BURNS V THE NATIONAL BANK OF NEW ZEALAND LIMITED HC WN CIV 2002 485 913

BURNS V THE NATIONAL BANK OF NEW ZEALAND LIMITED HC WN CIV 2002 485 913 14 November 2005IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY CIV 2002 485 913BETWEEN EDGAR ALAN MORAY BURNS AND YVONNE JOY BURNS Plaintiffs AND THE NATIONAL BANK OF NEW ZEALAND LIMITED Defendant Hearing: 31 October, 1, 2, 3, 4, 7, 8, 9 November 2005 Counsel: K J Crossland for the Plaintiffs D Chan for the Defendant Judgment: 14 November 2005 at 11.30 a.m.JUDGMENT OF WILD J Introduction[1] In this proceeding the plaintiffs seek an order setting aside a settlement agreement they made with the defendant on 22 October 1996 during the hearing of a proceeding they had brought against the defendant in the District Court at Hastings. I will refer to the parties as "the Burns" and "the Bank" respectively, and to the Burns's proceeding in the Hastings District Court as "the DC proceeding". [2] The plaintiffs seek to set aside the settlement agreement upon three causes of action, all founded on the alleged failure of the Bank to make proper discovery. The three causes of action are:a) Contractual Remedies Act: the Bank's lists of documents in the DC proceeding were representations that all discoverable documents in the Bank's possession were listed. The plaintiffs were entitled to and did rely on those representations, which induced them to settle. The representations were incorrect, in that 557 discoverable documents were not listed. Had the Burns and their legal advisers known of those 557 documents, the Burns would not have settled. b) Contractual Mistakes Act: the Burns were, to the Bank's knowledge, mistaken as to the documents discoverable by the Bank in the DC proceeding. That mistake influenced the Burns in settling. c) Unconscionable bargain: the non-disclosure of the 557 documents put the Burns, to the Bank's knowledge, at a disadvantage. In the circumstances, the settlement agreement was an unconscionable contract. [3] The Burns also seek $15,970 damages, being their wasted legal costs of the DC proceeding, and unquantified exemplary damages. [4] The Bank denies that it failed to make proper discovery. Even if it did, it denies that its failure induced the Burns to settle. The Bank alleges that the Burns settled because the District Court Judge had indicated a strong although tentative view that the Burns had not made out their claim. [5] This proceeding has been comprehensively and tenaciously argued by both parties. By the end of the eight day hearing, I had 30 different coloured folders of documentary material extending to some 5082 pages, 144 pages of affidavits and written statements of evidence, 200 pages of notes of oral evidence and 132 pages of opening and closing submissions, and I had been referred to a total of 39 legal authorities, most of them in two casebooks. [6] My invitation to counsel for their statement of the issues for decision resulted in 30 issues from Mr Crossland for the Burns, and 31 from Mr Chan for the Bank.The issues for decision at the hearing of the DC proceeding would have varied slightly on each of the three causes of action. In this proceeding, I consider the issues distil to three: a) Discovery: did the Bank fail to discover relevant documents in the DC proceeding and, if so, which documents? b) Inducement: if yes to (a), would discovery of those documents have affected the Burns's attitude toward settling the DC proceeding. In particular, would the Burns have entered into the settlement agreement had the undiscovered documents been discovered to them? And did the Bank by failing to discover relevant documents intend to induce the Burns to settle? c) Relief: if yes to b), what, if any, of the relief claimed by the Burns should be granted to them. [7] I will deal in turn with each of those issues. First, some factual background is necessary.Factual background[8] In Burns v National Bank of New Zealand Ltd [2004] 3 NZLR 289, the Court of Appeal dismissed an appeal from Associate Judge Gendall's refusal of the Burns's application for summary judgment in this proceeding. The Court of Appeal summarised the background thus:[5] From 1981-1993 Mr and Mrs Burns traded in partnership in a business that supplied orchardists with fruit tree rootstock. In the course of that business in 1987 they supplied rootstock to Mr Bush and Mr Radburnd, customers of the bank, who traded under the name "Horticultural Contact". Horticultural Contact was to on-sell the rootstock to third parties. Mr Bush and Mr Radburnd became insolvent and Horticultural Contact did not pay the Burnses for the trees. [6] In 1993 the Burnses commenced an action against the bank in the District Court at Hastings alleging that the bank was liable as a constructive trustee of $52,296. It was alleged that the Horticultural Contact bank account was a brokerage account with the major part of the funds (afterdeduction of commission) in that account held in trust for the Burnses and other rootstock suppliers. It was alleged that the sale proceeds had in fact been applied towards reducing Horticultural Contact's indebtedness with the bank, and further that the bank had been aware that the account was being used in this way, which made the bank liable as a constructive trustee of the sale proceeds. [7] Discovery was sought from the bank. Between October 1993 and September 1996 the bank produced five lists of documents largely through its solicitor, Mr Ferguson. The trial began on 21 October 1996 and one day later was settled, with the bank agreeing to pay $15,000 to the Burnses to discontinue the action. This compromise was reached on the advice of the Burnses' then counsel after indications from the Judge that he considered the account had been conducted on a debtor/creditor basis rather than a brokerage basis at the relevant time. [8] In 1998 Mr Burns was approached by a Mr and Mrs Walker, who operated a similar fruit tree nursery business, to give evidence in a case they were bringing against the bank. In those proceedings, Walkers Nurseries Ltd v National Bank of New Zealand (High Court, Napier, CP45/95, 2 August 2001), Ellis J held that Horticultural Contact had agreed to hold money on trust for the Walkers and that a transfer to another account with the bank was a breach of fiduciary duty. Because the bank had knowledge of this, relief was available against the bank by way of constructive trust. [9] In the course of the Walkers Nurseries proceedings the bank discovered documents that were not included in the discovery made in the Burnses' proceedings. Mr and Mrs Burns allege that they should have been so discovered. Of the 557 documents that were not discovered, a number are, Mr and Mrs Burns allege, of particular relevance. The bank and Mr Ferguson, who was named as a co-defendant, do not accept that discovery was deficient.[9] A few points can be added. First, the Burns's initial response to Horticultural Contact not paying them for the fruit trees they had supplied was to sue the Horticultural Contact partners, Messrs Bush and Radburnd, in debt. The Burns obtained summary judgment for that debt from the High Court in Napier, but were unable to recover any of the judgment debt because of the insolvency of Messrs Bush and Radburnd. Both men were bankrupted in December 1988, Mr Radburnd upon the Burns's petition. Secondly, Mr Burns gave evidence in the proceedingWalkers Nurseries Ltd v National Bank of New Zealand referred to by the Court of Appeal, in particular producing a careful tracing of monies deposited into, and withdrawn from, Horticultural Contact's account with the Bank. [10] Thirdly, I was informed that the Bank settled its appeal against Ellis J's judgment in Walkers Nurseries, after it became clear to the Bank and its counselduring the hearing of the appeal that the Court of Appeal Judges were not greatly impressed by the Bank's arguments on appeal.Discovery: did the Bank fail to discover relevant documents in the DC proceeding and, if so, which documents?[11] Of the 557 allegedly undiscoverable documents, only a small number were relied upon by the Burns as material, in the sense that having them would have influenced the Burns's decision to settle. I therefore ignore the remaining bulk of the documents, although Mr Chan pointed out that some had, in fact, been discovered. [12] The relevant documents can be summarised thus:Date Document27 May 1987 Two letters from NZ Fruit Tree Nursery to Bank 18 May and 28 September 1988 Memoranda from Hastings branch to Head Office of Bank 11 November 1988 Memorandum from Mr Sewell to Mr Ferguson - Horticultural Contact's terms of trade 11 November 1992 25 March 1993 26 March 1993 Diary notes of Manager, Hastings Branch of Bank Various Documents relating to Mr Bush personally 23 August 1986, 3 February and 17 March 1987 Documents relating to Bank's caveats against title to Falcon Ridge property in Hawkes Bay Unknown Horticultural Contact account mandates or signatory forms I will deal in turn with each document or group of documents.27 May 1987 letters[13] As is evident from [9] of the Court of Appeal's judgment, the Burns became aware of these two letters and most of the other undiscovered documents because they were discovered by the Bank in the Walkers Nurseries proceeding. Mr Gilmour of Bannister & von Dadelszen, a Hastings firm of solicitors, acted for the Bank in relation to that discovery.[14] The Bank's solicitor and counsel in the DC proceeding was Mr Ferguson of Gifford Devine and Partners, another Hastings legal firm. Mr Ferguson's evidence to me was that the Bank did not provide him with these two letters for discovery and that he was not aware of them. He stated that the letters seemed to have been on a Bank file entitled "TK and EM Bush File" which he does not recall having, and which had no apparent relevance to the Burns's claim against the Bank. Mr Ferguson stated that he may not have discovered these two letters in the DC proceeding, even had they been provided to him by the Bank for discovery purposes. That is because he takes the view that the two letters go to the knowledge element of the Burns's claim against the Bank: to proving that the Bank knew both that the Horticultural Contact account was a brokerage account and that Messrs Bush and Radburnd had used or intended to use funds in the account to pay their other creditors. Mr Ferguson pointed out that such knowledge was admitted in paragraph 9 of the Bank's statement of defence to the Burns's second amended statement of claim. In particular, the Bank admitted that the following amounts were withdrawn from Horticultural Contact's account and paid into, or transferred to, the account of Fruit Tree Nursery also operated by Messrs Bush and Radburnd with the Bank: a) $25,000 on 14 May 1987. b) $30,000 on 28 May 1987. c) $46,000 on 7 September 1987. d) $10,000 on 13 November 1987. The Bank also admitted that numerous other payments were made from Horticultural Contact's account to other third parties. [15] Mr Ferguson also pointed out that these withdrawals and transfers are referred to in many of the diary notes made during the material period by the Manager of the Bank's Hastings Branch, Mr Sewell, or his staff, which were discovered in the DC proceeding.[16] Mr Burns' evidence was that these letters, at least when combined with the Bank Manager's diary note of 25 March 1993 which recorded a suggestion that Messrs Bush and Radburnd had misappropriated the funds in the Horticultural Contact account, would have led him to approach Mr Radburnd as a potential witness. Mr McKenzie deposed that the letters were relevant not only to the Bank's knowledge, but also as indicating "the special nature of the Horticultural Contact account". In short, Mr McKenzie viewed the letters as relevant also to the fiduciary element of the Burns's claim i.e. that Horticultural Contact was their broker or factor – their agent. [17] I consider these two letters ought to have been discovered by the Bank to the Burns, as being relevant to their allegation that Horticultural Contact's account with the Bank was a brokerage account at material times. That was denied by the Bank. The fact that the Bank discovered the two letters in the Walkers Nurseriesproceeding is consistent with my view. I am satisfied that Mr Ferguson adequately explained to the Bank its obligations in terms of discovery to the Burns. As the Bank did not make these two letters available to Mr Ferguson, he cannot be criticised for not including them in any of the Bank's five successive lists of documents.Memoranda 18 May and 28 September 1988 Hastings Branch to Head Office[18] Both memoranda were amongst the documentation provided by the Bank to Mr Ferguson for discovery. He did not discover the memoranda, considering they had no relevance to the issues in the DC proceeding. The memoranda were discovered by the Bank in its non-party discovery in March 1994 in the proceedingWalkers Nurseries Ltd v Carlile Dowling CP13/94 High Court, Napier ) ("the Carlile Dowling proceeding"). In its amended statement of claim filed in 1995 in that proceeding, Walkers Nurseries Ltd alleges negligence on the part of Carlile Dowling in advising it to bankrupt Mr Bush, with the consequence that the priority afforded by a caveat Walkers Nurseries Ltd had registered against the title to Mr Bush's "Falcon Ridge" property was lost. [19] Mr Smith, the Burns's solicitor, swore an affidavit in this proceeding in March 2002 in support of the Burns's application for summary judgment. In thataffidavit he claimed relevance for these two memoranda, contending they indicated the Bank "had full knowledge that the misappropriation of trust account funds for business purposes was occurring". Questioned by Mr Chan, Mr Smith accepted that the word "misappropriation" is nowhere used in these memoranda. Mr Smith added the different point that the 28 September 1988 memorandum records the Bank acknowledging movement of monies into and out of the account of Horticultural Contact Ltd "as if the money in the account was owned by the company itself rather than as a trusteeship". He accepted that the memorandum was dated 28 September 1988, whereas the Burns's transactions with Horticultural Contact had taken place in 1987. [20] Asked about these two memoranda, Mr McKenzie said that neither were documents he particularly had in mind as tending to establish that the Horticultural Contact account was a brokerage one. [21] In his final submissions for the Burns, Mr Crossland did not dwell on either of these memoranda. Instead, he emphasised a different point: in none of the various proceedings against it, relating to the operation of Horticultural Contact's account, has the Bank discovered any reports or memoranda passing between the Hastings Branch and the Bank's Head Office during the three years and four months between January 1985 and May 1988. Mr Crossland was able to point to various entries in the diary notes of the Manager of the Hastings Branch during this period indicating that reports to Head Office were to be generated. Mr Crossland posed the question: what information relevant to the Burns's claim might have been in those missing reports? I sense that Mr Crossland sought to leave hanging in the air the spectre of deliberate destruction. [22] I was left unpersuaded that Mr Ferguson was wrong to assess these two documents as irrelevant. I hold that they were not discoverable.11 November 1988 memorandum from Mr Sewell to Mr Ferguson[23] Mr Sewell sent this memorandum to Mr Ferguson as part of his instructions to prepare an affidavit in the matrimonial property proceeding between Mrs and MrBush in the Family Court at Hastings. Mr Ferguson explained that he did not discover it in the DC proceeding, probably because he had overlooked its existence (he had received it about five years earlier) and/or because it was privileged. It comprised Mr Sewell's instructions to him in a professional capacity, and attracted legal professional privilege. I doubt that that is so, since the purpose of the memorandum was not to seek legal advice. It involved Mr Sewell relaying to Mr Ferguson factual information for the purposes of Mr Sewell preparing the affidavit. The memorandum describes in a factual way the financial facilities the Bank provided to Mr Bush, the current debt levels under those facilities, and the securities held by the Bank. Questioned by Mr Crossland, Mr Ferguson accepted that this memorandum was, arguably, discoverable. [24] The relevant part of the memorandum is this:HORTICULTURAL CONTACT LIMITED This account originally was opened as a Partnership with the objective of selling Nursery stock on behalf of various Nurserymen in Hawke's Bay, on which they either received a commission or sold on the basis of payment to the Nurserymen once the sale had been made to the third party. The Company's mode of operation was different to that of The Fruit Tree Nursery (Tissue Culture Division).[25] Paragraph 6 of the Bank's statement of defence in the DC proceeding admitted:(a) That on 17 April 1986 it was informed by a person known to it only as "Mr Bush's secretary" that the account opened for Terrence Kelvin Bush and Martyn King in partnership was to be used for the brokerage of plants; (b) That on or about 17 April 1986 it was told by the said "Mr Bush's Secretary" that the partnership would sell nursery stock on behalf of Hawkes Bay nurserymen either on commission or on the basis of the payment to nurserymen by it once a sale had been made by it to a third party.[26] Given that admission, I consider the matters set out in the relevant part of the memorandum were no longer in dispute, with the consequence that the memorandum did not need to be discovered.[27] As Mr Ferguson really accepted, I think it likely that he did not turn his mind to the discoverability of this memorandum.Horticultural Contact terms of trade[28] It appears that a solicitor on Mr Ferguson's staff may have assessed these terms of trade to be irrelevant, since a report dated 16 June 1989 by Coopers & Lybrand to the Bank attaching them is noted "not relevant". [29] Mr Ferguson stated that, had he been aware of the Horticultural Contact terms of trade, he would have discovered them as they were relevant. He considered they showed Horticultural Contact was not acting as broker for the Burns. [30] I agree these terms were relevant to the "brokerage" issue and ought to have been discovered by the Bank. They were discovered by the Bank in the Walkers Nurseries proceeding.Bank Manager's diary notes of 11 November 1992 and 25 and 26 March 1993[31] Mr Ferguson's evidence was that he was not aware of these diary notes. Had he been aware of them, he would have claimed privilege for all three, on the basis that they record legal advice he had given to the Bank about the Burns's possible and then threatened claim against the Bank. On the basis of the Burns's second amended statement of claim, Mr Ferguson deposed that he advised that the Bank Manager's diary notes for the period up to mid-1989 should be discovered. The Burns had alleged that monies from the orchardists to whom the fruit trees they had grown were supplied was received by Horticultural Contact into its account with the Bank between February 1987 and September 1988. [32] I agree with Mr Ferguson that these three diary notes were discoverable, but that the Bank could properly claim that legal professional privilege attached to them, because they record legal advice by Mr Ferguson to the Bank.[33] These three diary notes were discovered by the Bank in the Walkers Nurseries proceeding. My understanding is that privilege was not claimed for them in that proceeding. I find that fact unpersuasive, because I do not know the reason. It may be that the solicitor responsible for the Bank's discovery in the Walkers Nurseries proceeding did not read these file notes, or did not properly appreciate the nature of their contents.Documents relating to Mr Bush personally[34] In his evidence Mr McKenzie described the way in which he believed he could have used Bank documents relating to Mr Bush's personal affairs and assets to impeach Mr Sewell's credibility as a witness in the DC proceeding. Mr McKenzie referred particularly to the diary notes Mr Sewell had made while Manager of the Hastings Branch on the TK Bush and Intercol accounts. The Intercol account related to businesses Mr Bush had previously operated (or may still have been operating) in Bahrain in the Middle East. [35] Mr McKenzie deposed that he could have used those undisclosed diary notes to impeach Mr Sewell's evidence. The nub of Mr McKenzie's evidence on this aspect was in the following paragraph:4.11 By this time, I now know from undisclosed diary notes that the Bank had on or about early April 1989 obtained $50,000 from Mrs Bush under her guarantee – refer internal memorandum Sewell to Head Office 10 April 1989. It did this whilst Mr Sewell specifically knew that Bush had money offshore he was hiding from his wife. Mr Sewell then swore an affidavit in which he concealed this knowledge.[36] The last sentence, I take to be a reference to the affidavit Mr Sewell had sworn on 7 December 1988 in the proceeding Mrs Bush had brought against Mr Bush in the Hastings Family Court. The TK Bush and Intercol Bank Manager's diary notes were disclosed by the Bank in the Walkers Nurseries proceeding. Mr Crossland, as counsel for Walkers Nurseries Ltd, was able to use those diary notes to good effect, in terms of challenging Mr Sewell's credibility.[37] Mr Ferguson's evidence was that he did not include those diary notes in the Bank's lists of documents in the DC proceeding because they had no relevance to any issue in that proceeding. In particular, they had no relevance to the brokerage issue: they could not have affected the basis on which the Burns dealt with Horticultural Contact. Mr Ferguson also explained that his understanding at the time was that documents did not become discoverable merely because they could be used to test the credibility of a witness, if they were not relevant to an issue in the proceeding. [38] I consider Mr Ferguson is correct in saying that the Bank Manager's diary notes on the TK Bush and Intercol accounts were not relevant to any issue in the DC proceeding, and were therefore not discoverable. I am unsure why the Bank discovered them in the Walkers Nurseries proceeding, as they seem equally irrelevant to the issues in that proceeding. In closing the Burns's case, Mr Crossland did not place great emphasis on these documents. In particular, he did not submit that these documents were discoverable on well understood principles, or contest Mr Ferguson's view that the potential of these documents to test witness credibility did not of itself make them discoverable. That is a realistic acceptance of the legal position. I need hardly add that the fact that the Bank discovered these documents in the Walkers Nurseries proceeding, if they were not properly discoverable, does not assist the Burns.Documents relating to the Bank's caveat over Mr Bush's "Falcon Ridge" property[39] These documents are very similar to those in the previous category. Mr and Mrs Bush were registered as joint tenants of a residential property called "Falcon Ridge" in Havelock North. On 28 August 1986 Mr Bush executed in the Bank's favour a mortgage of his undivided half interest in "Falcon Ridge". The Bank did not register that mortgage. On 3 February 1987 Mr Sewell wrote to the Bank's solicitors (Mr Wiltshire of Gifford Devine & Partners) advising that Mrs Bush was refusing to sign a mortgage over "Falcon Ridge" and that the Bank required that a caveat be registered on the property to ensure that it was not sold without the Bank's position being secured to its satisfaction. Implicit, though not explicit, in this letterwas that Mrs Bush was defaulting on an agreement to give the Bank a mortgage over "Falcon Ridge". [40] Pursuant to those instructions, Mr Wiltshire , on 17 March 1987, executed a caveat claiming for the Bank an interest in "Falcon Ridge":by virtue of an Agreement to Mortgage dated the 16 th day of February 1987 between the Caveator and TERENCE KELVIN BUSH of Havelock North Company Director and EVELYN MARGARET BUSH his wife as registered proprietors[41] That caveat was subsequently registered on 23 March 1987 against the title to "Falcon Ridge". [42] I have made the point that the existence of an agreement to mortgage was only implicit in Mr Sewell's 3 February 1987 letter. As is obvious, the agreement to mortgage on which the caveat was based was 16 February 1987, some 13 days after Mr Sewell's letter. These documents were discovered by the Bank in the Walkers Nurseries proceeding. Confronted with them, Mr Sewell was constrained in cross- examination at the trial of that proceeding before Ellis J to accept that the claimed agreement to mortgage of 16 February 1987 did not exist. Or, to be precise, he remained silent when it was put to him that the Bank had no such agreement to mortgage. [43] Mr Ferguson took the view that the 3 February 1987 letter and caveat were not discoverable for the same reasons that the documents I dealt with in the previous category were not discoverable. Again, I agree, and for the reasons I gave in relation to documents in the previous category.Horticultural Contact account mandates or signatory forms[44] In his evidence Mr Burns deposed:4.11 I did not have the Horticultural Contact account mandates or signatory forms at the hearing. These were possibly the most central documents for resolution of the facts of my case. Mr Spittle an expert, a bank manager, made no mention of them over three years of discovery. It is only now that I have been informed by Mr Spittlestating on oath, that in 1996 about the time of my hearing the Bank destroyed these documents in the normal course of business.[45] Mr Burns does not explain in that paragraph why he considers these documents so important, and he was not asked. These documents did not feature elsewhere in evidence or submissions before me. My understanding of bank account mandates and signatory forms is that they are a record of who is entitled to operate the account, and of the signature of that person or persons. I do not understand how the account mandates or signatory forms for the Horticultural Contact account could have been relevant to anything in issue in the DC proceeding. It seems that they were not amongst the documents requested by the Burns and their legal advisers in the course of discovery. [46] As the issue in the DC proceeding was entitlement to the funds in the Horticultural Contact account, rather than who was entitled to operate that account, I do not regard these documents as relevant, and therefore do not regard them as discoverable.Inducement: if the documents in issue were discoverable, would discovery of those documents have affected the Burns's attitude toward settling the DC proceeding. In particular, would the Burns have entered into the settlement agreement had the undiscovered documents been discovered to them? And did the Bank, by failing to discover relevant documents, intend to induce the Burns to settle?[47] I have held that some of the documents in issue were discoverable, and some were not. I have held that some of the discoverable documents were privileged. Notwithstanding that, I will consider this second issue in relation to each of the documents. [48] The eight categories of undiscovered documents need to be considered separately, and then – as Mr Crossland rightly urged – their combined effect needs to be assessed.The two 27 May 1987 letters[49] Mr Burns considered these two letters to be relevant in two respects. The first was "the back to back nature of Horticultural Contact's trading basis". This is a reference to the following paragraph in the 27 May 1987 letter written by Mr Bush:Walkers Nurseries: No doubt you are aware this organisation is in the process of changing hands. Through good fortune we have been given the task to liquidate as many of the fruit trees they hold. This has been quite a blessing for us as it has enabled us to fulfil contracts we would not normally be able to furnish but more importantly we are able to accomplish our normal profit margins on the sale of trees without the initial financial commitment on our part. (my emphasis)Mr Burns combined this with evidence Mr Radburnd had given in the Walkers Nurseries proceeding, in particular his telling Ellis J that the profit margin Horticultural Contact had added when on-selling fruit trees to its orchardist customers "was really (its) net commission". [50] Two points about Mr Burns's evidence about these two letters. First, the paragraph in Mr Bush's letter fastened upon by Mr Burns relates specifically to Walkers Nurseries. Secondly, insofar as what is recorded in that paragraph is relevant to the Burns, it does not add to the knowledge the Burns and their advisers had, that Horticultural Contact was conducting its business with minimal capital. In other words, that Horticultural Contact was matching its "buy" contracts with its "sell" contracts. That was apparent from the Bank Manager's very first diary note for Horticultural Contact, which was discovered:17.4.86 Mr Bush's secretary called in on behalf of Messrs Bush and King to open the Partnership account 'Horticultural Contact '. The account is to be used for the brokerage of plants and has been opened with a $5,000 deposit drawn against another of Mr Bush's accounts – 'The Fruit Tree Nursery'. The completed Partnership forms will be dropped off later this afternoon in exchange for a new accounts kit. 60 size cheque and large deposit books have been ordered. (Again, my emphasis.)[51] Mr Burns' second point was that the two letters, when compared with the Bank Manager's 11 November 1992 diary note recording the "misappropriation"allegation against Messrs Bush and Radburnd, would have caused him to approach Mr Radburnd. He explains that this is what Mr Walker had done, leading to Mr Radburnd giving helpful evidence for the plaintiffs in the Walkers Nurseriesproceeding. I am not persuaded by this point. Throughout, it was open to Mr Burns to approach Mr Radburnd with a view to his giving evidence for the Burns against the Bank in the DC proceeding. As he accepts in his evidence, he did not do so believing Mr Radburnd would be hostile to him, because the Burns had sued and bankrupted Mr Bush ([9] above). Walkers Nurseries had also sued and bankrupted Mr Radburnd. As I see it, Mr Walker approached Mr Radburnd to give evidence in the Walkers Nurseries proceeding and got a favourable response. Mr Burns now wishes that he had taken the same initiative. It is wisdom – or rather a wish – expressed after the event. I am not persuaded that the 11 November 2002 Bank Manager's diary note has anything to do with it. That diary note was a part of the Bank's records, and a privileged part at that ([32] above). [52] I see no force in either of Mr Burns' two points. [53] Mr McKenzie's evidence was that the two 27 May 1987 letters would have assisted the Burns to establish the "special nature" of the Horticultural Contact account: that it was not just an ordinary trading account with no overdraft limit which had been overdrawn. As indicating the brokerage nature of the account, Mr McKenzie stressed the fact that Mr Radburnd felt a need to tell Mr Sewell in advance that $180,000 would be transferred from Horticultural Contact's account to the Tissue Culture account on or about 8 June 1987, but "with reimbursement expected at the end of our financial year (November)". [54] Mr Crossland sought to draw all these points together by asking me to look at the interpretation Ellis J put on these letters in his judgment in Walkers Nurseries. Ellis J refers to these letters in paragraphs [10]-[13] of his judgment, and again at [21], [23] and [44]. Relevant to the Burns position, he concluded that the two letters show that Mr Sewell was aware that Horticultural Contact's funds were being used to pay Tissue Culture's indebtedness and that Tissue Culture would reimburse Horticultural Contact in November 1987. Mr Crossland accepted that that would not have advanced the Burns's claim much if at all. In particular it says nothing aboutthe basis on which the Burns dealt with Horticultural Contact. As I read them, the aim of the two letters is to give Mr Sewell some assurance about the Tissue Culture operation, which was clearly struggling financially. It is significant that Mr Sewell did not make a Manager's diary note on Horticultural Contact's account for 27 May 1987, or any date proximate to it. A diary note on the Fruit Tree Nursery (Tissue Culture Division) account for 27 May 1987 records Messrs Bush and Radburnd calling on Mr Sewell that day. I assume the letters were either handed to Mr Sewell by Messrs Bush and Radburnd when they called on him that day, or sent to Mr Sewell consequent upon that meeting.Memoranda 18 May and 28 September 1988 from Hastings Branch to Head Office of Bank[55] As I pointed out in [21] Mr Crossland ultimately placed no reliance on these two memoranda as documents which might, if discovered, have influenced the Burns's decision to settle the DC proceeding. Rather, Mr Crossland's emphasis was on the approximate three and a half year gap in Branch/Head Office memoranda and reports on any of the accounts of the Bush group of entities from 1985 to May 1988. That spans the period material to the Burns's claim. [56] Had material enabling Mr McKenzie to discredit Mr Sewell as a witness in the DC proceeding been discovered, Mr Crossland suggested that Mr McKenzie could have asked the District Court to infer deliberate destruction or mis-laying by the Bank, and by Mr Sewell in particular, of the missing material, and further to infer that the missing documents contained information favourable to the Burns. [57] I do not accept that the District Court could properly have drawn such inferences. They would amount to pure speculation. Inferences are not speculation or guesses. They are conclusions following logically from facts which the Court finds proved. Further, the references in the Manager's diary notes which enabled Mr Crossland to submit to me that reports must have been generated during the three and a half year period, were in diary notes which had been discovered. Mr McKenzie could, on the discovered material, have invited the Court to draw those inferences. I accept that material which Mr McKenzie deposed would have enabled him todiscredit Mr Sewell was not discovered. But I do not consider it was properly discoverable. I refer particularly to the Bank Manager's diary notes on the TK Bush and Intercol accounts, and to the documents relating to the caveat the Bank lodged against Mr Bush's "Falcon Ridge" property. I dealt with those documents in [34] to [43].11 November 1988 memorandum from Mr Sewell to Mr Ferguson[58] I have held that this memorandum was not discoverable, as the relevant facts recorded in it had been admitted by the Bank. That is fatal to the submission that the contents of this memo, had it been discovered, would have influenced the Burns not to settle. But the Bank made two further legitimate points about this memorandum. The first was that its relevant contents were repeated almost verbatim in the affidavit Mr Sewell swore on 7 December 1988 in the Bush v Bush Family Court proceeding. As Mr Burns readily conceded, he had at all material times a copy of that affidavit: he had obtained it from the documents made available to him by the Official Assignee. The second point is that the very first diary note the Bank Manager made on the Horticultural Contact account also records that the account was opened for the brokerage of plants. That diary note, of 17 April 1986, is set out in [50]. [59] To summarise, this memorandum would not have given the Burns and their advisers any information that they did not already have for the purposes of the DC proceeding. Its non-discovery can have no bearing on the Burns's decision to settle.Horticultural Contact terms of trade[60] The evidence of Mr Ferguson and Mr McKenzie as to the effect of the Horticultural Contact terms of trade, had they been discovered, was diametrically opposed. Mr Ferguson believed he could have used the Horticultural Contact terms to strengthen the Bank's case. Mr McKenzie deposed that the terms "would have significantly strengthened the Burns's case". [61] Mr Ferguson's points were these:a) The contractual documentation between the Burns and Horticultural Contact showed a sale, not an agency. The terms of a different transaction between Horticultural Contact and its customer could not alter the sale contract between the Burns and Horticultural Contact. b) The fact that there were two separate sets of terms showed there were two separate transactions – two sales. Had Horticultural Contact been acting as brokers for the Burns, there would have been only one transaction, between the Burns and the purchasing orchard. c) There is no reference in the Horticultural Contact terms that it is selling as an agent or on behalf of the Burns or any other nurserymen. d) If Horticultural Contact was acting as broker, it could be expected that its terms of supply to its customers would be identical to the Burns's terms of supply. It would be very odd for a broker to change its principal's terms of supply, particularly without the principal's consent. Mr Ferguson set out in his evidence, in tabular form, the differences between the Burns's terms of trade, and those of Horticultural Contact. [62] In his evidence in chief, Mr McKenzie deposed that the Burns would have been able to point out that their terms of trade when matched with those of Horticultural Contact in relation to its supply to purchasers "were not inconsistent with the transaction being conducted by Horticultural Contact as a broker". Mr McKenzie was closely cross-examined about this. The following exchange occurred during that cross-examination:Q. I suggest that all of the terms you have relied on are at least equally consistent with a sale by Horticultural Contact to the purchaser? A. If this contract were read in isolation from the background circumstances it could be read possibly in that way. But what I am suggesting to you is that the form indicates that it could be used consistently with the brokerage or intermediary nature of the relationship. Q. You say it is consistent. You don't say that it actually shows the brokerage?A. No, as I said earlier, the word 'broker' is not used. That relationship arises from the representations that were made and which need to be looked at as part of the total arrangements between the parties. This order form can be read consistently with that.[63] Having re-read Mr McKenzie's evidence about the Horticultural Contact terms of trade, I consider its gist is that the terms were consistent with Horticultural Contact acting as a broker, although they do not actually state that it was, or tend to establish that it was. [64] On that basis, I cannot accept that discovery of the terms would have influenced the Burns not to settle. That is as far as I need to go. Had I needed to go further, I think it likely that I would have found Mr Ferguson's points about the terms more persuasive than Mr McKenzie's.Bank Manager's diary notes of 11 November 1992 and 25 and 26 March 1993[65] My view that these three diary notes were privileged has the consequence that discovery of them could not have influenced the Burns's decision to settle. Even had these diary notes been openly discovered, as they apparently were in theWalkers Nurseries proceeding, I do not consider they add in any material way to the knowledge the Burns and their legal advisers had. I have already drawn attention to the Bank's admissions in paragraph 6 of its statement of defence to the Burns's second amended statement of claim. Further, shortly after the two March 1993 file notes, Mr Ferguson, on 3 may 1993, wrote to the Burns's solicitor, Mr Smith. He advised that, as a consequence of his opinion to the Bank, the Bank considered it had no liability to the Burns in respect of the operation of the account of Horticultural Contact. The letter continues:So that you might properly consider the matter, we are further instructed to advise you that the Bank's records reveal that the account was opened on 17 April 1986 and that you are correct in your assertion that at that point in time, it was to be used for the brokerage of plants. That account operated until about 31 March 1988. Thereafter a Company called "Horticultural Contact" was incorporated. A Debenture was granted to the Bank over its assets in exchange for advances and it dealt with its customers on a debtor and creditor basis with no indication to the Bank that the Brokerage business continued. Those matters are reflected in Mr Sewell's Affidavit of which you apparently have a copy. The detail of the change in the accountstructure was not necessary for that Affidavit because it was designed for other purposes in matrimonial property proceedings. During the period from 17 April 1986 to 31 March 1988 the account operated in credit at the direction of the Bank. On two or three occasions during that period, small overdrafts appeared, (a maximum of $5,800.00 for a brief period on one occasion) but at the Bank's insistence, the account was brought back into credit. Bearing in mind the sums of money involved in your client's claim, it is perfectly apparent that if the monies from the sale of your client's nursery trees were received into the account at all, then those monies were utilised by Messrs Bush and Radburnd for their own purposes and not uplifted by the Bank. In the circumstances therefore, the Bank does not believe that there is any cause of action against the Bank at all and there are therefore no grounds to require the Bank to disclose the Manager's notes or any other banking records.[66] For completeness, I add two further points. The first is that these three diary notes were made by Mr Spittle, who had taken over as Manager of the Bank's Hastings Branch only from 20 January 1992. Mr Spittle had not been involved in the operation of the Horticultural Contact account. He had no personal knowledge of Horticultural Contact or Messrs Bush or Radburnd during the period material to this proceeding. [67] The second point relates to the considerable amount of evidence I heard about the way in which the Bank had kept two sets of the Branch Manager's diary notes, one held by the Branch Manager, the other by the Branch staff. It was explained to me how one or the other of those sets of file notes occasionally became lost, and how the other set was then used to recreate or up-date the other set. That procedure occasionally resulted in the two sets of notes not being identical in all respects. This evidence was adduced as a response to suggestions by the Burns of deliberate concealment and/or destruction by the Bank of documents relevant to this proceeding. I see no need to go into the detail of that evidence. Suffice it to say that I found it credible. I do not accept that discovery of these three file notes without a claim to privilege, or discovery of different versions of the same pages of the Bank Manager's diary notes, would have enabled Mr McKenzie to persuade the Judge to infer that the Bank had deliberately altered relevant diary notes, or deliberately destroyed or mislaid other documentation, in order to conceal information prejudicialto the Bank. Had suggestions of that type been put to Mr Sewell or other Bank witnesses, I think it likely that the Bank would have sought leave to call evidence of the type I heard. Upon that evidence, I do not consider that the Judge would have drawn inferences adverse to the Bank.Documents relating to Mr Bush personally[68] I accept Mr McKenzie's evidence that he could have used the Bank Manager's diary notes on the TK Bush and Intercol accounts to good effect in challenging Mr Sewell's credibility generally. The use made of them by the plaintiff's counsel in the Walkers Nurseries proceeding demonstrates that. [69] The critical issue for the Burns was the brokerage one. They needed to establish that Horticultural Contact had received "their" money as their broker i.e. their agent, with a corresponding duty to account to them. By "their" money I refer to the money paid to Horticultural Contact by the orchardists to whom Horticultural Contact sold the trees which had been supplied by the Burns to Horticultural Contact. [70] As I have explained, Mr McKenzie had a copy of Mr Sewell's proposed brief of evidence in the DC proceeding. Briefs had been exchanged pre-hearing, in the usual way. Mr Sewell's brief indicated that he was going to say that, while the Horticultural Contact's account was opened as a brokerage one, by the end of 1986 it had become an ordinary trading account. In other words, Horticultural Contact was dealing with its nurserymen suppliers and its orchardist customers on a debtor/creditor basis. [71] Mr Chan put it to Mr McKenzie that he had plenty of ammunition to challenge that. Mr Chan's main points were these: a) The affidavit Mr Sewell had sworn on 7 December 1988 in the Bush v Bush Family Court proceeding indicated that the Horticultural Contact account changed from a brokerage account to a debtor/creditor account only in April 1988. See further [58] above.b) The letter Mr Ferguson wrote Mr Smith on 3 May 1993 confirmed that the Horticultural Contact account operated as a brokerage account from the time it was opened on 17 April 1986 "until about 31 March 1988". See [65] above. c) The Bank had no diary note, nor anything else in writing, recording the change in the nature of the Horticultural Contact account in the latter part of 1986, which Mr Sewell was to depose had occurred. d) The Bank Manager's diary notes throughout the material period recording on numerous occasions that the Bank was aware monies were being transferred from Horticultural Contact's account to the Fruit Tree Nursery account, or other accounts under the control of Messrs Bush and Radburnd, and recording also that the Bank was closely monitoring the accounts, particularly the Fruit Tree Nursery account which was heavily overdrawn. [72] Having traversed all these matters, Mr Chan put this question to Mr McKenzie:In the light of all that I suggest that you had a very powerful case that the account remained a brokerage account, that the Bank Manager knew that, and that he knew about the funds being transferred out of the account – do you agree?[73] Mr McKenzie's lengthy answer concluded thus:Given the approach that Judge Hole took to the case, in my view focusing very narrowly on Mr Burns' terms of contract, I believe that a different complexion could have been given to the Judge had the additional material been discovered to me and Mr Burns to refer to for the reason particularly that they provided the opportunity to persuade the Court that the Bank Manager and client viewed the account as a special account, not simply an account without an overdraft that had to be brought back into credit, but an account that monies ought not to have been taken from for other purposes of Bush and Radburnd and the undiscovered documents show and provide the opportunity for showing a level of complicity between the Manager and at least Mr Radburnd [74] In that answer Mr McKenzie is focusing on the knowledge issue. I agree with Mr Chan that the points he put to Mr McKenzie comprise a substantial arsenalwhich was available to Mr McKenzie to challenge Mr Sewell, in particular his claim that the Horticultural Contact account had changed from a brokerage account to an ordinary trading account in the latter part of 1986. But, as Mr Ferguson pointed out in his evidence, none of that was relevant to the Judge's view, expressed on the evidence he had heard, that the Burns had dealt with Horticultural Contact on a debtor/creditor and not brokerage (principal/agent) basis. [75] I do not accept that discovery of documents in this category would have influenced the Burns's decision to settle.Documents relating to the Bank's caveat over Mr Bush's "Falcon Ridge" property[76] Like the documents in the previous category, Mr McKenzie's point was that he could have used these documents generally to discredit Mr Sewell. Again, I accept that. But, for the reasons I gave in relation to documents in the previous category, I do not accept that discovery of these documents would have influenced the Burns's decision to settle. [77] A constant theme of Mr Crossland's submissions was to point to the use he was able to make as counsel for the plaintiffs of documents such as these which the Bank did discover in the Walkers Nurseries proceeding. It is therefore instructive to look at what Ellis J made of these documents. In [44] of his judgment, Ellis J stated:He (Mr Sewell) was relying on the sale of Bush securities to meet the debt and was anxious to perfect them.[78] That is the only reference Ellis J made to the Bank's caveat and its apparent lack of a proper legal basis. Ellis J's treatment of the criticisms Messrs Walker and Burns made of Mr Sewell in the Walkers Nurseries proceeding is captured in the following passage in the judgment:Collateral evidence[25] Mr Walker and Mr Burns (who also gave evidence before me) were highly critical of the Bank and Mr Sewell in particular. Apart from matters I do refer to, I do not consider it necessary to set out the listed complaints or resolve them.Horticultural Contact account mandates or signatory forms[79] As I noted in [45], Mr Burns did not explain why he regarded these documents as important. Of their very nature, as I understand it, I do not regard them as important or relevant. It follows that I do not consider discovery of them would have influenced the Burns' decision to settle.The documents taken together[80] I consider now the combined effect of the eight categories of documents. For the reasons I have given, I do not regard the 1992/1993 Bank Manager's diary notes (made by Mr Spittle) as of any force, even if discoverable, and I am unable to understand, and thus to accept, the importance claimed for the Horticultural Contact account mandates or signatory forms. [81] The other categories of documents all go to the knowledge of the Bank, and in particular of Mr Sewell, at material times, about the nature of the Horticultural Contact account. For the reasons I have given, I consider Mr McKenzie had available plenty of documentary material to challenge Mr Sewell's proposed evidence about that. But none of that material dealt with the primary or threshold issue: did the Burns deal with Horticultural Contact as their broker or agent? As both counsel accepted, the "label" attached by a Bank to an account is not determinative of the basis on which funds in that account are held. Trust funds can be held in an ordinary account, and non-trust funds in a trust account. I am left quite unpersuaded that discovery of the documents in issue would have made any difference to the Burns's decision to settle. [82] Even if that were not the position, and I had held that the undiscovered documents may have influenced the Burns's decision to settle, I would not have held that the Bank, by not discovering documents, intended to induce the Burns to settle. Such an intention is one of the elements of the Burns's cause of action under the Contractual Remedies Act: Savill v NZI Finance Ltd [1990] 3 NZLR 135 at 145 (CA). In [56]-[57] and [67] above, I dealt with the Burns's suggestion that the Bankdeliberately concealed and/or destroyed potentially relevant documents. I rejected Mr Crossland's submission that full discovery, including the Bank listing potentially relevant documents it had lost or destroyed, would have led to the Judge in the DC proceeding inferring deliberate concealment or destruction. That would have been a step toward the Burns establishing that the Bank intended, by failing to make proper discovery, to induce them to settle. I accept Mr Chan's submission that there is no evidence of such an intention. [83] My conclusion on this second aspect, inducement, accords with the comments, necessarily tentative, of the Court of Appeal in Burns v National Bank of New Zealand Ltd:[19] In our view it is clearly arguable that settlement on those terms would have taken place in any event. The claim in the District Court had been run on the basis that the Horticultural Contact account was a brokerage account. There was, however, evidence to show that in fact it was operated on a debtor/creditor basis. None of the documents referred to by Mr McKenzie in his affidavit, nor the other documents referred to us by Mr Crossland, support the proposition that the account was operated as a brokerage account. At most the documents show that the bank may have thought at various times that the account was a brokerage account. This would be beside the point if it were not in fact a brokerage account. [20] It is true, as Mr Crossland submitted, that contractual debts and equitable obligations can co-exist but that does not appear to be the basis upon which the case was run in the District Court. Nor do any of the documents relate to this question. The documents may show that, if there were such equitable obligations and the bank was aware of these, then the bank knew those obligations were being breached, but this was, arguably, accepted by the bank in its statement of defence. The documents do not, however, relate (at least directly) to whether such obligations existed. We observe in passing that, in this regard, the Walkers Nurseries case, referred to above at para [8], appears to differ in a number of material respects from this case, at least on the current state of the evidence. In particular, in that case a separate trust account had been opened, albeit never used.[84] As the Court of Appeal points out in [20], the Burns's case in the DC proceeding was that they supplied fruit trees to Horticultural Contact as their broker or agent. Consequently, Horticultural Contact had a duty to account to the Burns for the proceeds of the on-supply of those trees by Horticultural Contact to orchardists. This was the basis for the Burns's claim that the Bank, knowing of those arrangements, held the relevant monies as constructive trustee. Mr Burns' evidence before me, as did his evidence in the DC proceeding, pointed to the Burns selling thetrees to Horticultural Contact, and Horticultural Contact buying them from the Burns. As Mr Chan pointed out, agent and buyer are mutually exclusive: a person cannot be acting as agent if he is a buyer from his alleged principal. Sale is a commercially adverse relationship whereas agency involves a fiduciary relationship of trust and confidence: Bowstead & Reynolds on Agency 17th Edition 2001 para 1- 032, p23.Relief: if discovery of the documents in issue would have affected the Burns's attitude to settling the DC proceeding, what if any relief should be granted to them?[85] I have held that some of the documents in issue were discoverable and that some were not. Even if all were discoverable, I have held that they would not have influenced the Burns's decision to settle the DC proceeding. [86] It follows that the issue of relief does not need to be decided. [87] Had I been satisfied that documents which the Bank failed to discover may have influenced the Burns's decision to settle, then I would have been inclined to set aside the settlement agreement. In that event, the Burns would have been entitled to the benefit of the undiscovered documents in pleading, preparing for, and conducting the DC proceeding. I would have made directions accordingly. I note that Mr Crossland advised me that the Burns would have sought a transfer of the proceeding to the High Court.The aftermath of the 22 October 1996 settlement[88] I am under no illusion as to the Burns's abiding sense of grievance that a year or more of their hard work as nurserymen in growing young fruit trees went unpaid, and that the Bank (at least on the Burns's view) got "their" money. To varying degrees, that sense of grievance is shared by the thousands of New Zealanders who supply goods or services each year and then do not get paid.[89] In the Burns's case, that sense of grievance has been deepened by the subsequent success of Walkers Nurseries Ltd in suing the Bank. A factor still further sharpening the Burns's sense of grievance is their belief that Walkers Nurseries Ltd succeeded with the benefit of documents that the Bank ought to have discovered to the Burns, but did not. Those matters are the genesis of this proceeding. [90] I think the Burns must accept that Walkers Nurseries Ltd dealt with Horticultural Contact on a different basis than did the Burns. I identify, as the critical differences: a) The deletion by Walkers Nurseries Ltd from their standard terms of trade of the requirements for a 10% deposit, payment by the 20 th of the month following, and for penalty interest. In other words, Walkers Nurseries supplied its fruit trees to Horticultural Contact on the basis of what Ellis J described as "a modified standard form". b) Mr Walker insisted on a "separate trust account" for receipt of the proceeds of fruit trees his company supplied to Horticultural Contact. A letter dated 7 July 1987 stating that "payment is as per terms and conditions of the trust account to be adhered to strictly" was accepted and endorsed by Mr Bush for Horticultural Contact. This is the difference referred to by the Court of Appeal in paragraph [20] of its judgment (cited in [83] above). [91] The Burns's dealings with Horticultural Contact had none of these features. In particular, the Burns quite specifically sold to Horticultural Contact on the basis of their terms and conditions of sale which included a 10% deposit, payment by the 20 thof the month following dispatch, and interest at 3% per month on any amount remaining unpaid. The Burns received a deposit, in the form of Nashi rootstock to a value of $10,450 (against a deposit due of $13,299.26). When Horticultural Contact did not pay them by the 20 th of the month following dispatch, the Burns charged Horticultural Contact interest at 3% per month. This rate was presumably the basis for the Burns's claim against the Bank in the DC proceeding for "interest at commercial rates from 20 September 1987 to the date of judgment".[92] In short, the stark reality is that the Burns did not deal with the Bank on the same basis as did Walkers Nurseries Ltd. Suggestions to the contrary in the judgment of Ellis J, for example in [23], are unfortunate because the cases of other nurserymen who dealt with Horticultural Contact were not before the Judge.Result[93] None of the Burns's three causes of action succeeds. Their proceeding is accordingly dismissed. [94] The Bank is entitled to its costs of this proceeding against the Burns. Failing agreement, I will fix those costs having received memoranda.Solicitors: Stace Hammond, Hamilton for the Plaintiffs Minter Ellison Rudd Watts, Wellington for the Defendant