Trustees Executors Limited v Fund Managers Canterbury Limited

[2017] NZHC 2792

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-Ā-TARA ROHE

CIV-2014-485-4040 [2017] NZHC 2792

BETWEEN

TRUSTEES EXECUTORS LIMITED

Plaintiff

AND

FUND MANAGERS CANTERBURY LIMITED

First Defendant

DELOITTE Second Defendant

DELOITTE LIMITED Third Defendant

GRAEME MAIN Fourth Defendant

ALEXANDER DONALD McBEATH, PAUL ERNEST McEWAN, ALAN WILLIAM PRESCOTT, GEOFFREY READ THOMAS, ANDREW HENDRA YOUNG and OLIVER RODERICK MATSON

Fifth Defendants

AND

AIG NEW ZEALAND LIMITED Second Third Party

Hearing:	14 November 2017
Appearances:	C Stevens and I Tokmadzic for Plaintiffs I Hunt and D Weatherley for First and Fifth Defendants D Cooper and R Massey for Second and Third Defendants
Judgment:	17 November 2017

TRUSTEES EXECUTORS LIMITED v FUND MANAGERS CANTERBURY LIMITED [2017] NZHC 2792 [17 November 2017]

INTERLOCUTORY JUDGMENT OF DOBSON J [Particular discovery, confidentiality, timetabling]

[1]      I heard counsel on a number of applications that the parties have filed in completing discovery and inspection, and other aspects of preparation of this proceeding for trial.   Constructive dialogue between counsel narrowed the matters that required argument between the filing of the various applications and the hearing.

[2]      The plaintiff (TEL) was the trustee, first of a mortgage trust and then of a Group Investment Fund that replaced the mortgage trust.  Because of concerns raised by the second and/or third defendant (Deloitte) in June 2008, TEL procured the suspension of the fund.  Losses to investors in the fund have ensued.  In its capacity as the trustee of the fund, TEL has commenced these proceedings seeking damages from the company that managed the fund, Deloitte, and from the general manager of the fund and the directors of that company.   Deloitte and other defendants have sought contribution for  any liability made out against them from TEL, alleging contributory negligence in TEL’s conduct as trustee of the fund.

[3]      The proceeding is set down for a six week trial scheduled to commence on

20 August 2018.

Deloitte application for discovery of FMA report on TEL

[4]      The  defendants  became  aware  during  inspection  of  other  discovered documents that the Financial Markets Authority (FMA) produced a report in July

2014 about the standard of monitoring undertaken by TEL in roles arguably similar to the role that TEL had as trustee of the fund at issue in the proceeding.  Discovery was sought.  TEL resisted on the ground that the 2014 report was produced under a different statutory regime in relation to different roles, and could therefore not be relevant to the standard of its performance in 2008 up to the time when the fund was suspended.

[5]      Deloitte and TEL both obtained relatively detailed affidavits from experts retained by them.  An expert for Deloitte opined, in essence, that the view taken by the FMA of such activity could still be relevant when it commented on performance several years after the performance by TEL in the period giving rise to the claim, and that the changes in the statutory framework in which trustees/supervisors operate would not materially lessen that relevance.

[6]      For TEL, an expert has opined to the contrary.   Their expert’s view is, in essence, that comments by the FMA in 2014 as to the standard of TEL’s conduct at that time can have no bearing on the competence or otherwise of TEL’s performance in 2008 when the scope of its responsibilities were not those prescribed in the more recent statute that is administered by the FMA.

[7]      The written submissions filed in anticipation of the argument traversed the parties’ competing positions on the potential relevance or complete lack of relevance of the FMA report.  The argument foreshadowed by the written submissions was at a level of detail appropriate for this issue as a component of the substantive hearing.

[8]      I indicated to counsel at the outset of the hearing that I was reluctant to engage in an analysis at that detailed level, for the preliminary purpose of ruling on the discoverability of the FMA report.  I saw at least two disadvantages in doing so. First, the detail of argument for TEL would commit it to a stance on this issue several months before its briefs of evidence are to be served.   In the absence of a disputed discovery argument, that argument traversed potentially material issues on which TEL might wish to refine its position in the course of subsequent steps in its trial preparation.

[9]      Secondly, a determination on the detail of the competing contentions about relevance of the FMA report would likely amount to a provisional view on an issue that the Court ought not to address until it is dealt with at trial.

[10]     A potential difficulty for TEL was that its denial of relevance of the FMA report depended on the Court accepting TEL’s view of the more limited extent of materials that might be relevant to the pleaded criticisms of its conduct.  TEL cannot

constrain  Deloitte  as  to  the  manner  in  which  Deloitte  intends  to  run  what  is effectively a counterclaim against TEL, so TEL’s perspective on relevance cannot be determinative.

[11]     Deloitte claims that the report is relevant because arguably it may contain observations from an independent qualified observer as to systemic inadequacies in TEL’s monitoring role, in contexts that are sufficiently similar to its responsibilities in the present case, to have a bearing on criticisms Deloitte advances of TEL’s performance in this case.

[12]     After I had indicated my provisional view that it would be difficult for TEL to deny relevance, counsel asked for time to reflect on our preliminary exchanges.  On my return to Court, Mr Stevens advised that TEL’s objection to the application was withdrawn.

[13]     In adopting that stance Mr Stevens foreshadowed TEL’s expectation that, as a matter of reciprocity, reports produced by the FMA on Deloitte’s performance as an auditor under the Auditor Regulation Act 2011 would attract the same approach to relevance.

[14]     No application for particular discovery of such documents has been made but this request on behalf of TEL will now be pursued informally.

[15]     Accordingly, the Deloitte application for discovery of the FMA report of July

2014 in respect of TEL is granted.

Deloitte’s further application for particular discovery by TEL

[16]     A more recent application on behalf of Deloitte filed on 18 October 2017 sought other documents recording dealings between TEL and the FMA in the period between June 2012 and August 2013.  That application also sought an unredacted copy of a letter from DLA Piper to the FMA which has thus far only been discovered in a redacted form.

[17]     In light of the resolution reached on the earlier application for particular discovery of the FMA report, the parties informally indicated that they saw no need to argue this application and that it can be resolved informally.

TEL challenge to Deloitte confidentiality claim

[18]   In providing discovery of relevant documents, Deloitte has claimed confidentiality for a series of documents that record reviews undertaken internally of the  performance  of  relevant  partners  and  professional  staff.    These  documents include personal performance reviews completed by relevant personnel about themselves and internal communications to and about professional staff including a Deloitte partner with responsibility for audits of the fund that is the subject of these proceedings.

[19]     Deloitte acknowledged the relevance of these documents by including them within their discovery, but claimed confidentiality to restrict disclosure to counsel for TEL.  The confidentiality claim was made on the ground that the communications were of a type that were undertaken confidentially and in circumstances where the firm and the professional personnel involved had reasonable expectations that sensitive content would justify preservation of confidentiality, to the greatest extent possible.  That expectation could not prevail over a formal discovery obligation, but would arguably extend to ensuring that disclosure of the content would be confined as narrowly as possible should it become relevant in a context such as the present.

[20]     The prospect of a discovering party imposing a limitation on inspection of confidential documents is recognised in the High Court Rules 2016, r 8.28(3):

(3)       A  party  may  limit  inspection  of  confidential  documents  to  the persons specified in the affidavit of documents, subject to the restrictions proposed in the affidavit.

[21]     Mr Tokmadzic who argued the challenge to the Deloitte confidentiality claim for TEL disputed that the ground relied on was a valid basis for Deloitte’s claim for confidentiality.  He submitted that, with the possible exception of my own decision in NZX v Ralec, commercial sensitivity such as of trade secrets or financial performance of a competing business was the only ground recognised by the Court

for restricting access to discovered documents.1     In NZX, I adopted from earlier authority the use of s 69 of the Evidence Act 2006 as a touchstone for balancing the interests of protection of confidential information, against the need for sufficient disclosure so as not to impede preparation of a party’s case.2    Section 69 addresses the Court’s discretion in dealing with confidential information as evidence at trial, but  the  criteria  that  apply  in  that  context  are  useful  in  testing  claims  for confidentiality as a ground for restricting access during the inspection process.

[22]     Mr Tokmadzic argued that respect for the confidentiality of the circumstances of creation of documents on this topic does not qualify as a ground for restricting access to discovered documents more narrowly than would ordinarily apply.  Even if that form of concern for confidentiality qualified as a ground for seeking constraints on disclosure, appropriate grounds were not made out in the present case.

[23]     Mr Tokmadzic’s careful submissions did not persuade me that the form of confidentiality concern raised by Deloitte is necessarily excluded from the circumstances in which the Court will allow restrictions on the scope of disclosure, and  to  afford  some  extent  of  protection  of  confidential  material,  where  that  is justified and it is practical to do so without material prejudice to the preparation of the inspecting party’s case.  I am not satisfied that it fulfils the purpose of r 8.28(3) to add a gloss to that provision by confining confidential documents to those arising in a commercial setting in the nature of trade secrets or disclosure to competitors of otherwise confidential financial or other records.

[24]     A cursory inspection of the 21 documents in issue readily establishes the expectation  of  confidentiality as  an  important  influence  on  their  creation.    The employer’s on-going obligation to protect confidentiality of communications about staff (and indeed partners’) work performance would be material to fostering full and frank exchanges in those relationships.   I am satisfied that this is a feature of the

communications in the present case.

1      NZX Ltd v Ralec Commodities Pty Ltd [2015] NZHC 241 at [8]–[14].

2      Intercity Group (NZ) Ltd v NakedBus NZ Ltd [2013] NZHC 2261, (2013) 21 PRNZ 520 at [12]–

[24].

[25]     For TEL, Mr Tokmadzic complained that counsel’s inability to review the content of the documents with the representatives of TEL materially impaired their receiving full instructions.  He identified two individual representatives of TEL who have been involved to an extent that substantial volumes of discovered documents have been provided to  them, the content discussed, and the client’s instructions obtained on the use to be made of the documents.   There would be a gap in the instructions TEL can provide to its counsel if the Deloitte personnel records were not similarly available for consideration and discussion.

[26]     Having  recognised  an  appropriate  confidentiality  interest,  the  preferable balance is struck by restricting disclosure to two nominees of TEL, and then only on terms that they not retain either electronic or hard copies of the 21 documents in issue.  I accordingly vary the confidentiality constraint in respect of these documents that has applied to the personnel records to permit disclosure by TEL’s solicitors to Messrs Russell and Roberts of TEL by affording them access to hard copies at the offices of DLA Piper.  Disclosure is to occur on terms that no further copies are to be taken by the TEL representatives and that they are not to disclose the content of the documents for which confidentiality is claimed any further, without the prior permission of the Court.

TEL application for express confidentiality undertakings

[27]     A discrete component of the application on behalf of TEL to challenge the confidentiality of Deloitte’s personnel records was an application for the Court to require express undertakings to be given by the defendants limiting disclosure of discovered documents to the parties’ legal representatives, independent experts and only the personnel within the party as are reasonably necessary for the purposes of the proceeding.   Further, TEL sought an order requiring confirmation that all discovered documents have been and will be used only for the purposes of the proceeding and that all copies of such documents will be destroyed following the conclusion of the proceeding.

[28]     The catalyst for this application was a concern on behalf of TEL that those

advising Deloitte having “mischaracterised” certain documents that TEL treat as

irrelevant, but which had been discovered by TEL so as to comply exhaustively with the definition of categories of documents for particular discovery that had previously been agreed between the parties.   The allegedly mischaracterised documents were created several years after the events relevant to these proceedings, in the course of TEL’s dealings with the FMA about its licensing as a statutory supervisor under the Financial Markets Conduct Act 2013.

[29]     Deloitte disputed that there had been inappropriate treatment of documents discovered by TEL, and disputed the justification for any order imposing an obligation for explicit undertakings as to use of discovered documents.  The first and fifth defendants joined in Deloitte’s opposition on this aspect of the TEL application.

[30]     The Rules expressly provide  in r 8.30(4) that such restrictions apply so that solicitors for an inspecting party place themselves in breach of the Rules if they do not supervise the appropriate limits on use of discovered documents.

[31]     It  is  absolutely fundamental  for  all  those  involved  in  the  civil  litigation process that discovered documents provided by one party to all others in the proceeding can only be used for the purposes of the litigation, and not copied or described  to  others  with  no  legitimate  interest  in  advancing  the  issues  in  the litigation.  Use of discovered documents for other than the purposes of the litigation is a form of contempt, and the Court takes seriously any breach of these obligations.3

[32]     This careful protection of the content of discovered documents is the quid pro quo for the rules requiring parties to litigation to make full disclosure of documents that may be adverse to their interests (as well as those in favour of their position), subject only to claims of privilege.   Breach of the fundamental obligation of disclosure might  more readily be excused if  there were grounds  for concern at misuse of discovered documents in the hands of other parties.

[33]     In cases such as the present, discovered documents are routinely provided to independent experts retained by parties to the litigation.  It is good practice for those

instructing experts to direct them on the limitations on use of discovered documents

3      See for example Wilson v White [2005] 3 NZLR 619 (CA).

that have been provided by other parties to the litigation, and which are then made available to experts for consideration.  In the present case, subsequent to the hearing and at my request, Bell Gully have confirmed that the terms on which they have retained experts include an appropriate direction that all information provided to the expert is to be used only for the purposes of carrying out the present instructions, and that information revealed to the expert is not to be discussed with others.   That direction reads:

Please take all the usual steps to preserve confidentiality and privilege in all materials which you receive and create in the course of this engagement. Please  do  not  discuss  your  work  pursuant  to  this engagement  with  any person other than Deloitte or Bell Gully without first discussing that with us.

[34]     For the first and fifth defendants, Mr Hunt confirmed that no experts have thus far been retained, but that any would be retained on terms including such a customary warning.

[35]     Mr Cooper also resisted any obligation to destroy all copies of all discovered documents after proceedings had been completed.  His objection was a practical one, that with discovery being provided electronically, it would be an extremely difficult if not impossible task to locate all copies of all discovered documents where, in the course of preparing for trial, substantial volumes of the discovered documents would likely be transmitted electronically, as attachments to emails.   Whilst destroy or return orders might be made for specific sets of documents, such as in competition law or intellectual property proceedings, Mr Cooper suggested there was no recognised practice of requiring destruction or return in more general commercial litigation.

[36]     I am not persuaded that the dealings with discovered documents thus far in the proceeding warrant a requirement for express undertakings to be provided by representatives of the defendant parties, or independent experts retained by then.  I certainly see no warrant for the unusual request that counsel provide such undertakings when they can reasonably be expected to be completely familiar with the restrictions on use of discovered documents, and uniformly supportive of the requirement to uphold that restriction.

[37]     The concern having  been  raised,  all  parties  can  be assured  that  uniform compliance with the restriction on unauthorised use of discovered documents will be at the forefront of the minds of those who enjoy access to discovered documents. Non-compliance will be treated sternly.4

TEL application for non-party discovery

[38]     TEL has applied for a non-party discovery order to require the Crown to discover documents that are under its control by virtue of their being the property of a company, Settler Life Styles Ltd (SLSL), that has now been struck off.   The relevant documents are known to be within the possession or control of Harmans Lawyers in Christchurch and the application defines five categories which relate to loans from the fund.

[39]     There has been no opposition to this application and Mr Hunt indicated from the bar that the practitioner at Harmans Lawyers who is familiar with the application has indicated his firm’s willingness to co-operate in provision of the documents once an order is made.

[40]     I accordingly make the non-party discovery order against the Crown in the terms specified at [1.3] of the TEL application dated 16 October 2017.

Timetable for exchange of briefs

[41]     There was  a difference  of view between  counsel  as  to  the timetable for exchanging briefs.  The defendants were concerned to have longer than the plaintiffs proposed for completion and service of the defendants’ briefs, with the defendants wanting to take more of the time prior to the commencement of trial on 20 August

2018 for this stage of the preparation.

[42]     Mr  Stevens  sought  an  earlier  timetable  to  optimise  the  opportunity  for possible settlement initiatives that ideally would occur after all evidence has been

exchanged.

4      Eg my own comment in Todd Petroleum Mining Co Ltd v Vector Gas Trading Ltd [2017] NZHC

1129 at [65].

[43]     After  discussing  the  issues  with  counsel  I  have  ordered  a  compromise timetable as follows:

·    The plaintiff’s briefs of evidence are to be served by 16 March 2018.

·    The defendants’ briefs of evidence are to be served by 27 April 2018.

·    The plaintiff’s briefs of evidence in reply to affirmative defences are to be

exchanged by 25 May 2018.

[44]     In terms of the existing timetable orders, the plaintiffs were due to file and serve an amended statement of claim by 27 October 2017.  That has not occurred. Counsel are agreed that there ought to be a day for day extension of the time within which the defendants file statements of defence to the anticipated amended statement of claim.   On present projections, that may move the deadline for filing of those statements of defence into the New Year.

[45]     Counsel are not concerned that a variation will be required to the close of pleadings date, presently set at 28 February 2018.

Costs

[46]     Each party sought costs on each of the applications, in the event that their position was vindicated.

[47]     TEL has procured a partial relaxation of the confidentiality claim by Deloitte for employment/intra partner documents.   Deloitte has obtained discovery of the FMA  report,  albeit  without  argument  being  necessary  given  the  constructive approach adopted by Mr Stevens.  With respect, Mr Hunt’s participation for the first and fifth defendants was substantially limited by comparison with the others.   In

these  circumstances  I  consider  the  appropriate  outcome  is  for  costs  on  all applications to lie where they fall.

Dobson J

Solicitors:

DLA Piper, Wellington
Young Hunter, Christchurch

Bell Gully, Auckland