Teece v Kuwait Finance House (Bahrain) BSC
[2017] NZHC 1518
•3 July 2017
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2014-404-000957 [2017] NZHC 1518
IN THE MATTER OF CL REALISATION LIMITED (IN
RECEIVERSHIP)
BETWEEN
DAVID JOHN TEECE Applicant
AND
KUWAIT FINANCE HOUSE (BAHRAIN) BSC
Respondent
Hearing: 30 June 2017 Appearances:
S Mills QC and R J Hollyman for Plaintiff
J R Billington QC and J V R James for DefendantJudgment:
3 July 2017
JUDGMENT OF VENNING J INTERROGATORIES
This judgment was delivered by me on 3 July 2017 at 4.30 pm, pursuant to Rule 11.5 of the High
Court Rules.
Registrar/Deputy Registrar
Date
Solicitors: Lee Salmon Long, Auckland
Anthony Harper, Auckland
Copy to: S Mills QC and R J Hollyman, Auckland
J Billington QC, Auckland
TEECE v KUWAIT FINANCE HOUSE (BAHRAIN) BSC [2017] NZHC 1518 [3 July 2017]
Introduction
[1] Dr Teece and Kuwait Finance House (Bahrain) BSC (KFH) were both shareholder investors in CL Realisation Limited (Canterbury). Canterbury owned and controlled the sports brand of the same name. Ultimately the business of Canterbury failed.
[2] Dr Teece claims that KFH took advantage of its control of Canterbury as the majority shareholder. He says it breached s 174 of the Companies Act 1993 and acted oppressively or in an unfairly prejudicial way to him as the minority shareholder. In the alternative Dr Teece alleges that Canterbury breached the fiduciary duty it owed him. He says the fiduciary duty arose in one of two ways, either out of their special relationship which was akin to a partnership or from an agency relationship. KFH undertook to sell Dr Teece’s shares in Canterbury on his behalf but failed to do so.
Applications
[3] The case is for trial on 7 August 2017 (five weeks allocated). There were two outstanding interlocutory applications: KFH’s application for further discovery and Dr Teece’s application for orders requiring KFH to answer interrogatories.
[4] KFH’s discovery application has been resolved. That application is
withdrawn by leave with costs reserved.
[5] What remains is Dr Teece’s application for orders requiring KFH to answer interrogatories. Answers were first provided by affidavits dated 9 March 2017. Dr Teece and his advisers did not consider the answers were sufficient. They raised a number of issues with KFH and its advisers. Further answers were then provided. However Dr Teece and his advisers consider a number of the further answers remained unsatisfactory. They seek orders in accordance with r 8.38.
[6] At the outset of the hearing Mr Billington QC confirmed on behalf of KFH that, without accepting the need to do so, but given witness briefs had been exchanged, KFH proposed to provide further answers to a number of the
interrogatories in issue. KFH agreed to provide further answers to interrogatories
15(b)(iii), 15(e), 15(f), 32(d)(i) and (iv), and 36(b)(ii).
Approach to the request for interrogatories
[7] High Court Rule 8.39 provides that the answer must answer the substance of the interrogatory without evasion. Case law confirms the answer must be specific and substantial.
Analysis – the answers in issue
[8] Question 18 is directed to Ahmed Saeed:
Q18(a) What were the reasons for your agreement with Lillian Le Falher’s
desire to exact revenge on David Teece?
A.The email does not record, and nor is there any agreement, to exact revenge on David Teece. The email says what it says.
18(c) Why did you wish “to keep things away from GM”?
A. Because it was the personal views of Lilian and myself.
[9] To put the questions in context it is necessary to provide some background to the Board of Canterbury and to Mr Saeed’s position with KFH. There were four Board members including two KFH appointees, Paul Mercer (who was legal counsel) and Lilian Le Falher. David Teece was also a board member and there was an independent director. Mr Saeed was a senior manager within KFH.
[10] In response to an email request to Mr Mercer from a lawyer acting for Intellectual Capital Partners Limited (I-CAP), (a company in which Dr Teece had an interest), for payment of settlement moneys Mr Le Falher emailed Mr Saeed on 2
February 2008:
What a nice e-mail!! Keep in mind that Teece is the major shareholder of i- cap and that Anne [Chief Financial Officer of Dr Teece’s entities] is also on its board…
David Giauque told me that its very clear that any move by icap is dictated
by David Teece…
When I see the way our GM treats him, inviting him as a honour guest at his house, asking us to take him to Durrat etc..
Let’s make sure that we never ever work anymore with Teece and his friends, and as you know in our religion it’s eye for eye and I am pretty sure we will have an opportunity, possibly in canterbury, to take our revenge !!:-)
[11] In response to that Mr Saeed emailed:
I agree that let’s not work with them any more. Let’s keep this view (or
reasons for this) between a shorter group – say you n me only.
I will initiate a recommendation from my side for some sort of interim settlement, to keep things away from GM.
[12] Mr Mills QC submitted Mr Saeed’s response to 18(a) was not a sufficient answer and the answer to 18(c) was evasive. He submitted the answers to these questions were important as they are relevant to and inform the way in which KFH as the majority controlling shareholder in Canterbury exercised its power over the minority shareholder Dr Teece.
[13] I accept that if a senior manager in KFH and one of the KFH’s directors on Canterbury had animus towards Dr Teece it would be very relevant when considering KFH’s subsequent actions towards Dr Teece.
[14] As Mr Saeed’s email is phrased, the answer to 18(a) is ambiguous. The agreement expressed in the email could be restricted to “never ever working anymore” with Dr Teece. But it could also be an agreement to go further to include an agreement to exact revenge on Dr Teece. Answers are required to be specific and not ambiguous. An unambiguous response is required to 18(a).
[15] Mr Mills submitted the answer to 18(c) was evasive. I agree. Clearly the views were personal views but that does not answer why Mr Saeed and Mr Le Falher did not want the GM to know of them. That is particularly relevant in the context of the email exchange noting the way the GM treated Dr Teece. Further clarification is required of this answer.
[16] Question 19(c) is directed to Paul Mercer:
Q19(c) What was your understanding of the reason for Lilian Le Falher resigning from the Board of Canterbury?
A.I do not believe I ever had a discussion with Lilian on this point and, accordingly, anything I would say would be speculation on my part and I am not prepared to speculate.
[17] The interrogatory arises from an email exchange on 19 and 20 March 2008 between Paul Mercer and Ahmed Saeed regarding Mr Le Falher leaving the Canterbury Board. Mr Mills submitted the answer was evasive. He argued Mr Mercer must have had an understanding of the reason for Mr Le Falher’s resignation. Mr Billington noted that the best evidence for Mr Le Falher’s resignation is set out in Mr Le Falher’s email which is now available. It deals with his resignation from various investor boards, including Canterbury. The reason he gave was: “It has been at the expense of my initial mandate and personal life”.
[18] I note that r 8.38 provides an order must not be made unless the Court is satisfied an order is required at the time it is made. I consider the interrogatory to be unnecessary given the discovered email of Mr Le Falher which set out his reasons for wishing to resign.
[19] Question 20(h) and 23(h) are the same. They were directed to Mr Adnan Malik and Paul Mercer. Mr Malik was KFH’s nominee on the Canterbury Board in place of Mr Le Falher. The question was directed at the issue of a convertible note by Canterbury:
Q. What resolutions were passed by the Board of Canterbury to meet the requirements of section 40 of the Companies Act 1993 (NZ) in relation to this convertible debt?
[20] The answer given by Mr Malik was:
A. I am unable to answer this question because our New Zealand counsel handled the corporate matters and held the records. I do not have the Canterbury resolutions to be able to answer this. I refer it to Paul Mercer.
[21] Mr Mercer responded:
A. Norton Rose and the New Zealand counsel handled the corporate matters for Canterbury and would hold the records. KFH does not hold records for all resolutions passed by the Board of Canterbury so we cannot confirm whether a resolution was passed. The
resolutions are not available publicly as company records so we cannot search the Companies Officer Register.
[22] Mr Mills submitted that the answer should be within Mr Mercer’s power in particular. He submitted Mr Mercer and KFH had an obligation to make the appropriate inquiries from Norton Rose and all New Zealand counsel. He relied on the case of Henwood v Radio New Zealand Ltd.1 In Henwood v Radio NZ the Court confirmed that a party must inquire of its servants and agents who might reasonably have the knowledge required to answer the interrogatory.
[23] Mr Billington challenged the relevance of the question. Section 40 was only relevant to the legality of the converted note and the legality of the converted note was not in issue on the pleadings. However I consider the relevance of the issue is somewhat broader than just the legality. On Dr Teece’s case the issue of the convertible note prejudiced his position as minority shareholder. All information surrounding the Board’s decision to issue the convertible note may be relevant.
[24] I do accept the force of Mr Billington’s alternative submission that the counsel and Norton Rose referred to by Mr Mercer were the agents of Canterbury, not KFH. To that extent KFH is in no better position than Dr Teece to obtain the information. Both were shareholders in Canterbury. On that basis the Henwood decision can be distinguished. I decline to order KFH to provide an answer which would require them to seek to obtain that information from Canterbury’s agents.
[25] In declining to order the interrogatory, I record Mr Billington’s concession that KFH would, if necessary, agree to Norton Rose and New Zealand counsel providing any records they held relating to whether resolutions were passed by the Board of Canterbury to meet the requirements of s 40 of the Companies Act in relation to the convertible note to Dr Teece and his advisers.
[26] Question 32(d) was directed to Paul Mercer. This question relates to how KFH dealt with a Mr Gaydamak’s interest in purchasing Dr Teece’s shares in Canterbury. In an email to Dr Teece, Mr Mercer had referred to the fact he and
Adnan Malik were working on “some scenarios”.
1 Henwood v Radio New Zealand Ltd (1993) 7 PRNZ 160 (HC).
[27] Questions 32(d)(i) to (viii) are directed at the detail of the scenarios and subsequent steps. Question 32(d)(i) was “What were these scenarios?” The answer currently provided to 32(d)(i) from which the others follow is:
(i) The scenarios referred to relate to the potential investment options for a third party and the effect they would have on the current shareholding structure. The terms of the deal would necessitate a degree of divestment and/or dilution and we wanted Teece to be aware of the potential options that existed so that we could get a steer as to what we should entertain.
[28] Mr Billington conceded that further answers would be provided to 32(d)(i)
and (vi). Question 32(d)(vi) sought an answer to:
(vi) What was the content of the scenarios run by Teece?
[29] After discussion with counsel I understood Mr Billington to accept that depending on the further answer to 32(d)(i) as to “what were these scenarios” further answers may also be required to 32(d)(ii), (iii), (iv), (v), (vii) and (viii) as well as to
32(d)(vi).
[30] I accept Mr Mills’ criticism of the answer to Q32(d)(i) as being too general. It is not sufficiently specific. Depending on the further answer to 32(d)(i), further answers could be required to 32(d)(i) to (vii). Although Mr Billington conceded answers would be given, I propose to formalise the position by ordering further answers be provided to 32(d)(i) to (viii).
[31] Questions 36(b)(ii) and (iv) were directed to Mr Saeed:
Q36(b)(ii) What was that Plan?
A.Numerous discussions took place in the normal course of work, in order to evaluate and make various decisions. Specific discussions and results cannot be summarised as one particular “Plan”.
Q36(b)(iv) What was the result of any discussion?
A. I do not recall any specific agreement being reached.
[32] The context is an email exchange on 21 and 22 October 2008 between Mr
Saeed to Mr Malik copied to Mr Mercer. In it, Mr Saeed said:
Adnan, Paul and myself further discussed the strategy to address the current funding situation at Canterbury. It would be best if you travel to UK at the earliest (ya’ni tomorrow morning, unless you can make it tonight – even better!) to work actively on securing a deal while I will try and approach Hakeem to secure plan B for funding. We will push Hakeem on this basis that you are there trying to get a deal done. I need the investment proposal on the same lines as Liberty or better and Rashid / MAM to explain to me some of the relevant info about numbers etc.
[33] I note Mr Billington’s concession on behalf of KFH that they are to provide a further answer to 36(b)(ii). I also agree with Mr Mills’ submission that a further answer is required to 36(b)(iv). The current answer is, as Mr Mills submitted, evasive. There might be a number of outcomes short of specific agreement. A more complete answer is required.
[34] Question 45(b) to Adnan Malik:
Q45(b) Is it accepted that in order to achieve the best possible sale price for the shareholding in Canterbury an Information Memorandum was required?
A. No, it is not solely dependent on having an Information
Memorandum.
[35] This arises in the context of the sale of Dr Teece’s shareholding.
[36] As discussed with counsel I consider this answer to be sufficient. The proposition to be answered is whether to achieve the best possible sale price for the shareholding an Information Memorandum was required. The answer is no. While the answer goes further than that and seeks to explain why one was not required, the additional explanation is otiose. No is a sufficient specific answer to the question.
[37] Question 46(a)(ii) and (iv) directed to Mr Saeed:
Q46(a) (ii) What were the issues about Adnan’s role that needed to be escalated “to CEO”?
AThis related to allocation of various resources within the team according to workload and nature of work, which needed discussion with the CEO.
And:
(iv) If yes, [it was escalated to the CEO] what was the content of your communication with CEO and what was the response of the CEO?
A. As stated above.
[38] The context of these interrogatories is an email exchange between Lloyd Williams, head of private equity KFH and Mr Saeed on 27 March 2009 in which they discuss Mr Malik’s handling of Dr Teece.
[39] Mr Billington submitted that when the responses to Question 46 were read as a whole the question was answered. While Mr Billington is correct that the Commentary to McGechan on Procedure at 8.42.03 suggests as a general principle that a party may refer to the whole of their answers to show the answers are sufficient, that does not assist Mr Saeed in this case. Specific and proper answers are given to 46(a)(i) and 46(a)(iii) for example, but they do not inform the general and non-specific answers to 46(a)(ii) and (iv).
[40] The answer that the issues related to allocation of various resources within the team is extremely general. Nor does it address the content of the communication with the CEO and what the CEO’s response may have been. Further detail is required.
Result/orders
[41] The defendant is to provide further and better answers to the following interrogatories:
15(b)(iii); 15(e); 15(f); 18(a); 18(c); 32(d)(i)–(viii); 36(b)(ii); 36(b)(iv),
46(a)(ii) and 46(a)(iv).
[42] The answers are to be provided within 10 working days of the delivery of this decision.
Costs
[43] The plaintiff has largely succeeded on the application. I also take into account that this is effectively the third attempt at having the interrogatories answered in full.
[44] The plaintiff is to have costs on the application and the hearing. I allow for second counsel at the hearing. If counsel cannot agree on quantum they may
exchange memoranda.
Venning J
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