Sturgess v Dunphy
[2014] NZCA 45
•28 February 2014 at 4:00 pm
| IN THE COURT OF APPEAL OF NEW ZEALAND |
| CA366/2013 [2014] NZCA 45 |
| BETWEEN | JOHN GILBERT STURGESS |
| AND | ROBERT MARK PATRICK DUNPHY AND OTHERS |
| Hearing: | 24 February 2014 |
Court: | Randerson, White and Miller JJ |
Counsel: | F E Geiringer for Appellant |
Judgment: | 28 February 2014 at 4:00 pm |
JUDGMENT OF THE COURT
AThe application by the appellant for leave to adduce additional evidence and the associated application to amend the notice of appeal is dismissed.
BDirections are given as to the content of the case on appeal as per [33] and as to any adjournment application as per [34].
C The appellant must pay costs to the first, second, seventh and eighth respondents as for a standard application on a Band A basis with usual disbursements.
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REASONS OF THE COURT
(Given by Randerson J)
Introduction
This appeal and two associated appeals[1] have been set down for a four day hearing in this Court commencing 24 March 2014. On 20 December 2013, the appellant, Mr Sturgess applied for leave to adduce further evidence on appeal and for an associated amendment to his notice of appeal. This judgment deals with that application as well as an objection by the respondents in respect of the content of one of the volumes in the case on appeal.
Background
[1]CA367/2013 and CA717/2013.
This appeal and the two associated appeals arise from proceedings determined in the High Court by Gilbert J on 8 May 2013 following a seven week trial.[2] The proceedings were issued to resolve major disputes that had arisen between the directors and shareholders of Greymouth Petroleum Holdings Ltd (the Company) whose business is in oil and gas exploration and production.
[2]Greymouth Holdings Ltd v Jet Trustees Ltd [2013] NZHC 1013.
There are three groups of shareholders:
·Mr Mark Dunphy and interests associated with him.
·Mr Peter and Mrs Joanna Masfen.
·Mr Sturgess and Jet Trustees Ltd (as trustee of a family trust associated with Mr Sturgess).
At relevant times, the Company had three directors: Mr Dunphy as the executive chairman; Mr Masfen as a non-executive director; and Mr Sturgess as the third director and chief operating officer (COO) of the Company.
At the outset of his judgment, Gilbert J recorded that:
[6] From late 2009, the relationship between Mr Sturgess and the other directors deteriorated to such an extent that in February 2011 Mr Dunphy purported to suspend the management contract pursuant to which Mr Sturgess’ services as COO were provided. Mr Sturgess disputes the validity of this suspension which was made permanent in May 2011. However, all parties agree that they cannot continue in business together.
The Dunphy and Masfen interests issued proceedings in August 2011 seeking an order under s 174 of the Companies Act 1993 requiring Mr Sturgess and his interests to sell their shares on the open market. They made wide-ranging complaints about the conduct of Mr Sturgess prior to his purported suspension as COO in February 2011. Relevantly to the determination of the present applications, the allegations against Mr Sturgess included failing adequately to report to Mr Dunphy and to the Board and conducting or directing the conduct of operations of the Company without approval and, in some cases, negligently.
Messrs Dunphy and Masfen were also given leave to bring a derivative claim in the name of the Company against Mr Sturgess and his service company John Sturgess & Associates Limited (JSAL) for damages for alleged negligence and breach of a management service agreement.
Mr Sturgess commenced a separate proceeding soon afterwards by way of cross-application for relief under s 174. Jet Trustees was later joined as a plaintiff and two further claims were added alleging breach by the Dunphy/Masfen interests of a shareholder agreement and other alleged defaults. Mr Sturgess also claimed that his management services agreement was unlawfully suspended in February 2011 and finally terminated in May that year.
It is an important feature of the trial for present purposes that Mr Sturgess and Jet Trustees elected not to give or call evidence although briefs were exchanged before trial and opposing witnesses were cross-examined on the footing that the Sturgess’ briefs would become evidence.
The allegations of breach of reporting requirements were upheld in the High Court in respect of a number of separate well operations during 2010 and January 2011. Negligence was found in five cases but the existence of consequential losses was upheld in only two cases.[3] The High Court also held that Mr Sturgess had to take primary responsibility for destroying the trust that was essential to his working relationship with the other two directors. He and Jet Trustees were ordered to sell their shares at fair market value as determined by an arbitration that is being undertaken by the parties but which is not yet complete.
The appeals
[3]Midhurst and Radnor.
The following appeals are now before the Court:
·An appeal by Mr Sturgess which is wide-ranging but includes a challenge to the findings against him of breach of reporting obligations and negligence (CA366/2013).
·A cross-appeal by the Company in CA366/2013 against the High Court’s failure to order damages (or an inquiry into damages) consequent on breaches of reporting obligations and negligence in relation to two wells – Ohanga-2 ST1 and Kaimiro-2 ST1.
·An appeal by Jet Trustees and JSAL that is not directly relevant for present purposes (CA367/2013).
·An appeal by Mr Sturgess from a subsequent judgment of Gilbert J delivered on 24 September 2013 (CA717/2013) which is also not presently relevant.
The application to adduce further evidence
The essence of Mr Sturgess’ application to adduce further evidence on appeal is that the Dunphy/Masfen interests failed to disclose documents at the time of the High Court proceedings in alleged breach of their discovery obligations. Mr Sturgess says that he has only obtained these documents subsequent to the trial. They are said to comprise some 600 pages of material that, if disclosed, would have been material to his defence of the reporting and negligence allegations. He says that, from 4 February 2011 when his role as COO was suspended, he no longer had access to the company’s data systems.
Discovery was a major process involving many thousands of documents. The parties agreed to an order permitting discovery of defined categories of documents by electronic means. Mr Sturgess asserts that despite an agreement that all Board papers since 1 January 2009 would be included in materials to be discovered, no documents of any kind relating to Board meetings on 7 and 9 December 2010 were provided by the Dunphy/Masfen interests or by the Company. He maintains that these documents refute the claims made against him that Mr Dunphy and Mr Masfen were deprived of technical information and involvement in operational and planning matters to the level required.
In a late affidavit handed up only on the day of the hearing of his application, Mr Sturgess also seeks disclosure of a “workover” report dated May 2011 in respect of the Ohanga-2 ST1 well. The respondents objected to this affidavit but we have received it de bene esse.
Principles
Rule 45 of the Court of Appeal (Civil) Rules 2005 permits the court to grant leave for the admission of further evidence on questions of fact. The principles applied by the court on any such application are well established and not in dispute. They are captured in the following passage from this Court’s decision in Rae v International Insurance Brokers Ltd:[4]
The principles upon which further evidence is admitted are designed to balance the interests of the person seeking to adduce such evidence on the one hand with the interests of the opposite parties on the other. They are also designed to reflect the public interest in ensuring, so far as is possible, that parties put up their best case at trial. Any other approach would be very wasteful of public resources. The conventional requirements are that the further evidence must be fresh, it must be credible and it must be cogent. Evidence is not regarded as fresh if it could with reasonable diligence have been produced at the trial.
[4]Rae v International Insurance Brokers Ltd (Nelson Marlborough) [1998] 3 NZLR 190 (CA) at 192.
This Court added:[5]
While the absence of freshness is not an absolute disqualification, the criteria for admission in such circumstances must be very strict. In our view, when the evidence is not fresh it should not be admitted unless the circumstances are exceptional and the grounds compelling. In addition, it will need to pass the tests of credibility and cogency.
[5]At 193.
These principles were also adopted by this court in Airwork (NZ) Ltd v Vertical Flight Management Ltd.[6]The Supreme Court has confirmed that the well established principles continue to apply under r 45 notwithstanding some drafting changes to the rules considered in the earlier authorities.[7]
Discussion
[6]Airwork (NZ) Ltd v Vertical Flight Management Ltd [1999] 1 NZLR 641 (CA) at 649–650.
[7]Paper Reclaim Ltd v Aotearoa International Ltd (No 1) [2006] NZSC 59, [2007] 2 NZLR 1 at [6]–[8].
We deal first with the documents relating to the meetings on 7 and 9 December 2010. Mr Sturgess accepts he was present at these meetings when the technical reports he now seeks to introduce on appeal were presented to the directors and others in the form of a Powerpoint presentation.[8] We are satisfied that Mr Sturgess was aware of these reports at the time of the meetings and that they could not be regarded as fresh. Not only was he present at the meeting but the reports had been prepared by operations personnel who were responsible to Mr Sturgess as COO. He could have, if he had chosen to do so, requested that the documents be produced, sought orders for further discovery if dissatisfied or issued a subpoena duces tecum to the Company secretary requiring the documents to be brought to the High Court at trial. He did none of these things despite reference to the relevant meetings in evidence at trial as well as in affidavits he filed in interlocutory proceedings and in his brief of evidence prepared for trial.
[8]There was a suggestion by the respondents that these meetings were not strictly Board meetings since they were effectively only a presentation of technical evidence at a meeting attended by the directors. That may be so, but it is not material to our decision.
Mr Geiringer submitted there were exceptional circumstances that justified the introduction of the documents on appeal if they failed the freshness test. The only ground he offered in support was that the respondents had breached their discovery obligations.
That allegation was strongly disputed by the respondents. Convincing evidence was produced that all but five of the 36 files at issue were listed prior to trial in an electronic data list (known as Exconz data), or in Mr Sturgess’ own discovery, or in material extracted from Mr Sturgess’ computer. Of the remaining five files, all but one post-dated the meetings on 7 and 9 December 2010. As we later note, this has significance since the breach of reporting obligations were almost all focused on the period prior to these meetings.
We conclude that if there was any failure to discover material from the 7 and 9 December 2010 meetings, it was of a very minor nature and does not persuade us that there are exceptional circumstances that would justify the introduction of further evidence on appeal.
In any event, the evidence fails the cogency test. Despite being represented by experienced counsel at trial, and with full knowledge of the existence of the documents, no steps were taken to have them placed before the High Court and only passing reference was made to the meetings at trial. It is evident that none of the parties attached any great significance to the meetings on 7 and 9 December 2010 or the material produced at them. As already noted, all but one of the reporting breaches pre-dated the 7 and 9 December 2010 meetings. As Mr O’Brien for the respondents pointed out, the fact that Mr Sturgess could have (or did) later obtain relevant information is no answer to the Judge’s finding that the other directors were unable to participate in important Company decisions at the time they were made due to a lack of timely reporting by Mr Sturgess.
To the extent that the documents may have been relevant to the negligence allegations, similar considerations apply. The allegations related to the 2010 year and early 2011 when Mr Sturgess was COO. He had the opportunity to place the relevant documents before the High Court if he had considered them to be material.
Finally, we deal with the workover report raised at the last minute by Mr Sturgess in his affidavit handed up at the hearing of this application. Mr O’Brien accepted that this report may not have been disclosed previously. It is dated May 2011 and relates to the re-working of the Ohanga-2 ST1 well that apparently stopped flowing in January 2011.
The respondents have not had the opportunity to respond to Mr Sturgess’ late affidavit but Mr O’Brien referred us to the pleadings that show the Company alleged that Mr Sturgess had negligently mismanaged the well-drilling operations and that the Company spent over $1 million in attempts to assess and correct the problems with the well.
Whether the report could assist Mr Sturgess in establishing that the cause of the flow problems was not the failure of inflatable packers we cannot say. But there is force in Mr O’Brien’s submission that Mr Sturgess continued to be a director of the Company until October 2013. He would have been aware of the re-working and the large amount of capital expenditure involved either then or, at the latest, when the pleadings were served. We accept that Mr Sturgess could have asked for any reports relevant to the re-working if he had considered them to be relevant and material. The report could have been obtained if Mr Sturgess had exercised due diligence and is not fresh in the sense used in the authorities.
A final matter relevant to the court’s discretion is essentially pragmatic. Where additional evidence can be conveniently introduced on appeal, no practical difficulties arise. But as this Court emphasised in Sulco Ltd v E S Redit and Co Ltd,[9] it may be impossible or difficult to fairly evaluate the new evidence against all of the other evidence at trial. That is particularly so where the evidence is technical in nature and would require expert evidence to evaluate. These considerations apply to the present case as evidenced by Mr Sturgess’ application to introduce on appeal his affidavit explaining the significance of the additional material (an opportunity he elected not to take at trial). Inevitably the respondents would be entitled to the opportunity to rebut the evidence. Cross-examination might then be necessary. As Turner J said in Sulco the introduction of the additional evidence has the potential to open the door to a substantial rehearing of the case.[10]
[9]Sulco Ltd v E S Redit and Co Ltd [1959] NZLR 45 (CA) at 74–75.
[10]At 75.
Mr Geiringer pointed out that part of the relief Mr Sturgess seeks on appeal is an order for re-trial. If that were the outcome, no doubt matters of the kind now at issue could be ventilated but that is not a justification for the introduction of the additional documents at this stage.
Contents of the case on appeal
Mr Farmer QC addressed the Court in support of an objection by the respondents to volume 11 of the case on appeal. The complaint is that this volume contains in full affidavits from interlocutory processes that were not in evidence at trial. Mr Farmer accepts that after Mr Sturgess elected not to give or call evidence, it was agreed that parts of these affidavits could be received as evidence but his complaint is that only the agreed evidence should be before this Court. He submits that Mr Geiringer should not have an opportunity to place evidence before this Court when he deliberately elected not to give evidence at trial.
In accordance with an earlier direction, a new volume 11A has been prepared and filed which contains redacted forms of the affidavits excluding the material to which the respondents have objected. Mr Farmer accepts that four additional parts of the evidence (identified in [11] of Mr Sturgess’ memorandum of 19 December 2013) may be added, together with the last two sentences of [14] of Mr Sturgess’ affidavit of 3 November 2011 (at CoA 2407).
Mr Geiringer accepts in principle that the case on appeal should only include the evidence adduced at trial and that which was agreed in the High Court to be treated as evidence. But he says that the full affidavits should remain in the case against the possibility that counsel may stray into material that is outside the properly admitted evidence.
We do not accept that submission. It is wrong in principle for this Court to have before it material that was not in evidence at trial unless permitted on an application to adduce further evidence on appeal.
We direct that volume 11 be removed from the court file and all copies returned to the parties. The additional material beyond that which is in volume 11A should be filed and served as an addendum. There is no need to revise volume 11A itself.
Directions as to adjournment
Mr Geiringer has signalled earlier that Mr Sturgess may wish to seek an adjournment of the appeal. Any such application must be filed and served within two working days after delivery of this judgment.
Result
The application by the appellant for leave to adduce additional evidence and the associated application to amend the notice of appeal is dismissed.
Directions are given as to the content of the case on appeal as per [33] and as to any adjournment application as per [34].
The appellant must pay costs to the first, second, seventh and eighth respondents as for a standard application on a Band A basis with usual disbursements.
Solicitors:
Hayman Lawyers, Wellington for Appellant
Bell Gully, Wellington for First, Second, Seventh and Eighth Respondents
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