is content for the relevant documents to be provided to Mr Verry with the price lists redacted.
[64] Red Stag still pursues its application for waiver of confidentiality on the issue of customer identity so that the documents can be provided to Mr Verry. Mr Flanagan argued that Red Stag will be required to demonstrate that JNL’s customers would have switched to Red Stag from the December 2012 date following the withdrawal or correction of the representations. He submitted that Mr Verry would be well placed to give evidence about that, given his knowledge of the market, including particular customers’ needs and preferences. The identities of the particular customers of JNL is necessary for him to provide that evidence. Mr Flanagan also noted the relevant time period is from December 2012 until June 2020. To that extent the customer information is in part historical.
[65] Mr Flanagan also made the point that if the orders in relation to confidentiality are maintained to trial then Mr Verry would have to absent himself from the Court whenever JNL’s customers are giving evidence. Ms Bryant confirmed that a number of JNL’s customers will be giving evidence.
[66] I have some difficulty with the submission for Red Stag that Mr Verry could give evidence about what JNL’s customers would do if they were aware of the alleged failings with JNL’s product. From [119] of his judgment it does not seem Gault J considered Red Stag’s ability to prepare for trial and give evidence about market acceptance generally would be compromised by the current restrictions. That must be correct. JNL’s customers who are giving evidence can of course be questioned about
what they would have done. They can give the best, direct evidence about that issue. Further, the suggestion that Mr Verry might give evidence on that point overlooks that Red Stag’s evidence-in-chief has been already exchanged. While reply evidence is provided for, the type of evidence that it is suggested Mr Verry would provide about how JNL’s customers would have reacted does not fit the category of reply evidence.
[67] I accept, however, that it would create real difficulty for the trial process and it would be unreasonable to require Mr Verry to leave the Court every time one of JNL’s customers was giving evidence.
[68] I do not overlook JNL’s stated concerns, but there must be a degree of practicality applied here. It is likely that Mr Verry would know most, if not all, of the participants in the market who would be JNL’s customers and those customers will also obviously know of the dispute.
[69] The answer to that practical trial issue is for the confidentiality in relation to the identity of customers to be maintained until the start of the trial. Mr Verry can at that time be made aware of the customers who may be giving evidence for JNL and will be entitled to remain at Court while their evidence is given.
Result - confidentiality
[70] The application in relation to the release of the confidentiality restrictions is granted to the extent that the information in items 28 to 114 of Schedule JNL-02 to JNL’s notice of opposition is waived, save that pricing information and price lists are to be redacted from the documents to be provided to Mr Verry.
[71] The same documents and items 28 to 114, 115 to 159 are to remain subject to the existing confidentiality restrictions in relation to the names of the customers, but the confidentiality restrictions are to be lifted at the commencement of the trial.
[72] Finally, I note that in relation to two items, JNL-01-0433, an email from JNL to its customers in 2017, and JNL001-0439, a spreadsheet in October 2017, JNL agrees to waiver or at least partial waiver of the confidentiality restrictions.
Privilege
[73] The issue of the litigation privilege claimed by JNL was before Gault J when Red Stag’s application for discovery was before him. In the event the Judge did not determine the matter, concluding:
[123] On this basis, once the relevance of any documents in this category is confirmed in JNL’s further affidavit, I expect counsel can resolve any residual litigation privilege disputes. In these circumstances, I am not prepared to set aside JNL’s privilege claims but will reserve leave.
[74] Unfortunately counsel have been unable to entirely resolve the issue. However, at least by the date of this hearing it was limited to five documents.
[75] JNL takes the position that the leave reserved is not applicable to the present challenge to privilege. Ms Bryant also made the point that Red Stag had accepted in previous submissions that JNL reasonably apprehended proceedings were likely after 6 November 2014. The five documents in issue all post-date that being documents created in 2015 and 2017. Ms Bryant submitted that the principle that privilege applies not only to a specific proceedings but to a related set of apprehended proceedings was applicable in relation to some of the documents.12
[76] While JNL opposes the exercise of the leave reserved I consider it open to Red Stag to pursue the matter. The issue of the privilege claimed in relation to these documents is still a live issue and leave was reserved.
[77] Ms Bryant provided unredacted copies of the five documents (which are, in each case, chains of email communications) for the Court’s inspection. Even accepting for present purposes that the documents were prepared at a time when litigation of one form or another might have been contemplated, s 56(1) of the Evidence Act 2006 confirms that litigation privilege only applies if the communication is made for the dominant purpose of preparing for the proceeding or apprehended proceeding. In Beckham v R, and while in the context of a criminal trial, the Supreme
12 Jessica Gorman and others McGechan on Procedure (online ed, Thomson Reuters) at [HR 8.25.03].
Court confirmed the dominant purpose test applies globally to the communications and that the dominant purpose test should be applied with some rigour.13
[78] Having provided the Court with the five documents, Ms Bryant confirmed that privilege claimed in relation to the first document JNL-02-0513 was waived. That was an appropriate concession. Having reviewed the four remaining documents, I do not consider they attract litigation privilege either. They cannot be said to have been made or prepared for the dominant purpose of the litigation.
JNL-01-0258
[79] The emails are an exchange between Mr Smith of JNL and Mr Fraser from AsureQuality. Mr Fraser forwards an email from Mr Verry challenging AsureQuality’s J-Frame codemark, and Mr Smith responds to Mr Fraser with some test results from Veritec. The purpose of the communication appears to be to reassure AsureQuality on the point raised by Mr Verry or to enable it to respond to the point.
JNL-01-0184
[80] On 23 June 2017 emails were exchanged from TimTech to Mark Orange, Mr Wilmshurst, Mr Jordan and Mr Smith from JNL, alerting them to the communication from Mr Verry to Mr Kohn which challenged JNL’s LVL product. The emails appear to have as a dominant purpose to keep the recipients of the emails informed. They also suggest that if there was any MBIE investigation Red Stag’s treatment style should also be taken into account. While there is reference to a private prosecution the dominant purpose is to keep parties informed.
JNL-01-087
[81] This is a chain of emails between Ms Swann, a consultant to JNL, and Mr Harper and others at MBIE regarding the correct interpretation of NZS 3604:2011 and AS/NZS1604.4. While it covers matters relevant to the testing issues, again the
13 Beckham v R [2015] NZSC 98, referring to Guardian Royal Exchange Assurance of New Zealand v Stuart [1985] 1 NZLR 596 (CA).
correspondence cannot be said to have been prepared for the dominant purpose of any apprehended proceedings.
JNL-01-0153
[82] This is an email response from Mr Jordan to Mr Smith discussing Mr Verry’s email of 1 March 2017 and how best to respond to it. Again it fails the dominant purpose test.
[83]It follows that the above documents are not privileged and are to be disclosed.
[84] Red Stag also takes objection to the group listing of documents for which privilege is claimed. The High Court Rules permit the group listing of documents. JNL’s discovery was before Gault J when he dealt with Red Stag’s original discovery application. If the matter was a live issue at the time it should have been raised with the Court then. I am not prepared to revisit that issue at this time.
Interrogatories
[85] Red Stag seeks orders requiring JNL to answer the notice to interrogatories served on 20 June 2023. Red Stag relies on rr 7.7 and 8.34 to 8.40 of the High Court Rules.
[86] The application for orders requiring JNL to answer the interrogatories was only filed on 27 October 2023, some four months after the close of pleadings date. Leave is required for the application. Mr Flanagan accepted that, but argued the notice itself had been issued on the close of pleadings date and so was within time. It was then for JNL to respond to the application which it had failed to do.
[87] Mr Flanagan submitted answers to the interrogatories would resolve a number of factual issues and would clarify and simplify the hearing for the parties and the Court.
[88] JNL’s response to the interrogatories is that the order sought is unnecessary. To the extent the interrogatories address relevant issues they will be answered by JNL’s
briefs of evidence which are due to be exchanged by the end of this month. In relation to the interrogatories generally, JNL submits that JNL’s knowledge or understanding of the standards is not relevant and the interrogatories are oppressive. They would require inquiries of an undefined category of people over a number of years. Further, in relation to the interrogatories directed at testing, J-Frame was tested and certified to comply with the penetration requirement for hazard class H1 and AS/NZS 1604.4 and the penetration requirements set out in the interrogatories are not in issue in the pleadings. Other interrogatories either seek commercial information that is not relevant and/or is oppressive and/or otherwise not relevant to matters in issue.
[89] Before making an order requiring a party to answer interrogatories the Court must be satisfied the order is necessary at the time it is made.14 It has been accepted that, in an appropriate case, where the relevant evidence would be contained in briefs of evidence and would provide the information sought then interrogatories are not necessary.15
[90] Also, as noted, in this case leave is required. In RHH Ltd v Anderson (No 3) the plaintiff was refused leave under r 7.7 to apply for an order requiring the defendants to answer interrogatories after the close of pleadings date, even though the notice requiring the interrogatories had been served four weeks before that date.16 The Court considered the plaintiff should have sought the interrogatories earlier to allow time to seek the order if the defendants did not answer them. The explanation for the late delivery of interrogatories in this case is due to the unsettled nature of the pleading. But in large part Red Stag has to accept responsibility for that.
[91] Standing back and looking at the matter overall the Court is not satisfied that it is necessary at this time to make an order requiring JNL to answer the interrogatories. I accept that to the extent the interrogatories address relevant issues they will, in large part be addressed in JNL’s evidence. To the extent other matters remain outstanding, the application is made too late.
14 High Court Rules 2016, r 8.38(4).
15 Todd Pohokura Ltd v Shell Exploration NZ Ltd [2009] NZCA 561.
16 RHH Ltd v Anderson (No 3) 2018 NZHC 2045.
[92] Leave to bring the application for an order that JNL answer the interrogatories is declined.
JNL’s discovery
[93] JNL says the documents it now seeks, which are set out in a schedule to the amended interlocutory application dated 19 October 2023, are necessary to enable it to assess Red Stag’s quantum claim which is now valued at $141.2 million.
[94] The application is made in reliance on rr 8.19, 8.25, and 8.27 of the High Court Rules 2016; s 65 of the Evidence Act 2006 (waiver of privilege); and Assa Abloy New Zealand Ltd v Allegion (New Zealand) Ltd.17 The application is also supported by affidavits of Shaun Hayward and Charlie Stone.
[95] Mr Hayward is a chartered accountant whose firm, Calibre Partners, has been engaged by JNL to give expert evidence in relation to Red Stag’s claim in the current proceeding. He has set out the reasons why he considers the documents sought in the application are necessary or will be helpful. Mr Stone is a lawyer employed by the solicitors for JNL. He has detailed the relevant correspondence between the parties on this aspect of discovery.
[96] Red Stag opposes the application, although in the notice of opposition recently filed to the amended application it has confirmed discovery will be provided of a number of the documents sought by JNL. It refers to the same rules and relies on the affidavits of Martin Verry in reply to oppose discovery of the remaining documents.
[97] JNL’s application for discovery of the quantum documents relates to 11 categories of documents. The focus of the application was on categories 1 to 5. In relation to categories 6 to 11 Red Stag has either agreed to provide the documents or at least a selection of them.
[98] As a preliminary point, leave is required for this application as well. However I accept that, given the detail of Red Stag’s quantum claim appeared for the first time
17 Assa Abloy New Zealand Ltd v Allegion (New Zealand) Ltd, above n 4.
in the evidence of its expert witnesses, it is appropriate to grant leave. Leave is granted accordingly.
[99] Mr Flanagan submitted JNL’s request for financial information about Red Stag’s capacity could only be justified if it was relevant to one of the following issues:
(a)did Red Stag have capacity to pick up the additional volume if JNL had either withdrawn from the market entirely by reason of reduced sales significantly reduced its presence in the market; and
(b)would it have been commercially viable for Red Stag to pick up the additional volume?
[100] Mr Flanagan made the point that, considering the extent of Red Stag’s operation, the volumes involved were minimal. In response, Ms Bryant noted that, quite apart from the particular product in issue, as Red Stag’s own evidence made clear, there were other side products, the arisings. Red Stag’s claim includes lost profit both for the “diverted” sales to JNL’s customers and the arisings it would have sold to other parties were it not for JNL’s alleged breaches of the FTA after December 2012. Information related to those arisings was relevant.
[101]I return to the particular categories in issue.
Category 1 – Red Stag’s financial forecasts and related documents between FY 2012 and FY 2020; and Category 2 – Red Stag’s budget documents between FY 2012 and FY 2020
[102] Mr Hayward says the documents are necessary to understand the marginal profitability of Red Stag and the impact of additional volumes on its profits. Mr Hayward says the budgets and forecasts will be very useful to him. Red Stag has agreed to provide its capacity against capex planner, (noting that a number of versions have already been discovered), its cash flow forecasts, records of its marginal costing annually across its cost centres, and its assumptions as to uplift to cover marginal incremental volume. It will also provide audited financial statements as well as sales
reports, profit and loss and balance sheets and sales pricing by product. However, it does not agree to providing the financial forecasts and budgets.
[103] Mr Hayward maintains that the budgets and forecast would help understanding the business’ financial performance if the actual events did not eventuate. However, given the level and detail of financial information Red Stag has agreed to provide, I do not consider the “usefulness” of the budgets and forecasts warrants their disclosure. I accept Red Stag’s submission that the budgets and forecasts are not relevant where annual actual profit and loss and financial statements have been discovered.
Category 3 – documents between FY2012 and FY2020, including:
(a)board reports;
(b)board meeting minutes;
(c)documents/reports/information provided by senior management to either the Board or the CEO.
[104] Mr Hayward notes that board documents often address issues such as capacity constraints, profitability and events impacting on profits, and the costs incurred to acquire additional volumes and cost benefit analysis etc. He considers that access to the board documents would enable him to understand why profitability improved or deteriorated.
[105] Mr Verry has accepted that Red Stag will provide documents under this category relevant to its capacity to take up the displaced volume if JNL was not in the market, including current/future capacity planning documents, five year cash flow forecasts showing the intended capex and timing, and relevant capex requests covering additional capacity projects agreed by the Board.
[106] Mr Hayward accepts that the whole board documents are unlikely to be needed. However he considers that there are likely to be other parts of the board documents that may be relevant.
[107] I agree with Red Stag’s objection to provision of all board documents on the basis sought by Mr Hayward. I am not satisfied disclosure at that broad level is necessary. To the extent Mr Hayward supports the request for access to the board documents on the basis that it is “difficult to be sure exactly what will be relevant from the [documents] until I see them”, I agree with the objection that it can be seen as a fishing exercise.
Category 4 – management reports regarding the decision to incur major capital expenditure and tracking progress of the spend between FY2012 and FY2020
[108] Mr Hayward seeks access to information considered before and during the acquisition of:
· the second counterflow kiln in around FY 13;
· the third counterflow kiln in or around FY 16;
· the Mega Mill in or around FY 17; and
· any other major capital expenditure.
In addition Mr Hayward seeks any cost benefit analysis, and impact analysis associated with the above projects. He also seeks information as to whether the projects were delivered on time at cost or otherwise and the time taken to commission them as well as instal them.
[109] Red Stag has agreed to provide information considered before and during the acquisition of the second Counter Flow Kiln in or around FY13, the third Counter Flow Kiln in or around FY16, the Mega Mill in or around FY17, and other major capital expenditure. It will also provide any cost benefit analysis and impact analysis associated with the above projects. It has also agreed to provide a summary of when the specific projects came on stream.
[110] Red Stag objects to provide information whether the projects were delivered on time and at cost or otherwise and the time taken to commission the new assets as well as the time to instal the new assets.
[111] Mr Hayward considers that when the project was first considered, when it was approved, when the costs were incurred, when it was completed and the time taken to commission the assets will be relevant to understand what costs Red Stag would have incurred as well as when the equivalent assets might have been available for use in the counterfactual scenario.
[112] Again, I accept Red Stag’s objection to the request for this level of detailed information. Project management of the construction of the projects is not in issue in the proceedings. I agree that discovery of such information would be disproportionate and unnecessary, bearing in mind the information that will be provided.
Category 5 – Monthly financial records between January 2013 and June 2020 including:
(a)monthly profit and loss;
(b)monthly balance sheet;
(c)monthly operating costs;
(d)monthly summaries of information regarding log grade quantities actually purchased;
(e)mill production records broken down to specific product type and treatment;
(f)products sold, in which country, to whom and at what price;
(g)stock records identifying the volume and value of inventory; and
(h)monthly debtor schedules.
[113] Mr Hayward seeks the above documents on the basis they will assist in analysing the requirements for and availability of net working capital and costs. He says the monthly documents are required because there may be seasonality adjustments required. Overall the information will assist his analysis of capacity constraints.
[114] Red Stag has agreed to provide the monthly profit and loss but says the monthly balance sheet is unnecessary as it is providing its annual balance sheet. Further it says it will not provide its monthly summaries of log grade qualities as costs per m³ vary insignificantly monthly so annual costs are more relevant. I agree with Red Stag’s response on this issue. The extended discovery sought by Mr Hayward cannot be said to be necessary.
[115] Mr Verry says, in response to the request for monthly summaries of its log grade quantities purchased, that it has provided log contracts under which it purchased logs which demonstrate it had access to additional supplies. Further, what it paid for its logs annually has been discovered. I accept nothing further is required.
[116] Mr Hayward seeks mill production records and details of products sold. He says the production records may be relevant to understand production capacity by type. Product sales data will also be “useful” in relation to the demand for other products, the arisings.
[117] Mr Verry says mill production records will be provided, broken down to product type grouping such as MSG8 or MSG10 rather than every length, dimension, or treatment. Red Stag will also provide sales data on a monthly basis. That response is sufficient and appropriate.
[118] Mr Hayward says the monthly stock records will be useful for a comparison, particularly to understand seasonal volatility. Red Stag has agreed to provide monthly inventory levels.
[119] Finally Mr Hayward also seeks monthly debtor schedules. He reasons that for Red Stag to undertake additional sales it would need additional working capital. He
wants to “interrogate” the debtor’s balances. I agree with Red Stag’s objection to the disclosure of this information. The monthly debtor schedules are irrelevant. The profit and loss and balance sheet information will demonstrate Red Stag’s financial position and its ability to sustain increased production.
Summary
[120] To the extent it has not yet been provided, the additional discovery conceded or required as recorded at [11], [47], [50], [52], [56], [70]–[72], [83], [102], [105], [109], [114], and [117]–[118] is to be provided within 10 working days.
Costs
[121]Costs are reserved.
Venning J
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