BUSINESS DISTRIBUTORS LIMITED v SIA ABRASIVES AUSTRALIA PTY LIMITED [2014] NZHC 3365

BUSINESS DISTRIBUTORS LIMITED v SIA ABRASIVES AUSTRALIA PTY LIMITED [2014] NZHC 3365 [19 December 2014]IN THE HIGH COURT OF NEW ZEALANDCHRISTCHURCH REGISTRYCIV-2013-409-001550[2014] NZHC 3365BETWEEN BUSINESS DISTRIBUTORS LIMITEDPlaintiffAND SIA ABRASIVES AUSTRALIA PTYLIMITEDDefendantHearing: 15 December 2014Appearances: O G Paulsen for Applicant (Plaintiff)M D Toulmin for Respondent (Defendant)Judgment: 19 December 2014JUDGMENT OF ASSOCIATE JUDGE OSBORNEon discovery applicationIntroduction[1] The parties have gone through discovery and inspection, having been ordered to provide standard discovery earlier this year.[2] The plaintiff now seeks two sets of orders. First it seeks some further discovery upon the basis of particular discovery under r 8.19 High Court Rules. Secondly, the plaintiff challenges claims to privilege and confidentiality made by the defendant.The substantive claims[3] The plaintiff and the defendant had some form of business relationship or relationships between 1984 and 2012. The defendant manufactures and supplies coated abrasive products. The plaintiff has been a distributor of such products inNew Zealand. The exact nature of the contractual relationship from time to time is disputed. The defendant stopped supplying product to the plaintiff from mid-2013.[4] The statement of claim identifies five causes of action. Mr Paulsen has conveniently grouped them under three heads:(a) The plaintiff was the defendant's exclusive New Zealand distributorbut its distributorship was terminated by the defendant without appropriate notice and in breach of assurances that the plaintiff would be left no worse off in the event of a termination.(b) In breach of the plaintiff's exclusive contractual rights and fiduciaryentitlements the defendant has and continues to take the entire benefit of a contract to supply coated abrasives to a particular client in Australia and New Zealand.(c) The termination of the exclusive distributorship was in breach of s 36 Commerce Act 1986.[5] The defendant denies the plaintiff's central allegations. It also pleadsaffirmatively that if (which it denies) there was the pleaded distributorship agreement and an implied term that reasonable notice of termination was required, then the defendant complied with such a requirement by giving six months notice in December 2012.[6] As Mr Paulsen submitted, the scope of issues in a proceeding will generally be determined by the pleadings.1 I accept as Mr Paulsen submitted that the Court will generally, before ordering general or particular discovery, require relevance by reference to the matters put in issue by the pleadings.[7] In relation to the plaintiff's Commerce Act pleading, Mr Toulmin effectively invited the Court to refuse any further discovery in relation to that cause of action onthe basis that it is "a baseless and speculative cause of action". On that basis1 West Harbour Holdings Limited (in liq) v Tamihere [2014] NZHC 716 at [15].Mr Toulmin submits the present application amounts to "fishing". I decline theinvitation to go behind the pleadings. There has been no strike out application. There does not appear to be anything inherently implausible in the central allegation made by the plaintiff, namely that the defendant has a substantial degree of power in a particular market. It is appropriate to measure the application and the relevance of the documents sought by reference to that extant allegation.The particular discovery application[8] Counsel agreed that the particular discovery issues could be convenientlygrouped into three sets by reference to the defendant's opposition to them:(a) Four groups of documents which the defendant asserts do not exist;(b) Two sets of documents which are relevant but in relation to which the defendant seeks specific commercial sensitivity protection;(c) Four sets of documents which exist but the defendant says are not relevant (and if relevant on which the defendant also seeks commercial sensitivity protection).The first four sets of documents – not existingWhat the plaintiff seeks[9] The first four sets of documents sought by the plaintiff are:1. All documents (including file notes, diary notes, emails and minutes of meetings) in relation to any internal compliance investigation undertaken by the defendant into complaints made to it by the plaintiff during 2012;2. All documents including file notes, diary notes, correspondence,emails and minutes of meetings) relating to Mr Vock's email to MrBright which is document SIA.001.0030 of the defendant's affidavit of documents of 20 May 2014;3. Any documents (including diary notes, file notes, emails andmemoranda) recording meetings and/or discussions of the defendant'sboard and/or management in relation to the termination of theplaintiff's distributorship;4. Any documents (including correspondence, emails, minutes of meetings or research) prepared or relied upon by the defendant, its agents or employees, to prepare document SIA.001.0009 in the defendant's affidavit of documents of 20 May 2014.The litigation context[10] The proceeding concerns the way in which the defendant terminated its relationship with the plaintiff. The relevant documents will be those which may inform judgment as to the way in which and the reasons why the termination came about.[11] Application 1 relates to the documents which arose in the course of a complaints process initiated by the defendant.[12] It is common ground that the plaintiff initiated in 2012 a complaint which it expected to be dealt with by the defendant through an internal compliance investigation to be conducted by Bosch, an organisation to which the defendant is related. It is suggested in the defendant's evidence (through Mr Bright), in explanation of the limited documentation discovered on the subject, thatnotwithstanding the plaintiff's initiation of the complaints process, it was concludedwithin Bosch that "it was not the proper subject for a internal compliance topic". The implication of Mr Bright's evidence is that there will therefore be no recorded enquiries, distributions or notices of any substantive consequence.[13] The documents so far produced by the defendant do not support the suggestion that the complaint was not investigated. A letter of the Bosch officer inFebruary 2013 recorded that "the investigation indicates that our actions do notconstitute any breach of our Bosch code or conduct or any applicable statutorystandards". The Bosch compliance officer had referred in emails to "a final responsefrom one of our previous GM's" and to "further meetings last week in relation to the issues ".[14] Application 2 relates to documents associated with the meeting and decision which are the subject of Application 1. The conclusion on Application 1 applies equally to Application 2.[15] Application 3 relates to documents which arose in relation to a meeting in Zurich.[16] There was a meeting of Garth Huston, director of the plaintiff, with George Vock (Chief Sales and Logistics Officer) and Stephen Keller, Managing Director,both of the defendant's parent company, in Zurich on 17 October 2012. Matters relating to the complaint process and the business relationship between the plaintiff and the defendant were discussed. Mr Huston deposes that during the meeting both Mr Vock and Mr Keller took notes. There has been no denial by the defendant that such notes were taken. An email written by Mr Vock to John Bright, the (Australian) General Manager of the defendant, after the meeting informed Mr Bright of the outcome of the meeting with the inference that there must have been some prior communications between Messrs Vock and Bright. No correspondence has been discovered in that regard.[17] The discovered documents disclose that the defendant came to consider a termination of its relationship with the plaintiff, the officers of the defendant were involved in discussions with a number of people in organisations strictly beyond the defendant. Those included the SIA United Kingdom company (through its General Manager, Ray Bardsley), Bosch Power Tools (through its General Manager, Peter Schneidewind) and personnel involved with both Bosch Australia and the defendant (through Gavin Smith, the General Manager). Also involved were John Bright (General Manager of the defendant) and Ute Lepple (a director of the defendant). Itis apparent that the decision to terminate the defendant's distributorship was being made at a high level within not only the defendant company but also in discussion with its related entities in the United Kingdom and Europe. The defendant has discovered a series of slides from a PowerPoint presentation in the name of BoschPower Tools, entitled "Project Didgeridoo & Kiwi", which on two pages refers to the relationship with the plaintiff. The PowerPoint slides were apparently presented to a meeting of entities associated with Bosch Power Tools in December 2012, with therecommendation that the defendant's contract be terminated and the defendant's staff "installed" (in the distribution role in New Zealand). John Bright prepared a onepage "Decision Paper" on Bosch head note dated 1 December 2012, which accompanied the presentation. His recommendation was to terminate supply to the plaintiff.[18] Application 4 relates to the documents that might reasonably be expected to exist in relation to the discussions and decision-making process undertaken by the defendant and its related entities.[19] Mr Huston raises understandable concerns as to the defendant's level ofdiscovery. Given that papers were being prepared and presented and meetings were taking place, an absence of diary notes, file notes, emails and memoranda sitting behind or alongside the limited number of discovered documents appears unlikely. Minutes exist for other meetings but are not disclosed for at least this one criticalmeeting in relation to the plaintiff's distributorship.[20] Mr Bright completed the verified lists of documents on behalf of the defendant. He has for this application provided an additional affidavit in which he deposes to the steps he took in undertaking the discovery of the defendant. What he says in his current affidavit leaves me unsatisfied as to whether the defendant has fully discharged its discovery obligations. There is no reference to Mr Bright having inspected Board or management minutes. While Mr Bright deposes tohaving "enquired of employees and personnel at SIA's global group headquarters inSwitzerland to identify documents in their possession that may be relevant to thematters at issue in this proceeding", there is no identification of the people asked. Without the naming of the individuals, and against the background of a reasonable expectation that at least some notes and records are likely to have been kept by some of the individuals identified as attending relevant meetings, the failure to name individuals leaves the Court with a concern that discovery has not been complete. The enquiry made by Mr Bright appears to have been limited to "documents in theirpossession" rather than the broader classes of documents required to be covered in discovery.[21] Mr Bright talks of making enquiries of Bosch's Compliance Officer in relation to the plaintiff's complaint, concluding that any documents created were "irrelevant or protected by legal advice privilege" – the finding of "irrelevance"appears unlikely to be justifiable.[22] Significantly, Mr Bright concludes that "in either case [the documents] arenot in my possession or control", appearing to miss the point that they may be in someone else's possession or control or someone may have departed with possession or control.Conclusion – applications 1 to 4[23] I am far from satisfied that the defendant's discovery has been complete.Having regard to the content of the documents in fact discovered, there are in terms of r 8.19 High Court Rules grounds to believe that documents in the classes sought by the plaintiff in applications 1, 2, 3 and 4 may be or may have been in the control of the defendant.[24] Alternatively some relevant documents may exist but in the control of a related entity (such as one of the United Kingdom, European or Australian companies) rather than of the defendant itself. With the engagement of those entitiesin the discussions and decisions surrounding the plaintiff's distributorship, the Courtand the parties could reasonably have expected those other entities to simply provide their relevant records to the defendant. If for any reason Mr Bright, in completing the discovery exercise, was unable to obtain the cooperation of those entities to providing such documents, it was a requirement upon him to identify the classes of any documents which he knew to be held by each of the entities.[25] I discussed with counsel in the course of the hearing a provisional intention to direct the defendant to file a further verified list of documents which addresses the shortcomings which I have identified. The application would then be adjourned so as to reserve to the plaintiff the ability to obtain final orders for particular discoveryin relation to any categories which remain unsatisfactory after the supplementary verified list was received and inspection of supplementary documents completed That is the course I will now adopt.The second set of documents – "relevant but commercially sensitive"What the plaintiff seeks[26] The plaintiff seeks two additional categories of documents which are recognised by both parties to be relevant. The defendant claims commercial sensitivity and seeks restrictions on disclosure which are not acceptable to the plaintiff. For the purposes of this hearing the plaintiff was prepared, through Mr Paulsen, to have the Court assume that commercial sensitivity exists and to simply have the Court determine the appropriate extent of restrictions on disclosure.[27] The two additional categories of documents affected by this issues are:5. All sales invoices rendered by the defendant to Carter Holt Harvey;6. All sales invoices rendered by the defendant to New Zealand customers.[28] In its notice of opposition, the defendant stated that it is willing to disclose the documents requested but only on a confidential basis to the plaintiff's legalcounsel.Confidentiality – the rule and the principles[29] The plaintiff brings its challenge to the confidentiality claim under r 8.25(1) High Court Rules.[30] The defendant asserts its rights to limit inspection of confidential documents to specified persons pursuant to r 8.28(3) High Court Rules.[31] I adopt as an appropriate starting point for the consideration of the claim to confidentiality the observation of McKay J in Port Nelson Ltd v CommerceCommission2 when his Honour, delivering the judgment of the Court of Appeal, observed:3Relevant documents should generally be made available for inspection. The fact that they are regarded as being confidential, and would not be made available were it not for the requirements of the litigation, is immaterial. An order for non-disclosure can only be made when the Court is satisfied interms of rule 312 that such an order is "necessary". It must be either apparentfrom the document in question or shown by other evidence that disclosure would be likely to prejudice the party in some significant way. Even the possibility of prejudice may be sufficient, but that will depend on the seriousness of the possible prejudice and on the significance of the document to the issues in the proceeding, and the extent to which limited disclosure may enable the concerns of both parties to be accommodated.[32] Mr Toulmin, for the defendant, referred me to the commentary in McGechan on Procedure,4 in which it is observed by reference to three decisions in the 1986/1990 period5 that:Directions restricting the normal use of discovered material are relatively common in New Zealand, to meet genuine concern.[33] Notwithstanding the observation in McGechan, care must be taken not to introduce a low threshold test to imposing confidentiality restrictions merely becausean examination of past cases indicates that restrictions may have been "relatively common". The Court of Appeal's thorough examination of the issue in Port Nelsonreflects the measured approach, focussed on the likely extent of any prejudice, which is called for.[34] Two cases illustrate that the Court will not lightly allow an allegation of possible prejudice to the discovering party through disclosure to lead to a restrictionprecluding the other party's access to the document.[35] British Markitex Ltd v Johnston6 was a case involving pre-commencement discovery orders. The company against whom discovery was sought claimed2 Port Nelson Ltd v Commerce Commission (1994) 7 PRNZ 344 (CA).3 At 348.4 McGechan on Procedure (online looseleaf ed, Brookers).5 T D Haulage Ltd v NZ Railways Corp (1986) 1 PRNZ 668 (HC) (investigating accountant, solicitor, and counsel); British Markitex Ltd v Johnston (1987) 2 PRNZ 535 (HC); and NZ Railways Corp v Auckland Regional Council (1990) 3 PRNZ 332 (CA) (counsel only).6 British Markitex Ltd v Johnston (1987) 2 PRNZ 535 (HC);confidentiality of financial information on the basis that the information was that of its customers. It was argued that the intending plaintiff's trading competitors mightmake use of the confidential information so received. Wylie J observed:7 The appropriate course is to provide as a condition of discovery proper safeguards to limit the dissemination of the information thus revealed.There is no all embracing formula for such safeguards. Each case will depend on its own facts as to the minimum extent to which discoverable documents should be disclosed in order for discovery to be effective for the purpose for which it is legitimately required. It sometimes is enough that disclosure be made to a party's counsel or solicitor. In the present instance I do not think that will suffice. Only a representative of the intending plaintiffs— especially the second of them, will recognise documents that might relate to clients or former clients of the intending plaintiffs or be able, perhaps, tosee through possible "cover ups", or false transactions if any such exist.Wylie J then directed that disclosure should be made not only to the lawyers but also to a company director of the intending plaintiff. That director had to understand the limitations of the disclosure to him including that his fellow directors must neither ask nor expect him to pass on to them any information so obtained.[36] In Mobil Oil New Zealand Ltd v Ellison,8 Master Thomson distinguished the case before him from those in which defendants would be divulging confidential information to a competitor. His Honour observed:9The defendants are not competitors of the plaintiff in that sense. Such information would only become available to a trade competitor if the defendants breached a confidentiality order of the Court which they are willing to have imposed on them, The Master made an order for disclosure. He took into account the probability that the defendants would eventually become aware of the information in the documents, because the information would have to disclosed, if only at trial. His Honour concluded10 that no good purpose would result by preventing the plaintiff from obtaining the information now:Indeed, it may assist with defining the issues at an earlier stage than might otherwise be the case.7 At 543.8 Mobil Oil New Zealand Ltd v Ellison (1999) 13 PRNZ 177.9 At 180.10 At 181.Confidentiality in this case[37] In this case, the plaintiff has offered to submit to a restriction on disclosure,specifically restricting access to plaintiff's counsel, any expert witness engaged by the plaintiff for the conduct of the proceeding, and the plaintiff's director, MrHuston.[38] The defendant opposes an order which permits disclosure to Mr Huston, upon the basis that any undertaking Mr Huston gives will be unsatisfactory and will notprotect the defendant's interests.[39] The defendant's concerns were communicated before the plaintiff filed itsapplication. Mr Huston accordingly dealt with those concerns in his affidavit.[40] The defendant's concerns were reiterated in Mr Bright's affidavit inopposition. Although it is common ground that the defendant and plaintiff are not competing in the same markets, Mr Bright identifies a concern arising from the factthat Mr Huston has "significant strategic and financial links" to individuals involved with another company which I will call "Company A". Company A is a competitorof the defendant. Mr Bright identifies two individuals (whom I will call Mr J and Mr D) as being associated with Company A.[41] Mr Huston, in his affidavit, referred to Company A and the two individuals with whom Mr Bright identifies Mr Huston as having a relationship of concern. Mr Huston then deposes:(a) Mr J is a former employee of the defendant;(b) Mr J has no involvement with Company A;(c) Mr D is a part-time employee of the plaintiff and along with Mr Huston was the main contact between the plaintiff and the defendant prior to determination;(d) Mr D is sole director and shareholder of Company A;(e) Mr Huston's only involvement in Company A has been to give Mr D assistance to establish his business;(f) The plaintiff is not a competitor of the defendant in the abrasives market. The only involvement the plaintiff now has in that market is in selling off excess stock of the defendant that was left upon determination; and(g) Neither the plaintiff nor Mr Huston has any financial interest in Company A except to the limited extent that Mr Huston has provided loans to Mr D to establish his business.[42] Mr Bright questions some of the detail of what Mr Huston says and deposes amongst other things that Mr D is still a part-time employee of the defendant.[43] Mr Huston filed a reply affidavit in which he deposed that Mr D is no longer an employee of the defendant.Discussion[44] There is no good reason on the evidence to doubt Mr Huston's good faith in offering to provide an undertaking of a kind which reflects the approach found acceptable by Wylie J in British Markitex. I find this to be clearly a case where (for reasons more particularly developed by Mr Paulsen in some detail) there would be a disadvantage to the plaintiff if its lawyers and experts did not have the ability to sit down with the relevant documents in Mr Huston's presence and analyse theinformation they disclose relevant to the issues in the proceeding. It is Mr Huston who has the direct understanding of the industry and of the dealings between the parties which will enable those assisting the defendant to properly prepare its case for trial.[45] The defendant's claim to confidentiality will be set aside so as to enable not only the plaintiff's counsel but also its experts and Mr Huston to inspect thedocuments, subject to confidentiality requirements.The third set of documents – "irrelevant and in any event commerciallysensitive"What the plaintiff seeks[46] The plaintiff seeks four additional sets of documents:7. All sales invoices rendered by SIA Abrasives Industries AG to the defendant for the segmented MDF belts listed in the affidavit of Garth Huston;8. All documents recording the defendant's sales figures for NewZealand by segment (panel, wood, automotive, metal and other) from 1 July 2013;9. All sales offers/pricing provided by the defendant to New Zealand customers or prospective customers by segment (panel, wood, automotive, metal, other) from 1 July 2013; and10. All direct pricing quoted by the defendant to all New Zealand MDF plants from 21 December 2012.[47] These sets of documents are sought in relation to the plaintiff's CommerceAct cause of action, in which the plaintiff asserts that the defendant took advantage of market power.[48] It is common ground that the defendant did not produce documents in those categories.The defendant's explanation[49] The defendant provided two explanations for the omission of thosedocuments from Mr Bright's verified list.[50] First, it asserted that by requesting documents relating to the Commerce Act pleading, the plaintiff was merely fishing. For the reason I have identified at [7]above, the plaintiff's request for these documents cannot be regarded as fishing. Thedocuments are relevant to the issues arising on a pleaded cause of action.[51] Secondly, the defendant submits that to the extent that the documents relate to matters after 1 July 2013, (when arrangements between the plaintiff and thedefendant had ended) the documents are not relevant. I accept Mr Paulsen'ssubmission that evidence relating to market power cannot logically be limited to a particular cut-off point in the relationship between the parties.Conclusion[52] The defendant's opposition based on the relevance fails.[53] To the extent the defendant raised issues of commercial sensitivity in relation to these four sets of documents, they are directly parallel to the issues arising in relation to applications 5 and 6, and will be dealt with in the same way.Privilege claimsThe defendant's failure to adequately identify its privileged documents[54] In his affidavit of documents, Mr Bright asserted legal advice privilege and litigation privilege in relation to various categories of documents. He gave no listing of privileged documents as either included documents or identifiable groups of documents. Accordingly, the listing did not meet the requirements, express and implicit, of the High Court Rules as discussed in my judgment in Vanda Investments Ltd v Logan,11 which I adopt.[55] In response to the present application, the defendant filed a supplementary affidavit of documents of Mr Bright. Mr Bright deposed that the defendant had arranged for its solicitors to review the challenged documents. The advice was that two of the documents sought were attachments to a privilege communication and were not themselves privileged. Those have accordingly now been disclosed.11 Vanda Investments Ltd v Logan HC Dunedin CIV-2009-412-219, 27 November 2009.The defendant's evidence[56] The defendant also filed an affidavit of Simon Collier, a solicitor employedby the defendant's solicitors. It was he who conducted the review of the challengeddocuments. Mr Collier deposes:I confirm that, apart from the two documents listed in the schedule to the Supplementary Bright Affidavit, the Challenged Documents are confidential communications:(a) made to the defendant's legal advisers for the purpose of obtainingprofessional legal services; or(b) from the defendant's legal advisers for the purpose of providing professional legal services.Discussion[57] For the defendant, Mr Toulmin referred correctly to Foley's Transport Ltd vWeddel NZ Ltd (in rec and in liq)12 as authority for the proposition, extracted fromCross on Evidence13 that:If a lawyer swears that a question cannot be answered without disclosing lawyer-client communications his or her oath is conclusive unless it appears from the nature of the question that the privilege cannot be applicable.This approach led Greig J in Foley's Transport, upon review of the affidavits given by the solicitor involved and the material before his Honour, to be satisfied that the privilege existed.[58] The difficulty with what the defendant has done in this case is not the clarityof Mr Collier's assertion of privilege. It is the failure of the defendant's solicitors toadequately identify the specific documents or groups of documents in relation to which privilege is claimed. The degree of specificity identified in Vanda Investmentsis required but has not been met in this case.[59] Only when there is an adequately detailed identification of the allegedly privileged documents through a supplementary affidavit will the Court be in a position (if issues still remain between the parties) to conduct the type of review12 Foley's Transport Ltd v Weddel NZ Ltd (in rec and in liq) (1996) 9 PRNZ 392 (HC).13 Cross on Evidence (4th NZ ed, para 10.26).completed by Greig J in Foley's Transport in order to uphold or overrule the claim with privilege.Costs[60] Counsel preferred that issues of costs be reserved when I issue this judgment. Because I am in part adjourning the application that is clearly the appropriate course.Orders[61] I order:(a) The defendant shall file and serve within 15 working days a supplementary affidavit identifying all its documents whether now possessed, previously possessed, or in the possession of another, and within the four categories identified in applications 1, 2, 3 and 4.(b) The documents covered by applications 5, 6, 7, 8, 9 and 10 shall be made available by the defendant for inspection within 10 working days, with inspection limited to:(i) the plaintiff's counsel;(ii) the plaintiff's expert witness or witnesses engaged for the conduct of this proceeding; and(iii) the plaintiff's director Garth John Hustonprovided that the persons to whom disclosure is made shall have first executed an undertaking as set out in Schedule A and shall not disclose the contents of the identified documents to any person outside the named three classes, save insofar as the disclosure takesplace in the course of presenting the plaintiff's case to the Courtand/or the information enters the public domain through the hearing of the case.(c) The defendant shall cause to be filed and served within 15 working days a supplementary affidavit of documents in which the deponent specifically identifies particular documents or categories of documents in relation to which privilege is claimed;(d) In the event that the defendant's supplementary affidavit of documentsinvolves either a waiver of privilege or a recognition that privilege has been incorrectly claimed in relation to one or more documents, those such documents shall be made available for inspection within five working days after the filing and service of the affidavit.Next case management conference[62] I adjourn the proceeding, including the remaining aspects of the plaintiff'sapplication, to a further case management conference at 3.00 pm, 12 February 2015 by telephone (Associate Judge Osborne). Counsel are directed to file by 4 February 2015 memoranda (or preferably a joint memorandum) dealing with the readiness of this proceeding for hearing. The agenda for the conference (r 7.4(2) will be all Schedule 5 matters including: any steps necessary for the disposal of interlocutory applications, including any remaining aspects of the present application; the suitability of the case for Judicial Settlement Conference or alternative dispute resolution; the estimated duration of the hearing; timetable directions for trial; the names and number of witnesses (and which are factual and expert); any particular directions required in relation to experts; and confirmation that a back-up fixture will be accepted (or if not, why not),subject to prior notification.Associate Judge OsborneSolicitors:Cavell Leitch, ChristchurchMinter Ellison Rudd Watts, AucklandSCHEDULE A