WHK (NZ) Limited v Retail Media Limited (in rec & in liq) HC Auckland CIV 2009-404-3898

[2009] NZHC 2599

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2009-404-3898

UNDER  The Companies Act 1993 and the

Receiverships Act 1993

IN THE MATTER OF     the purported receivership and liquidationof

RETAIL MEDIA LIMITED (In Rec & Liq)

BETWEEN  WHK (NZ) LIMITED First Plaintiff

ANDAPN NEW ZEALAND LIMITED, APN PRINT NZ LIMITED, REACHMEDIA NEW ZEALAND LIMITED AND BLUE STAR PRINT GROUP (NEW ZEALAND) LIMITED

Second Plaintiffs

ANDRETAIL MEDIA LIMITED (IN REC & LIQ)

First Defendant

ANDRAYMOND GORDON BURGESS AND CRAIG ANDREW YOUNG

Second Defendants

ANDJOHN MICHAEL GILBERT Third Defendant

ANDEKCO NOMINEES LIMITED Fourth Defendant

ANDGREGORY SCOTT AND JULIE SCOTT AS TRUSTEES OF THE ARANUI TRUST

Fifth Defendants

ANDPHILLIP AHERN, GREGORY SCOTT AND JULIE SCOTT AS TRUSTEES OF THE CASLER TRUST

Sixth Defendants

Hearing:         17 December 2009

WHK (NZ) LIMITED AND ANOR V RETAIL MEDIA LIMITED (IN REC & LIQ) AND ORS HC AK CIV-

2009-404-3898  17 December 2009

Appearances: L Turner for Plaintiffs

P Mills for Third Defendant
N Farrands for Fourth, Fifth and Sixth Defendants

Judgment:      17 December 2009

JUDGMENT OF ASHER J

2

[1]     In this proceeding the plaintiffs make various claims in relation to the receivership and liquidation of the first defendant.  The background facts and causes of action in the original statement of claim are summarised in my judgment of

16 July 2009: WHK (NZ) Limited v Retail Media Limited (In Rec & Liq) HC AK CIV-2009-404-003157 WHK (NZ) Limited & Ors v Retail Media Limited (In Rec & Liq) & Ors CIV-2009-404-3898, 16 July 2009.

[2]      The proceeding goes to trial on 8 February 2010, and is set down for four days.  There are, thus, only a limited number of working weeks available in which to complete interlocutory matters.  There are a number of contested discovery issues. In this judgment I will deal with those various issues seriatim, giving my brief reasons.

First plaintiff’s application for further and better discovery from third defendant

[3]      Mr Turner  for  the  first  plaintiff  seeks  further  and  better  discovery  of information in the third defendant Mr Gilbert’s possession, custody or control.   In the statement of claim it is alleged that Mr Gilbert has not acted in good faith, has not exercised his powers with reasonable regard for the interests of unsecured creditors, and has not acted with the view to obtaining the best price reasonably obtainable for the assets of the first defendant, Retail Media Limited (In Rec & Liq) (“RML”).

[4]      The situation is complicated by the fact that, pursuant to a procedure referred to as a “hive down” in my judgment of 16 July 2009, the business of RML has been transferred to a new company Retail Media Solutions Limited (“RMS”).  Ms Mills for Mr Gilbert does not contest the discoverability of all documents relating to the sale of either RML or RMS.   She also volunteers that the financial statements of RMS will be made available.

[5]      The contest lies in relation to the more detailed RMS documents.  Mr Turner seeks copies of the bank statements and general ledger printouts.  He does not seek copies of the source documents on which the general ledger printouts are based.

Ms Mills  opposes  discovery  of  anything  more  than  financial  statements.    She submits that there are no sales offers at present and no sales process, and that this detailed information is not required for the purposes of evaluating Mr Gilbert’s sales efforts.  She also raises confidentiality concerns, which are a separate issue.

[6]      It is my conclusion that the bank statements and general ledger printouts of RMS should be discovered.  RMS is not a party but this is information which will be in the possession, custody or control of RMS.   The company is essentially a subsidiary of RML, all the shares being owned by RML.  Mr Gilbert has been open about the “hive down” and the fact that this company is now conducting RML’s business.

[7]      I consider the material to be relevant in that it will enable the first plaintiff to assess  whether  proper  sales  efforts  are  being  made.     In  particular,  reliable information will be available to provide a basis for an assessment of the actual turnover and profitability of the company.  This is fundamental to any assessment of the bona fides of sales efforts and offers.

[8]      I, therefore, direct that the third defendant discover:

a)       all documents relating to sales promotion or actual sales of RML and RMS (it may be that all this material has been discovered already but, if it has not, it is to be discovered);

b)        all bank statements of RML and RMS dated after 5 June 2009;

c)        all general ledger printouts for RML and RMS since 5 June 2009 (I

appreciate there may be none for RML);

d)       the financial statements for RML and RMS; and

e)        any documents showing payments by the third defendant out of RML

assets or cashflow (I appreciate that there may be none).

Confidentiality

[9]      I now turn to confidentiality issues.  Ms Mills fairly asks for confidentiality orders.  In the end, after discussion, there does not appear to be any contention about their ambit.  This disclosure will be confidential to the first plaintiff’s solicitors and counsel, and Ms Atkins of the first plaintiff.

[10]     If the first plaintiff wishes to disclose material to any expert or other person, it may not do so unless it has given Ms Mills five working days’ notice of this, and she has indicated that she has no objection within a further three days, or failed to respond.   Should she have any objection there is to be no disclosure to that other person without further order of the Court.

[11]     Any expert who is accepted by Ms Mills will need to provide an acceptable confidentiality undertaking.

Claim for privilege in relation to document 29 in Mr Gilbert’s list of documents

[12]     Mr Gilbert claims legal professional privilege in relation to an opinion of Morrison Kent, which was prepared for Mr Scott.  The list of documents follows the usual form of simply saying from whom the letter was received and for whom the advice was.  Mr Gilbert has since elaborated in his affidavit that he personally sought legal advice from Morrison Kent in June 2009, and as part of receiving that legal advice he was given this opinion.

[13]     If that is so the document is clearly privileged.   Mr Gilbert’s statement on oath must be accepted on the point.  There is no basis, therefore, for me to look at the document or to order that the document be made available for inspection.   At the present time there appears to be a bona fide claim for privilege.

Discovery of sales information in the possession, custody or control of Ecko

Nominees Limited (“Ecko”).

[14]     Mr Turner is concerned that the discovery from Ecko does not disclose any documents relating to any sales efforts in relation to RML or RMS.   Ecko is the

debenture holder.   There is no doubt that  Ecko, and indeed  the fifth  and sixth defendants, should disclose any documents in their possession, custody or control relating to sales or sales efforts and, indeed, any reports from Mr Gilbert to them on that topic.

[15]     Mr Farrands for Ecko accepts that this is so and says that there has been full discovery.  He asserts there are no relevant documents.

[16]     The matter can be left on this basis.  Undoubtedly Ecko has a duty to disclose any documents of any relevance to sales or a sales process.   If there are any such documents it should file a further list of documents.  However, I do not require it to file any further list at this point as it does seem perfectly possible that it has no documents of relevance under this heading.

Redacted documents

[17]     The fourth defendant, Ecko, has provided three redacted documents.   The first plaintiff objects to the redaction and seeks inspection of the full document.

[18]     The first document identifies the parties as Ecko, and Mr and Mrs Scott as trustees of the Aranui Trust.   The only part of the title not redacted is the word “Deed”.  The body of the document, apart from some initial recitals, is blanked out. The date of the unidentified deed is 4 June 2009.

[19]     There is then a trustees’ resolution of the Aranui Trust of the same date which, apart from some initial recitals, is entirely blanked out.   There is a third document, being a resolution dated 9 July 2009, which contains some blanking out of the recitals and the body of the document.

[20]     It is claimed for Ecko that the blanked out portions of the documents are irrelevant.    Mr Farrands  for  Ecko  relies  on  the  general  principle  that  irrelevant documents need not be disclosed.  He refers to the decision of GE Capital Corporate Finance Group Limited v Bankers Trust Co. & Others [1995] 2 All ER 993. In that

case it was held that irrelevant portions of documents could be blanked out in the discovery process.

[21]     Mr Farrands made the documents available to me so I could read them and understand what they were about.  When I observed to him that the documents did appear to relate to relevant events, he submitted that those events were not in dispute and for that reason the documents were irrelevant.  He submitted, relying on Bell v University of Auckland [1969] NZLR 1029 at 1034, that only documents materially relating to an issue actually in question in the action were discoverable, and documents relating to non-contentious issues were not discoverable.

[22]     I consider that the documents should be disclosed in full without redaction. The blanked out deed is in fact a deed of request and indemnity relating to the appointment of Mr Gilbert.   While the fact of Mr Gilbert’s appointment is not a matter in dispute, the circumstances of it are very much in dispute.  This document relates to that appointment and may well be directly relevant to points at issue or may lead to a relevant train of inquiry.  Moreover, I consider the redactions have left the documents incapable of being properly comprehended.  Indeed, the effect of the blanking out has been to make an otherwise potentially relevant document entirely meaningless.

[23]     Thus, I find those documents to be relevant in total.  I also note that it was stated in GE Capital Corporate Finance Group Limited v Bankers Trust Co. & Others at 996, that a party is permitted to blank out a document “provided that the irrelevant part can be covered up without destroying the sense of the rest or making it misleading …” The blanking out of these documents does have the effect of destroying their sense.

[24]     As to the resolution dated 4 June 2009, this also relates to the appointment of Mr Gilbert.     That  is  a  highly  relevant  issue  and  the  circumstances  of  that appointment are contentious.   Further, the blanking out of the resolution leaves it meaningless and unintelligible.

[25]     The final document, the resolution dated 9 July 2009, is not in the same category in terms of relevance.  It does not appear to be highly relevant.  However, it has been considered by Ecko as sufficiently relevant for it to be disclosed.  I can see no prejudice to Ecko in its full discovery, and the inclusion of the blanked out clauses will make the document more intelligible.   I, therefore, direct that this document also be disclosed in full.  Thus, all the redacted documents are to be made available for inspection without redaction.

The r 8.23 notice

[26]     Mr BM Town is a partner in Morrison Kent.  That firm has acted for the Scott family and RML.  In an affidavit sworn on 8 July 2009 relating to the interlocutory injunction proceedings, Mr Town, as a prelude to an affidavit dealing with certain specific matters, stated at paragraph 1:

I am a partner of Morrison Kent, Solicitors, Auckland.  I have knowledge of the matters contained in this affidavit primarily by virtue of an understanding of the files of Morrison Kent and its predecessor firms.

[27]     Mr Turner for the first plaintiff has issued a notice under r 8.23(1).  The rule reads:

8.23     Inspection   of   document   referred   to   in   pleading   or   other document

(1)       A party (party A) on whom a pleading or other document is served may, by notice in writing served on the party or person by whom the pleading or other document was filed (party B), require party B to produce for inspection a document referred to in the pleading or other document.

…

[28]     He submits that the affidavit is a pleading or other document and thus a document which can give rise to a r 8.23(1) notice.  He submits that in that affidavit Mr Town has referred to a “document”, being the files of Morrison Kent and its predecessor firms.   The notice seeks all Morrison Kent and its predecessor firms’ files.

[29]     I accept that the affidavit is a document.  I do not consider that the general reference by Mr Town to having knowledge of his firm’s files is a reference to a

document in terms of r 8.23(1).  Mr Town is doing no more than that which is often done by lawyers when they are filing affidavits on certain specific matters.  He is simply setting out by way of background why he is able to give specific evidence on certain matters.   He goes on, as is usually the case after this sort of preliminary statement, to deal with certain specific matters.  On issues of importance he exhibits documents, presumably taken from the files.  He makes no further reference to the files in general and, indeed, does not refer again to the files.

[30]     It is easy to see the rationale for a rule that requires a specific document that is referred to in a Court document to be discovered.  The other party should be able to see what is referred to, so that the substance of any comment about the document can be checked.  However, when some very general material is referred to simply as an explanation of a party’s knowledge of a file that does not, in my view, invoke the rule.  There is no proposition being put forward in reliance on the document, which a party should be able to check.

[31]     If that were not the case the parties would make general qualifying remarks at their  peril,  in  that  an  extraordinarily expensive  collection  of  documents  process might then have to follow with all those documents being made available for inspection.   The absurdity of such a process is demonstrated by the fact that undoubtedly most of the material would be entirely irrelevant to the matter at issue.

[32]     I  conclude  that  a  deponent’s  general  reference  to  knowledge  of  files  to explain his or her ability to give specific evidence does not invoke the right to inspect under r 8.23(1), and would be to go beyond the natural ambit of the rule.  In essence, Mr Town was saying little more than that he was familiar with the matter, and that did not invoke the right to require all documents for inspection.  In relation to this issue then, I rule that there is no obligation on Ecko to respond to the r 8.23 notice.

[33]     Nevertheless, in the course of his submissions Mr Turner drew attention to the fact that there appears to be a paucity of disclosure of documents relating to the critical lending of the Aranui Trust to RML or the Casler Trust.  The facts relating to this will be central to the issue of whether Ecko is owed money and entitled to

appoint a receiver.  Mr Farrands acknowledges that there have been few documents disclosed,  but  advises  that  there  has  been  a  thorough  check  made.    It  is  his observation  that  the  plaintiff,  WHL,  who  was  RML’s  accountant  through  the relevant period, is the party most likely to have the documents.

[34]     Mr Turner does not accept this.  It is not a matter that can be resolved in this hearing, but there is nothing that shows a sufficient level of certainty that there are other documents, to warrant the intervention of the Court.  I am not satisfied Ecko’s disclosure is inadequate on the point.  Accordingly, no specific discovery order will be made.  I do, however, observe that this point will undoubtedly arise again at the trial and all parties should make every effort to ensure that any relevant documentation is discovered.

Ecko’s documents relating to the appointment of the first liquidators

[35]     I have already indicated in relation to various matters during the course of today (including the original consent minute requiring a further affidavit relating to documents from the second defendants), that documents relating to the appointment of the first liquidator should be discovered.  Ecko has some such documents.

[36]     Given my earlier rulings and indications Mr Farrands does not argue that they should not be discovered.  I direct that Ecko discover all relevant documents relating to the appointment of the first liquidators.

Further discovery from the fifth and sixth defendants

[37]     In his affidavit of 26 November 2009, Mr Scott said:

In my capacity as a trustee of the Aranui Trust and Casler Trust I do not hold any documents relating to the companies, transactions and other matters as detailed in the plaintiffs’ application at paragraph 1(a).   The affairs of the Aranui Trust and the Casler Trust are not associated with those companies, transactions and other matters as detailed in the plaintiffs’ application.

[38]     Mr Turner  submits  that  Mr Scott  clearly  does  have  documents  in  his possession that are relevant, in particular in relation to the “companies” that are referred to.   At least one of these companies appears to have been incorporated

shortly before the appointment of the receiver, and the first plaintiff suspects that it was intended to transfer RML or assets of RML to that company or other related companies.  One company in particular, RSF Limited, was incorporated by Mr Scott, and its directors are the same as RML.

[39]     Mr Farrands opposes any orders for discovery against the fifth and sixth defendants that go beyond them giving discovery in their roles as trustees.

[40]    It is correct that the fifth and sixth defendants have been joined to the proceedings  in  their  capacity  as  trustees.    I  also  entirely  accept  Mr Farrands’ submission as to the fundamental distinction between a person acting in his or her legal capacity as a trustee, and that person acting in their personal capacity.  I accept Mr Scott has been joined in his capacity as a trustee.

[41]     However, under r 8.18, which sets out the default terms of the discovery order, a party must make discovery of all documents in that party’s control which relate to a matter in question in the proceeding.  There is no qualification in the rule that discovery must be limited to documents held by the party in the capacity in which that party is sued.  Thus, on the face of it, r 8.18(2) may extend to documents held in a party’s control even when the documents are held by that party in a different legal capacity to that in which he or she is sued.

[42]     In any event, the first plaintiff would undoubtedly be able to get non-party discovery against Mr Scott, and the companies referred to, of all documents relating to transactions or possible transactions with Mr Gilbert in June 2009.

[43]     There are only a few working weeks left before this fixture is to be heard, and a pragmatic approach is required.  I order the fourth and fifth defendants to discover all documents relating to the companies’ transactions and other matters as detailed in the plaintiffs’ application at paragraph 1(a) dated 11 November 2009.

[44]     I  also  observe  that  the  plaintiffs  would  succeed  in  seeking  non-party discovery on these relevant issues from the companies, and that an application by the plaintiffs  on  short  notice  in  that  regard  would  be  successful.    To  save  further

interlocutory hearings of this type I urge the fifth and sixth defendants to ensure that there is full discovery of relevant documents held by these companies as they relate to the relevant issues.

Timetable orders

[45]     Given these rulings counsel have now on behalf of their clients agreed on timetable orders.  I am grateful to them for this.

[46]     The timetable orders that I make by consent are as follows:

a)        Unredacted  copies  of  the  redacted  documents  are  to  be  filed  and served by 5:00 pm Friday, 18 December 2009.

b)Further  discovery  from  the  second,  third,  fourth,  fifth  and  sixth defendants   to  be     provided               by     5:00 pm     Wednesday,

23 December 2009.    The  documents  thereafter  to be  available for inspection, although clearly there will be a period when that is not possible through the holidays.

c)        The  plaintiffs’  supplementary  evidence  to  be  filed  and  served  by

5:00 pm Friday, 22 January 2010.  That supplementary evidence is to relate to any new material that is discovered.

d)       The defendants’ briefs are to be filed and served by 5:00 pm Friday,

22 January 2010.

e)        The plaintiffs are to file and serve the agreed bundle of documents by

5:00 pm Wednesday, 27 January 2010.

f)        The defendants’ reply briefs to the supplementary evidence are to be filed and served by 5:00 pm Friday, 29 January 2010.

g)        The plaintiffs’ opening submissions and chronology are to be filed and served by 5:00 pm Thursday, 4 February 2010.

Issues at trial

[47]     Ms Mills has observed that counsel intend to try to narrow the issues.   In particular,  she  is  hopeful  that  the  financial  details  relating  to  the  Aranui  Trust advance can be agreed.

[48]     This is a helpful suggestion.  The parties should make every effort to try to identify evidence that can be agreed and, if they can, to agree it to save time. Equally, it would be most helpful if they could confer to try to refine and state the issues as they perceive them to be.  This will be of great help to the trial judge.

………………………….

Asher J

Solicitors:

PK Foster/MD McWilliams, Fleming Foster & Co., Manurewa

BJ Burt/JA McMillan, Chapman Tripp, (james[email protected] jame[email protected] )

RJ MacDonald, Short & Partners (j[email protected] )

A Nicholls, Metro Law, Newton, Auckland ([email protected] )

N Farrands, Morrison Kent, Auckland (nick[email protected]z ) Copy:

L Turner, Auckland, ([email protected] )

P Mills, Barrister, Ponsonby, Auckland ([email protected] )