Weir v Eini

[2020] NZHC 465

IN THE HIGH COURT OF NEW ZEALAND DUNEDIN REGISTRY

I TE KŌTI MATUA O AOTEAROA ŌTEPOTI ROHE

CIV-2018-412-72

[2020] NZHC 465

BETWEEN

JOHN QUENTIN WEIR

Plaintiff

AND

EZRA EINI

First Defendant

AND

OTAGO CABLE RECLYCLING LIMITED

Second Defendant

Hearing:	4 March 2020
Appearances:	N F Flanagan and B S Rorrison for Plaintiff L A Andersen QC for Defendant
Judgment:	10 March 2020

JUDGMENT OF ASSOCIATE JUDGE LESTER

This judgment was delivered by me on 10 March 2020 at 4.00pm pursuant to Rule 11.5 of the High Court Rules

Registrar/Deputy Registrar 10 March 2020

WEIR v EINI [2020] NZHC 465 [10 March 2020]

[1]                 The plaintiff, Mr Weir, advanced funds to a company to enable it to buy land. Mr Weir was to receive interest on his loan which was for a two-year term along with a 20 per cent shareholding in the land-owning company, “the original company”.

[2]                 The defendant, Mr Eini, held 40 per cent of the shares in the original company and a Mr Nair held the remaining 40 per cent.

[3]                 Mr Weir made further advances to the original company and says it was eventually agreed that his loans would be repayable upon demand with interest continuing to run. Some repayments were made but Mr Weir says some $265,000 plus interest remains outstanding. Mr Weir claims Mr Eini agreed to guarantee the debt owed by the original company.

[4]                 A few years after the purchase, Mr Weir says his co-shareholders proposed bringing in a third party to reduce the debt burden on the original company from the land purchase. Mr Weir alleges that it was agreed that a new company, Kaikorai Property Investments Ltd (“KPI”) would be incorporated as a joint venture company to hold the land. The third-party investor would take 50 per cent of the shares in KPI and Messrs Weir, Eini and Nair would hold the other 50 per cent in the same proportions they owned the original company. A new company, QERS Ltd, was incorporated by Messrs Weir, Eini and Nair to be the vehicle through which they would hold their 50 per cent interest in KPI.

[5]                 The land was transferred by the original company to KPI but QERS Ltd did not take up its 50 per cent shareholding. That 50 per cent was taken up by the second defendant, Otago Cable Recycling Ltd (“OCR”). The first defendant is the sole director and shareholder of OCR.

[6]                 Mr Weir says that Mr Eini advised Mrs Weir some time later that OCR held the 50 per cent shareholding in KPI on behalf of the shareholders of the original land-owning company, that is Messrs Weir, Eini and Nair.

[7]                 Mr Eini’s present position is a denial that Mr Weir has any interest in OCR, KPI or the land.

[8]                 Mr Weir has applied for an order that the defendants give particular discovery. There was no issue about the applicable legal principles – the issue was whether there is a reasonable basis for concluding that the defendants had not met their discovery obligations. Mr Weir says there is essentially no discovery given in relation to the transfer of the land from the original land-owning company to KPI. He seeks disclosure of the shareholders resolutions in relation to the transfer “including documentation regarding the decision not to invite the plaintiff to … the shareholders meeting where the sale was approved.

[9]                 KPI is alleged by Mr Weir to have taken an ASB mortgage for the purchase from the original company Mr Weir seeks documentation relating to that mortgage including any valuations.

[10]              Documents are also sought relating to the transfer of shares in KPI to the third party.

[11]              Approximately two years after KPI acquired the land, it increased its shares from 100 to 1,000 shares and at that time the second defendant’s shareholding in the joint venture company reduced from 33 per cent to 30 per cent. Documents are sought in relation to those transactions.

[12]              Financial accounts for the original land-owning company and KPI are also sought.

[13]              There is dissatisfaction with the defendants’ disclosure of his emails. Mr Weir says that the first defendant used two email addresses; one being “[email protected]” and “[email protected]”.

[14]              Mr Eini has deposed in his list of documents under the heading “Documents that are no longer in [my] control” and says that category includes:

Emails relevant to this action received by myself (none were sent by me) as such correspondence has not been kept by me and I no longer have access to my former email address of [email protected].

[15]              Under the heading “Documents that have never been in my control”, Mr Eini says:

Raj Nair’s copied email correspondence relevant to this action as Raj Nair advises they are no longer available as he has changed computer systems.

[16]              The first defendant in the list of documents says that he had diligently searched for all documents required to be discovered and he says he requested his lawyer to make enquiries of Mr Nair and a law firm to obtain documents in their possession. Mr Weir does not accept that assertion – hence this application.

[17]              Mr Eini has also filed an affidavit in opposition to this application. His evidence is:

I have checked my emails and disclosed the only documentation that I have either electronically or in hard copy.

[18]              Given the factual nature of the dispute, Mr Eini was cross-examined as to the steps he had taken to ensure his discovery was complete. In respect of emails, Mr Eini said he was not technically minded and he did not know how to search his computer or telephone for emails that may be relevant to the proceeding. There was no evidence that he had engaged technical assistance to recover deleted emails or to assist with searching his devices or to recover emails from his email providers.

[19]              Here, the events in question cover a number of years. A limited number of physical documents have been produced. One would expect the transactions that took place, especially the entry of the joint venture, to have produced preliminary documents.

[20]              Mr Eini’s evidence was that he leaves financial and compliance matters to his accountant, Mr Nair, who was also the account for KPI and OCR Ltd. While at times Mr Eini said Mr Nair was not his personal accountant, the overall tenor of his evidence was that he left all financial and compliance issues to Mr Nair. On that basis, it is reasonable to expect that documents exist electronically either within Mr Nair’s computer system or in his email system.

[21]              Rather than make an order as to the checks of Mr Eini’s devices and internet providers that Mr Eini was to have undertaken, having got to the point where I was satisfied such checks needed to be made, as said, I would leave it to counsel to agree how such steps were to be undertaken. If agreement cannot be reached, then I will make orders in that regard, but I would envisage a process whereby Mr Eini provides access to his internet providers by providing his passwords to allow his emails to be searched using key words to be agreed by counsel. Similar checks of his devices will need to be carried out.

[22]              Mr Andersen QC for Mr Eini said that the costs of that exercise should not be visited on his client. The reality is that these are checks that should have been carried out already. The claim that historical emails were not available was always going to be received with scepticism in the absence of independent confirmation.

[23]              As to emails by Mr Nair, he uses an “xtra” email address. Those emails will be within Mr Eini’s power and control to the extent they relate to Mr Nair acting for Mr Eini or OCR Ltd or undertaking communication on Mr Eini’s behalf or on behalf of both of them. As I have said, Mr Eini’s evidence was that he left financial and compliance matters to Mr Nair. Mr Nair was the accountant for Mr Eini and for OCR Ltd. On that basis, documents held by Mr Nair relating to OCR and Mr Eini’s involvement in the matters in issue are within Mr Eini’s power and control.

[24]              From my own knowledge of the way xtra email addresses work, emails can be recovered from webmail. There is a direction that Mr Eini is to require his accountant to access his xtra webmail to recover emails that have passed between them or are relevant to the matters in issue. Given Mr Nair’s role as described by Mr Eini, Mr Nair must have files or records of Mr Eini and/or OCR Ltd relating to the commercial and compliance tasks he undertakes for Mr Eini and OCR Ltd. In particular, there must be communications, a file or records relating to the joint venture as again, such did not come about overnight. There can be no question that these are within Mr Eini’s power and control. Mr Eini is to ensure that Mr Nair seeks to recover documents from his word processing system and any other electronic or storage system that may contain such information. I expressly include reference to Mr Nair’s word-processing and

storage systems as Mr Eini suggested some of the documents provided by Mr Nair to him were printed for that purpose.1

[25]              There is no evidence for the defendants that their emails or Mr Nair’s emails are not “… readily retrievable archival data”.2

[26]              For the avoidance of doubt, this is not an order for non-party discovery against Mr Nair. It is an order that Mr Eini take proper steps to ensure that he recovers documents within his power and control.

[27]              There was also some uncertainty from Mr Eini as to checks he had undertaken of boxes of records that he held at his home.

[28]              The pragmatic answer was an agreement that Mr Eini would make those records available to plaintiff’s counsel. The material is to be provided to plaintiff’s counsel to review on their undertaking to return the same once they had inspected them. Again, if arrangements in respect of that process cannot be agreed, leave is reserved for further orders to be sought in that regard.

[29]              From the questions that I asked Mr Eini, it appears that there may be other documents that need to be produced. When KPI acquired the land, Mr Eini said that it did so with an ASB mortgage. Documentation relating to that mortgage is one of the categories of further discovery sought. It seems Mr Eini may also have given a guarantee to the ASB – documents held by the ASB relating to Mr Eini’s personal obligations are within his power and control. Mr Eini has discovered various financial statements for KPI, so such are apparently within his power and control. Mr Andersen says Mr Eini is not a director of KPI and cannot disclose documents that belong to KPI. If KPI documents are in his possession, then he must disclose them as he recognised by doing so. OCR Ltd as a shareholder of KPI has rights under the Companies Act 1993 to some of KPI’s records and such are therefore within the second defendants’ power and control.

1      Given the documents are dated November 2012, if printed by Mr Nair thus suggests Mr Nair’s document storage and retrieval systems are reliable.

2      High Court rules 2016, r 8.12(6); see also Gillian Coumbe “Discovery of “inaccessible” e-documents” [2012] NZ LJ 63.

[30]              In addition, documents relating to the increase of shareholding in KPI and relating to the second defendant’s transfer of some of the shares it held in KPI to Salisbury Investment Trustee Co Ltd must exist. OCR as a shareholder must have been involved in increase in shares. On Mr Eini’s case they are held by Mr Nair given Mr Eini was adamant such matters were dealt with by Mr Nair.

[31]              I am satisfied Mr Eini did not meet his obligation to diligently search for documents that he had to discover.3 It is no answer for him to say that he left things to Mr Nair. It is Mr Eini’s responsibility to ensure that he obtains from Mr Nair the documents Mr Nair holds and which are under Mr Eini’s control. It was not sufficient for Mr Eini to simply accept a bald assertion by Mr Nair that emails are not available. Mr Nair must take proper steps to recover and search for documents to which Mr Eini as the individual or director giving instructions is entitled to. Mr Nair is a chartered accountant and as such can be expected to have kept proper files and records of the transactions which Mr Eini said Mr Nair undertook on behalf of Mr Eini and OCR or for both Mr Eini and Mr Nair.

[32]              Mr Nair having undertaken those steps on behalf of Mr Eini and/or OCR has an obligation to the defendants take reasonable steps to recover or reconstruct records that he has created or should have kept on behalf of the defendants.

[33]              Plaintiff’s counsel reminds the defendants’ counsel of the obligation that exists under the High Court Rules 2016, r 8.13. Mr Andersen’s closing comment was that he apprehended that the parties may have been talking past each other in respect of the discovery issues. The defendants’ obligations are now clear.

Costs

[34]              For the time being, costs are reserved. The application stands adjourned against the need for further directions to be made, the potential for which is foreshadowed above.

3      High Court Rules, r 8.14. Mr Eini’s evidence in respect of his emails needed to expressly cover whether the emails were recoverable and if so what steps were required to recover them; if not recoverable why not? A bare assertion was that they were not recoverable as insufficient particularly given Mr Nair’s emails were also said to be no longer available. McGechan on Procedure (online ed, Thomson Reuters) at [HR pt 8.14.02].

[35]              Once the plaintiff is satisfied with the arrangements that have been made in respect of discovery, if it wishes he can then file any submissions as to costs – no more than five pages. The defendants may then respond within five working days – again not more than five pages.

[36]Costs will be dealt with when all aspects of the application have been finalised.

[37]              Again, leave is reserved to apply should issues arise or to request a telephone conference to address any matters that counsel cannot resolve.

Associate Judge Lester

Solicitors:

Meredith Connell, Auckland Albert Alloo & Sons, Dunedin

Copy to counsel:

L A Andersen QC, Dunedin