HOWARD TRADING AUCKLAND LIMITED AND ANOR V NISSAN NEW ZEALAND LIMITED HC AK CIV-2009-404-003111

HOWARD TRADING AUCKLAND LIMITED AND ANOR V NISSAN NEW ZEALAND LIMITED HC AK CIV-2009-404-003111 16 March 2010IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY CIV-2009-404-003111BETWEEN HOWARD TRADING AUCKLAND LIMITED First Plaintiff AND HOWARD PROPERTY LIMITED Second Plaintiff AND NISSAN NEW ZEALAND LIMITED Defendant Hearing: 16 March 2010 Appearances: B Gustafson for Plaintiffs D G Hurd and L Smit for Defendant Judgment: 16 March 2010ORAL JUDGMENT OF VENNING JSolicitors: Macky Roberton, Auckland Dawson Harford & Partners, Auckland Copy to: B Gustafson, Auckland D G Hurd, AucklandIntroduction[1] The parties to this case have a fixture in this Court for two weeks starting 24 May 2010. The plaintiffs seek leave to file a second amended statement of claim and also seek further and better discovery from the defendant. [2] The parties have resolved most of the issues between them. I grant leave, without opposition, to file the second amended statement of claim, that to be filed by Friday 19 March 2010. If there is any change in form to the document already served in anticipation the amended document is to be served otherwise there is no need to serve a further copy. I also record that the further discovery sought at 1(a) to (c) inclusive of the application has been resolved between the parties so that no orders are sought from the Court in relation to that aspect of the application. [3] The one remaining issue is the request for discovery of documentation said to be in the power of possession of Nissan Japan and/or Shinya Hannya relating to the Howard Group, the occupational subsidy agreement (OSA) and the loan of $1.2 million.Background[4] The first plaintiff, HTA, operates a car dealership from premises in Newmarket. The second plaintiff, HPL, is a property owning company. It owns the premises at Newmarket that HTA trades from. HTA and HPL, together with other related companies form the Howard Group, a group of companies controlled by Mr Tony Howard. The defendant, Nissan New Zealand, is the New Zealand importer of new Nissan vehicles from Japan and the franchisor of all New Zealand Nissan dealerships. [5] In 2005 the parties agreed HTA would become a franchise dealer for Nissan New Zealand at two premises in Auckland, one at Newmarket and the other in South Auckland. The plaintiffs say that to maintain continuity Nissan New Zealand required HTA to operate the Newmarket operation from the same premises used by the previous franchise holder. That meant HPL had to agree to buy the existingpremises from the previous franchisee. The previous franchisee demanded a price of $5.7 million for the property. HPL's advice was the market value was no more than $4.5 million. The plaintiffs say that Nissan New Zealand agreed to effectively reimburse the $1.2 million premium paid by HPL for the property by a number of annual instalments over five years, subject to mutually agreed performance criteria. It was accepted the payments would cease if the plaintiff HTA did not remain the primary Nissan New Zealand dealership. Nissan New Zealand took a second ranking mortgage to secure its interest. [6] The plaintiffs say that HPL agreed to buy the property from the existing franchisee and that HTA agreed to accept the franchise on the basis of representations made on behalf of Nissan New Zealand. [7] The plaintiffs plead, however that the formal agreements later presented by Nissan New Zealand, after HPL was committed to the purchase of the property at Newmarket, did not reflect the earlier agreements. Of particular concern to the Howard Group was the OSA, which was intended to achieve the gifting of the shortfall of $1.2 million to the Howard Group. The plaintiffs allege the arrangements did not reflect the previous agreement. [8] Difficulties also arose later between the parties about HTA's performance under the franchise agreement. During the course of the parties' relationship the plaintiffs say Nissan New Zealand unilaterally revised the performance criteria. On 20 August 2008 Nissan New Zealand advised that because HTA had not met the performance provisions of the franchise agreement the subsidy due on 31 August 2008 would not be paid. Without the subsidy, HPL did not meet its obligations under the mortgage and Nissan New Zealand subsequently issued a Property Law Act notice, relying on its powers as mortgagee. HTA denies any breach by it of the performance agreement and says that the purported revised sale targets fixed by Nissan for HTA were unreasonable and unenforceable. [9] In their amended claim the plaintiffs seek inter alia injunctions and/or damages for breach of contract in the sum of $1.2 million.The application[10] Discovery is sought of the documents in the power and possession of Nissan Japan and/or Mr Shinya Hannya relating to the Howard Group, the OSA and the loan of $1.2 million by Nissan New Zealand to HPL. Nissan Japan is the parent company of Nissan New Zealand. Mr Hannya is a director of both Nissan New Zealand and Nissan Japan.The basis for the application[11] The application is made pursuant to rr 8.19 and 8.24. Rule 8.24 reads:Order for particular discovery against party after proceeding commencedIf at any stage of the proceeding it appears to a Judge, from evidence or from the nature or circumstances of the case or from any document filed in the proceeding, that there are grounds for believing that a party has not discovered 1 or more documents or a group of documents that should have been discovered, the Judge may order that party— (a) to file an affidavit stating— (i) whether the documents are or have been in the party's control; and (ii) if they have been but are no longer in the party's control, the party's best knowledge and belief as to when the documents ceased to be in the party's control, and who now has control of them; and (b) to serve the affidavit on any other party.[12] Control is defined as:control, in relation to a document, means— (a) possession of the document; or (b) a right to possess the document; or (c) a right, otherwise than under these rules, to inspect or copy the document[13] The obligation to discover under r 8.24 is to discover documents that are or have been in the respondent's control. [14] The determinative issue under that rule is whether it can be said the documents that are sought, namely documents of Mr Hannya and Nissan Japan are documents in Nissan New Zealand's control. [15] There is no suggestion on the evidence that Nissan New Zealand has possession of the relevant documents. Logically there is no basis for them to have possession of such documents as they are the documents of Nissan Japan or of Mr Hannya. To the extent that Nissan New Zealand has sent and received correspondence or emails to Nissan Japan on issues relating to these proceedings, those documents and emails have been discovered, and indeed are attached to the affidavit of Mr Howard in support of this application. During the course of submissions Mr Gustafson noted the application was directed at Nissan Japan's internal documentation and memoranda relating to the matters in issue. [16] Given the definition of control the documents held by Mr Hannya that would be discoverable by Nissan New Zealand are documents held by him as a director of that company. I understand it is accepted those documents have been discovered. Documents held by Mr Hannya in his personal capacity or as a director of other companies, including Nissan Japan, are not documents within the control of Nissan New Zealand in that they would have no rights to possess, inspect or copy such documents held by Mr Hannya. Further, Mr Manley, the managing director of Nissan New Zealand, has recently filed an affidavit. In it he deposes as to conversations with Mr Hannya and I understand on the basis of that, that the applicant no longer pursues the application against Mr Hannya personally. [17] Returning to the application in relation to Nissan Japan, the right to possession and the right to inspect or copy incorporate a concept of control by or legal right existing in the party from whom discovery is sought. It will be a question of fact in each case whether the documents of a subsidiary (or in the present case the parent company) can be said to be within the power of the parent or subsidiary or related company.[18] Prima facie, given that Nissan New Zealand is a wholly owned subsidiary of Nissan Japan there is no apparent basis upon which it, as a subsidiary, would have the right to possession or the right to inspect or copy documents held by its parent company. In this context the leading authority on the common law concepts of possession, custody or power of Lonrho Ltd v Shell Petroleum Ltd is still applicable. 1In that case the issue was whether documents in the possession of subsidiary companies were in the power of the parent companies for the purposes of discovery obligations under the then High Court Rules. [19] As Lord Diplock said in Lonrho:2For the reasons already indicated Shell Mocambique's documents are not in my opinion within the "power" of either of Shell or B.P. within the meaning of R.S.C., Ord. 24. They could only be brought within their power either (1) by their taking steps to alter the articles of association of Consolidated and procuring Consolidated through its own board of directors to take steps to alter the articles of association of Shell Mocambique, which Order 24 does not require them to do; or (2) by obtaining the voluntary consent of the board of Shell Mocambique to let them take copies of the documents. It may well be that such consent could be obtained; but Shell and B.P. are not required by Order 24 to seek it, any more than a natural person is obliged to ask a close relative or anyone else who is a stranger to the suit to provide him with copies of documents in the ownership and possession of that other person, however likely he might be to comply voluntarily with the request if it were made.[20] There is no evidence in the present case of Nissan New Zealand having power to require Nissan Japan to allow it to have the documents or to inspect or copy them. It is not in a position of authority with Nissan Japan. To the contrary, it is unlikely that a subsidiary in the position of Nissan New Zealand would be in such a position of control. [21] Despite that, Mr Gustafson urged the Court that an order should be made requiring Nissan New Zealand to make all reasonable inquiries and efforts to obtain relevant documents from Nissan Japan by requesting that company to disclose them. In doing so he relied on comments of Potter J in the decision of Inverness Medical Switzerland GMBH v MDS Diagnostics Limited and two Australian authorities:1 Lonrho Ltd v Shell Petroleum Ltd [1980] 1 WLR 627.2 Lonrho Ltd v Shell Petroleum Co Ltd [1980] 1 WLR 627 at p 636F.Gambro Pty Ltd v Fresenius Medical Care Australia Pty Ltd3 and Sabre Corporation Pty Ltd v Russ Kalvin's Hair Care Company and Others.4 In theInverness Medical decision Potter J stated:5... in a commercial cause where there is a relationship pursuant to which the defendant may reasonably be expected to gain access to relevant documents, then the defendant should take all reasonable steps to obtain that documentation and to make discovery. Fairness and openness in the discovery process demands as much.[22] In support of that approach, Potter referred to the case of Palmdale Insurance Limited (In liquidation) v L Grollo & Co Pty Ltd, in which case the Supreme Court of Victoria held the Court had power, when dealing with a commercial cause, to direct a party to take steps to obtain access to and discover documents which that party had lodged with a public authority where there is a real likelihood that it would be given access to the documents upon request.6 But in Palmdale Insurance Limitedthe underlying jurisdiction was s 23 of the Federal Court of Australia Act 1976 (Cth) which provides:The Court has power, in relation to matters in which it has jurisdiction, to make orders of such kinds, including interlocutory orders, and to issue, or direct the issue of, writs of such kinds, as the Court thinks appropriate.[23] Further, on the facts of Palmdale the order could well have come within the definition in subclause (c) of High Court Rule 1.3 of control, namely that the party from whom discovery was sought had a right to inspect or take copies of the documents in issue given they had been lodged with a public authority. [24] The other Australian authorities referred to by Mr Gustafson were, like theInverness case, intellectual property cases. They also made reference to s 23 of the Federal Court of Australia Act. In Sabra Corporation the respondents were seeking a number of orders to ensure the production of documents recording or constituting the ingredients and formulation and method of manufacture of certain hair products.3 Gambro Pty Ltd v Fresenius Medical Care Australia Pty Ltd [2002] FCA 581.4 Sabre Corporation Pty Ltd v Russ Kalvin's Hair Care Company and Others [1993] 46 FCR 428.5 Inverness Medical Switzerland GMBH v MDS Diagnostics Limited HC Auckland CIV-2007- 404-00748, 21 December 20076 Palmdale Insurance Limited (In liquidation) v L Grollo & Co Pty Ltd [1987] VR 113.The Court accepted that, by reference to s 23, there was jurisdiction to direct a party to take steps to obtain access to and discover documents which are in the possession, power or control of a third party where there was a real likelihood that the party to the proceeding to whom the order was to be directed would be given access to the documents upon request. I also note in that case jurisdiction for the order of the kind was conceded by the respondent party. Importantly, also in that case the Court found that there was a real likelihood that the party would be provided access to the relevant documents by the parent company should it request it. The Judge's view of that was strengthened by the provisions of the relevant distributorship agreement. [25] In Gambro Pty Ltd a similar order was made again in relation to research and development information held by a parent company. In Gambro the Court adopted the jurisdiction which was conceded in Sabre. In Gambro reference was also made to the case of Unilever PLC v Chefaro Proprietaries Ltd in which case Hoffman LJ expressed the view that in principle discovery of research and development documents should be available against a multinational corporation on a group basis. [26] In that case, Unilever v Chefaro Hoffman LJ noted that the limitations of the rules relating to discovery may lead to an injustice where companies in the same group are effectively involved in running a joint business 7 . Despite that, the Court of Appeal concluded that there was no jurisdiction for the order for further and better discovery sought in that case. As noted, where orders of the nature sought by the plaintiffs in this case have been made, they seem to have been made in cases involving intellectual property issues, where the parent company holds material relevant to the manufacturing process or formula in issue between the parties. The present case is of a different nature. Nissan Japan is likely to have created its own documents and records relating to the Nissan New Zealand's dealings with the plaintiffs for its own purposes. Nissan Japan may well have entirely proper reasons for not wanting its subsidiary Nissan New Zealand to see such documents.7 Unilever v Chefaro [1994] FSR 135 (CA).[27] With respect to the Inverness decision the Judge did not expressly refer to the terms of the rules relating to discovery nor identify the jurisdiction for the order made. [28] It may be that, taking a broad approach, Potter J considered the relationship between the parties in that case was such that there was a right on the part of the defendant to inspect or copy documents held by its related party. A broad approach may be appropriate if there is evidence of a prior or current practice of a party having access and inspection rights to the non-party's documents: Schlumberger Holdings Limited v Electromagentic Geoservices8 referred to in the case of Thunder Air Ltd v Hilmarsson,9 cases referred to in the White Book. In the Thunder Air case Patten J noted that for the outcome to be different to Lonrho there must be a situation in which the separate identity of the company could effectively be ignored. The Judge also observed that Schlumberger was a special case turning on its own facts. In the case of Schlumberger the claimants were required to disclose documents belonging to companies within the Schlumberger Group on the basis the documents were under their control. The Judge was prepared to make an order because the claimant had already included documents in the possession of those companies in its own lists and the evidence before the Court revealed that Schlumberger had enjoyed and continued to enjoy the co-operation and consent of the third party to inspect its documents and to take copies. That again could be regarded as equivalent to a situation where a party had a de facto right to inspect or take copies. In such a case the order would have been justified under our High Court Rules 18.24 and 1.3. [29] I return to the present application. The application before the Court was for an order directing discovery under r 8.24. In my judgment there is no jurisdiction for such an order in this case. The documents of Nissan Japan are not in the control of Nissan New Zealand. The only documents of Mr Hannya under the control are those relating to his position as a director of Nissan New Zealand. They have been discovered. As noted, the application is not pursued in relation to him in any event.8 Schlumberger Holdings Limited v Electromagentic Geoservices [2008] EWHC 56.9 Thunder Air Ltd v Hilmarsson [2008] EWHC 355 (Ch).[30] That then leaves the amended form of order now sought by the applicants, namely an order directing Nissan New Zealand to request Nissan Japan to make discovery. As noted there is no express jurisdiction for such an order. Counsel relies on the decision of Inverness as providing jurisdiction for such an order. For the reasons given it may be that the order in that case could be supported on a broad interpretation of the existing discovery rules. If jurisdiction exists for such an order outside the existing rules relating to discovery then it must arise from the Court's inherent jurisdiction to ensure the just and expeditious disposal of proceedings before it and the Court's authority to control its processes. As this issue of jurisdiction was not discussed in detail in counsels' submissions I take the matter no further. [31] But even accepting, for present purposes, that this Court has jurisdiction, inherent or otherwise, to make an order in the form sought by the plaintiffs, it is plain from the authorities relied on by Mr Gustafson that before making such an order the Court must be satisfied that there would be a real likelihood of the request being complied with were such a request made. Otherwise, there would be no point in making an order of the kind sought. Even the order contemplated by Potter J inInverness was on the basis that the respondent could be reasonably expected to gain access to the documents. [32] This Court will not make futile orders. Unless the Court can be satisfied there is a real likelihood the request would be complied with, the Court will not make an order. To do so would effectively be to set the respondent up to fail. It would be neither fair nor reasonable, under the threat of a sanction such as an unless order or a striking out or stay of the respondent's defence for non compliance, that a party in the position of the applicant could effectively obtain an order requiring discovery from an overseas non-party when there is no express jurisdiction in the rules to do so. [33] The difficulty that can arise with such orders is apparent from the subsequent decision in Gambro Pty Ltd v Fresenius Medical Care Australia Pty Ltd.10 After making the order requiring the respondent in that case to "take all reasonable steps10 Gambro Pty Ltd v Fresenius Medical Care Australia Pty Ltd [2002] FCA 1359.available it to obtain documents or copies" a request was made from the overseas principal for relevant documents for discovery. The request was denied. The Court took the view that in the circumstances all reasonable steps had not been taken but, despite that, declined to order a stay. In the course of that subsequent decision the Federal Court confirmed that it was not the law in Australia that documents in the possession of an overseas parent company can be said to be within the "control" of the subsidiary and further accepted that on the present state of law in Australia it was not open to the Court to pierce the corporate veil or treat the Australian subsidiary as part of an overall entity in order to compel discovery of overseas documents from the subsidiary. The Federal Court was then left in the position of, having made an order, finding as a matter of fact the order had not complied with, it had no effective sanction to impose. That again in my judgment is a further reason not to make the form of order sought. [34] Mr Gustafson submitted that there may be other remedies available short of stay including inviting the Court to draw an adverse inference from the failure of the parent to co-operate. That may be so but on the facts of this case Nissan New Zealand has already made a request of Nissan Japan that it provide Nissan New Zealand with documents in Nissan Japan's possession relating to the issues in the current litigation. The request was made because the applicant had asked for the documents and Nissan New Zealand anticipated it was possible the Court may order Nissan New Zealand to ask for them. Nissan Japan declined that request. To the extent that any adverse inference can be drawn from the refusal to provide the documentation the evidence is before the Court and the plaintiffs can rely on that evidence. [35] Mr Gustafson submitted that despite that refusal the Court should still make the order because the second amended statement of claim raised other issues which meant that Nissan Japan's reliance on the fact the documents were not relevant may no longer be applicable. He suggested the request should be renewed. I am not minded to accept that submission or accept that that would achieve anything further. On my reading of the letter from general counsel for Nissan Japan the principal reason Nissan Japan declined to co-operate or accede to the request was, as stated in the letter, that Nisan Japan is not a party to this litigation and is not obliged todivulge its documents either to Nissan New Zealand or to the plaintiffs. It was only after making that principled reason for declining to produce the documents that the general counsel then went on to question the issues of relevance as a further reason to refuse disclosure. [36] In my judgment a second request, with specific reference to the second amended statement of claim would not advance matters, because the principal reason given for the declining the request was Nissan Japan was not obliged to divulge the documents. [37] Nissan Japan is a quite separate entity to Nissan New Zealand. It has its own documents and records and purposes for preparing such documents. There is no evidence to suggest that Nissan New Zealand has had access to those documents and records or that Nissan Japan has made them available to them. The logic of the parties' relationship and the issues in this case would suggest the contrary. The matter is put beyond doubt by the letter from Nissan Japan's general counsel.Conclusion[38] The documents which the plaintiffs seek discovery of cannot be said to be within the control of Nissan New Zealand. There is no basis under the rules for the order sought. Nor is there any evidence of likely compliance if a more general order requiring Nissan New Zealand to request the documents from Nissan Japan were made. Indeed, the evidence is to the contrary. So even if there is any jurisdiction for an order of the Inverness nature a pre-condition of such an order, namely that the respondent could reasonably be expected to gain access to the relevant documents following such a request is not made out on the evidence. The application for further discovery is declined.Costs[39] In the circumstances the costs on this application will be costs in the cause to follow the outcome of the substantive proceeding.Timetable[40] The following timetable directions are to apply. a) Defendant's briefs in opposition to the plaintiffs' claim and supporting counterclaims to be served by 9 April 2010. b) Plaintiffs' briefs in reply to plaintiffs' claims and opposition to counterclaim to be served by 30 April 2010. c) Defendant's briefs in reply to counterclaim to be served by 14 May 2010. d) The plaintiffs will provide a draft index for the bundle by 30 April 2010. e) The defendant to advise the documents it requires in the bundle by 7 May 2010. f) Plaintiffs to provide a copy of the bundle by 14 May 2010. g) Plaintiffs' opening to be filed and served by 19 May 2010. __________________________ Venning J