Walker v Forbes
[2017] NZHC 1023
•18 May 2017
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
CIV-2012-409-2486 [2017] NZHC 1023
UNDER the Companies Act 1993 IN THE MATTER
of the liquidation of Property Ventures Limited (in receivership and in liquidation)
BETWEEN
ROBERT BRUCE WALKER AND JOHN MARSHALL SCUTTER
First Plaintiffs
PROPERTY VENTURES LIMITED (in liquidation)
Second Plaintiff
FIVE MILE HOLDINGS LIMITED (in receivership and in liquidation) Third Plaintiff
CASHEL VENTURES LIMITED Fourth Plaintiff
TAY VENTURES LIMITED
(in receivership and in liquidation) Fifth Plaintiff
LIVINGSPACE PROPERTIES LIMITED (in receivership and in liquidation)
Sixth Plaintiff
BEECHNEST VENTURES LIMITED (in liquidation)
Seventh Plaintiff
TUAM VENTURES LIMITED
(in receivership and in liquidation) Eighth Plaintiff
CASTLE STREET VENTURES LIMITED
(in receivership and in liquidation) Ninth Plaintiff
LICHFIELD VENTURES LIMITED
WALKER v FORBES [2017] NZHC 1023 [18 May 2017]
(in receivership and in liquidation)
Tenth Plaintiff
92 LICHFIELD LIMITED
(in receivership and in liquidation) Eleventh Plaintiff
ST ASAPH VENTURES LIMITED (in liquidation)
Twelfth Plaintiff
MONTECRISTO CONSTRUCTION COMPANY LIMITED
(in liquidation) Thirteenth Plaintiff
AND
AUSTIN JOHN FORBES First Defendant
ALISTER SPEDDING JOHNSTON Second Defendant
GORDON LEWIS HANSEN Third Defendant
DAVID IAN HENDERSON (a bankrupt) Fourth Defendant
ADOLF de ROOS Fifth Defendant
DANIEL JAMES GODDEN Sixth Defendant
PwC (sued as a firm) Seventh Defendant
VERO LIABILITY INSURANCE Third Party
Hearing 9-11 May 2017 Appearances:
JBM Smith QC and N R Williams for Plaintiffs
B D Gray QC and R Stewart for Seventh DefendantJudgment:
18 May 2017
JUDGMENT OF LANG J
[on application by plaintiffs for further discovery
against the seventh defendant]
This judgment was delivered by me on 18 May 2017 at 3.30 pm, pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date……………
Solicitors / Counsel:
Justin Smith QC, Wellington Bruce Gray QC, Auckland Meredith Connell, Auckland Fee Langstone, Auckland
[1] In this proceeding the plaintiffs sue Price Waterhouse Coopers (PWC), the auditors of a group of failed companies known as the Property Ventures Limited group (PVL). PVL engaged PWC to provide audit reports in respect of the PVL group’s financial statements for the years ended 31 March 2006, 2007 and 2008. The report in respect of the 2008 year was never completed because the companies collapsed before an audit report was produced.
[2] This judgment deals with an application by the plaintiffs for further discovery against PWC.
Documents relating to audits of Elgin Investments Limited
[3] Elgin Investments Limited (Elgin) is not a plaintiff in this proceeding. It is, however, another company which Mr David Henderson, a central figure in the PVL group, had a significant influence. PWC audited Elgin’s financial statements for several years. The plaintiffs seek to obtain any documents held by PWC in relation to the Elgin audits that might relate to PWC’s knowledge of Mr Henderson’s management style and/or any concerns that PWC might have raised with Elgin regarding the internal controls put in place by the management of Elgin.
[4] The documents are said to be relevant because one of the issues raised in the present proceeding is whether the PVL group of companies had sufficient internal controls to guard against the influence and management style of Mr Henderson, who was a substantial shareholder of PVL.
[5] During the hearing, Mr Gray agreed to seek instructions from PWC as to whether it is prepared to make the Elgin audit documents available to the plaintiffs so that they can ascertain whether any relevant material is held on the files. I therefore make no order in respect of this issue, but reserve leave to the parties to return to the Court in the event that they need further orders or directions in relation to the Elgin audit documents.
PWC internal guidance notes prior to 2007 relating to the International
Financial Reporting Standards (IFRS) transitions
[6] In a joint memorandum filed following the hearing counsel agreed that PWC will discover any documents in existence between 2006 and 2008 for the direction and instruction of PWC staff in relation to the implementation and application of the conversion to International Financial Reporting Standards.
Hanover documents
[7] The plaintiffs seek two categories of documents relating to PWC’s involvement in advising the New Zealand Guardian Trust Company Limited (Guardian Trust) in relation to issues in respect of the Hanover group of companies. First, the plaintiffs seek any “conflict check” documents produced when PWC considered the appropriateness of its role in advising Guardian Trust in relation to Hanover. Secondly, the plaintiffs seek records of communications between PWC staff relating to concerns that might have been raised regarding Hanover’s exposure to loans made to PVL. The most significant of these related to land owned by companies in the PVL group and forming part of the Five Mile Development site just outside Queenstown.
[8] As Mr Gray explained during the hearing, Guardian Trust engaged PWC to provide it with advice when Guardian Trust was considering its options in relation to the sale of the Hanover group to Allied Finance. During this period PWC provided Guardian Trust with confidential advice regarding numerous issues including the likely value of its loan portfolio.
[9] Mr Smith for the plaintiffs advances this aspect of the application on the basis that PWC would have turned its mind to the issue of a possible conflict of interest before it accepted instructions to act for PWC in relation to Hanover. The PWC team dealing with Hanover is also likely to have acquired information whilst acting for Guardian Trust that found, or ought to have found, its way to the team carrying out the audit of the PVL group’s financial statements. In particular, PWC’s involvement with the Hanover engagement led to it gaining knowledge of areas of
concern about PVL’s borrowing exposure to Hanover that the team auditing PVL
should have received or did receive.
[10] I do not consider this to be a valid assumption. A more likely proposition is that the team advising Guardian Trust was engaged in a highly confidential task that prohibited it from disclosing material discovered during the engagement to other teams within PWC. If the plaintiffs wish to take this issue further Guardian Trust would need to have the opportunity to make submissions so that its interests could be appropriately protected. For these reasons I am not prepared at this stage to make orders as sought.
PWC’s “My Client” system
[11] The plaintiffs seek access to a software system developed by PWC to assist it in managing its documents. The system apparently allows the user to navigate the PWC audit documents with ease. In particular, it provides the user with the ability to link related documents within the system. The plaintiffs say they are currently “unable properly to understand” the documents PWC has provided. They say they are therefore greatly prejudiced by being unable to have access to the system. They also contend there is no valid reason why the plaintiffs and their legal team have not been provided with the ability to use the system.
[12] Mr Gray points out that PWC has complied with its discovery obligations by providing the plaintiffs with individual copies of every document in respect of which discovery has been sought. He maintains PWC is not required to go further and provide the plaintiffs with access to a software system his client has developed at its own expense and for its own purposes.
[13] On the basis of the material currently before me, I am not prepared to make any order at this stage. I am not aware of any authority or principle that would permit me to make the order the plaintiffs seek.
[14] Mr Smith indicated during the hearing that he wishes to reconsider his position and, if appropriate, to make further submissions relating to directions the Court could properly make in order to require PWC to provide the plaintiffs with
access to the My Client system. If he wishes to advance this matter further, he is to file and serve any further documents within 14 days of the date of this judgment. PWC is then to have 21 days within which to respond, and the plaintiffs are to have a further seven days in which to reply. I will then deal with the renewed application on the papers.
Documents held by PWC regarding the risks posed by finance companies in
New Zealand
[15] Mr Smith advances this aspect of the application on the basis that PWC is likely to have produced internal documents for the guidance of its staff regarding the risks posed by finance companies in New Zealand during the years leading up to
2008. One area of risk was that finance companies such as Hanover and Dominion Finance Limited loaned substantial sums to property investors and developers like the PVL group. The risk arose because the activities of such borrowers were vulnerable to factors beyond their control such as the global financial crisis. This meant that the solvency and financial wellbeing of the finance companies from whom the developers borrowed to finance their activities were placed at risk. Mr Smith submits that PWC is likely to have created internal documents to appraise its staff of these risks, and that the PVL audit team would or should therefore have been aware of the pressures and risks facing the PVL group.
[16] If they are relevant at all, I consider these documents would only be marginally so. As Mr Gray points out, this proceeding will be concerned with the PVL group and not those who loaned money to it. Furthermore, the plaintiffs will have the opportunity to cross-examine PVL audit staff at trial regarding their knowledge relating to the risks posed to finance companies by borrowers such as the PVL group. More importantly, the magnitude of the task of locating such general documents would, in my view, be out of all proportion to the relevance the documents are likely to assume. For that reason I am not prepared to make any order in relation to these documents.
Other outstanding issues
[17] An issue has now arisen because discovery provided by other defendants has produced emails sent to and from PWC staff members that PWC has not included within its discovered documents. PWC has now provided a further affidavit in which it acknowledges the fact that other documents have come to light, but maintains it has no further documents in its possession. Mr Smith contends this does not go far enough, and that PWC should be required to provide a further affidavit dealing with this issue in much more detail. He annexed to his submissions a schedule setting out questions that PWC should be required to answer in order to deal satisfactorily with this issue.
[18] I agree that it is unsatisfactory that PWC appears no longer to hold documents that were clearly in its possession at an earlier stage. Further explanation is required. I therefore direct that PWC, and if possible Mr Noone, is to file and serve an affidavit within 28 days answering questions 1, 2, 4, 5, 6, 11, 12, 13 and 14 of the schedule annexed to Mr Smith’s submissions.
Costs
[19] Each party appears to have achieved roughly the same amount of success in relation to the present application. For that reason my tentative view is that costs should lie where they fall. Should either party disagree, a brief memorandum seeking costs should be filed and served within 21 days of the date of this judgment. A concise memorandum in response should be filed and served within 14 days thereafter, and any reply memorandum is to be filed and served within seven days of
receiving that memorandum. I will then deal with the issue of costs on the papers.
Lang J
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