FAIRLAWN FARMS LIMITED V CAFF INVESTISSEMENTS SA HC WHA CIV-2011-488-392

FAIRLAWN FARMS LIMITED V CAFF INVESTISSEMENTS SA HC WHA CIV-2011-488-392 [12 June 2012]IN THE HIGH COURT OF NEW ZEALANDWHANGAREI REGISTRYCIV-2011-488-392[2012] NZHC 1310BETWEEN FAIRLAWN FARMS LIMITEDPlaintiffAND CAFF INVESTISSEMENTS SADefendantHearing: 7 June 2012Counsel: R C Mark for PlaintiffC R Andrews for DefendantJudgment: 12 June 2012JUDGMENT OF ASSOCIATE JUDGE R M BELLonDiscovery applicationThis judgment was delivered by me on .... 12 June 2012 .... at ...11:00am...pursuant to Rule 11.5 of the High Court Rules....................................Registrar/Deputy RegistrarSolicitors:Richard Mark, P O Box 172 Kerikeri, for plaintiffEmail: rcmark@xtra.co.nzMcVeagh Fleming, P O Box 4099 Auckland 1140, for defendantEmail: candrews@mcveaghfleming.co.nz[1] On 7 June 2012 there was a telephone case management conference toaddress the defendant's request for further and better discovery. I did not require aformal application for discovery. In my minute of 30 April 2012, I gave directions for memoranda on the issue to be filed. While there was some slippage with complying with the timetable, both parties have filed memoranda and I have been able to consider the issues.[2] The defendant seeks copies of the plaintiff's financial statements from 2002.It says that the documents are relevant either on a Peruvian Guano trail of inquiry test or as documents adverse to the plaintiff under r 8.7.[3] The proceeding arises out of the parties' investment in Fromage du Nord Ltd, a company established in Kaitaia to make cheese and export it to New Caledonia. The plaintiff and the defendant each owned 40 shares in the company. A cheesemaker, Jean Luc Danquigny, held the remaining 20 shares. Fromage du Nord Ltd borrowed from Rabobank. Guarantees were given by the plaintiff, Mr Reid a director of the plaintiff, M. Danquigny and by M. Henri Calonne, a director of the defendant. The defendant is an investment company in New Caledonia.[4] The initial Rabobank loan was $600,000. Rabobank increased the loan to $920,000 in 2003. Rabobank sought increased guarantees from all the guarantors. The plaintiff then sought an undertaking from the defendant that the defendant would accept liability for up to 50 per cent of the debt.[5] The defendant issued a document called a "lettre d'intention" under which itagreed to stand behind and support the term loan obligations up to a maximumamount of NZ$150,000. It later issued a further letter d'intention in January 2004 upto a limit of $400,000. Fromage du Nord Ltd ceased trading in 2007 and was unable to service the Rabobank loan. The plaintiff paid interest on the loan. Later, by a debt and security assignment deed of 28 July 2008, Rabobank assigned its interest in the loan and securities to the plaintiff. The plaintiff now claims against thedefendant under the undertakings given in the lettres d'intention. The case will turn to a large extent on the meaning and effect of the lettres d'intention.[6] The failure of Fromage du Nord Ltd, and the steps the plaintiff took consequential on that failure, are obviously relevant. Documents relevant to these matters are discoverable.[7] For this application, I apply the Peruvian Guano1 test of relevance. The application for further and better discovery was made under r 8.19. That rule is in the same terms as r 8.24 of the earlier version of part 8 of the High Court Rules. Under the old r 8.24, the court could order discovery of documents if they were relevant under the Peruvian Guano test. As the rule has changed only in number, but not in text, I assume that the same test for relevance applies under the new rule.[8] Under the Peruvian Guano test, I do not accept that the plaintiff's financialstatements can have any bearing on the issues in this case. Whether the plaintiff recorded its potential liability under the guarantee it gave Rabobank in its financial statements or not, and how it otherwise addressed the issues in this case in its financial statements, can have no bearing on the court's determination of the issues in this case or to any alleged trail of inquiry. An inquiry as to the plaintiff's internalrecording of its potential liability will lead nowhere.[9] I give a parallel example.[10] A creditor may take steps to recover a debt. For its own purposes, the creditor may have written the debt off in its own accounting records while still maintaining recovery proceedings. How the creditor has treated the debt in its own records is irrelevant to its rights to enforce its claim against the debtor. Even on thePeruvian Guano test, the debtor would not be able to obtain discovery directed at establishing whether the creditor had written off the debt in its own records. Such matters are simply not relevant, and cannot be the subject of an order under r 8.19.[11] Similarly, the way that the plaintiff has treated its obligations to Rabobank and its claim against the defendant in its internal records can have no bearing on thedetermination of the parties' rights in this proceeding. While I have applied the1 Compagnie Financiere et Commerciale du Pacifique v The Peruvian Guano Company(1882) 11 QBD 55.Peruvian Guano test, I would have reached the same conclusion on the adverse documents test.[12] I accordingly dismiss the defendant's application.[13] The plaintiff is entitled to costs on a 2B basis for preparing a memorandum for the conference and for taking part in the conference. If the parties cannot agree costs, they may address me on the issue at the summary judgment hearing.[14] For the discovery application, I read copies of the lettres d'intention attachedto the affidavit of M. Calonne. These are formal documents in the French languageand seem intended to have some legal effect. The parties' submissions suggest thatthey assume that the law governing these documents is New Zealand law. There may be an argument that the law governing these documents is the law of NewCaledonia. That question may be relevant to the defendant's summary judgmentapplication. I invite the parties to confer whether there is agreement as to the proper law governing these documents. If the parties are unable to agree, they may wish to submit at the summary judgment hearing as to the proper law governing the documents.[15] If it is found that the law of New Caledonia governs the documents, then the application of that law is a question of fact. It is likely to need expert evidence. If the resolution of the case requires the application of expert evidence as to foreign law, the defendant may wish to consider whether a summary judgment application is appropriate.[16] I have recorded these matters for the parties' consideration. If further directions are sought, I reserve leave for a telephone conference at short notice.____________________R M BellAssociate Judge