Saunders v Perrins HC Auckland CIV 2008-404-3674
[2010] NZHC 643
•26 April 2010
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2008-404-03674
BETWEEN KEVIN ALLAN SAUNDERS, JOHN PERA KAHUKIWA & MICHELLE ANN SAUNDERS
Plaintiffs
ANDJOHNATHAN GILBERT FRANCIS PERRINS
First Defendant
ANDBRIAN THOMAS PERRY Second Defendant
ANDJOCULUS PTY LIMITED Third Defendant
AND DEALBEAT PTY LIMITED Fourth Defendant
Hearing: 1 October 2009
10 December 2009
Counsel: M Kelly for Plaintiffs
G Hall and K Woodward for Defendants
Judgment: 26 April 2010 at 4 pm
RESERVED JUDGEMENT OF ASSOCIATE JUDGE H SARGISSON (Applications for Discovery and Particulars)
This judgment was delivered by me on 26 April 2010 at 4 pm pursuant to
Rule 11.5 of the High Court Rules
Registrar/Deputy Registrar
Date .......................... Solicitors:
Corban Revell, PO Box 21180, Henderson
Buddle Findlay, PO Box 1433, Auckland
SAUNDERS AND ORS V PERRINS AND ORS HC AK CIV-2008-404-03674 26 April 2010
The applications
[1] The plaintiffs are the trustees of the K A Saunders Family Trust (referred to as the trustees of Kasft in the statement of claim). They seek an order for particular discovery against the defendants, Johnathan Perrins, Brian Perry, Joculus Pty Limited and Dealbeat Pty Limited. They also seek an order that the defendants’ claims to confidentiality in respect of documents discovered to date be set aside.
[2] The application is opposed and was adjourned on a part heard basis on 1
October 2009 for further hearing on 10 December 2009.
[3] The defendants, in turn, have made an application seeking an order for further particulars of the plaintiffs’ statement of claim. In the application they also sought an order for particular discovery, which was dealt with on 10 December 2009 when I made discovery orders by consent.
[4] This judgment is therefore confined to the plaintiffs’ application for particular discovery and their challenge to the defendants’ claim to confidentiality, and the defendants’ application for further particulars.
Background and pleadings
[5] The proceeding arises out of the dissolution of a shareholders’ agreement that the parties to this proceeding entered into in the mid 1990s.
[6] The agreement related to a business comprising a number of corporate entities involved in the manufacture and sale of steel storage units. Under the agreement Kasft and the defendants were co-owners of the business and bound themselves to obligations of good faith that precluded their engaging in any enterprise in competition with the business.
[7] The business operated successfully and evolved into a group of companies operating in New Zealand, the Pacific, Europe and Asia that became known as the Steel Storage Group. Kevin Saunders, one of the plaintiffs and a trustee of Kasft, and Johnathan Perrins and Brian Perry, who are named as first and second
defendants, were co-directors of the entities in the group, but it was Mr Saunders who was primarily responsible for the management of the New Zealand and Pacific operations, while Mr Perrins and Mr Perry were responsible for the management of the Europe and Asia operations.
[8] The parties had the group of companies valued by Ernst & Young in early
2003 who produced an indicative valuation of AU$7-10 million as at December
2002, for the entire group. In 2005, because of irreconcilable differences between the New Zealand and Australian management arms, they decided to commence negotiations for the breakup of the group.
[9] In the ensuing share sale agreement for the division of the group, which was finally reached around 7 October 2005, the plaintiffs acquired 100% of the New Zealand business and were paid a money sum of AU$1.7 million. According to the plaintiffs, this package was negotiated on the express basis that the entire group was worth AU$10 million (the New Zealand company being worth AU$1 million), and that they were entitled to a 27% share of the overall value of the group to reflect Kasft’s shareholding in the group.
[10] The plaintiffs were content with this package initially, but say they subsequently discovered that they had been misled by the defendants during the course of the negotiations into believing that the value of the group was AU$10 million in circumstances where the defendants themselves held no such belief and indeed believed with good reason that it was worth considerably more.
[11] As a result, the plaintiffs commenced this proceeding in June 2008. The statement of claim raises two causes of action. The first is based on breach of s 9 of the Fair Trading Act 1986 and seeks damages. The second is based on breach of fiduciary duty and seeks damages or an account of profits.
[12] The plaintiffs plead that when the negotiations were in train, they asked for financial information about the group and its development activities but were misled in that they were:
a) Denied the 2005 accounts for the Europe company, Steel Storage Europe Ltd, and told that the company was still performing at a loss when the contrary was true. The company was trading at a profit and the directors of the company received substantial secret increases in emoluments that ought properly to have been treated as profit.
b)Given false information that there was no new business being undertaken by the group in Dubai and Singapore or investigations in new markets that would affect the value of the group, and were told, contrary to the true position, that everything had been disclosed and would be in the relevant minutes and a business plan.
[13] The plaintiffs allege they have since discovered that in addition to the secret emoluments and the Europe profit, new developments were underway in Dubai from at least May 2005 involving, in particular, a contract for a large steel storage facility, and that the defendants had themselves, or through entities under their control, invested in a building in Clementi Ave in Singapore around the time the share sale agreement was signed. They plead that had they been informed of these developments they would have realised that the true value was significantly greater than AU$10 million. The result was, they say, that they lost the opportunity to negotiate a higher price for their 27% shareholding in the group.
[14] In this respect, key allegations in the statement of claim include the following:
20.Leading up to, and during the negotiations, the following representations were made to the KASFT by, and on behalf of, the defendants:
(a)At a Steel Storage Group Board meeting conducted by teleconference on 26 May 2005, with the KASFT and its advisors dialing in from New Zealand:
(i)Mr Don Holden, the KASFT’s business advisor, asked Mr Perrins if there was any new business that Mr Saunders should know about. Mr Perrins’ reply was to the effect that Mr Saunders already had disclosure of all such business, and that everything would be in the minutes and a business plan which were to be sent to Mr Saunders; and
(ii) Mr Saunders asked Mr Perry what had happened with the building at Clementi Ave 6 in Singapore. Mr Perry advised that an American group would be doing the deal within the next three to four months, in words to the effect that the Steel Storage Group would not be involved in the investment;
(b)In a conversation in or around 18 August 2005, in the offices of Corban Revell solicitors, in Henderson:
(i)Mr Perrins, on behalf of the defendants, represented to Mr Saunders that SSE was not then making any money; and
(ii) Mr Perrins was asked by Mr Saunders “is Steel Storage looking at a new market anywhere in the world that would affect the value of the Group?”, or words to that effect. On behalf of the defendants, Mr Perrins replied that it was not. Mr Philip Pan, the defendants’ solicitor, was also at that meeting. Mr Pan confirmed the above representation by Mr Perrins by saying “no”.
21.During the course of the negotiations, Mr Saunders repeatedly asked for the 2005 accounts for SSE. No one would provide the 2005 accounts for SSE to him.
Particulars
(a)Mr Saunders made oral request of Mr Perrins for the 2005 accounts for SSE on several occasions between July and August 2005;
(b)Mr Saunders sought the same accounts, at the same time, orally, from the Steel Storage Group’s accountants Cranston Hussein, and, in particular, from Messrs Yusuf Hussein and Masood Ayub of that firm;
(c)Mr Saunders’ accountant, Mr Calderwell, also made an oral request to Cranston Hussein for the same accounts.
…
30. Since executing the 7 October 2005 Share Sale Agreement, the
KASFT has:
(a)Discovered that, from at least May 2005, the Steel Storage Group was involved in new business in a new market that affected the value of the Group. In particular, from May
2005, Mr Perry and Perrins, on behalf of the Steel Storage
Group, were in negotiations with a Mr Thomas Riggs of Selfstore LLC, a Dubai company, in relation to the contract for the provision of a large steel storage facility in Dubai. A deposit for the same was paid in October 2005. Further
particulars in this regard will be provided after discovery is completed; and
(b) Obtained copies of the SSE financial accounts for 2005.
Those accounts are dated 31 August 2005. They show that, in the 2005 financial year:
(i) SSE made an operating profit of £210,754;
(ii) Directors’ emoluments for SSE (of which Mr Saunders, who was a director of SSE, received none) had, without explanation, increased by £98,457 (or 53%) over those in previous year; and
(c)Discovered that the defendants, and/or entities within their control, invested in the building at Clementi Ave 6 in Singapore before the 7 October Share Sale Agreement was concluded.
31.The information referred to in paragraph 30 above was not known to the KASFT when it executed the 25 August 2005 Heads of Agreement or the 7 October 2005 Share Sale Agreement, and was not discernable from any of the material it had.
32.When the information referred to in paragraph 30 above is taken into account, the value of the Steel Storage Group as at August – October
2005 was significantly greater than AU$10 million. Further
particulars in this regard will be provided prior to trial.
…
34.The representations referred to in paragraph 20 above were untrue in the respects particularised in paragraph 30 above, and amounted to misleading and deceptive conduct in breach of s 9 of the FTA.
35.The defendants’ misleading and deceptive conduct caused the KASFT loss, being the loss of the opportunity it would have had, had it had the correct information, to negotiate a higher price for the sale of its shares in the Steel Storage Group, particulars of which loss will be provided prior to trial.
…
36.In their dealings generally, and in particular with regards to the negotiations for the 25 August 2005 Heads of Agreement and the 7
October 2005 Share Sale Agreement, the defendants owed to the
KASFT fiduciary duties to be full, frank and accurate in all representations that they made to the KASFT, and not to keep
relevant information from it…
…
37. In breach of the fiduciary duties the defendants failed to:
(a) Inform the KASFT of the new developments in the Dubai business, as particularised in para 30(a) above;
(b) Provide the KASFT up-to-date SSE accounts; and
(c) Inform the KASFT of the investment in the building at
Clementi Ave 6 in Singapore.
38.In breach of the above fiduciary duties, the defendants made the representations referred to in para 20 above.
39.The defendants’ breaches of their fiduciary duties to the KASFT caused the KASFT loss, being the loss of the opportunity it would have had, had it had the correct information, to negotiate a higher price for the sale of its shares in the Steel Storage Group, particulars of which will be provided prior to trial.
[15] Although not referred to in the statement of claim, the plaintiffs raise in their affidavit evidence several new business projects in addition to those referred to in paragraph 30 of the statement of claim, which they say were started in secret by the defendants before the share sale agreement was concluded. (The additional projects are referred to by the defendants’ solicitors in a letter of 8 May 2009 and include a project for Stevens Supply International, and others referred to as the Al QUOZ project, the Shwaikh Industrial Area project, and the Big Yellow project.) The plaintiffs also raise a further development in 2006, which involved Mr Perry selling his interest in the group for an undisclosed sum. The plaintiffs say they believe the sum Mr Perry was paid for his shares was much more than they received for their shares. They contend that Mr Perry was able to sell his shareholding without being misled or having material information withheld from him, and consequently was able to negotiate a much better price.
[16] In their statement of defence the defendants deny all liability in respect of the plaintiffs’ claim. They make minor admissions to the effect that in April 2003 Ernst
& Young provided an indicative valuation as at 31 December 2002 of approximately AU$7-10 million for the entire group; that in April 2004 Mr Saunders and Mr Perry inspected a building at Clementi Ave in Singapore with a view to the Steel Storage Group establishing a storage facility there; that Mr Perry was in negotiations on behalf of the group from around August 2005 with a Mr Riggs of Selfstore LLC in respect of a contract for the provision of a specialist self storage building in Dubai for which a deposit was paid in October 2005; and that in the 2005 financial year the
Europe company made an operating profit and increased its directors’ emoluments. Otherwise, the statement of defence essentially amounts to a blanket denial of the plaintiffs’ allegations.
[17] The defendants’ position with respect to Mr Perry’s sale and the developments in Dubai and Singapore is essentially that they post date the share sale agreement and for that reason, and others, are wholly irrelevant to matters in issue in the proceeding.
Plaintiffs’ application for particular discovery
[18] The parties have undertaken discovery but have been engaged in protracted discussion about the need for further discovery. As a result, the defendants have filed two additional supplementary affidavits as to documents. The plaintiffs remain, however, dissatisfied with the adequacy of discovery.
[19] The plaintiffs have applied to the Court for an order under r 8.24 of the High
Court Rules. Rule 8.24 provides that:
8.24 Order for particular discovery against party after proceeding commenced
If at any stage of the proceeding it appears to a Judge, from evidence or from the nature or circumstances of the case or from any document filed in the proceeding, that there are grounds for believing that a party has not discovered 1 or more documents or a group of documents that should have been discovered, the Judge may order that party—
(a) to file an affidavit stating—
(i) whether the documents are or have been in the party's control;
and
(ii) if they have been but are no longer in the party's control, the party's best knowledge and belief as to when the documents ceased to be in the party's control, and who now has control of them; and
(b) to serve the affidavit on any other party.
[20] The legal principles applying to an order under r 8.24 were well expressed in the recent decision of this Court in ANZ National Bank Ltd v Tower Insurance Ltd HC Auckland CIV-2008-404-7271, 1 September 2009. An applicant must
demonstrate that grounds exist for believing that the respondent has not discovered documents that should have been discovered. The rule implicitly refers back to the original discovery order made.
[21] The original discovery order made in this case was in the default terms of r
8.18 of the High Court Rules. Rule 8.18 relevantly provides that:
8.18 Default terms of discovery order
…
(2)Each party must make an affidavit of documents that lists the documents that—
(a) are or have been in that party's control; and
(b) relate to a matter in question in the proceeding.
…
[22] It is these provisions which are relevant in considering whether documents should have been discovered. An applicant need no longer show that particular discovery is “necessary” as was the case under r 300 of the High Court Rules 1985.
[23] I turn next to the specific categories of documents of which discovery is sought by the plaintiffs. But the overarching issues for determination by the Court may be presently stated. The plaintiffs must demonstrate that grounds exist for believing that the defendants have, in respect of each category of documents, not discovered documents that should have been discovered. Whether documents should have been discovered will turn on whether those documents are relevant, in that they relate to a matter in question in the proceeding, and whether those documents are or have been in the defendants’ control. The defendants resist the order sought on these twin bases and I will address each in turn.
[24] The documents of which the plaintiffs seek discovery are listed in a schedule attached to their application. It is unnecessary to reproduce the schedule here. Suffice it to note that the documents essentially fall into the following six categories:
Defendants’ correspondence exchanged in the course of the negotiations
a) Correspondence exchanged between the defendants during the course of the negotiations regarding the proposed share sale agreement of 7
October 2005.
Dubai
b)The accounts of the group’s Asia company, Steel Storage Asia Pte Limited, for the financial years ending in 2005 to 2007 and other documents sufficient to provide a full picture of the value to the group of the work that the company has undertaken in Dubai.
c) Contractual documents of the Asia company concerning the five new projects in Dubai referred to by Buddle Findlay in their letter of 8
May 2009, including the contract that was entered into in or before October 2005 for the Selfstore project. Related correspondence is also sought.
Singapore
d)All documents relating to the defendants’ involvement in storage facilities in Singapore up to October 2005, including but not limited to those relating to dealings with a Mr Parker of Carnegie Wylie and investment in Clementi Avenue.
Perry share sale
e) Documents relating to Mr Perry’s share sale that show or bear on the value for which Mr Perry sold his shares in the group.
Emoluments
f) Documents relating to the defendant directors’ remuneration and emoluments that:
i)indicate the basis for emoluments that are referred to in the accounts for the Europe company that have been discovered for the financial years 2005 to 2007;
ii)provide full details of all forms of remuneration paid, directly or indirectly, to the directors of all of the companies in the group over the period 1999 to 2006.
Other
g) Documents listed in the application that have been referred to in other documents that have been discovered that appear in the main to have been generated between July and October 2005 on behalf of the Asia company. The documents that are sought include correspondence that led to a meeting referred to in the discovered documents between Mr Perry and “the Dubai people” on 18 August 2005.
[25] I dispense at the outset with the first category of documents, correspondence exchanged between the defendants during the course of the negotiations regarding the proposed share sale agreement of 7 October 2005. The defendants conceded that such documents were relevant and it is self-evident that such documents are or have been in the defendants’ control. They should have been discovered and produced for inspection, but have not been. I make an order for particular discovery accordingly.
The plaintiffs’ position
[26] In broad terms, the plaintiffs say that all of the documents in the remaining five categories are related to matters in issue in terms of the expansive Peruvian Guano test, and either bear directly on their case or may fairly lead to a train of inquiry that will assist them to advance their case. All of the documents, they say, will assist them in showing that the defendants’ denial that the group was involved in new business was untrue, and intended to deprive them of information as to profitability and new business activity, so that they would be misled during the course of the negotiations into believing the value of the group was AU$10 million in circumstances where the defendants well knew that the group was worth significantly more. The Perry sale, they say, is likely to reinforce what the true value of the group was.
The defendants’ position
[27] The defendants for their part accept in principle that documents of a kind that concern the group’s profitability or new business activities of the group may relate to the value of the group and their beliefs and expectations as to value. They object however to discovering the documents. Their essential objections are threefold.
[28] First, the defendants seek, by reference to the plaintiffs’ statement of claim, to narrowly define the matters in issue. In doing so they confine the scope of documents properly said to relate to those matters so as to exclude many of the documents sought.
[29] Secondly, the defendants contend that, even if actual value is in issue, documents created after the material date and relating to events occurring after the material date cannot have any possible relevance to or assist an inquiry into the actual value at the material date or the defendants’ knowledge or belief as to that value.
[30] Thirdly, the defendants contend that, even if actual value is in issue, documents disclosing the basis for emoluments paid by the Europe company and other companies within the group can have no possible bearing on the profitability of the group and hence cannot relate to the issue of the actual value of the group.
Discussion
[31] The Court of Appeal in ANZ National Bank Ltd v Commissioner of Inland Revenue [2009] NZCA 150 recently affirmed that the scope of a party’s obligation to discover continues to be defined by the expansive test for relevance contained in Compagnie Financiere et Commerciale du Pacifique v Peruvian Guano Co (1882)
11 QBD 55 (CA) at 63 (per Brett LJ):
It seems to me that every document relates to the matters in question in the action, which not only would be evidence upon any issue, but also which, it is reasonable to suppose, contains information which may – not which must
– either directly or indirectly enable the party requiring the affidavit either to advance his own case or to damage the case of his adversary. I have put in
the words ‘either directly,” or indirectly’, because, as it seems to me, a document can properly be said to contain information which may enable the
party requiring the affidavit either to advance his own case or to damage the case of his adversary, if it is a document which may fairly lead him to a train
of inquiry, which may have either of these two consequences.
[32] I deal in turn with the defendants’ three principal objections as to relevance. My concern in this part of the judgment is whether the documents sought relate to matters in issue in the proceeding in the sense above. Whether the documents are or have been in the control of the defendants is the focus of the next part. I reiterate this distinction because one of the defendants’ core contentions was that the work of the group in Dubai was largely the business of a new company, Steel Storage Middle East LLC, and documents relating to work in Dubia by the Asia group prior to the new company’s commencing operations have already been discovered. Other documents relating to work of the group in Dubai are said on this basis to lack any relevance. Plainly the real thrust of this argument is directed at control. The documents, irrespective of whether they are or have been in the control of the defendants or not, relate to matters in issue for reasons I express shortly. The plaintiffs submit that there are grounds for believing that the documents are or have
been in the control of the defendants. I address this separately under the control head and focus for now on relevance.
The matters in issue
[33] First, the defendants endeavoured in argument to narrowly define the matters in issue. They argued that the plaintiffs’ allegation is that they negotiated a price for their shares but were misled in relation to three specific factors particularised in their pleadings: the Selfstore project in Dubai, the Clementi Ave investment in Singapore and the 2005 profit of the Europe company. The matters in issue were thus the group’s value at the material date if these three specific factors are taken into account, and the defendants’ beliefs and expectations as to these three specific factors as going to value (from which any finding of misrepresentation would flow). Documents relevant to the actual value of the group or the defendants’ beliefs and expectations as to factors beyond these three as going to the actual value of the group were said, accordingly, not to relate to matters in issue. The second category of documents, except those in respect of the Selfstore project, were said to be irrelevant on this basis.
[34] However, counsel for the defendants conceded during the course of the hearing, contrary to his written submissions, that the actual value of the group at the material date is a matter in issue. That is plainly correct. The essential allegation in the plaintiffs’ statement of claim is that the defendants’ conduct has deprived the plaintiffs of the opportunity to negotiate a price for their shareholding reflective of the actual value of the group. The value by reference to which the plaintiffs claim their shareholding was sold at an undervalue is the actual value, notwithstanding that, strictly speaking, the particulars relied upon to show that the actual value exceeded the sale price were confined to three specific factors.
[35] It is a corollary to this finding that the defendants’ beliefs and expectations as to all factors material to the actual value of the group form a matter in issue. This is because the conduct in question (aside from that in relation to the treatment of emoluments and profits in the Europe company’s 2005 accounts) is essentially misrepresentation: the defendants’ representation that the group was not involved in
any new business or investigating any new markets that might have affected the actual value of the group, when in fact it was. The conduct on which the plaintiffs rely is this alleged representation, notwithstanding that, strictly speaking, the particulars relied upon to show that this representation was in fact misleading and deceptive were confined to three specific factors.
[36] It is apparent, then, that the matters in issue may be more broadly stated. One is the actual value of the group at the material time. Another is what the defendants’ beliefs and expectations as to factors going to the actual value of the group at the material time were, and whether these were such that their representations in the course of negotiations amounted to misleading and deceptive conduct in breach of s
9 of the Fair Trading Act 1986 or constituting a breach of their fiduciary duties.
[37] I note that, once discovered, documents relating to these matters in issue may well lead to the particulars of the claim being amended. It is implicit in the very nature of the expansive scope of inquiry referred to in Peruvian Guano that such an inquiry might give rise to the possibility of amended pleadings.
[38] For these reasons, I reject the defendants’ first principal basis for challenge to relevance.
The relevance of documents postdating the October 2005 share sale
[39] This brings me to the defendants’ second principal basis for challenge to relevance. The defendants contend that, even if actual value is in issue, many of the requested documents came into existence after the material date and relate to events occurring after the material date. As such, they say, these documents cannot have any possible relevance to or assist an inquiry into the matters in issue: the actual value of the group at the material date and the defendants’ beliefs and expectations as to factors going to that value. Their argument is essentially one as to timing.
[40] I accept the defendants’ contention that as the plaintiffs’ pleadings put in issue the group’s value and the defendants’ related beliefs and expectations at the time the parties completed their negotiations in October 2005 (the material date) it is
the circumstances as they pertained at that date that are relevant. However, that does not mean that documents coming into existence after the material date and relating to events occurring after the material date will not inform an inquiry into what these circumstances were.
[41] The determination of the actual value of the group at the material date presupposes a hindsight valuation. In a hindsight valuation the valuer is required to take into account events that have occurred since the date at which the value is to be assessed: Worldwide NZ LLC v QPAM Ltd HC Auckland, CIV-2006-404-1827, 15
May 2009. In that case, Keane J cited with approval the following statement of principle in Wood v Wood (1985) 1 FRNZ 576 at 584 (at [60]):
… First, the theoretical willing but not anxious vendor would not sell at a price that reflected inadequate asset values, and the like-minded theoretical purchaser would not expect to buy at such a price. And, secondly, the law is clear that a valuer is required to take into account events that have occurred since the date at which the value is to be assessed; in order to determine the proper weight to attach to the circumstances pertaining at the material date.
(Emphasis added.)
[42] Keane J also referred at [61] to Riddle v Riddle HC Christchurch, CIV-2005-
409-335, 17 August 2005 which concerned the valuation of a company’s shares. That case was read by Associate Judge Doogue in Worldwide NZ LLC v QPAM Ltd HC Auckland CIV-2006-404-1827, 29 August 2008 at [34] as expressing a general rule that the subsequent performance of a company cannot be relevant because that is not a matter that would be known to prospective purchasers as at the date of valuation. However, notable for present purposes was Associate Judge Doogue’s qualification (at [34] of his judgment and reproduced at [61] of that of Keane J):
However, if an inference can be drawn from an occurrence, particularly one soon after the date of valuation, which throws light on the understanding or expectations of the theoretical purchasers before the valuation date, then it may be admissible.
(Emphasis added.)
[43] Keane J also said at [67] that there cannot be an absolute cut-off date for discovery for valuation purposes:
In the nature of things there cannot be an absolute cut-off date for discovery after the valuation date. A line might be drawn, for instance, six months after that date but that could not be absolute.
[44] His Honour went on to say that, in that case, the only practical cut-off date limiting the duty of discovery seemed to be one encompassing those hindsight events to which the plaintiff’s own valuer referred. The plaintiff’s valuer referred to events occurring up to a year after the valuation date and his Honour held that the duty in that case was limited only by that date.
[45] I do not have the benefit of such guidance in the present case. Counsel for the plaintiffs submitted that a two year period (after October 2005) would be an appropriate cut-off date. I accept that where this date is to be drawn is a matter of judgment in the individual case and that in this case there are grounds for an extended period. Telling evidence in support of this is that relating to the Selfstore project. The evidence points to documents that suggest that the customer was invoiced by the Asia company on 20 October 2005, and that the last invoice was sent out in April 2007. Mr Saunders also made the point that the project must have been in the planning stages well before October 2005.
[46] Guided by counsel for the plaintiffs’ submission and to encompass the above evidence, I adopt as a cut-off date 30 June 2007, coincident with the end of the group’s financial year.
[47] This finding as to the possible relevance of documents coming into existence and relating to events occurring after the material date has specific import in respect of two categories of documents. The first category comprises documents relating to the expansion of the group’s new business activities beyond October 2005 and to the outcomes of investigations into new markets available at that time. The plaintiffs contend, and I accept, that such documents relate to matters in issue in this proceeding in that they may contain information that may either directly or indirectly assist one or the other side to advance its own case or to damage the case of the other’s in respect of those issues. Involvement in such activities and markets following October 2005 might well point to the fact that these were underway or at least planned prior to that date. This would clearly impact upon value. That later
involvement may also shed light on the defendants’ beliefs and expectations as to the anticipated growth and development of such activities and markets as impacting upon value at the time of the defendants’ negotiations with the plaintiffs.
[48] The second category comprises documents relating to the Perry sale in 2006. The plaintiffs’ undisputed evidence is that Mr Perry sold his share sometime in 2006 and that he resigned his directorship as a consequence in late 2006. They contend that he was able to sell a comparable interest at a higher price because he was not misled and did not have material information withheld. The defendants made no real attempt to argue that the two shareholdings were not comparable. Nor did they argue that Mr Perry did not achieve a higher price for his interest.
[49] The defendants’ argument was again one of timing and essentially that the value of Mr Perry’s shares in 2006 is completely unrelated to the value of the plaintiffs’ share a year earlier. I am unable to accept this proposition. It may be that the disparity in price is wholly explicable, for example by reference to intervening events, in terms other than concealment of information from the plaintiffs to which Mr Perry had access. It may be, however, that such concealment does offer the most probable explanation. In either case, documents relating to the circumstances surrounding Mr Perry’s share sale will assist with that inquiry, to the support or detriment of the plaintiffs’ case. Plainly such documents relate to matters in issue in this proceeding.
The relevance of documents disclosing the basis for emoluments
[50] I come next to the defendants’ third principal basis for challenge to relevance. The defendants contend that, even if actual value is in issue, documents disclosing the basis for emoluments paid by the Europe company and other companies within the group can have no possible bearing on the profitability of the group and hence cannot relate to its actual value.
[51] There are three subsets of documents. The first comprises those documents concerning the basis for emoluments appearing in the already discovered accounts of the Europe company for the financial years ended 2005 and 2006. The second
comprises those documents concerning the basis for the emoluments appearing in the already discovered accounts of the Europe company for the financial year ended
2007. The third comprises those documents concerning the basis for all forms of remuneration paid, indirectly or directly, to the directors of all of the companies in the group from 1999 to 2006.
[52] I begin with the first subset of documents. Mr Saunders deposes on behalf of the plaintiffs that they were unaware of the emoluments of the Europe company. They were led to believe the company was unprofitable until they received the accounts for these financial years on earlier discovery. They contend that the emoluments may be hidden profits. The accounts disclose that the company moved from a situation in 2004 in which it was making a loss yet paying not insubstantial emoluments to Mr Perry and Mr Perrins, to a situation in 2005 where it made a substantial profit and increased the emoluments for the year ended 2005 by almost
53% to £98,457. Counsel submits that this approach is consistent with a deliberate policy of masking the company’s profit and hence the actual value of the company in order to deprive the plaintiffs of their rightful share in the actual value of the group. The same applies to the emoluments that were paid in the financial year ended June
2006. Documents relating to the basis for emoluments that were paid in that year will include the emoluments that were paid to October 2005, when the share sale agreement was negotiated and concluded.
[53] I accept that the basis for emoluments paid by the Europe company in these years has a possible bearing on the profitability of the company and therefore the actual value of the group. If this documentation was to disclose a purpose of masking profits, that purpose would tend to advance the plaintiffs’ case. If the documentation discloses that emoluments, and in particular the 53% increase in emoluments in the financial year ended 2006, were fixed for quite different and unremarkable reasons, that would tend to damage the plaintiffs’ case. In either event, the documentation is relevant to the actual value of the group at the material date in terms of the expansive test in Peruvian Guano.
[54] I turn to the second subset of documents. The plaintiffs submit that documents concerning the basis for the emoluments appearing in the accounts of the
Europe company for the financial year ended 2007 are relevant. It is initially difficult to see how emoluments paid in that financial year might reflect a policy of masking profits directed at depriving the plaintiffs of an appropriate share in the actual value of the group, where the sale of this share occurred in October 2005.
[55] I accept, however, that the basis for the emoluments in the accounts of the Europe company for the financial year ended 2007 might conceivably disclose a change in the basis on which such emoluments were made supporting the plaintiffs’ contention that the earlier basis was directed at masking the company’s profits. They are documents which might fairly lead the plaintiffs to a train of inquiry enabling them to advance their own case or damage that of the defendants.
[56] I turn finally to the third subset of documents. The plaintiffs contend that, having regard to what they alleged occurred in respect of the emoluments paid the Europe company’s directors, their concerns legitimately extend to the defendants’ practices in respect of treatment of profits for all of the companies in the group. Such practices would patently impact upon the actual value of the group at the material date. I accept that, in principle, documentation concerning the basis for the emoluments of other companies within the group may relate to matters in issue. It might, for example, disclose consistencies or inconsistencies with the basis for the emoluments of the Europe company that would inform an inquiry into whether or not the purpose alleged by the plaintiffs was an operative one. I accept that documents going back to 1999 may assist this train of inquiry.
[57] I thus reject the defendants’ third principal challenge to relevance.
[58] I have disposed of the defendants’ three principal challenges to relevance. In respect of the documents to which these challenges relate, to the extent that they are or have been in the defendants’ control (which remains contested) they should have been discovered and are properly the subject of an order for discovery.
Other matters
[59] In reaching the above view I do not overlook subsidiary arguments advanced by counsel for the defendants in an endeavour to show that discrete categories of documents lack any possible relevance. They say, for example, that:
a) It was Steel Storage Middle East LLC that operated the Middle Eastern arm of the business and that they have already discovered the audited financial accounts for the Middle East company for the financial years ended June 2007 and 2008 which show that this entity did not make a profit;
b)They have already discovered the financial documents relating to any projects conducted in Dubai prior to the incorporation of the Middle East company, which documents were provided to them by the Asia company; and
c) Other documents of the Asia company that have been requested are irrelevant as its income is not broken up into geographical areas and the accounts do not show the value of the work in Dubai and therefore it is impossible to obtain from the accounts a full picture of the value to the group of that work.
[60] I do not accept that these and similar arguments raised by the defendants demonstrate that requested documents are not relevant in terms of the expansive test in Peruvian Guano. Indeed, they are all the more reason why the Asia company’s accounts and related documents should be discovered and viewed together with the Middle East company’s accounts.
[61] I come finally to the remaining category of documents. These specific documents are referred to in the discovered documents. All concern earlier mentioned projects in Dubai and Singapore. They are suggestive of the possibility that such projects were at various stages of negotiation and development at the
material point in time and thus would go directly to the actual value of the group. They relate to matters in issue in the proceeding.
[62] That brings me to control.
Control
[63] The plaintiffs have established that the documents sought relate to matters in issue in the proceeding. They must now establish grounds for belief that a party is or has been in control of the documents sought.
[64] Three issues arise in respect of control. The first concerns whether there are grounds for belief that the Asia company was involved in the Dubai projects such that the defendants as directors might be said to have or have had control over documents of the company relating to those projects. The second flows from this point and asks whether the defendants by virtue of their directorships of and shareholdings in the corporate members of the group have or had control over the documents of those members. The third concerns, separately, whether there are grounds for believing the defendants were involved in the Singapore project.
Was the Asia company involved in the Dubai projects?
[65] The defendants deny that the Asia company was substantially involved in the Dubai projects and say that, to the extent that there was any early involvement, documents relating to its involvement have already been discovered. Rather, the Middle East company was responsible for the Dubai projects and documents of the Middle East company are not sought.
[66] Mr Saunders deposes that the Asia company was involved in the development of a number of new business activities in Dubai in 2005. He points to a number of documents already discovered dating from July 2005 that are suggestive of this possibility. These include:
a) A July email from Mr Perrins to Mr Perry on the subject of Dubai asking if the drawings he had sent had been received;
b)An August email from Mr Perry to Mr Perrins reporting on a threatening message from Mr Saunders, revealing that Mr Perry was to have a meeting the next day with the “Dubai people”; and
c) Invoices in relation to the Selfstore project sent by the Asia company to the client on 20 October 2005 and at the conclusion of the project in April 2007, by reference to which Mr Saunders contends the project would have had to have been in the planning well before the date of the first invoice.
[67] Further documents indicate involvement in the four other named projects and, according to Mr Saunders, those projects would also have to have been in the planning well before October 2005. It appears that the Asia company gave a quote for the Stevens project in early September 2005 plus advice that manufacture would start up in late September or early October, that on-site construction would begin in early January 2006, and that an initial payment of $59,056 was made in October
2005. The three other Dubai projects (the Al QUOZ, the Shwaikh and Big Yellow projects) also appear to have been under the Asia company’s control for at least a time. A telling email from Mr Perry to Mr Saunders on 25 July 2006 states that Dubai is firmly within the territory of the Asia company.
[68] In addition, in the case of the Big Yellow project, Mr Saunders points to a copy of a website article dated April 2007 produced apparently by the Steel Storage Group and the new company called Steel Storage Middle East LLC that indicates that the Steel Storage Group had been working on the project for two years since start up. As counsel for the plaintiffs pointed out, the inference is that the project was underway in April 2005. Not surprisingly, he argued that the website belies the defendants’ contention that the project was commenced well after the parties went their separate ways.
[69] I accept that the evidence above provides grounds for belief that the Asia company was involved at relevant times in new business activities and investigations in Dubai contrary to the defendants’ assertions that these were the province of the
new Middle East company. That is, it appears to me that there are grounds for belief that contractual and other documents of the Asia company exist.
Do the defendants have, or did they have, control over documents of the corporate members of the group?
[70] The defendants contend that, in the main, the requested documents are those of corporate members of the group, Steel Storage Europe and Steel Storage Asia, not party to this proceeding, and that none of the defendants have control over these documents. The arguments have centred on the position of Mr Perrins, and I proceed on that basis.
[71] In respect of Mr Perrins, the defendants contend that the plaintiffs are attempting to attribute to him control simply because of his positions as director or shareholder of these non-party companies, or these companies’ corporate shareholders. This notwithstanding, the defendants contend, he does not have the authority of the boards of these companies to discover company documents for the purpose of litigation in which he is named in his personal capacity. While he may have commanded this authority, by virtue of his majority shareholding of Joculus and its then majority shareholding in Steel Storage Holdings, he does not presently. This is because of a recent change in the share structure of the group. Mr Perrins deposes that on 23 July 2009 Steel Storage Holdings resolved to issue additional shares to its then minority shareholders, interests unrelated to Mr Perrins, such that they became majority shareholders and Joculus a minority shareholder. The formal share issue occurred on 22 October 2009. Mr Perrins is said, accordingly, to lack present control.
[72] Mr Perrins’ discovery obligation is governed by the terms of the original order which encompass relevant documents that are or have been in his control. Control is defined in r 1.3 of the High Court Rules:
control, in relation to a document, means— (a) possession of the document; or
(b) a right to possess the document; or
(c) a right, otherwise than under these rules, to inspect or copy the document.
[73] There is, prima facie, little in contention. Mr Perrins was at all material times a director of the Europe and Asia companies. As a director he had a right to inspect the companies’ documents. That is, he had the requisite control over these documents at the relevant time. It necessarily follows that he was obliged under the terms of the discovery order to discover all of those documents that related to any matter in issue in the proceeding. He failed to fulfil this obligation.
[74] I accept, however, that a distinction is properly drawn between a party’s right to inspect the documents in his or her capacity as director and any right to inspect the documents in a personal capacity that might otherwise subsist. It is in his personal capacity that Mr Perrins is party to this proceeding. A right to inspect the documents in his personal capacity might nonetheless derive from his shareholding.
[75] This distinction was apparent in the decision of this Court in Dale v Jeffrey HC Auckland CIV-2007-404-2015, 22 October 2008. It was clear in Associate Judge Abbott’s judgment that the reach of the third aspect of the definition of control, the right to inspect or copy, is to be guided by the notion of “power” (at [20]):
This definition of control was inserted into the High Court Rules by amendment in 2004. The concept of control supercedes the phrase “possession, custody and power” formerly used to determine the reach of a discovery order. Nevertheless the classic definition of “power" in Lonrho Limited v Shell Petroleum Co Limited [1980] 1 WLR 627 by Lord Diplock is still a helpful guide to the reach of the third aspect of the definition (the right to inspect and copy):
the expression ‘power’ must, in my view, mean a presently enforceable legal right to obtain from whoever actually holds the document inspection of it without the need to obtain the consent of anyone else. (at p 635)
[76] It is this notion, and particularly the role of consent, by reference to which the defendants’ submissions are properly understood. They contend that Mr Perrins now lacks the authority of the boards of the relevant non-party companies to discover company documents for the purpose of litigation in which he is named in his personal capacity.
[77] Associate Judge Abbott held in Dale that whether documents are within the control of a director by reason of his or her right to inspect the company’s documents will be a question of fact. He adopts, at [22], the following passage from B v B [1979] 1 All ER 801 at 807:
Because, in his capacity as a director, he has the right to inspect the company documents, it does not follow that in his personal capacity he has an enforceable right to inspect or to obtain possession or control of them so that the documents can be said to be in his power. It is a question of fact in each case whether or not a director has such an enforceable right; much will depend on the share structure of the company. In cases of a one man company, where the director owns all or substantially all the shares and any minority shareholders are not adverse to him, then the inference may be drawn, that the company, although a separate legal entity, does not control him but he controls the company in such manner as to make it his other person or alter ego. In such a case, where the director controls the company and nominates the other directors, all the documents of the company are within his power in the sense that in truth and in fact he is able to obtain control of them.
(Emphasis added.)
[78] The positions of Mr Perrins and Joculus at all material times in relation to the non-party companies from which documents are sought were as follows:
a) Mr Perrins was the sole director and majority shareholder of Joculus;
b) Joculus was the majority shareholder of Steel Storage Holdings; and
c) Steel Storage Holdings was the sole shareholder of Steel Storage
Europe and Steel Storage Asia.
[79] This shareholding would have afforded him at all material times an enforceable right to inspect the requested documents in his personal capacity. It does not matter that he may no longer enjoy this right. The discovery obligation extends to documents in or having been in his control. This latter point appears to have been entirely overlooked by the defendants who have dedicated much time and effort to establishing that while Joculus had a majority shareholding in Steel Storage Holdings (at which point Mr Perrins undeniably retained effective control over the Asia and Europe companies and their documents) it no longer has such a majority shareholding and thus Mr Perrins lacks effective control. This distinction is wholly
irrelevant insofar as it pertains to Mr Perrins’ obligations under the original discovery order and the order for particular discovery sought here.
[80] Mr Perrins’ current position in relation to the documents of the non-party companies that the plaintiffs seek does not therefore release him from his discovery obligations in respect of those documents.
The defendants’ involvement in the Singapore project
[81] The third and final issue under the head of control is whether there are grounds for believing the defendants have or had control of documents relating to the Singapore project.
[82] The plaintiffs seek documents concerning the defendants’ involvement in facilities in Singapore up to October 2005, including, but not limited to, those relating to dealings with a Mr Parker of Carnegie Wylie and the investment in Clementi Ave. The defendants contend that no investment was made before the October 2005 share sale and that, accordingly, the documents the plaintiffs seek do not exist. I note at the outset that the requirements of r 8.24 do not require the applicant to prove that such documents actually exist: Simunovich Fisheries Ltd v Television New Zealand Ltd (No 6) HC Auckland CIV-2004-404-3903, 3 August
2007 at [11]. My present focus is on whether there are grounds for belief that such documents of the Asia company exist, in which case control could be imputed to the defendants.
[83] The plaintiffs contend that Mr Saunders went to Singapore in April 2004 with Mr Perry to investigate the setting up of a facility at Clementi Ave and met with an Australian investor named Mr Parker who said he was looking at a joint investment with Steel Storage. Mr Saunders says he heard nothing more but that there is now a steel storage facility on the Clementi site and that there is evidence that suggests that Mr Perrins may have been involved in the development with Carnegie Wylie, and have an interest via Extra Space Singapore Holdings Pte Ltd, the company that owns the facility. Mr Saunders points to various documents including excerpts from the website of Extra Space, and an email exchange in late 2006 involving several parties,
including Mr Perrins and Carnegie Wylie, that raise the possibility of Mr Perrins’ continuing involvement in the site and its development after the April 2004 visit. Mr Saunders contends that he has discovered that the facility commenced operation in
2005 and that it would have taken at least six years to have set up on the particular site. The suggestion is that Mr Perry and Mr Perrins must have begun investigations on Steel Storage’s behalf with a view to undertaking the project some years ago because of the substantial lead time needed in order to get to the point where the facility would be ready to commence operation.
[84] I accept that here, as in respect of the Asia company’s involvement in the Dubai projects, the evidence provides grounds for belief that the defendants were involved in the Clementi Ave project prior to October 2005. Documents relating to the Clementi Ave project would clearly be or have been in their control and should be discovered.
[85] The documents sought in this category are defined, however, in broader terms. The plaintiffs seek all documents relating to any involvement of the defendants in storage facilities in Singapore up to October 2005. The argument on this category of documents was not developed at the hearing, and at this stage I propose to restrict the terms of my order accordingly and to reserve leave. Plainly, though, if indeed such documents exist, they should have been discovered.
[86] In respect of each category of documents sought by the plaintiffs by way of their application for particular discovery I am satisfied there are grounds for believing that the defendants are or have been in control of those documents subject to the limited exception above. I have also found that the documents sought without exception relate to matters in issue in this proceeding. That is, there are grounds for believing that the defendants have not discovered documents that should have been discovered. I will make an order for particular discovery accordingly.
[87] I defer making any orders for production for inspection. Clearly there remain outstanding issues as to present control following the October 2009 share issue, as counsel for the plaintiffs reluctantly recognised. But I will reserve leave to the plaintiffs if I have overstated the plaintiffs’ concession. In any event, it is difficult to
foresee any reason why Mr Perrins would be unable to obtain the authority of the relevant boards to produce the documents sought for inspection. Had he complied with the original discovery order when he should have, there is no question but that inspection would almost certainly have followed. And there is nothing to suggest that the current boards could have any real concerns or objections as to inspection. The documents are historical. They relate to a situation where Mr Perrins and Joculus had the requisite control. The uses to which the plaintiffs may put them are strictly limited. In these circumstances, I see no reason to anticipate why there would be a need for a separate application for non-party discovery or for the joinder of non-parties in order to obtain discovery.
Confidentiality
[88] In addition to their applying for an order for particular discovery the plaintiffs apply for an order that the defendants provide inspection of the documents discovered to date in respect of which they currently claim confidentiality protection. They submit that the defendants have failed to show that confidentiality is necessary and that they would be likely to be prejudiced or harmed in a significant way by disclosure.
[89] The application is opposed. Some of the defendants’ claims as to confidentiality have since been waived or abandoned but in respect of the balance the defendants contend that the confidential documents contain commercially sensitive information about the defendants’ business. This is said to include pricing structures and the identity of customers. The plaintiffs have not been privy to this information for almost four years and if the plaintiffs were to inspect the confidential documents they would gain a commercial advantage immediately prior to the expiration of the restraint of trade. Even if the plaintiffs do not intend to use information in the confidential documents for any purpose other than this proceeding the plaintiffs will be unable to disregard this information should they choose to re- enter the storage business in competition with the defendants. They do not, however, object to inspection of the documents by plaintiffs’ counsel or experts instructed for the purposes of the litigation (such as a valuer) subject to a confidentiality undertaking.
[90] The plaintiffs respond that the proposed restriction is unreasonable. The position as to commercial sensitivity is overstated. They have not yet instructed an expert valuer. In any event, Mr Saunders would need to view the contents of the documents in order to confer with counsel so that counsel can take proper instructions, and likewise in respect of counsel properly instructing a valuer. The documents are plainly industry-specific and inspection by counsel alone will not suffice.
[91] Relevant documents should generally be made available for inspection and it will be a rare case in which the Court declines altogether to permit documents to be made available to a party: Port Nelson Ltd v Commerce Commission (1994) 7 PRNZ
344 at 348 and Simunovich Fisheries Ltd v Television New Zealand Ltd HC Auckland CIV-2004-404-3903, 1 June 2006 at [20]. But on occasion it will be appropriate to withhold truly sensitive documents from a party: Simunovich Fisheries Ltd at [21]. In respect of commercially sensitive documents it may be sufficient protection that an inspecting party may use a document only for the purposes of the proceeding: r 8.36(a) of the High Court Rules and at common law, see Simunovich at [18] and Port Nelson at 347. In other cases the Court may control the mode of discovery, for example restrict inspection to that by a party’s solicitors: r
8.31(3)(d) of the High Court Rules and Port Nelson at 347.
[92] In this case, I accept that the plaintiffs would be at a disadvantage if Mr Saunders were not able to view the documentation. There was no real dispute about that.
[93] I accept, also, that the defendants’ concerns as to commercial sensitivity are overstated for several reasons:
a) First, the documents for which confidentiality is claimed are historical. They do not extend past 2007. The defendants did not seriously contend that they contain current pricing structures.
b)Secondly, Mr Saunders says, and I accept, that in all probability he already knows about the pricing structures operative immediately
following the breakup of the group. Certainly he will be familiar with the pricing structures operative immediately prior to breakup and the defendants did not seriously contend that they changed upon breakup.
c) Thirdly, I do not accept the defendants’ claim that withholding the documents from Mr Saunders is justified on the basis that the parties’ restraint of trade agreement is about to come to an end. In respect of documents that should have been discovered at the outset of litigation, that the expiration of the restraint of trade agreement is now imminent does not justify withholding the documents. Such an approach would disadvantage the plaintiffs because of the defendants’ failure to make discovery at an earlier time.
[94] I do not therefore regard the defendants’ claims as to confidentiality as justifying, as they must, withholding the documents from the plaintiffs. Adequate protection is afforded the defendants by the limits to which information produced on discovery may be put under the High Court Rules. The plaintiffs’ legal advisers will doubtless take the necessary steps to ensure in the usual way that confidentiality is maintained. There is nothing to indicate that such steps will be inadequate in this case. I set aside the defendants’ claim to confidentiality in respect of their affidavits of documents.
[95] I do not, as I was invited to at hearing, prospectively determine whether any confidentiality claims in respect of the documents sought may be challenged. Discovery of these documents has not yet been made. But I would encourage the defendants to have close regard to what I have said about confidentiality when making further discovery.
Result – plaintiffs’ application
[96] In addition to the order at [25] I make orders as follows:
a) I order that the defendants are to file a further affidavit stating whether the documents within the categories listed in the plaintiffs’
application, the essence of which are reflected in my categories at [24] of this judgment, are or have been in their control, and, if they have been but are no longer in their control, their best knowledge and belief as to when they ceased to be in their control, and who now has control of them, in accordance with r 8.24 of the High Court Rules. The affidavit is to be filed within 10 working days.
b)The above order does not extend to documents coming into existence after and relating to events occurring after 30 June 2007.
c) The above order does not apply to documents relating to the defendants’ involvement in storage facilities in Singapore up to 2005 beyond dealings with Mr Parker of Carnegie Wylie and investment in Clementi Ave. I reserve leave to seek further orders for particular discovery should there be grounds for such an order.
d)I order that the defendants’ claims as to confidentiality in respect of documents discovered to date be set aside.
e) I reserve leave to seek further orders by way of memorandum on two days’ notice for production of any such documents for inspection. A memorandum if filed is to be filed within 20 working days.
[97] I will come to costs at the end of this judgment.
Defendants’ application for further and better particulars
[98] The defendants seek an order for further and better particulars of the plaintiffs’ second amended statement of claim, and for that purpose that the plaintiffs file and serve a more explicit statement of claim to include the particulars set out in Schedule 2 to the application.
[99] The requested particulars were the subject of an earlier notice served on the plaintiffs and are, the defendants assert, required to fairly inform them of the nature of the case they have to meet. They point out that the proceeding involves
allegations of misconduct in the nature of a breach of fiduciary duty and therefore contend that the allegations against them are required to be stated with special particularity and care.
[100] The plaintiffs do not accept that they have not provided sufficient particulars or indeed that they were obliged to provide any of the particulars in the notice. Nevertheless they have at this stage complied, in substantial measure, with the defendants’ notice. That leaves for determination whether the request for particulars of allegations in the following paragraphs of the second amended statement of claim should be ordered:
a) Para 19(d)(i);
b) Para 30(c); and c) Para 31.
[101] I deal with each in turn.
Para 19(d)(i)
[102] The allegation in issue is highlighted in the following text:
19In the period leading up to 25 August 2005, there were negotiations as to the basis for a breakup of the Steel Storage Group. The negotiations were expressly conducted on the basis that the Steel Storage Group was worth AU$10 million and the SSNZ, as a component thereof, was worth AU$1 million. This was consistent with the material that was then available to the KASFT.
…
(c) In relation to the allegation that the negotiations were expressly conducted on the basis that the Steel Storage Group was worth AU$10 million and that SSNZ, as a component thereof was worth AU$1, the KASFT relies, without limitation, on the discussions between the parties which were conducted at the offices of Corban Revell in Henderson on 18 August 2005. In those discussions, Mr Perrins, on behalf of the defendants, used those figures on that basis;
(d)In relation to the allegation that those values were consistent with the material that was then available to the KASFT, the KASFT relies on:
(i)The EY Valuation, and increased values over the two years plus since that valuation; and
(ii) The account records for … the Group and SSNZ which it had available to it at the time.
(Emphasis added.)
[103] In their notice the defendants seek particulars of the amount of each of the increased values since the Ernst & Young valuation, and how the amount of each such value was calculated or estimated.
[104] In argument, counsel for the defendants said they take the allegation to mean the plaintiffs had material at the time of the negotiations that showed that Steel Storage Group was worth more than AU$10 million. He said the defendants are entitled to particulars as to what the specific material was, what increased values the material disclosed over the two year plus since the Ernst & Young valuation, and how those values were calculated or estimated.
[105] In the course of the hearing counsel for the plaintiffs explained that the meaning of the pleading in para 19(d)(i) seemed to be misunderstood. He said the intended meaning of the pleading is simply that:
a) The negotiations were expressly conducted on the basis that the group’s value at the time was reflected by Ernst & Young’s higher figure of AU$10 million, which was consistent with the plaintiffs’ understanding as to value.
b)That understanding was based on the defendants’ denials that there was any new business or investigation that could affect the value of the group, the passage of time, and the material the plaintiffs had at the time of the negotiations. That material was the information made available to them in the two years plus that had lapsed since that valuation was done, which is set out in the statement of claim and includes the advice of the group’s accountant, the content of the discussions on 18 August 2005, and the accounts that were made available to them.
[106] Consequently, counsel for the defendants accepted that no further particulars are required and said that an amended pleading to clarify the meaning would suffice.
Para 30(c)
[107] The allegation in issue is highlighted in the following text:
30 Since executing the 7 October 2005 Share Sale Agreement, the
KASFT has:
…
(c) Discovered that the defendants, and/or entities within their control, invested in the building at Clementi Ave 6 in Singapore before the 7
October Share Sale Agreement was concluded.
(Emphasis added.)
[108] The particulars the defendants seek are:
Facts, matters and circumstances in which it is alleged the plaintiffs discovered that the defendants, and/or entities within their control, invested in Clementi Ave before the 7 October share sale agreement was concluded.
[109] In argument, counsel for the defendants explained this apparently far- reaching request on the basis that the Clementi Ave interest was acquired in 2006, almost a year after the agreement was concluded, and that as there was no prior investment in Singapore no documents exist that disclose an investment in 2005. Hence, that it is for the plaintiffs to prove and give particulars of:
a) What information they discovered to support the allegation that investment occurred before the October 2005 agreement was concluded and how they discovered it; and
b)When the discovery occurred to show it occurred after the 7 October agreement was executed.
[110] The starting point is r 5.26 of the High Court Rules. Rule 5.26 provides that a statement of claim is to show the general nature of the plaintiff’s claim to the relief sought and to give sufficient particulars of time, place, amounts, names of persons,
nature and dates of instruments, and other circumstances to inform the Court and other parties of the plaintiff’s causes of action. Rule 5.21 envisages that a party may require further particulars as to give fair notice of the causes of action or particulars required by the rules.
[111] The purpose of particulars was expanded upon in Securitibank Ltd v Rutherford (No 25) HC Auckland A355/81, 10 October 1983 at 10-11. Barker J held that the function of particulars is to ensure litigation, and particularly the trial, should be conducted fairly, openly, without surprises and, incidentally, to reduce costs. A certain amount of detail is necessary for clarity. Particulars should inform the other party of the nature of the case he has to meet, as distinguished from the mode in which the case will be proved; prevent the other party from being taken by surprise; enable the other party to know with what evidence he ought to be prepared; and to limit and define the issues.
[112] It is trite law that a statement of claim need state only the facts essential to the claim and its causes of action as opposed to the facts supporting the claim.
[113] I agree with counsel for the plaintiffs that they do not have to give particulars of how the alleged discovery was made. That is a matter of evidence. Rather, the plaintiffs’ obligation is to give particulars of the nature of the case.
[114] Relevantly, what the plaintiffs are alleging is a failure to disclose an investment made in Clementi Ave in Singapore in 2005, and their discovery of the same after October 2005. It is reasonable to require that they set out when it was after October 2005 that they made the discovery. It is also reasonable to require that they set out, to the extent that they have them, details of the nature of the discovered investment, when it was made, who made it, whether it was the defendants or someone else and, if the latter, what the nature of the relationship between the defendants and the investor was that gave the defendants control over the investor.
[115] There is no suggestion that the plaintiffs are unable to provide such particulars to ensure more rigorous compliance with the requirements of r 5.26. Presumably, the particulars are contained in the further information that they have
obtained on discovery and ought therefore to be capable of at least some better particularisation.
[116] Such particulars, if indeed available, should be provided.
Para 31
[117] In this paragraph the pleading said to be deficient is highlighted:
31.The information referred to in paragraph 30 above was not known to the KASFT when it executed the 25 August 2005 Heads of Agreement or the 7 October 2005 Share Sale Agreement, and was not discernable from any of the material it had.
[118] The particulars the defendants seek are essentially:
a) Particulars identifying the material the plaintiffs had, by identifying each and every document that constituted part of it; and
b)Particulars of what has happened to any of those documents that the plaintiffs no longer hold.
[119] In the course of argument counsel explained the second point was one designed to elicit whether documents had been destroyed. The point was not pursued and I need not deal with it further.
[120] The rationale for the remaining request, as explained, was to have details of the specific documents the plaintiffs possessed when they executed the share sale agreement, to enable the defendants to see what was and what was not the information in the plaintiffs’ hands at that time. This point can also be disposed of in short order. Counsel for the defendants indicated that what is being sought here is material relating to Dubai, Singapore and Europe, and when the plaintiffs got that material. In discussion at the hearing, he acknowledged that the plaintiffs have produced particulars of when they received the Dubai and the Europe accounts, and that these are contained at paragraph 1(c) and (d) in the plaintiffs’ response dated 5
August 2009. He indicated that this satisfies the request as it relates to Dubai and
Europe. He also acknowledged that insofar as the request relates to Singapore, it
duplicates the request for particulars in relation to paragraph 30 of the statement of claim and the defendants’ investment in Clementi Ave in Singapore.
Result – defendants’ application
[121] I make orders as follows:
a) The plaintiffs are to file an amended statement of claim for the purposes of:
i)clarifying the meaning of para 19(d)(i) of the statement of claim as discussed at the hearing, the essence of which is referred to at [105];
ii)providing details, to the extent the plaintiffs have them, of the particular matters referred to at [114].
b)The amended statement of claim is to be filed and served within 10 working days.
Costs – both applications
[122] Costs are reserved. Counsel are to confer as to costs bearing in mind that:
a) The plaintiffs are in substantial measure the successful party on their application, and, given discovery of the documents sought should have been made pursuant to the original discovery order, any difficulties now faced in producing these documents for inspection may be said to have arisen from this earlier failure to comply.
b)The defendants are in substantial measure the successful party on their combined discovery and particulars application.
c) The plaintiffs’ application took the greater part of the hearing time.
[123] If costs cannot be agreed brief memoranda may be filed and served no later than 17 May 2010. I will then hear from counsel in chambers and the proceeding is
to be listed for that purpose on 19 May 2010 at 2.15 pm.
Associate Judge Sargisson
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