CHIEF EXECUTIVE OF THE DEPARTMENT OF CORRECTIONS v FUJITSU NEW ZEALAND LIMITED [2023] NZHC 1900

CHIEF EXECUTIVE OF THE DEPARTMENT OF CORRECTIONS v FUJITSU NEW ZEALAND LIMITED[2023] NZHC 1900 [20 July 2023]IN THE HIGH COURT OF NEW ZEALANDWELLINGTON REGISTRYI TE KŌTI MATUA O AOTEAROATE WHANGANUI-A-TARA ROHECIV-2021-485-423[2023] NZHC 1900BETWEEN HIS MAJESTY THE KING IN RIGHT OFNEW ZEALAND ACTING BY ANDTHROUGH THE CHIEF EXECUTIVE OFTHE DEPARTMENT OF CORRECTIONSPlaintiffAND FUJITSU NEW ZEALAND LIMITEDDefendantAND DASSAULT SYSTÈMES AUSTRALIAPTY LIMITEDThird PartyHearing: 19 July 2023Appearances: K J Dobbs for Department of CorrectionsC Elliott KC and M B Wigley for the DefendantC F Finlayson KC and J E Standage for the Third PartyJudgment: 20 July 2023JUDGMENT OF COOKE J(Application to strike out defence for discovery breaches)[1] In these proceedings the Department of Corrections (Corrections) sues FujitsuNew Zealand (Fujitsu). Corrections alleges misrepresentation, breach of the FairTrading Act 1986, and breach of contractual warranty in connection with the provisionof software services by Fujitsu. The provision of those services related to the rosteringof Corrections staff and existing payroll systems. Fujitsu in turn sues its sub-contractor, Dassault Systémes Australia Pty Ltd (Dassault), on the basis that Fujitsurelied on Dassault to provide the software which would be used to meet Corrections'needs. Fujitsu advances similar causes of action against Dassault. The trial isscheduled to take place before me over four weeks commencing 11 September 2023.[2] By application dated 3 April 2023, Fujitsu applies to strike out Dassault'sdefence to its claim and "debarring it from defending the claims". The basis of thatclaim is that Dassault breached r 8.3 of the High Court Rules 2016 by failing to takeall reasonable steps to preserve documents that were reasonably likely to bediscoverable in the proceedings. In particular, Dassault failed to ensure that emailcommunications of Dassault staff had not been deleted in accordance with Dassault'snormal business procedures, particularly when staff left Dassault's employment. Theapplication is opposed by Dassault notwithstanding its acceptance that r 8.3 wasbreached.Procedural shortcomings[3] Fujitsu's application was one of a list of applications concerning discovery,particulars, confidentiality, and other matters that were first scheduled for hearingbefore me on 7 and 8 June 2023. At the beginning of the June hearing, I observed thatmany of the issues were well capable of being resolved by further discussion betweencounsel, and that they did not warrant a judgment of the Court following a two dayfixture.1 I then heard argument on one of the issues (concerning confidentiality) beforeadjourning to allow such discussions to take place. As a result of those discussionsagreement was reached on the contested matters, including on the confidentialitymatter which had just been argued. This included agreed directions for the hearing ofFujitsu's strike out application which it still wished to pursue. That is the applicationthat has now been heard before me on 19 July 2023.[4] Shortly before the hearing of the strike out application, Dassault filed a lengthyfurther affidavit of over 50 pages (including exhibits). This caused Fujitsu to apply toadjourn the hearing the afternoon before it was due to occur. I declined thatadjournment indicating that I would consider an application for the Court to take intoaccount an affidavit not filed in accordance with the timetable at the hearing itself. Inaddition Fujitsu and Dassault had both failed to comply with the requirements of r 7.39concerning the page limit for their written submissions. Rule 7.39 provides that thesynopsis of argument for a defended interlocutory application must not exceed ten1 Most of the applications concerned discovery in relation to which there is an express duty ofcooperation under r 8.2 of the High Court Rules 2016.pages. Fujitsu's submissions were 28 pages, and Dassault's submissions were 17pages. I indicated that I would also address the failure to comply with r 7.39 at thehearing.[5] At the start of the hearing I declined leave for the affidavit filed by Dassault tobe taken into account, noting that Dassault could apply for leave for particularcorrespondence exhibited to the affidavit to be taken into account by the Court if, infact, it turned out to be relevant. In addition, I indicated that the point of the rules inrelation to submissions for interlocutory applications, including the page limit inr 7.39, was to ensure that such submissions are focused, and directed to the issues thattruly matter.[6] In those circumstances, and in the context of the background described above,I gave a direction that oral submissions from each of the parties could be no longerthan one hour each. That is the kind of direction that the Court should not hesitate tomake in appropriate cases to ensure that the object of the Rules as set out in r 1.2 ismet. As it happened senior counsel for both the relevant parties, who have both onlybeen recently instructed, were able to comfortably comply with this direction. Thehearing scheduled for a full day was then completed by the morning adjournment.Dassault's defaults[7] Rule 8.3 provides:8.3 Preservation of documents(1) As soon as a proceeding is reasonably contemplated, a party orprospective party must take all reasonable steps to preservedocuments that are, or are reasonably likely to be, discoverable in theproceeding.(2) Without limiting the generality of subclause (1), documents inelectronic form which are potentially discoverable must be preservedin readily retrievable form even if they would otherwise be deleted inthe ordinary course of business.[8] It is accepted that Dassault has breached its obligations under this rule.Moreover the breach does not arise from a single error, but arises as a consequence ofa series of failures. For Dassault, Mr Finlayson KC accepted that its compliance wasinadequate, and said that Dassault accepted the seriousness of the situation.[9] Litigation between the parties was in contemplation from 26 April 2019.Dassault claims litigation privilege for the proceedings from this time. From that pointsteps needed to be taken to ensure that relevant evidence was preserved, especially inthe case of electronic information.2 However, no steps were taken by Dassault topreserve documentation. Dassault's internal policies continued to operate, includingthe deletion of electronic information, especially email communications.[10] Joshua Khaw, Dassault's General Counsel for Australia and New Zealand, hassworn a series of affidavits seeking to explain the circumstances. He said that hepersonally made the first request to Dassault's Head Office in France for the retentionof all emails sent between all parties to the proceedings within specified date rangeson 9 October 2020. No explanation is provided in relation to the period from April2019 to October 2020. Mr Khaw says that this request was declined by Dassault'sHead Office for technical reasons due to its breadth. On 23 November 2020 hesubmitted a revised application. This was not approved by Head Office until14 October 2021, approximately a year later. No explanation has been provided byDassault for the failure for this further period. Moreover, Mr Khaw had usedDassault's billing records to identify the relevant employees whose emails needed tobe retained. Unfortunately, there were also other relevant employees who had workedon the project who had not recorded time on that system, and who were accordinglynot covered by the request.[11] It transpires that, particularly when employees left the employ of Dassault,their email information was deleted after a period of time in accordance with usualbusiness protocols. In addition, even when employees remained in Dassault's employtheir emails may have been deleted after a period of time as a result of data storagelimits. It is therefore clear that relevant emails will have been deleted as a consequenceof these, and other factors.2 See Gillian Coumbe "Discovery of 'inaccessible' e-documents" [2012] NZLJ 63 at 66.[12] Dassault has since made attempts to recover some of the deleted material, andthat has been possible to the extent that the information may have been saved on localservers, or on particular computers. In the case of some emails the information isavailable from other parties to the email exchanges. I accept that Dassault has beenmaking efforts to remedy the situation, and that further information has been providedas a consequence. Nonetheless, it seems likely that relevant documents will have beendestroyed and are not recoverable.[13] It is important to reiterate that the obligation not to destroy evidence relevantto an anticipated proceeding is an important one. Dassault's failures are multifaceted.It initially took no proper steps at all, and then when it identified that steps to preservedocuments should be taken the response was limited to a "request" to the Head Office.The preservation of documents is a legal obligation, not something for which the HeadOffice needed to grant permission. There was then an unexplained gap of a year beforethat request was acted upon, and even then it seems likely that emails were continuallydeleted as time passed. Moreover, there has not been adequate explanation of thereasons for Dassault's ongoing failures. These breaches are significant, and serious.Test to be applied[14] There is no express provision that regulates the consequences of a party'sfailure to meet the obligation in r 8.3, although r 8.33(1) provides that an order underpt 8 may be enforced under the Contempt of Court Act 2019. Rule 8.33(2) thenclarifies that r 8.33(1) does not limit or affect "any power or authority of the court topunish a person for not complying with a court order".[15] The jurisdiction of the Court accordingly arises under its inherent powers.Although it does not directly apply, I consider that the appropriate approach is to applyr 7.48(1) and (2), applicable to pt 7, by way of analogy. Rule 7.48 provides:7.48 Enforcement of interlocutory order(1) If a party (the party in default) fails to comply with an interlocutoryorder or any requirement imposed by or under subpart 1 of Part 7 (casemanagement), a Judge may, subject to any express provision of theserules, make any order that the Judge thinks just.(2) The Judge may, for example, order—(a) that any pleading of the party in default be struck out in wholeor in part:(b) that judgment be sealed:(c) that the proceeding be stayed in whole or in part:(d) that the party in default be fined, ordered to do communitywork, or committed to prison under section 16 of the Contemptof Court Act 2019:(e) if any property in dispute is in the possession or control of theparty in default, that the property be sequestered:(f) that any fund in dispute be paid into court:(g) the appointment of a receiver of any property or of any fund indispute.(3) An interlocutory order may only be enforced by the following (inaccordance with subpart 4 of Part 2 of the Contempt of Court Act2019):(a) an order imposing a fine or community work:(b) a warrant committing the person to prison:(c) a sequestration order.[16] Adopting this approach is consistent with the Court of Appeal's decision inKent Sing Trading Co Ltd v JNJ Holdings Ltd which addressed failures to comply withdiscovery obligations more generally.3 There the Court said:4The learned authors of Disclosure explain that, where there has been a failureto comply with a disclosure obligation, the court can intervene in order toensure a fair trial.5 The court has a broad range of orders it may make at itsdiscretion to enforce a party's obligations on disclosure, the three main optionsbeing:6(a) an extension of time within which the defaulting party must comply;(b) an extension of time under an unless or conditional order, spelling outthe consequences of the failure to comply, including a strike-out of thecase of the defaulting party; and(c) an immediate order striking out the statement of claim or defence of thedefaulting party.3 Kent Sing Trading Co Ltd v JNJ Holdings Ltd [2019] NZCA 388 at [42]–[48].4 At [43]–[44] (footnotes included).5 Paul Matthews and Hodge M Malek Disclosure (5th ed, Sweet and Maxwell, 2017) at [17.05].6 At [17.05]. Although the text relates to the rules in England and Wales, they are for all intents andpurposes the same as those applying in New Zealand.They say that a proceeding may only be struck out:7 where there has been a deliberate and continuing refusal to providedisclosure or where the default has made the fair trial of an actionimpossible or prevented the court from doing justice.[17] The Court also identified that the Court could draw adverse inferences fromthe destruction of documents at the trial when making factual findings.8[18] Mr Finlayson referred to Moody Kiddell and Partners Pty Ltd v Arkell whereJagot J, then of the Federal Court of Australia listed eight principles to be applied whenaddressing the consequences of a party so failing to meet discovery obligations.9 Iagree that this list of principles appears comprehensive and relevant. However, interms of the ultimate test the approach outlined in r 7.48(1), and by the Court ofAppeal, seems to me to be appropriate.Application in the present case[19] The application of the above principles to the present case means that Fujitsu'sapplication to strike out should be dismissed.[20] First, this is not a case of deliberate default. Rather it is a case of electronicdocumentation being destroyed in the ordinary course of business, and a failure byDassault's legal offices, and by Dassault itself, to take effective steps to prevent thatdestruction in accordance with its obligation. As I have said, the series of breachesare serious. However, this is not a case where Dassault has deliberately destroyedevidence. That does not prevent the Court from striking out a statement of defence,and making orders preventing a defendant from actively defending a case, but theCourt will only do so when the destruction of evidence has made it impossible forthere to be a fair trial.[21] The second point is that it is not possible for the Court to conclude that a fairtrial of the current claim is not possible at this interlocutory stage. Mr Elliott KCaddressed some of the internal Dassault emails that had been discovered to7 At [17.07].8 At [47]–[48] and [65].9 Moody Kiddell and Partners Pty Ltd v Arkell [2013] FCA 1066 at [25]–[26].demonstrate the type of material that would likely have been destroyed, and why itwas of significance. Nevertheless, the Court is not able to reach any firm conclusionson the significance of the material that has been deleted at this stage in this type ofcase. This case will involve a four week trial of some complexity. The material putforward is a small fraction of the evidential material that would be relevant at trial. Ido not have the evidence of the relevant witnesses at this stage. Attention was drawnto particular sentences in particular emails, but I am not aware of the context in whichthese emails were written. It would be inappropriate for the Court to purport to reachany firm conclusions about the implications of the material that has been deleted atthis stage, particularly in relation to a case that will undoubtedly have a degree oftechnical complexity. A Court would only strike out a defence in advance of trial inexceptional cases, and it is a power to be "exercised sparingly given the drastic natureof the remedy".10 I do not accept the submission from Mr Elliott that the burden shiftsto the defaulting party to prove a fair trial is possible. Given the drastic nature of astriking out order, and the right of access to the Court, the applicant must satisfy theCourt to the high standard required.[22] The third related point is that even on the basis of the information I have I amfar from convinced that it is impossible for there to be a fair trial on Fujitsu's claimagainst Dassault. That claim is essentially that Dassault misrepresented what itssoftware was capable of doing, which in turn led to Fujitsu making misrepresentationsto Corrections. The key evidential issues will be to identify the representations thatwere made about the software, and then establishing whether the representations weretrue. As to the first question, the nature of the representations appears reasonably clearas they were formulated in the contractual documentation passing betweenCorrections, Fujitsu, and Dassault. The internal emails of Dassault employees are notlikely to be relevant to identifying what the representations were. As to whether therepresentations were true, that is primarily to be derived by evidence of the actualcapabilities of the software and Corrections' requirements. This will no doubt beascertained by expert evidence, as well as some factual evidence about the capabilitiesof Dassault's software. I accept that the internal emails of Dassault employees will be10 Moody Kiddell, above n 9, at [26(2)]; citing Clark v State of New South Wales (2006) 66 NSWLR640; [2006] NSWSC 673 at [63] and [147]; and Palavi v Radio 2UE Sydney Pty Ltd [2011]NSWCA 264 at [93]–[95].of relevance to that question. But that relevance will only be indirect. The most directevidence of that question will be evidence of the performance capabilities of thesoftware itself. So, although the internal emails would be of assistance, I do not seewhy their absence means that a fair trial of Fujitsu's claims against Dassault isimpossible.[23] It is also relevant that Fujitsu's claims against Dassault will only arise if Fujitsuis liable to Corrections. I asked all counsel if they could identify a scenario in whichCorrections succeeded against Fujitsu, but Fujitsu did not then succeed againstDassault. Counsel were unable to do so, although Mr Finlayson did draw my attentionto the positive defences that Dassault had pleaded, such as a clause in the sub-contractsaid to prevent Fujitsu relying on its representations. But generally counsel acceptedthat Dassault's liability to Fujitsu would likely follow Fujitsu's liability to Corrections.In those circumstances, it is difficult to see how Fujitsu's claim against Dassault hasbeen prejudiced to the point of a fair trial being impossible. Dassault's liability islikely to follow as a matter of course. That point resulted in Mr Elliott arguing thatthe absence of the Dassault internal emails might prejudice Fujitsu's defence ofCorrections' claim — that is that the missing emails would assist in demonstrating thatDassault's software was capable of meeting the represented characteristics. That isthe opposite of the argument Fujitsu advanced in its written submissions, to the effectthat the internal emails would have evidenced an awareness by Dassault's employeesthat the representations were untrue. There is no evidence before me to suggest thatthe deleted emails would have assisted Fujitsu in advancing a claim that therepresentations were correct.[24] I also note that in its most recent pleading Fujitsu has added a new cause ofaction against Dassault – alleging that the deletion of the emails involved a breach ofcontract. Fujitsu relies on a particular contractual obligation that Dassault allegedlyhad to retain relevant information. Whilst I am presently unclear what Fujitsu'sremedy would be for a breach of this obligation it is relevant that Fujitsu contends thatit has a remedy for the deletion of the relevant emails.[25] The final point is that once the fuller extent of the relevance of any deleteddocumentation becomes apparent at trial, the Court can apply the normal evidentialprinciples associated with drawing adverse inferences. That was a point made by theCourt of Appeal in Kent Sing Trading Co Ltd v JNJ Holdings Ltd.11 This seems to meto be the most appropriate consequence for a party who has not deliberately destroyedevidence, but who has nevertheless committed a serious default, at least in this kindof case. In addition, were it to emerge at trial that the deletions were so serious thatDassault's defence effectively amounted to an abuse of process, the Court couldreconsider a strike out application.[26] Sensing that what the likely outcome of the application was going to be,Mr Elliott submitted that if the Court was not minded to grant Fujitsu's application itshould be adjourned and then dealt with at trial. I do not think that is the appropriatecourse. There is a danger that it would divert attention at the trial to allegations aboutparties failing to meet discovery obligations, which would not be appropriate even ifFujitsu is pursuing the new cause of action it has pleaded. The Court would only movefrom drawing adverse inferences to completely striking out a defence in exceptionalcircumstances. Mr Elliott relied on the decision of the English and Welsh High Courtin Active Media Services Inc v Burmester in this respect.12 But there Calver J said:13The Court must always consider, therefore, whether a fair trial is possible andto this end have regard to the defaulting party's rights of access to the Court,and whether the remedy of a strike out would be proportionate and fair in allthe circumstances of the case (which is much less likely in a case where thetrial has concluded and the Court is in a position to assess the effect of thedestruction of the documents and/or failure to call relevant witnesses), orwhether some other remedy will safeguard the position of the innocent party.Hollander suggests in paragraph 11-16 that "where the defaulting party hasbeen less than candid about the destruction exercise, the court may considerit cannot be sure exactly how widespread the destruction has been, and whatits effect will be, and thus may find it more difficult to reach a conclusion thata fair trial is still possible." I respectfully agree with that general sentimentbut in a case where the trial has concluded the position is, as I explain above,somewhat different. Indeed, it is for this reason no doubt that as Hollandergoes on to state: "it would be a very rare case in which, at the end of a trial,it would be appropriate for a judge to strike out a case rather than dismiss itin a judgment on the merits in the usual way". I agree.(emphases in original)11 Kent Sing Trading Co Ltd v JNJ Holdings Ltd, above n 3, at [47]–[48] and [65].12 Active Media Services Inc v Burmester [2021] EWHC 232.13 At [307]–[308], citing Hollander: Documentary Evidence (13th ed), Sweet & Maxwell Ltd,London, 2018.[27] For these reasons I do not adjourn the application.[28] The only matter that has troubled me is that when a party such as Dassault hasbreached its obligations under r 8.3 it should not be able to avoid adverseconsequences of the default. I am nevertheless satisfied that there are significantadverse consequences here even though Fujitsu's application will be dismissed. First,there is the reputational impact on Dassault, and indeed the Dassault personnel whoare responsible for the default. Secondly, the potential for the drawing of adverseinferences on a claim of financial significance, as well as the consequences of criticismof the party by the Court should not be underestimated. Finally, there is the potentialfor further consequences as to costs.[29] As to the final point, whilst Fujitsu has been unsuccessful it would not beappropriate to now award Dassault costs of the application. Given Dassault's defaultthe question of costs will be reserved to be determined in connection with theproceedings overall. Costs can then be addressed when the full circumstances of thecase, and the implications of the failures, are better known.[30] For these reasons the application is dismissed, and costs are reserved.Cooke JSolicitors:Bell Gully, Wellington for the PlaintiffWigley and Company, Wellington for the DefendantMinterEllisonRuddWatts, Auckland for the Third Party