Westpac New Zealand Ltd v Adams
[2013] NZHC 3113
•25 November 2013
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
CIV-2011-409-000412 [2013] NZHC 3113
BETWEEN WESTPAC NEW ZEALAND LTD Plaintiff
ANDLINDSAY HUMPHREY WILLIAM ADAMS and JUDITH CAROL ADAMS First Defendants
ANDROGER ARCHIBALD ADAMS Second Defendant
AND HAMISH GUY ENSOR
First Third Party and Second Counterclaim
Defendant
ANDBROOK LAW Second Third party
AND ANDREW JOHN GRENFELL and
WILLIAM GUY BLACK
Third Third Parties/Third CounterclaimDefendant
Hearing: 6 November 2013
Appearances: E E Thiele for Plaintiff/First Counterclaim
Defendant (excused)
C J R Baird and C M Hanafin for First
Defendants/Counterclaimants
R J Hopkins and J Ling for Second Counterclaim
Defendant/First Third Party (excused)
I J Law for Second Third Party (excused)
H K Harkess and J E Tomlinson for Third Third Parties
(excused)
R J Hopkins and J Ling for Ingrid General Partner Ltd(non-party Respondent) Judgment: 25 November 2013
JUDGMENT OF ASSOCIATE JUDGE OSBORNE
as to non-party discovery
WESTPAC NEW ZEALAND LTD v ADAMS [2013] NZHC 3113 [25 November 2013]
[1] The first defendants (the Adams) seek an order that a non-party (Ingrid
General Partnership Ltd – “Ingrid”) provide discovery and inspection of documents.
[2] The documents sought are in three categories:
(a) Full production information from all harvests that Ingrid has been associated with since March 2011 to the present, including brix specifications;
(b)A cash flow forecast for the five years from the date of funding by Westpac, and any cash flow forecasts since that date based on known or expected changes in cash flow requirements, including revised forecasts, and any reports prepared that identify changes in the forecast from a previous forecast; and
(c) Forward price projections.
[3] The Adams in this proceeding bring a counterclaim against Westpac together with three third party claims in relation to alleged financial losses through their sale of a farm property at Seddon (the property) and their subsequent investment in a vineyard operation (Edzell Vineyards Ltd – “Edzell”).
[4] Ingrid’s documents are sought on the basis that they will contain information relevant to the assessment of the Adams’s losses.
[5] I held a hearing of this application consecutively upon the hearing of other interlocutory applications for security for costs. I issue the judgment in relation to
the security issues contemporaneously with this judgment.1
1 Westpac New Zealand Ltd v Adams [2013] NZHC 3112.
Background to the proceeding
[6] The relevant background was adequately set out in the summaries which Mr Baird provided in his written submissions for the applications before me. I adopt that background for the purposes of this application.
Sale of the Seddon property – incorporation of Edzell: 2005-2006
In or around November 2005, the Adams approached the plaintiff (Westpac), and more particularly the first third party and second counterclaim defendant (Mr Ensor), with a proposal for the development of a vineyard on the Adams farm (Property). The Adams allege that Mr Ensor provided negligent advice to them and breached fiduciary duties he owed to them.
Subsequently, the Adams and Mr Ensor together with Roger and Lisa Adams, Mackley and Deborah Ferguson and Thomas Davies (Edzell Shareholders) agreed to incorporate Edzell to purchase the Property and develop a vineyard (Vineyard).
In or around March 2006, Edzell entered into an Agreement for Sale and
Purchase with the Adams for the purchase of the Property for $3,000,000.
On or about 16 March 2006, Edzell entered into loan and security documentation with Westpac in order to secure advances to assist Edzell with the purchase of the Property and the development of the Vineyard. All of the Edzell shareholders executed limited and several guarantees and indemnities in favour of Westpac.
Settlement of the sale by the first defendants of the Property to Edzell occurred on 30 March 2006. After settlement Edzell proceeded to develop the Property into a working Vineyard.
At about the same time (late March 2006) the Edzell shareholders also executed a Shareholders Agreement. The Shareholders Agreement was prepared by Goodman Tavendale Reid (GTR), who acted as solicitors for Edzell and Mr Ensor.
The Adams engaged Mr Brook to act for them personally in respect of the incorporation of Edzell, the sale of the property to Edzell, the personal guarantees (the Guarantees) to Westpac. The Adams also allege that they engaged Mr Brook to advise them personally on the Shareholders’ Agreement. Mr Brook denies this allegation.
Fate of Edzell: incorporation of Ingrid: 2006-2010
From March 2006 to March 2010 Edzell owned and developed the Vineyard
… Prior to March 2006 the Adams owned and farmed the property and in
March 2006 they sold it to Edzell.
Edzell was placed into receivership on 20 September 2010.
Prior to receivership, the Adams were major shareholders of Edzell (holding
45% of the shares issued). In March 2006 the Adams, along with the other shareholders in Edzell (namely, Thomas Davies as to 15%, Mackley and
Deborah Ferguson jointly as to 15%, Roger and Lisa Adams jointly as to
10%, and Hamish Guy Ensor as to 15%), executed limited and several guarantees in favour of the plaintiff (Westpac), which had provided finance to Edzell for the purchase and development of the Vineyard.
Following receivership, some Edzell shareholders (namely, Thomas Davies, Mackley Ferguson, Deborah Ferguson, and Hamish Guy Ensor, and not including the first and second defendants) (together the remaining shareholders), together with Peter Binsted purchased the Vineyard through a new entity. This new entity is Ingrid.
Westpac provided Ingrid with finance for the entire purchase price.
As a consequence of the manner and means by which Ingrid purchased the Vineyard, the remaining shareholders have no continuing guarantee liabilities or obligations to Westpac in respect of Edzell.
In contrast, the Adams have been left with outstanding prima facie guarantee liabilities and obligations to Westpac, but no shares in Ingrid.
The claims in the proceeding
[7] The proceeding comprises Westpac’s claims against the Adams; the Adams’s counterclaim against Westpac; and the Adams’s third party claims.
[8] Again, Mr Baird provided a helpful analysis of the claims and defences which I now adopt as the appropriate background to this application.
Westpac claims
[9] Westpac claims against the Adams pursuant to the personal guarantees which the Adams each entered into in respect of the loans made by Westpac to Edzell (the guarantees).
Adams counterclaims against Westpac, Mr Ensor and the Receivers
[10] The Adams have filed counterclaims against Westpac, Mr Ensor and the
Receivers, which, broadly summarised, allege that:
(a) Westpac and Mr Ensor breached their fiduciary obligations to the
Adams;
(b)Westpac and Mr Ensor were negligent in providing investment advice to the Adams;
(c) Westpac conspired with the receivers of Edzell in breach of the receivers’ duty of care to obtain the best price reasonably obtainable at the time of sale of the vineyard;
(d) The guarantees are invalid on the basis of the rule in Hamilton v
Watson;
(e) The guarantees are an unconscionable bargain and thereby are invalid and unenforceable;
(f) Westpac induced the Adams to enter into the guarantees by means which were oppressive for the purposes of s 118 Credit Contracts and Consumer Finance Act 2003;
(g) In the course of providing advice to the Adams, Westpac and Mr
Ensor engaged in misleading and deceptive conduct in breach of s 9
Fair Trading Act 1986.
Adams claims against Third Parties
[11] In addition to the counterclaims summarised above, the Adams have also brought third party claims against:
(a) Mr Ensor alleging that:
(i) Mr Ensor breached his fiduciary obligations to the Adams.
(ii) Mr Ensor was negligent in providing investment advice to the
Adams.
(b)The Receivers alleging that the Receivers have, by the manner and means which they adopted in the process of selling the property to
Ingrid, breached s 18 Receiverships Act 1993 by failing to have reasonable regard to the interests of the Adams as sureties;
(c) Jeremy Brook, as principal of Brook Law, alleging that:
(i)Mr Brook breached his contract of retainer with the Adams by failing to advise the Adams adequately or at all of the risks they faced in entering into the Edzell Shareholders Agreement and proceeding with the proposed sale to Edzell which occurred on the basis that was presented to Mr Brook to advise the Adams on;
(ii)Mr Brook has breached his duty of care to the Adams by failing to provide adequate advice to the Adams in respect of the Edzell Shareholders Agreement and the risks they faced if the proposed sale to Edzell occurred on the basis that was presented to Mr Brook to advise the Adams on.
Affirmative defences pleaded against the Adams
[12] Westpac, Mr Ensor and the Receivers all rely on the Contributory Negligence Act 1947 in the event that any of them is found liable for the Adams alleged loss. Relevant to this application is the allegation that the Adams failed to competently manage the conversion of the Vineyard by:
(a) Failing to adequately manage the costs of development of the
Vineyard; and
(b) Failing to adequately manage the production levels of the Vineyard. [13] Westpac and Mr Ensor have further pleaded as affirmative defences that the
Adams:
(a) Failed to mitigate their own losses (based on the same allegations contained in [12](a) and [12](b) above); and
(b) Are time barred in respect of the cause of action under s 9 Fair
Trading Act.
[14] Mr Brook pleads s 4 Limitation Act 1950 as an affirmative defence to both causes of action against him.
[15] The Adams deny all affirmative defences.
Losses claimed
[16] The Adams claim that they have suffered losses as a result of the breaches pleaded. Of relevance to this application are the Adams’s claims for losses arising from their lack of an economic interest in the vineyard, now owned and operated by Ingrid. In particular:
(a) Against Westpac and Mr Ensor, the Adams claim, inter alia, an inquiry into damages in respect of losses suffered by the Adams on account of the lost opportunity:
(i) to invest in a conservatively geared vineyard; and
(ii)to receive the benefits of being shareholders in what would become a profitable and successful business venture.
The above losses are claimed to flow from Westpac’s and Mr Ensor’s
alleged:
1. breach of fiduciary obligations;
2. negligent investment advice; and
3. misleading and deceptive conduct in breach of s 9 Fair
Trading Act.
(b)Against the receivers, the Adams claim, inter alia, an inquiry into damages in respect of losses suffered by the Adams on account of the lost opportunity to purchase the Vineyard from the Receivers, and accordingly to receive the benefit as shareholders of profits in a successful and profitable business. Such losses are claimed to flow from the Receivers’ alleged breach of s 18 of the Receiverships Act
1993.
(c) Against Mr Brook, the Adams claim, inter alia, an inquiry into damages in respect of losses suffered by the Adams on account of the lost opportunity:
(i) to invest in a conservatively geared vineyard; and
(ii)to receive the benefits of being shareholders in what would become a profitable and successful business venture.
The above losses are claimed to flow from Mr Brook’s alleged:
1. breach of the contract of retainer; and
2. negligent advice.
The losses summarised
[17] The Adams’s claims for damages will require the Court to consider at least
two questions as to how a vineyard on the property would have performed –
(a) How would the vineyard have performed under Edzell’s ownership if
Edzell had been conservatively geared?; and
(b)How would the vineyard have performed if the Adams had arranged the purchase of it from the receivers, with a new entity thereafter owning and operating it?
[18] Mr Weber has identified, for the purpose of quantifying lost profits, three hypothetical scenarios that might have occurred on the basis of the facts pleaded by the Adams, namely:
(a) Scenario 1 – that in February 2010, the Adams funded the $600,000 shortfall required to meet Edzell’s obligations to Westpac until at least August 2011;
(b)Scenario 2 – that the Adams invested in a more conservatively geared venture at the outset resulting in Edzell not defaulting on its obligations to Westpac in September 2010; and
(c) Scenario 3 – that the Adams purchased the Vineyard from the Receivers on terms comparable to and no less favourable to those agreed between the Receivers and Starborough Estates Limited or nominee (now Ingrid) as recorded in an undated agreement for sale and purchase entered into between Edzell (in receivership) and Starborough or nominee, entered into at about the beginning of December 2010.
Information already provided
[19] Ingrid has provided confirmation to the Adams’s solicitors that Ingrid
operates solely as a grape grower (selling its produce to others) as did Edzell.
[20] Ingrid has also provided or agreed to provide (subject to undertakings as to confidentiality) the statements of financial performance for the years ending 31
March 2011 to 31 March 2013 together with depreciation schedules.
[21] Edzell has also provided the grape yield information from March 2011 to date.
[22] Such information was sought and obtained by the Adams’s solicitors at the request of the accounting experts they had retained, David Petterson and Anthony Eric Weber.
[23] The present application for the categories of documents identified at [2] above flows directly from Messrs Petterson and Weber’s request for access to such documents.
The amount of documentation sought
[24] Counsel informed me from the Bar that it is agreed that if the Court were to order discovery of any or all of the documents requested, there is not much documentation involved. The Adams also accept that there will be the usual order as to meeting the costs of discovery and inspection if ordered. There is accordingly no room for suggestion in this case that the obligation of discovery upon Ingrid would be onerous.
Discovery – the jurisdiction invoked
[25] By r 8.21(2) High Court Rules a Judge may order a non-party to file an affidavit of documents. The jurisdiction to make such an order arises under r 8.21(1) which provides:
8.21Order for particular discovery against non-party after proceeding commenced
(1) This rule applies if it appears to a Judge that a person who is not a party to a proceeding may be or may have been in the control of 1 or more documents or a group of documents that the person would have had to discover if the person were a party to the proceeding.
[26] The rule, by linking to discovery which a party to the proceeding would have had to make, brings into play all considerations applying in the more usual discovery context (including relevance and proportionality to the subject matter of the proceeding).
The applicable principles
[27] The principles which I adopt are these:
(a) Although this proceeding was commenced before the current High Court Rules as to discovery came into effect,2 the Court is entitled to apply to the present application (dated 12 July 2013) the rules and principles of the current discovery regime.3
(b) The requirement that an order for particular discovery be “necessary”
which existed under the previous r 8.26 no longer exists under r 8.21.4
(c) Questions of relevance are to be decided on the basis of the pleadings in the case.5
(d)The process of discovery and inspection is to ensure proportionality to the subject matter of the proceeding.6 In considering a non-party discovery order, the Court may have regard to the tests under r 8.7 for standard discovery (the adverse documents regime) and for tailored discovery under r 8.8 (where “the interests of justice” require tailoring of discovery).
(e) While the new discovery regime was in part designed to overcome the “virtually unlimited range of potentially relevant (and therefore discoverable) documents” which the Peruvian Guano7 test tended to produce, the Peruvian Guano approach may still form the basis of a discovery order if the Court finds it appropriate in the new discovery
climate.8
2 High Court Amendment Rules (No.2) 2011 commenced on 1 February 2012, r 2.
3 Karam v Fairfax New Zealand Ltd [2012] NZHC 887 at [135]–[136].
4 Haddon v The Conveyancing Shop [2012] NZHC 1439 at [6].
5 At [14].
6 High Court Rules, rule 8.2(1).
7 Compagnie Financière et Commerciale du Pacifique v Peruvian Guano Co (1882) 11 QBD 55 (CA).
8 Karam v Fairfax New Zealand Ltd, above n 3, at [135].
(f) With the adoption of the adverse documents approach for standard discovery (under r 8.7) there remains some force in the observation of Brett LJ in Peruvian Guano where his Lordship said:9
… a document can properly be said to contain information which may enable the party requiring the affidavit either to advance his own case or to damage the case of his adversary, if it is a document which may fairly lead him to a train of enquiry, which may have either of those two consequences
…
(g)By reason of that approach to adverse documents, documents which may be irrelevant under the Evidence Act 2006 may still be discoverable.10
Applying the principles – the categories of documents sought
[28] I now apply these principles to the three categories of documents sought.
Brix specifications
[29] The Adams’s application was for –
Full production information from all harvests that Ingrid has been associated with since March 2011 to the present, including brix specifications.
[30] As other production information has now been provided, the application remains on foot to the extent of the brix specifications only.
[31] Mr Petterson has deposed as to why he has requested brix information in these terms:
It is important to know the brix levels and equally it is important to know if any price incentive existed for brix levels above any specific point. The significance of this information is that the higher the brix levels, usually the better the vintage, and therefore the higher the demand for the production. These factors go to inform the second leg of the “sales” component; that being price. This is why I have requested the forward price projections.
9 Compagnie Financière et Commerciale du Pacifique v Peruvian Guano Co, above n 7, at [63].
10 ANZ National Bank Ltd v Commissioner of Inland Revenue [2009] NZCA 150, [2009] 3 NZLR
123 at [4]–[5] per O’Regan J.
[32] Degrees brix represents sugar content and is used in wine making and some other industries.
[33] Messrs Petterson and Weber are retained to assess amongst other things lost profits. Their request to have information as to the brix levels achieved by the vineyard grapes and to know any brix level requirements under the contractual arrangements for the vineyard’s grapes will obviously inform their understanding of what is being achieved and what can be achieved. That might reasonably be expected to assist projections of profit.
[34] Logically the brix levels might also be reasonably expected to have a potential impact on any loss which the Adams have suffered through not retaining an ownership interest in the vineyard. Mr Petterson has referred in his evidence to the importance of the current performance of the vineyard as a comparable for his assessments. That brix information may assist the experts also if they come to consider the comparability of other vineyard operations.
[35] Ingrid has provided its expert evidence from George Gerard Hooft. Mr Hooft qualifies himself as an expert. He properly discloses that he is the accountant for both Ingrid and for the first third party, Mr Ensor.
[36] Some criticism has been made by counsel for the Adams of Ingrid’s tendering Mr Hooft’s evidence having regard to his business relationship with Ingrid. I accept, as Ms Hopkins submitted, that Mr Hooft’s evidence is admissible in terms of s 25
Evidence Act 2006 and that Mr Hooft’s lack of independence from Ingrid does not
disqualify him from giving expert evidence.
[37] Mr Hooft’s evidence focuses on what he describes as “the necessity of the information needed to calculate any loss suffered by the Adams”. By reason of the principles that apply to discovery, the concept of “necessity” is not the test.
[38] In fairness to Mr Hooft, he goes on in his evidence to also talk of the evidence sought by the Adams as being “irrelevant”.
[39] Mr Hooft deposes that he needs to make two main assumptions when forecasting revenue, namely an assumption as to quantity of harvest based on past yield results, the area of land planted and the age of the vines; and price in relation to which he describes vineyards as a price taker. He adds that “wineries set price based on supply levels and grape quality”, with price being publicly available information.
[40] Mr Hooft comments specifically on the request for documents relating to brix levels in this way:
The Adams have also asked for brix specifications. Brix would not directly be used in a revenue forecast. Price is set by the winery and a vineyard is simply a price taker. A winery may take brix specifications into account when setting price but that is entirely up to them. A winery may require a minimum brix specification but rather than directly include that in a revenue forecast for a vineyard, I would make a stated assumption on the forecast that the grapes meet the minimum specification.
[41] There is accordingly a difference between the experts. Mr Hooft indicates that he would make stated assumptions on the forecast that grapes meet a minimum specification. Mr Petterson prefers to have the actual levels achieved and any contract specifications.
[42] I do not consider that Mr Hooft’s explanation justifies a conclusion that the actual data are irrelevant. The very fact that Mr Hooft is prepared to make what he refers to as “assumptions” suggests that there may exist data which tend to either prove or disprove the assumptions.
[43] Furthermore, in terms of the advice given to the Court by counsel, an order for production of documents on the brix issues will call for the identification of production of a limited number of documents. As in relation to any order for tailored discovery, the interests of justice, guided by the principle of proportionality, strongly indicate that counsel and experts for the Adams should have access to the documents concerning brix which are sought. Ingrid’s interests will be protected by the order I will make as to the costs of discovery under r 8.22(3). If it transpires that Mr Hooft’s assessment of irrelevance is ultimately shared by a trial Judge then the costs of this discovery exercise which will have been borne by the Adams in the first place are unlikely to be then, even if the Adams succeed at trial in their claim, to be transferred
on to the counterclaim defendants or third parties as a disbursement which was reasonably necessary for the conduct of the proceeding in terms of r 14.12(2)(c).
[44] An order will therefore be made as to discovery of the brix information.
Application of the principles – cash flow forecast and forward price projections
[45] I deal with these two categories of documents together.
[46] Mr Petterson deposes that in his experience Ingrid is likely to have prepared both forward price projections and a cash flow forecast for the five years from the date of its initial funding. Peter Binstead, Ingrid’s vineyard manager who has given evidence in opposition, has not suggested that such documents do not exist. Rather, he deposes that he does not want to provide the Adams with any of Ingrid’s financial management information, a view shared by the other Ingrid directors.
[47] I am satisfied that the documents sought by the Adams are probably in the control of Ingrid.
[48] The starting point for the Adams’s expert’s request for documents identifying Ingrid’s projections and forecasts of financial performance lies in the assessment of both Mr Petterson and Mr Weber as to Ingrid’s vineyard operation being the best comparable business to that which the Adams allege they should have continued to have an ownership interest in.
[49] Mr Petterson explains his position in this way:
It does not assist the Court if my assessments and opinions are based on assumptions simply because the relevant base information necessary to remove that uncertainty was, while in existence and theoretically available, not delivered up for scrutiny and assessment.
The fewer assumptions that may have to be made, the better as that promotes greater certainty.
The need to make substantial assumptions can often be avoided, or at least the amount and extent of assumptions may be reduced substantially, if all relevant information which impacts on the required expert analysis is made available to the experts.
[50] Mr Petterson develops his desire to be able to assess the comparability of the
Edzell and the Ingrid operations in this way:
In my view, in order for me to provide satisfactory expert evidence to the Court on the issues within my sphere of expertise, it is necessary for me to fully understand the operational history of the Edzell vineyard venture as compared to the Ingrid vineyard venture. I need to fully understand where costs differ and the reasons for and quantum implications for such differences. The information sought by the application will enable me to do that.
Significant differences between the two operations are likely to be directly relevant to and have an impact on the Adams claims. Variations of magnitude between the business model of the Adams and that now of Ingrid are relevant factors for me to fully examine, understand and take into account. That cannot be achieved by reference to generic industry data. What I need in this regard is to undertake a careful examination of the kinds of documents that are the subject of the Adams’ application for particular discovery by Ingrid.
[51] Turning to his request for cash flow forecast and for forward price projection information, Mr Petterson deposes:
I have sought the Cashflow Forecast Information as it would provide an essential qualifier on the performance of the business as run by Ingrid. The original forecasts would inform me as to what the expectations of management were when they began the business. The changes over time and the alterations to the cash flow help to inform me as to the factors that have subsequently come into play, all of which will impact on cashflow. For instance, management efficiency is reflected in the accuracy of forecasts and projections against actual results. However, so are other factors such as lower production yields (which may be due to any number of factors, e.g. weather, disease, lack of skilled labour and so on).
In addition, the investment in plant and equipment (planned vs. actual) and further development are all reflected in the Cashflow Forecast Information. Changes in these numbers often reflect a restriction on available cash, which in turn may be an indication of other issues within the business.
[52] Mr Baird, for the Adams, noted the pleading by the third parties of affirmative defences relating to alleged contributory negligence by the Adams and the Adams’s failure to mitigate their damages.
[53] The evidence of the vineyard manager, Mr Binstead, filed in opposition to this application serves to emphasise that the affirmative defences are keenly felt by those associated with Ingrid. Mr Ensor, the first third party and second counterclaim
defendant, is one of the Ingrid directors – Mr Binstead describes himself and those other directors in these terms:
We do not support [the Adams’s] case and believe their actions led to the
receivership of Edzell and has [sic] hurt the ongoing performance of Ingrid.
[54] A significant part of Mr Binstead’s evidence is devoted to establishing the “very different” way the Edzell and Ingrid businesses have been run. Mr Binstead begins by conceding three similarities (the same plants at the same location; 45 percent of Edzell shareholders now owning 75 percent of Ingrid shares; Mr Binstead’s continuation as vineyard manager). Mr Binstead then proceeds to identify seven particular examples of what he says is the very different style of operation of Ingrid. He describes the change in management methods as an important reason for the greater yields of grapes which Ingrid has been experiencing. But he does concede that part of the increased grape production is due to vineyard maturity. He deposes that the Ingrid approach has increased production and brix specifications.
[55] In relation to management style, Mr Binstead deposes that it is his “very firm” opinion that if the Adams had still been involved in the vineyard, the vineyard would have gone broke and would not be operating today.
[56] Mr Binstead does not qualify himself as an expert. Mr Hooft, as the expert called by Ingrid, begins his discussion of forward price projections by asserting that:
This is not information in the power or control of Ingrid. Anybody can assess forward price projections based on historical yield data which has been provided and information as to prices previously paid which is publicly available information.
[57] This is an unfortunate intervention by an expert into the domain of legal submission. It is doubly unfortunate because Mr Hooft has misapprehended the meaning of the “party’s control” test under the discovery rules. Mr Hooft’s assertion as to all such information being in the public domain cannot alter the fact that Ingrid indisputably holds documents relating to its financial forecast and projections. Furthermore, Ingrid’s private documents are by their nature not in the public domain which is the very reason they are sought by the Adams’s experts.
[58] Ms Hopkins, in her written submissions, relied on the above passage in Mr Hooft’s evidence as the crucial answer to the Adams’s request for forward price projections. Ms Hopkins noted correctly that Mr Petterson had not directly replied to those observations of Mr Hooft. That is correct but in my judgment Mr Petterson appropriately did not reply to Mr Hooft’s statements as they are not an answer to the application for discovery.
[59] For completeness, I note that Mr Hooft at the same passage in his evidence had gone to add this in apparent explanation of his view:
Forward price projections can be done on a very conservative basis or an optimistic basis as wine industry is one that very much depends on supply and demand each season and is affected by factors such as the weather, disease and pests. There is no reason why the Adams’ experts cannot prepare their own forward price projections.
[60] The difficulty with Mr Hooft’s view is that it largely ignores the degree to which the comparative operations of the Edzell and Ingrid will fall for consideration if damages are assessed in this proceeding. The documents which the Adams’s experts seek are not some general wine industry forecasts or even the forecasts of other vineyards. They are the forecasts of the very vineyard involved in this proceeding, operating under the same vineyard manager albeit under a different corporate owner.
[61] An expert may well find that projections carried out by Mr Binstead or his support team either cause the Adams’s experts to reconsider assumptions they have been making or to find a measure of support in such projections.
[62] Furthermore, with the alleged contributory negligence of the Adams in issue in the proceeding, the very way in which projections were made or relied upon by the respective owners (Edzell and Ingrid) will be for consideration by the Court.
[63] I conclude that Ingrid’s price projection information is relevant and the documents are documents which Ingrid would have had to discover if Ingrid were a party to this proceeding.
Cash flow forecast information
[64] Mr Petterson explained the reason for his request for the cash flow forecast information in the passage which I have quoted above at [51].
[65] The conclusions which I have reached in relation to forward price projections apply with equal force to the cash flow forecast information. By their pleadings the third parties have invited comparison on the comparative management efficiencies of Edzell and Ingrid. Mr Petterson’s identification of the accuracy of forecast and projections against actual results and the comparison of production yields as examples of evidence relating to management efficiency reasonably identifies ways in which the documents requested would be of legitimate use to the Adams’s experts.
[66] Mr Hooft, in his evidence, dealt with the request for cash flow forecasts by referring back to what he has said earlier in relation to forward price projections. Mr Hooft added that Ingrid’s cash flow forecast:
… would include interest and tax components would [sic] be different if there were different owners. They would also be based on Ingrid operating costs which could vary greatly from the operating costs of an Adams run business.
[67] Mr Hooft’s opinion does not provide a valid basis for refusing what appear to be the reasonable request for cash flow forecasts. It is obvious that the components of the Edzell and Ingrid operations will differ. But the third parties’ pleadings call for comparison between the operation of the two businesses if there is to be a determination of the contributory negligence pleading. In relation to the assessment of damages, whether for a loss of profits or otherwise, it is an important part of the role of any expert to seek out the most comparable businesses or assets and to then make appropriate adjustments where the aspects of the comparable differ from the subject business.
[68] Ms Hopkins referred me to the decision of this Court in Miller v Flora Properties Ltd11 in which an application for non-party discovery was dismissed. In that case, the issue was as to the “fair market value” of land comprising one quarter
of a land development project in Christchurch.
11 Miller v Flora Properties Ltd HC Christchurch CIV-2010-409-799, 11 June 2010.
[69] I agree with Mr Baird’s submission that Miller v Flora Properties Ltd is a very different case to the present. First, it was decided at a time when the Court was precluded by the provisions of r 8.26(4) High Court Rules from making an order for non-party discovery unless the order was “necessary”. Secondly, what was being valued was land (rather than an asset with the complexity of a trading business), and
as Fogarty J observed:12
Experienced valuers will readily understand the potential of this land, and know the range of developers in May of 2009 capable of exploiting that potential.
[70] His Honour found that the information sought from the non-party was most likely to comprise opinion rather than data. The limit of the possible relevance (under the Peruvian Guano test) of the non-party’s documents was that it might lead the valuers on a further train of enquiry in relation to a hypothetical subdivision
analysis.13 His Honour concluded that it was speculative of the applicant to
anticipate the non-party’s documents might contain better quality analysis of potential efficiencies of subdivision, concluding that the application was therefore fishing.14 His Honour concluded that it was therefore not reasonably necessary for there to be third party discovery.15
[71] There is no suggestion in the judgment of Fogarty J in Miller v Flora Properties Ltd that expert evidence had been called in order to establish propositions contrary to those found by the Court. In this case, the Adams’s independent experts have both deposed reasonably as to the ways in which the evidence sought will better inform the opinions they offer the Court in due course. There is a significant difference between fishing for further or better explanations and testing one’s conclusions in relation to one vineyard by reference to the projections and forecast
adopted in the “before and after” operations of the same vineyard.
12 At [28].
13 At [29]–[30].
14 At [34].
15 At [37].
Outcome
[72] I am satisfied that the orders sought by the Adams against Ingrid relate to groups of documents which the non-party would have had to discover if it were a party to this proceeding.
Costs
[73] In relation to the costs of an application under r 8.21, the Court’s general discretion as to costs applies.16 Ingrid chose to resist the interlocutory application. It has been unsuccessful in that opposition. The opposition evidence filed by Mr Binstead on behalf of Ingrid (asserting amongst other things that Ingrid does not support the Adams’s case and that the Adams have hurt the ongoing performance of Ingrid) displays a degree of partisanship that departed from what might traditionally be expected as the more neutral approach of a non-party.
[74] This is an appropriate case in which costs and disbursements should follow the event in relation to the application itself and in relation to the hearing of the application.
[75] Turning to the costs of compliance with the orders which I will make as to discovery, the Court has a discretion under r 8.22(3) to order payment of the non- party’s expenses of compliance in whole or in part.17
[76] Goodman Tavendale Reid have been acting for Ingrid. It is just that the Adams pay Ingrid’s legal expenses (on a reasonable solicitor and client basis) incurred from this point in complying with the orders I make. For the purposes of verifying its reasonable solicitor/client costs in due course, Ingrid will be expected to have Goodman Tavendale Reid open and maintain a separate work in progress record in relation to compliance with the orders I make.
Orders
[77] I order:
16 McGechan on Procedure at [HR 8.22.03] (and the cases there collected).
17 See also the commentary in McGechan on Procedure at [HR 8.22.04].
(a) Ingrid General Partner Limited shall within 10 working days file and serve on the first defendants an affidavit in accordance with r 8.21
High Court Rules stating whether the following records or documents or any record or document of that class is or has been in its possession, custody or power, and if records and documents have been but no longer are in its possession, custody or power, when it parted with the records and documents and what has become of the records and documents –
(i)Full information from all harvests that Ingrid has been associated with from March 2011 to the present, including brix results and specification and contractual specifications as to brix levels;
(ii)Any cash flow forecast or forecasts for the five years from the date of funding by Westpac and any cash flow forecasts since that date based on known or expected changes in cash flow requirements, including revised forecasts, and any reports prepared that identify changes in any forecasts from a previous forecast;
(iii) Forward price projections of Ingrid.
(b)Ingrid General Partner Limited is to pay to the first defendants the costs of the non-party discovery application (including this order) on a
2B basis together with disbursements to be fixed by the Registrar;
(c) The first defendants shall pay to Ingrid General Partner Ltd the sum which represents the reasonable solicitor and client costs and disbursements incurred by Ingrid General Partner Ltd in complying with this order;
(d)Ingrid General Partner Ltd shall at the same time as filing its affidavit make available for inspection by the first defendants copies of all
documents discovered pursuant to this order but subject to the terms of undertakings as to commercial sensitivity previously provided by the first defendant’s legal representatives and experts; and
(e) Leave is reserved to the parties to seek further directions in relation to the implementation of this order if necessary.
Associate Judge Osborne
Solicitors:
Anthony Harper, Auckland for Plaintiff/First Counterclaim Defendant (attendance excused)
Lowndes Jordan, Auckland for First Defendants/Counterclaimants
Counsel: C J R Baird, Barrister, Auckland
Goodman Tavendale Reid, Christchurch for Second Counterclaim Defendant/First Third PartyDLA Phillips Fox, Auckland for Second Third Party
McElroys, Auckland for Third Third Parties
Goodman Tavendale Reid, Christchurch for Non-party Respondent
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