Walker Dick & Associates v Best Pacific Institute of Education Limited
[2012] NZHC 2149
•24 August 2012
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2011-404-3228 [2012] NZHC 2149
BETWEEN WALKER DICK & ASSOCIATES Plaintiff
ANDBEST PACIFIC INSTITUTE OF EDUCATION LIMITED
First Defendant
ANDANITA M FINNIGAN Second Defendant
ANDANITA FINNIGAN AND ELLIS GOULD TINOS TRUSTEE LIMITED SUED IN THEIR CAPACITY AS TRUSTEES OF THE TINOS TRUST
Third Defendants
Hearing: 13 August 2012
Appearances: Mr M C Black for plaintiff
Ms S J Neville for defendants
Judgment: 24 August 2012
JUDGMENT OF ASSOCIATE JUDGE DOOGUE
This judgment was delivered by me on
24.08.12 at 4 pm, pursuant to
Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date……………
Counsel:
Michael C Black, Auckland – [email protected]
Sarah-Jane Neville, Ellis Gould, Auckland – [email protected]
WALKER DICK & ASSOCIATES V BEST PACIFIC INSTITUTE OF EDUCATION LIMITED HC AK CIV-
2011-404-3228 [24 August 2012]
[1] The plaintiff is suing the defendants for unpaid balance of accounting fees which relate to the period 2006-2009 in which it provided accountancy services to the defendants. The first defendant has withheld payment of part of the amounts that the plaintiff invoiced to it during that period. The defendants have also counterclaimed and allege that the plaintiff breached various duties owed to them.
[2] Even though the dispute arises out of a contract of retainer between the client and its accountant the defendants have brought counterclaims for breach of contract, breach of the Fair Trading Act 1986, negligence and breach of fiduciary duty. In addition, as part of the contractual counterclaim the first and third defendants allege that the plaintiff was in breach of the ethical rules of the New Zealand Institute of Chartered Accountants which impose an obligation to only charge fees that are a fair reflection of the value of the professional services performed for the client. Whether all of the alternative formulations of the counterclaim add anything of value must be questionable.
[3] At present there are two interlocutory applications before the Court. The plaintiff has sought further particulars and discovery with the amended application to that effect being dated 31 May 2012. Both of those applications are opposed. The bundle of documents filed for the hearing totalled some 237 pages. It must be questionable whether interlocutory applications on the scale of those in this the proceeding have not got out of proportion to what can usefully be achieved to dispose of the proceedings in a speedy, just and economical way. Nonetheless the applications have been filed and I must now deal with them.
The discovery application
[4] The documents sought by the plaintiff in the further discovery application relate to what has come to be termed, in the context of this litigation, the “Refundables Project”.
[5] The first defendant operates a training institute. In the course of its business, it received tuition fees from StudyLink, a Government agency, and also from
students. It was required to refund payments in the event that students discontinued taking courses and in other circumstances.
[6] The plaintiff company had for some time provided accountancy services to the defendants. In August 2007 a Chartered Accountant who was a trustee of the Best Training Student Fees Trust (“the Trust”) wrote to Mr Walker of the plaintiff firm expressing concerns about the security of the fund out of which the defendants satisfied their obligations to refund fees. It is not clear what steps were immediately taken if any in response to that letter but it would appear that some two years on the plaintiff’s firm had received instructions to commence an “audit of refundables”. Such evidence as there is before the Court indicates that essentially the enquiry was an attempt to try and reconcile student attendance registers etc with other information about students who had failed to commence, or to continue with, particular training courses and therefore in respect of whom there might be an obligation to make a refund to the student or StudyLink.
[7] There is annexed to the plaintiff’s application a schedule setting out the categories of additional discovery which the plaintiff seeks. In each case they relate to the period between 2006 and 2009.
[8] There are six categories of documents sought, which are referred to as (a) to
(f) in the Schedule.
Rules and principles
[9] Before I deal with the individual categories of documents in regard to which particular discovery is sought, it is necessary to make brief reference to the relevant rules and principles. There was no dispute between the parties about this issue. It will be convenient to start discussion of the issues by referring to the submissions made for the defendants in this regard..
[10] There is a convenient discussion on the issue of relevance in the context of
Peruvian Guano in New Zealand Rail v Port of Marlborough:[1]
The general principles governing discovery are well settled. Parties are required to discover only those documents which are relevant to a matter in question in the proceedings. They must be relevant in the sense of being capable of advancing a party’s case or of damaging the case of its adversary. Relevance is determined by the pleadings and a order is not to be made unless the Court is satisfied that it is reasonably necessary.
[1] Peruvian Guano in New Zealand Rail v Port of Marlborough (1993) 2 NZLR 641 at 644.
[11] The next issue concerns the circumstances in which the Court was able to order further discovery on the basis of the rules in the form that they took prior to the amendment of the discovery rules in 2011:
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.
[12] In an earlier iteration of the rules, the requirements that needed to be satisfied before the Court would make an order for further discovery included establishing that it was necessary for such an order to be made.
[13] Counsel for the defendants, Ms Neville, submitted that while amendments to the High Court Rules have removed the requirement for necessity, it will be rare that the Court’s discretion will be exercised and an order made for particular discovery if such an order is not necessary (Kapiti High Voltage Coalition Incorporated Inc v
Kapiti Coast District Council).[2]
[2] HC Wellington CIV 2088-485-2723, 20 October 2011 at [18].
[14] Mr Black referred me to the decision in Krone (NZ) Technique Ltd v
Connector Systems Ltd,[3] where Eichelbaum J said:
In the context of R 312 “necessary” in my opinion is not used in an absolute sense, such as “essential”. It should be interpreted as importing the notion of reasonableness, i.e. meaning reasonably necessary. For example, in Rankine v Attorney-General (1992) 6 PRNZ 484, the Court found that an order was necessary so that the Plaintiff would be able to undertake a comparison between the treatment of different employees to support her argument of inconsistent treatment of those employees.
[3] (1988) 2 PRNZ 627 (HC).
[15] I understand that it was Mr Black’s position that at most, the applicant would need to establish that an order was reasonably necessary only. I agree with this approach.
[16] A further issue that arose in the hearing before me concerned how precisely the applicant was required to define the classes of documents in regard to which an order was sought. Ms Neville referred me to Australia Mutual Providence Society v Architectural Windows Limited,[4] which she said establishes that there is a requirement for documents to be described with some specificity:
[4] [1986] 2 NZLR 190 (HC) at 197 and 201.
It is incumbent upon an applicant to satisfy the Court that there are grounds for a belief that such document or class of documents exists and to specify them accordingly. An application in general terms will not suffice.
...
Further, I am of the view that many of the documents are described with insufficient particularity. I understood counsel for the plaintiff to concede that the words “and other documents” in the context “accounting and other documents” are insufficiently particular. In my opinion, the bare reference to “accounting documents” must similarly fail on the grounds of insufficient particularity.
[17] I intend to follow that statement of principle.
[18] Finally there is the question of how an applicant can “satisfy” the Court that there are grounds for belief that such a category of documents exists. I intend to approach that issue on the basis that the requirement can be established either from
evidence or from inferences to be drawn from all the circumstances of the case.
Item “(a)”
[19] I turn to consider the first set of documents in respect of which particular discovery is sought. That group is stated in the following terms:
The audited financial accounts for the First Defendant for the period, which disclose and identify the refundables balance for each year.
[20] These accounts have not been provided to the plaintiff. In the notice of opposition which the defendants filed there was a generalised response set out to all the categories including in respect of which particular discovery was sought, including the one now under discussion. The respondent said:
(e) the plaintiff’s application for particular further and better discovery should be declined in that:
(i)It fails to describe with sufficient specificity what documents are believed to exist and why discovery is required;
(ii)Discovery of the said documents is neither necessary nor appropriate;
(iii) Discovery of the type sought is oppressive; and
(iv)Discovery of the type sought is irrelevant and unnecessary.
[21] Reverting to the plaintiff’s category “a”, the position taken by the defendants is that the audited financial accounts are not relevant to the issue of whether the plaintiff spent excessive time in completing the “refundables review” and whether the hourly rate charged for that work was fair and reasonable.
[22] While the precise objection is not entirely clear, I understand that the defendants say that the plaintiff’s role in the project required it to review the defendants’ records to ensure that all required refunds of fees had actually been made. The further issue of the defendants’ ability to actually pay the refunds and the source of those funds within the defendants’ accounting system were said to be outside the scope of the plaintiff’s instructions. The defendants have provided evidence that this task is now undertaken by internal staff and they carry out the work without having to go into the area of reconciliation of financial accounts.
[23] I accept the submissions for the defendants. The argument is about the scope of the plaintiff’s retainer and whether they exceeded the limits of their brief and whether the amounts charged represented proper value to the client. The audited financial accounts in regard to which discovery is sought, may represent the fruits of the plaintiff’s efforts but they would not provide any additional information of knowledge about the extent of those efforts or the value of them.
Item “(b)”
[24] The second group of documents in the application is described as follows:
Copies of the bank balances where those funds were held and administered on behalf of StudyLink over the period and which were the subject of the plaintiff’s investigation and accounting reconciliation.”
[25] Apparently it is the intention of the plaintiff that the reference to “bank balances” should be read as though it were a reference to bank statements of the first and second defendants.
[26] These particular “bank balances” do not seem to be restricted to balances for accounts which would have been affected by the work done in relation to the refundables project. But in any event given that the same dispute has arisen between the parties about all of the work which was carried out by the plaintiff – that is the extent of the work authorised and a question of overcharging – it is my view that provision of copies of all the bank statements is not required in terms of the Peruvian Guano test. That is to say, such information would not advance the plaintiff’s case nor would it damage the defendants’ case and nor would it lead to a chain of enquiry
which might have that effect.[5]
Item “(c)”
[5] Compagnie Financière et Commerciale du Pacifique v Peruvian Guano Co (1882) 11 QBD 55 (EWCA) at 63.
[27] The next group of documents is described as follows:
Correspondence (if any) between the first and second defendants and StudyLink/TEC and the auditors which address the monies payable throughout the period and which became an aspect of the “refundables project” undertaken by the plaintiff.
[28] It is true that there is a dispute about whether the plaintiff was required to investigate the first defendant’s exposure to amounts repayable to StudyLink/TEC for the period and that an investigation of this was necessary “for audit purposes”. The plaintiff has, in effect, stated on oath (and presumably will also at trial) that its brief extended to all aspects of ascertaining the first defendants exposure for refunds to the Government. I would have thought that correspondence in this group of documents which tended to establish that in fact the plaintiff was involved in this class of work would be capable of founding an inference that the plaintiff was, therefore, duly instructed by the defendants to carry out that work which is a fact in dispute in the proceeding. However, the fact that the defendants themselves might have written to StudyLink/TEC does not of itself provide any evidence about the extent of the contractual obligations which the plaintiff undertook as the contracted accountants to the defendants. I do not consider that any order is justified under this heading.
Item “(d)”
[29] The next group of documents is described as follows:
The financial and accounting information held by the First and Second Defendants involving the StudyLink funds (refundables) which were reviewed by the Plaintiff over the period, including accounting information about the funds being held, used and administered.
[30] I am not persuaded that such information would throw any light upon the extent of the instructions which the defendants gave to the plaintiff nor about the propriety of the professional charges which the plaintiff invoiced to the defendants. Furthermore the words “the financial and accounting information” are vague and unclear.
[31] Ms Neville, for the defendants, submitted that the defence is not that work was defective or incorrect or incorrectly done. Had that been the case, looking at the
accounts which were the outcome of the plaintiff’s efforts might have been relevant.
There is force in that submission.
[32] On the other hand, it could be fairly argued that inferences can be drawn from the fact that, if the accountants actually undertook a certain category of work, it would show that had actually been instructed to do so. This class of documents would be particularly useful if the accountants did work which the client now says was in excess of the remit or instructions given. Where such work had been undertaken and results provided to the client without the client voicing any objection, it might be arguable that the explanation for the lack of an objection may be that the client tacitly agreed that the accountants had done what they were asked to do. However, even if that type of argument is accepted, it is not evident that there are, or were, in existence category “d” documents which had that effect. On this last ground alone, the application must fail.
[33] In addition, it would appear that this category is potentially large and providing the information would be an expensive undertaking. I consider that it would be oppressive to make such an order and, for that additional reason, I do not consider it is reasonable to order such discovery.
Item “(e)”
[34] The next category of documents was described in these terms:
As investigated and reviewed by the Plaintiff, information involving the refundables being repaid or used over the period (including the accounting treatment as dividends, capital expenditure or other entries).
[35] I do not consider any order is justified in regard to this group of documents. What it apparently envisages is the defendants identifying and assembling all of the accounting material which the plaintiff had access to in the course of preparing the report on the refundables on the grounds that it is supposed that this will assist the plaintiff to establish its case concerning the extent of the instructions that the defendants gave to it in regard to the refundables.
[36] This seems to require the defendants to assemble, list and discover all the material that the plaintiff conceivably could have had regard to when dealing with which refundables were to be repaid (and matters flowing from that). To do so would involve a potentially large and expensive undertaking. I do not consider it is reasonable to order such discovery. I consider that it would be oppressive to make such an order.
[37] I further consider that the comments I made in relation to the previous category at paragraph [33] provide further reasons why this part of the application should be dismissed
Item “(f)”
[38] The final category of further discoverable documents sought is described as follows:
(f) Any other relevant material over the period which was the subject of the plaintiff’s accounting review and investigation of the “refundables project”.
[39] This category is liable to the same objections as apply to “d” and “e” and as well lacks the necessary level of specificity to enable the plaintiff to comply with the terms of the Court order. The application to that extent is declined as well.
The application for particulars
Rules and principles
[40] I consider that Ms Neville correctly summarised the principles that are to be applied under r 5.21(1)(a) by reference to the following authorities.
48.In Transpacific All Brite Limited v MPC Traders Limited a summary of the factors which the Courts have viewed as relevant when considering whether further particulars are necessary appears at paragraph 133, is said to include:
(a) has sufficient information being provided to inform the other party of the case they have to meet and enable them to take steps to respond;
(b) is there a real risk that the other party may face a trial by ambush if the further particulars are not provided;
(c) is the request an unreasonable burden oppressive for the party concerned?
(d) and finally and importantly, a request for further particulars can be resisted if the request goes beyond the scope of particulars, and is probing for evidence.
49.In BNZ Investments Limited v CIR (2008) 23 NZTC 21, 821 at paragraph 45;
“The temptation to insist upon excessively refined pleadings is to be resisted as unnecessary and wasteful of costs and Court time. That is particularly so in a complex case where over-pleading can obscure rather than clarify the issues. Case management should ensure that each side is fairly informed of the case that must be met.”
50. In i-Health Limited v i-Soft NZ Limited HC Auckland, CIV-2006-
404- 007881, 16 June 2011, at paragraph 10;
“Particulars are necessary to ensure that the other party fully understands the claim it must meet and is able to make the necessary responsive pleadings. It is not necessary to state the principles of law relied on, or the detailed evidence that will be adduced. What is necessary is for either side to provide a sufficient outline for the case to be advanced. Any request must be assessed against the nature of the proceeding, the actual causes of action and the realities of the actual interlocutory processes that are taking place and what will happen at trial.”
Discussion
[41] The general complaint that the plaintiff makes is that, while the pleading by the defendants in their defence and counterclaim says that excessive amounts of work were charged for and excessive rates were charged for the services, no particulars have been provided of these allegations.
[42] The broad thrust of the response from the defendants is that they are not required to provide a detailed response setting out what work aspect and what period was being challenged. They also decline to provide the information sought on the ground that it is more concerned with evidence than pleading.
[43] The defendants also say that the proposed particulars will be forthcoming when the defendants provide their briefs of evidence as part of their pre-trial obligations.
[44] The first dispute about particulars arises in relation to [21] of the amended statement of defence and counterclaim. This paragraph is a response to the claim by the plaintiff for unpaid fees.
[45] In that paragraph the defendants deny matters in the plaintiff’s fourth cause of action of claim and, in response, say that:
The plaintiff’s rates, and time spent on providing the services, were excessive and, in breach of the plaintiff’s representations and terms of engagement, it did not provide an efficient accountancy service at reasonable cost.
[46] The statement of defence then sets out particulars identifying the staff members whose hourly rates were excessive and whose time was the subject of excessive claims.
[47] The plaintiffs first basis for seeking particulars is that, in the terms of
counsel’s submission:
... no particular invoice or work activity is identified, except that it is alleged to be between March 2009 and February 2011 in relation to Ms Green and Ms McNab. It is also not made clear whether this period is the only period involved, or whether the excessive costs relate to the full six year period (as originally pleaded by the defendant).
[48] In response to the application the defendants say that some of this information has been provided in the counterclaim. For example, the defendants say that the amount which was charged to the third defendants was work which was capable of being performed by a bookkeeper or junior-intermediate accountant and the appropriate rate for the tasks was between $85-120 per hour which contrasts with the rates that the employees of the plaintiff who are named in [21] are said to have charged. However in the statement of defence and counterclaim at [31] the third defendant claims that it has been overcharged fees by a minimum of $164,769.00 for the period 2005 to 2011 “full particulars of which will be provided”. In the case of
the first defendant the overcharge is said to be $132,786.00 “full particulars of which will be provided”.
[49] In the defence, no detailed figure has been put forward as to the extent of the overcharge. The plaintiff is therefore left in the position that it is facing a claim which is apparently that the overcharges equated at least 100% of the unpaid charges which the plaintiff is suing for.
[50] I consider that the plaintiff is entitled to some particulars of how the amounts that I have just mentioned are made up. It might of course be most convenient to furnish that information by providing to the plaintiff a copy of the expert report(s) which (presumably) the defendants have obtained which would include calculations establishing the quantum of loss. However, one way or another, the broad outlines of how the loss is arrived at must be provided. There are too many possibilities that the plaintiff might have to anticipate in order to meet the case that will be arrayed against it at trial if the particulars are not provided. I agree that the evidence does not need to be provided. However, the fact that particulars will take the form of calculations which have been prepared by an expert do not for that reason run counter to the usual principle that a party cannot require the other side to provide evidence in the guise of making an application for particulars.
Result
[51] I therefore direct that the defendants are to provide the particulars which I have identified in this part of my judgment. They are to do so within 20 working days of the date of this judgment.
Costs
[52] Both sides in the dispute have had partial success on this application. My view is that no costs are therefore called for and I will not make a costs order. It is not therefore necessary to deal with the application which the defendants made for uplifted costs.
J.P. Doogue
Associate Judge
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